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© 2024 N. Dean Meyer and Associates Inc.
Excerpt from www.NDMA.COM, © 2024 N. Dean Meyer and Associates Inc.

Shared Services

Use Case: Merger/Acquisition Integration, Shared-services Consolidations

how to bring organizations together methodically, with full integration and maximum synergies

by N. Dean Meyer

[excerpt from the book, How Organizations Should Work]

Shared Services

Mergers/acquisitions and shared-services consolidations have this in common: promised cost-savings and synergies depend on integrating the two organizations into one.

But those cost-savings and synergies are far from guaranteed. The way you go about the integration process is critical to gaining the intended benefits, retaining talent, and continuing operations without interruptions.


Just bringing the two organizations under a common leader does not, in itself, gain much. You'll have most of the same people delivering most of the same products and services to the same customers in much the same way.

"Acquisitions without integration would have made us bigger,
but would not have improved returns on capital. And we have to
cover the good-will through synergies, or we'd destroy value."
Sergio Paiz, CEO, PDC

Sure, you might get some minor cost savings by eliminating some redundancies, combining some vendor relationships, and gaining some economies of scale. But simply jamming two organizations together doesn't improve the way either works.

If you then try to extract cost savings, you'll simply reduce the quality and quantity of services that the combined organization delivers.

There are additional risks if you're not deliberate about the process:

  • Confusion among clients and staff, lost productivity

  • Missed commitments

  • Morale problems, turnover, lost talent and institutional knowledge

  • Lost value by forcing acquired staff into existing structures and processes (rather than tapping their strengths and knowledge)

  • Perceived failure due to expectations of benefits which are impossible to deliver in promised time frames

While a deliberate process of integration is essential, you must not dawdle. It's widely understand that acquisitions fail when the integration process takes too long. Customers are confused by separate sales forces. Employees are treated differently, and face unequal opportunities. And synergies in products and services, as well as support functions, are minimal.

Definition of Success (Objectives and Benchmarks)

On the other hand, a well-planned integration process can deliver all the promised benefits of an integrated organization, while minimizing the risks.

The combined organization will be capable of significantly higher levels of performance than any of its components. Beyond just the best of both, the integration process presents an opportunity for change that can be transformational.

The objectives of organizational integration (the benchmarks of success) include the following:

  • Build a single, integrated organization, designed to meet the needs of the entire client community (the customers of all component organizations).

  • Give each side access to all the resources, knowledge, and talent of the other (two-way synergies).

  • Adopt the best practices and tap the insights from both sides (best-of-breed).

  • Treat everyone fairly, and put the best talent in each job regardless of origins.

  • Minimize turnover, and motivate staff rather than chasing key talent away.

Integration Strategy: C-I-O

At the highest level, an effective integration strategy comprises the following three phases:

  1. Consolidate: Put the organizations together under a common boss, leaving their extant structures intact.

    Staff are moved into the organization. But groups are left intact during this phase, doing what they always did for their customers. Don't break anything!

    This gives one executive the legitimate authority to lead the combined team in an integration process.

    Note that at this phase, no savings or synergies are produced.

  2. Integrate: Integrate the organizations.

    The two groups are merged into an integrated organizational structure. Even in this phase, staff go on doing what they've been doing for their traditional customers.

    Even if savings are expected, it is important to go through this phase without headcount cuts, to build a safe environment for participation and to keep the organization running since cost savings and synergies have not yet been gained. In fact, there may be some loss of productivity until the dust settles.

  3. Optimize: Each manager optimizes their newly integrated group to produce synergies and cost savings.

It's not until the Optimize phase that the promised savings and synergies occur, typically many months after the initial consolidation. Any attempt to extract savings sooner (before the real productivity gains have been realized) leads to an under-resourced function that delivers a lower quality of service; fails altogether at serving some customers; and antagonizes staff and chases away people with critical institutional knowledge.

Obviously, this strategy requires patience; an effective process takes time. But the lower risk and greater benefits make it worthwhile.

1. The "Consolidate" Phase

In the case of a shared-services consolidation, the first challenge is to sort out which staff and assets are to be consolidated. Also, this is the time to document what level of service the consolidated organization is expected to deliver (SLAs and project contracts) in trade for those decentralized resources. Leaders must prevent hiding and holding, where recalcitrant business units may attempt to retain a portion of the function.

For both merger/acquisition integrations and shared-services consolidations, the rest of the process is the same.

When reporting lines are moved, at first, incoming staff should be placed in a safe home where they learn to feel part of the new organization. The two groups should continue to run independently for a little while, to calm everybody down and give them time to learn each other's operating model.

They should report to a leader who's job is to manage them through this and the Integrate phase, and then give them up in the integration process.

That temporary leader need not have any association with the groups that will ultimately incorporate the incoming group. It's just a matter of providing a safe home for a little while. In fact, it's better to choose a temporary leader who doesn't have a stake in the integration.

During this phase, staff are trained in the receiving organization's culture, structure, processes, and its internal economy.

Also, any necessary changes to employment status (and the HR database), financial systems (e.g., common chart of accounts), and other administrative tasks are done.

And throughout this phase, leaders must communicate, communicate, communicate! They should explain the strategic rationale, and answer all staff's questions honestly (most of which are about what's going to happen to them).

2. The "Integrate" Phase

In the Integrate phase, the organization charts and resources of the two organizations are merged.

In this phase, there are two distinct situations:

  • Tuck-in: the small organization is being absorbed into the larger one.

  • Build a new home together: the two organizations work together on a new combined structure.

In both situations, a principle-based approach really pays off. The Market Organization and the principles of structure can provide a basis for fact-based analysis, open collaboration, and maximum synergies.


If one organization is much larger than the other, a Tuck-in is the most common approach. In it, the larger organization (the "mothership") retains its structure, perhaps with minor modifications such as the addition of a few new groups. Leaders deconstruct incoming groups and put staff into the right receiving groups, based on their specialties and existing workloads.

The challenge is to accurately map the resources of the small organization into that preexisting structure. And to meet the benchmarks of success, that mapping should be principle-based, and done collaboratively by the leadership teams on both sides.

"Our organizational operating model is one of complete integration; everything is a shared service, to maximize specialization, economies of scale, and synergies.

Recently, we acquired a company in Peru. Due to the distance, some thought we'd have to set it up as an independent business unit, replicating many of our operations and support functions.

However, it's been impressive to see how all the functions in Peru integrated seamlessly with their centralized counterparts, and we're gaining all the synergies I'd hoped for when I bought that company."
Sergio Paiz, CEO, PDC

If the larger organization has already implemented a Principle-based Organizational Structure, then it's acquisition ready. Its organization chart is defined by the lines of business in each group. The mapping simply requires an analysis of the lines of business in the smaller organization -- the Rainbow Analysis.

If the larger organization is not acquisition-ready, then a fact-based mapping would require the Rainbow Analysis on both organizations. This takes a little bit more time, and it's not as clean. But it's still principle-based, and lends itself to open participation by the two leadership teams.

In either case, participation of the combined leadership team in the Rainbow Analysis has a lot of value.

  • Through their engagement, the best knowledge from those close to the work is contributed in these decisions.

  • It teaches leaders to think like entrepreneurs, and identifies the internal lines of business they'll be accountable for.

  • Involvement in the process is a powerful teambuilding experience that breaks down walls, builds working relationships, and generates commitment to the new organization -- all while accomplishing real work.

Build a New Home Together

If the two organizations are of roughly equal size, or if neither has been designed around internal lines of business, the Integrate phase presents an opportunity to work together on a new structure. As the old saying goes, "When a couple gets married, it's best not to move into his house or hers; they should build a new home together."

Beyond that, there's an opportunity to transform into a new, high-performing Market Organization. While the window for change is open, it's a great time to take the entire organization to the next level of performance.

Building a new home together takes time (although the time to the point where the merged organization is performing to desired levels may not be any longer).

That investment is justified by significant benefits:

  • It results in the optimal structure, incorporating the best both organizations have to offer. Each side has access to all the talent and resources of the other.

  • That new organization will perform at levels far beyond that of either former group. That is, the transformation into a Market Organization has tremendous value, even if it weren't needed for integration.

  • The new organization will be acquisition-ready, and future integrations will take much less time.

  • There's extraordinary teambuilding as the two leadership teams work together on the design of their new home.

In this situation, the combined leadership team designs the new organizational structure, starting with a "clean sheet of paper," using knowledge of the past but not the designs of the past.

Principle-based Approach

Book: Principle-based Organizational Structure

In either situation, the science of organizational structure is a powerful toolkit. It includes a framework of all the lines of business that exist within organizations -- an objective, neutral way to discuss organization charts.

For a Tuck-in, it provides an objective map that shows which groups belong together.

Alternatively, in the Build a New Home Together (clean-sheet-of-paper) approach, both the framework of lines of business and the principles of structural design are the basis for fact-based analysis and apolitical participation.

Equally important, a well-structured participative process has a lot of value. The newly merged leadership team will have a common view of how things will work, and they'll have a high level of commitment to making the organization they designed it work well. They'll also get to know one another, and come together as a team.

The Principle-based Organizational Structure implementation process defines each step in an open, fact-based participative design process.

Selection of Leaders

Once the integrated organization chart has been designed, leaders are selected.

In some cases, incoming groups are doing things that the receiving organization wasn't doing. Leaders can stay in place (under new bosses), even as their domains are globalized.

But there are typically many overlaps. Regardless of whether the situation is a Tuck-in or Building a New Home Together, the goal should be to select the best-qualified person for each job, regardless of which side they came from. In a principle-based approach, incumbancy (and the institutional knowledge that brings) is just one factor in leader selections. Why?

You can't get the full value of integration if there are winners and losers. Much of what the losers could have brought to the new organization (what you paid for in an acquisition) will be lost. And the demoralizing effect on the losers will damage collaboration (essential to synergies) and increase turnover.

And remember that incoming groups may bring some great talent.

Managers who aren't chosen to lead new groups are likely assigned within a group (at a lower level). Protections of title and compensation can prevent some of the resulting turnover.

And there's added incentive to stay if the clean-sheet-of-paper approach promises the kind of organization that people really want to work for (empowered, entrepreneurial, and team-oriented).

Assignment of Staff

Once leaders are selected, the rest of the staff is assigned to groups in the integrated structure. This, too, should be principle-based.

If what a pre-integration group was delivering falls neatly into a line of business (group) in the integrated structure, the assignment is obvious.

But in cases where a pre-integration group was fulfilling multiple lines of business (a "Rainbow" group), a more detailed work analysis is required to determine how a pre-integration group's resources and commitments are divided among the target groups. Again, the principles provide a basis for objetive analysis. Instead of analyzing what people do, this work analysis looks at which lines of business they deliver.

If two people are both delivering two lines of business, then one goes to one group and the other goes to the other.

If one person was doing two jobs (a "Rainbow" person), dual reporting may be appropriate, at least for a period of time.

That person should report to one manager, and then be loaned to another ("temporary duty") for a percentage of their time. Labor loans means that each manager supervises a part-time person (not that one group has a person doing work in another group's domain). The managers should share the person's performance appraisal.


It's critical that the organization not miss any commitments, despite the restructuring.

Staff must go on doing everything they were doing, regardless of where they're assigned, until past commitments are safely migrated to the right group. Only then can the person concentrate solely on their new new group's domain.

The Principle-based Organizational Structure implementation process includes a meticulous, step-by-step migration process. Each commitment which no longer fits an individual's new domain is documented, and a migration plan is worked out with the receiving group.

3. The "Optimize" Phase

Once the structure is integrated, it's up to each group to pursue the intended cost savings and synergies.

It's at in this phase that the newly "married" team:

  • Analyzes commitments and reconsiders resource assignments.

  • Identifies and eliminates redundant work.

  • Merges overlapping projects and services.

  • Rationalizes their assets and vendor relationships (including licenses and service contracts).

  • Develops an integrated catalog with rates, and an integrated investment-based budget.

  • Reviews the methods, processes, and tools that both sides contributed, and standardizes best-of-breed methods and tools.

  • Looks for ways to further specialize now that they're a larger group, perhaps revising structure at the next level.

  • Reassesses competencies, and invests in professional development.

As these Optimize tasks are done, the cost savings and synergies will accrue.

Bottom Line

By applying the science of structure, an organizational integration process can be principle-based, equitable, and highly effective. It can tap the best of both groups, while building teamwork and a spirit of "one organization" from the disparate parts.

And that's the path to maximum synergies (in both directions), minimum turnover, and speed of integration.


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