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    Thomas F. Matthews
    Thomas F. Matthews, MBA, MHL

    Executive Summary

    Aligning culture, business processes and operations is critical to the success of a merger or acquisition. Whether private-equity-backed or driven by a large health system, these difficult organizational changes require leaders to establish a clear pathway to achieve merger synergies. The alignment of the two entities — a condition of optimized productivity — is often in progress long after the formal integration process is complete. This plan will cover how synergy and alignment are achieved in a newly formed entity (by way of merger or acquisition) within three critical dimensions of an organization: culture, business process and operations.

    This plan provides the steps a healthcare operations leader must take to create alignment when a deal is complete and integration is over yet gaps remain. Often, an acquired practice that goes through an acquisition or merger with another organization faces an uphill battle transitioning and integrating its culture, processes and strategy with the acquiring organization. To optimize the deal’s potential, the operations leader must quickly build relationships and drive results. Using the six-stage Merger-Synergy-Alignment Process (MSAP)* can lead to post-acquisition and integration merger synergies quicker with a greater chance of sustainability.

    * Assumptions embedded in the Six Stage Merger-Synergy-Alignment Process (MSAP) are as follows:

    • The operations leader is new to the acquiring practice(s) and the acquiring organization.
    • The operations leader was not heavily involved in the integration process.
    • There was a well-thought-out integration plan, and they are now either stepping in at the end of that plan or somewhere after the completion of that plan.

    The healthcare M&A landscape

    Mergers and acquisitions (M&A) in the healthcare industry often aim to address uncertainties driven by technological changes, regulation and reimbursement methodologies.1 While consolidation may have historically involved giant hospital and medical groups, a recent uptick of private equity acquisition activity has created a shift toward physician practices and specialty services.2

    When an acquired practice (AP) joins a larger, usually equity-backed management company or acquiring organization (AO), a team approaches change in a very structured and organized manner. This team is usually comprised of various subject matter experts from within the AO, led by an acquisition coordinator who drives the process forward.3 Each member of the team should be clear on what it takes for a successful integration and its goals. However, even the most well-thought-out and structured integration plans can hit their “go live” date and still require additional support and time to fully merge and integrate the AP and AO cultures.

    The MSAP focus areas of synergy

    There are many moving parts affected when a practice is merged with or acquired by another organization. These can be bucketed under three primary focus areas — culture, business processes and operations. Each of these exists within both entities but are ever-evolving (or conflicting) during and after the acquisition. How well they are managed throughout integration will determine if the AP becomes one of the 20% to 30% of M&A that create significant value.4 While the integration of culture, business processes and operations will happen simultaneously, there will be times when each will need individual focus. The operations leader will need to set and determine mutually exclusive objectives to achieve merger synergy and alignment.

    The following will serve as a framework for evaluating the three MSAP critical focus areas.

    These focus areas and their related objectives can each be supported through well-researched frameworks and professional observation, including change management, leading through change, healthcare strategy and other relevant, proven business strategies.

    Culture: What it is and why it is hard to merge

    In his 2019 book, What You Do Is Who You Are: How to Create Your Business Culture, Ben Horowitz defines the culture — not by perks and nice-to-haves that make an organization unique but by what drives the business of that organization. How it influences decisions, strategies, reactions, communications and more is what creates the organization’s culture.5 Regardless of what the AO and AP identify or hope their cultures to be, by the time the operations leader has taken the reins from the integration team, two distinct cultures are evolving into a new culture. These cultures must merge. It is important they are not settling into conflict.

    Project Aristotle, a 2012 Google study that looked at 180 teams across Google, determined that the most effective teams had two consistent characteristics:

    1. “Equality in distribution of conversational turn-taking” — open dialogue and contribution to discussions
    2. “Average social sensitivity” — average level of emotional intelligence when conversing.6

    During an acquisition, the operations leader must lead, shape and find those highly effective teams with these characteristics. This stage has an elevated risk of culture conflict. Maintaining or establishing psychological safety for the employees and key internal stakeholders needs to happen quickly. Without psychological safety, many good ideas or observations will go unsaid. While not easy, a highly effective leadership team can shift an organization’s culture by creating a safe place for people to realize why a clear path to change is needed and what it will deliver. In the case of an acquisition, the AO is hopefully identifying an AP that easily aligns with its established culture. However, the operations leader must be ready to meet resistance and/or confusion. At this stage, the operations leader must clearly articulate what is happening and determine how the stakeholders are interpreting those developments.

    During the post-integration period, the operations leader may face resistance from the former ownership team. If retained within the AP, they will be some of the most critical stakeholders. Making them feel secure with the changes will move both groups closer to achieving synergy and alignment, especially if they become employees and have direct impact on business’s revenue. This is often the case when the former owners are providers. Keeping them engaged and motivated moves the AO closer to being a part of the 20% to 30% of M&A deals that create significant value.7 Building rapport and communicating frequently and accurately to the AP leaders and key stakeholders is paramount.

    Business processes: How impactful alignment is achieved

    Mergers depend on synergies in the business process. Business process synergies are usually crucial to a newly merged entity’s profitability. Assuming the AO has a well-defined process for collecting revenue or negotiating better rates with payers, the AP should then be able to benefit from a practice level and generate more revenue with less effort and cost. These gaps should be the easiest to identify in Stage 1, when the leader is becoming familiar with the environment. Depending on what side the misalignment is on — AO, AP or both — the operations leader should conduct a stakeholder analysis to best communicate the problem and provide its solution.

    In theory, changing business processes should be easier than changing cultural misalignments, and solutions could be achieved much earlier in the process compared to other efforts. How quickly the leader can complete MSAP’s Stage 2 (“Identify the Synergy Gaps”) can determine how long this effort will take. Creating a psychologically safe place for people to hear the leader’s message can be the difference between a quick fix and multiple trips up the pyramid. Often business processes are not directly owned by the operations leader and will require a great deal of political power and influence to gain buy-in from the department primarily responsible for the function. Should the leader find their efforts to drive change “stuck,” pulling in a more senior manager within the leadership chain may be necessary. Once the leader makes their way to Stage 6, the new environment should prove to run more efficiently than the old. If the leader identifies the misalignment is within the AP, they should be sure to quickly take note and share their findings so best practices can be adopted. The goal is to merge best practices to create the best synergies achievable. This can come from either the AO or the AP.

    Operations: Where impactful alignment is sustained

    Often the success of aligning operations is very strongly associated with how well culture and business processes were aligned. If these two areas achieve synergies, the long-term operations should be improved because people and processes should create better opportunities for the successful execution of the strategic goals. If strategic operational alignment hasn’t occurred through the efforts to achieve merger synergies in culture and in the business process, the leader may need to reassess the plan stages and ensure there were no visible gaps during the two stages dedicated to communication (stages 3 and 5). Along with the stakeholder analysis, the leader should carefully review these stages to ensure they provided the right message to the right people in a psychologically safe way. There is a strong chance that if strategy is not aligned at this point, something was missed in the messaging and the creation of a psychologically safe space.

    Establishing measures of success is important. Among measures of success for an AO, three focus areas have been chosen to measure and determine success:

    1. Employee engagement
    2. Patient experience
    3. Employee turnover.

    While making more money is the more obvious measure of success for a PE-backed AO, financial success usually occurs later. Therefore, the operations leader wants to know sooner how things are going, which better indicates how things will end up eventually. An engagement survey implemented in the post-integration process can capture team members’ sentiment and provide benchmarks on what is going well and opportunities to improve. There is also an opportunity to get creative with what questions are asked and allowing open-ended details. While open-ended questions are more challenging to measure, a scaled or number response can be easily trended to establish whether the efforts are moving team members’ perceptions in the right direction.

    The operations leader should take time to review several time bound scopes of performance:

    • One year before acquisition (consider more if exceptional external conditions occurred in that time)
    • Two individual quarters before
    • Current month reviews and scores.

    If the AP has a way of managing patient experience and capturing how well they provide care, continuing this process after an acquisition should be easy. Customer feedback tracking tools such as Google Reviews, Yelp, or Net Promoter Score (NPS) provide a snapshot in time and a rolling average for how well a practice offers services to its customers over time. Customer review sites or databases can provide the most accurate depiction of how patients are feeling but, more importantly, how the acquisition has impacted the customer experience. Defining a trend over time will help identify if the quality or the perception of quality has fallen to the patients who helped make the practice attractive in the first place.

    The last tried and true measure is retention. Employee retention refers to an organization’s ability to keep potential employees loyal to the organization.8 Retention rates can be gathered in the same way as the customer reviews by taking snapshots in the past and comparing them to current snapshots. As the AO and AP achieved merger synergies, only the roles that did not map to the new organization should be eliminated.

    Everything in the M&A process involves learning, which should go through continuous evolution and application. The AO and AP could have their learning processes, but there is also a possibility that one or neither of their processes is clearly defined. For the identified measure of success to achieve sustainment, there must be a shift toward continuous learning within the organization. The operations leader must focus on establishing the learning environment and what it will become to identify what is working, what is not and what they will do about it. Consider these three building blocks of a learning organization:

    1. A supportive learning environment
    2. Concrete learning process
    3. Leadership that reinforces learning.9

    A supportive learning environment

    Creating a supportive learning environment relies heavily upon psychological safety within the organization. If a team does not yet feel “safe,” identifying what is going well and areas of opportunity can be challenging. The irony is that the answers are usually a stone’s throw away and right out of earshot. Leaders in the AO and AP should be ready to listen to what is working well and where there is opportunity.

    If there is still work to create psychological safety, anonymous surveys are a wonderful way to get honest feedback. Taking the feedback, quickly developing actionable items, sharing those ideas with the team that provided them and working together to improve things can be vital to creating a supportive learning environment.

    Concrete learning process

    A learning process is concrete when everyone understands how information is collected, why it is collected, where it is stored and how it is shared. The most important part of the second building block is where information is stored and how it is shared. If no one knows where data is stored, and there is no established way to share it, best practices will be challenging to create and involve wasted time relearning the same things. It is essential, however, to remember that concrete does not have to mean complex. In the 1970s, the U.S. Army developed a concrete learning process called the After-Action Review (AAR) to assist units in better preparing to deploy to a wartime setting by attending their training rotations at the National Training Center (NTC) in Fort Irwin, Calif. The Army AAR consists of four parts or questions:

    1. What did we set out to do?
    2. What actually happened?
    3. Why did it happen?
    4. What are we going to do next time?10

    In the Army’s model, 50% of the time during the AAR should focus on “What are we going to do next time?” This information is usually captured in the field and a soldier’s green notebook. Usually, when a unit is in an NTC rotation, “next” can be in a few hours, so the team can quickly apply the lessons learned.11

    Suppose the AO operations leader adopted the Army’s concrete learning process: finding a way to upload the information gathered during AARs in an email and/or a shared, cloud-based drive could be essential. The next time to get it right may not be in a few hours, so establishing how lessons learned and best practices are captured is vital.

    Leadership that reinforces learning

    Leaders who reinforce learning challenge the status quo, create a psychologically safe space for people to make mistakes or share a different point of view and encourage open dialogue and create pathways to improve the organization. By those actions, the leader reinforces learning and sets the expectation that learning behavior is welcome.

    These three building blocks are critical for the operations leaders to remember during any of the six stages in the merger synergy-improving process.

    MSAP execution: Six stages of alignment

    The six stages of the Merger-Synergy-Alignment Process (MSAP) are unique but continuous. Because a business environment continuously changes, there is rarely an end state in a business that intends to remain operational. Therefore, completion of the last stage triggers the restart of the MSAP.

    Stage 1. Learn the environment

    The first step the operations leader must make is the easiest to miss. Learning the environment of the AP must occur if the operations leader hopes to make significant impact quickly. This stage is not just about the physical business or industry; it is also about identifying the key stakeholders, as well as the processes, resources and organizational elements (PRO).12

    The operations leader will need to perform a stakeholder analysis to answer the following questions:

    • Who are the people to keep satisfied?
    • Which relationships should be managed closely?
    • Who requires monitoring?
    • Who must be kept informed?13

    The Power-Interest Stakeholder Analysis (Chait and Associates, Inc.) quadrant is a great tool to apply these questions, placing each identified party (the “who”) on the grid to help identify where power and influence lives within the organization. Knowing where a stakeholder appears within the chart as the AP evolves to synergy and alignment will help identify who has significantly more impact on achieving merger synergy.

    Placing each stakeholder may evolve during post-integration, and tracking those movements will help assess the culture and provide meaningful insight throughout the process necessary for building strong relationships that can affect change. While using this tool, the operational leader should be very intentional and transparent, informing stakeholders of an intent to learn the environment. This can build trusted relationships, providing necessary support for the entire MSAP.

    Understanding the environment better requires a detailed scan of the current state PRO. Starting with processes, the operations leader should have a clear understanding of how things work within the AP and AO. Recognizing the kind of practice(s) that was integrated requires an evaluative dissection of the core business service. These are the questions that should be assessed repeatedly and over time:

    • What is offered?
    • How is it offered?
    • When is it offers?
    • To whom is service offered?

    It is valuable to identify differences in those answers over time and evaluate the drivers for why. The answers on a Monday should be the same on a Tuesday. For example, if a patient calls to book an appointment, the operations leader should listen in or call in for themselves to understand the patient’s experience. If a practice has a digital booking process, the leaders should understand how the patient interfaces with the current application by using it as the patient would. Completing these observations will provide insights. These insights should provide what is needed to prepare questions for the leaders at the practice, the staff and, in some cases, the patients. This is centered on the need to understand how things work and how well they work. Because these observations may occur post-integration, looking at how the AO has impacted the core business functions is a critical insight for the operations leader.

    If it is determined that there are inefficiencies in the process, the leader should determine if the inefficiency is due to the following:

    • Process decay
    • Integration gaps
    • Problem(s) within the AO
    • Legacy approach that needs updating.

    Even the best processes will succumb to process decay, and over time if a process has not been renewed for five to 10 years, expect that a there will be a minimum of 20% decay or inefficiency.14 Similar steps should be taken to understand the AO’s processes that directly impact the AP’s core business functions. If any of the AO’s processes stand out for any number of reasons, including underutilization, ineffectiveness or disruption, this should also be noted.

    Resources are easier to identify and assess. Resources are the plant, equipment, people and information technology required to perform the process.15 Inventory the available resources when reviewing the AO’s and the AP’s processes. Note if resources are missing or not used to their full potential.

    The last area of focus for the leader to review in the environment is the organization. In this case, they will look at the organizational elements. The roles, responsibilities, policies and procedures, structure, climate and morale, culture and management systems that include rewards, reviews and training.16

    The size of the AO and the AP will play a significant role in staff roles and responsibilities. A large AP will have more unique roles and people responsible for them than a smaller AP, and the leader must understand how each of these helps drive the various business processes. Understanding these roles is even more critical if the AO intends to eliminate or reduce them. This could leave a significant gap; if necessary, responsibilities are not maintained. A business case may need to be made to keep critical roles in place or to properly transfer the role scope to another person.

    Reviewing the AP’s culture and morale is critical because these are related and will likely affect how quickly merger synergies will be achieved. The best way to determine the culture and morale of a newly acquired practice is by asking staff how they feel. Consider using an anonymous survey or asking questions to those willing to talk. Culture and morale can also be assessed by talking to tenured patients. Patients who feel loyal to a business are often the first to notice a shift in morale or culture. Those close to the business, such as a long-term patient, may not realize those shifts are happening because they are gradual. If they can detect a shift, then it is a significant finding that may require action.

    After taking time — which could be weeks or months — to learn the environment, the leader should be ready to move to Stage 2: Identify the Synergy Gaps.

    Stage 2. Identify the synergy gaps

    Trends or recurring themes should emerge within the notes, observations and areas of opportunity obtained prior. Stage 2 requires the leader to organize their findings and prioritize the opportunities based on their impact on merger synergies of the MSAP critical focus areas.

    It will be important to group areas of opportunity under the newly identified themes without eliminating any inventoried items or findings. Certain findings related to the organization’s processes or resources, while inefficient at time of observation, could be due to a redeemable systemic issue affecting individual PRO. For example, a theme around procurement problems may be identified from observing the environment. This issue could affect the staff, the patient and the provider differently and not have a significant risk to all parties. Evaluating the interconnecting dependency of each identified theme within the ecosystem should help expose actual synergy gaps. This can be shared with the larger team, enabling the next stage.

    Stage 3. Share the findings

    At this stage it is critical to determine what must be shared and how it should be presented. Emotional intelligence is a critical skill at this stage, because when determining what insight to share, one must consider if the audience is ready to receive or act on that insight. A reevaluation of the Stakeholder Analysis quadrants6 should be conducted before deciding how updates should be delivered — i.e., individually, group, in-person and more.

    For example, the former leader(s) of the practice and the operations leader’s direct supervisor fall into the Manage Closely quartile (refer to Figure 2). These are roles with “high interest” and “high power.” They have influence on other stakeholders and PRO. If they can be successfully aligned to or were previously informed of the operations leader’s efforts, they may be anticipating an update.

    Share ideas for addressing each theme but intend to collaborate with the stakeholder(s). You want to find solutions, and it builds trust to do it with them. A 2016 study on the role of political skill during mergers determined that those with high political skill are best at managing the uncertainties of large-scale mergers and integrations.17 If this is an area of opportunity for an operations leader, the easiest way to find out what is important to gain someone’s attention or support is to ask them, “What matters most to you?” Being able to provide that answer during an interaction will increase the operational leader’s political influence. At minimum, the response to the operations leader can be a segue to further discussions. It can be best to look for ways to align the areas of opportunity with what matters most to the person. Do this primarily with the stakeholder(s) whose relationship has the most power and interest in driving change.

    Stage 4. Lead through change

    If a leader were to throw a bookmark in the business section of their local bookstore, it would land in the chapter of a book or article dedicated to leading change. The reason is related to how difficult it is to disrupt the status quo and default behaviors. Change is rarely easy. Luckily, the business world provides a plethora of resources, featuring frameworks to drive it. Harvard Business School professor John P. Kotter has spent decades helping leaders understand change, using eight steps to help drive organizational transformation:

    1. Establish a sense of urgency
    2. Form a powerful guiding coalition
    3. Create a vision
    4. Communicate the vision
    5. Empower others to act on the vision
    6. Plan for and create short-term wins
    7. Consolidate improvements and produce more change
    8. Institutionalize new approaches.18

    Kotter’s approach helps leaders identify the actions behind each stage and for what they should be aware. For example, a common pitfall to #3 “Create a vision,” is overcomplicating or making the vision too vague to be communicated concisely. Failure to score successes early is another pitfall Kotter noted (refer to #6). These eight steps are not the only option to use but having applicable knowledge of two to three different change frameworks is necessary. Having a credible framework to follow can help move the MSAP on to the final two stages.

    Stage 5. Share the result

    Stage 5 assumes that the other four stages were successful, and the leader has established a persuasive communication structure along several trusting relationships within the leadership team and key stakeholders. At this point, a formal communication process can be used, but a demonstration of collaboration and alignment can increase the impact and influence of the “share the results” message. A team within the operation should share the message with the operations leader — echoing the theme and ground level reality of what is going right and what is left to be accomplished. This establishes relevance and credibility.

    If the prior MSAP stages have not been successful, nor have strong relationships been established, it will be difficult to make an impact with the intended audience when sharing the results. It may be good to review the previous stages, and determine where there may be gaps or more that can be achieved.

    Stage 6. Learn the new environment (return to Stage One):

    By Stage 6, the operational leader should also have much more credibility and their input should carry more weight. At this stage, the operational leader should reflect on progress within the organization with clear indicators of synergy and alignment within the AP.

    Stage 6 is primarily a transitional stage. If MSAP has made impact the operational leader will begin to appear on the stakeholder chart with higher power and higher interest for other key teams within the organization. It is important to use this stage to reflect on what has happened through the MSAP: new and evolving opportunities and challenges, and new capabilities — synergy. An assessment of the synergies resulting from the AP’s transformation across the focus areas of culture, business process, and operations should provide new opportunities and value.

    Conclusion

    Change is many things, but above all it is difficult. The levers and layers of change that sit within an organization’s culture, processes and operations are vast, let alone two organizations merging to become one. The stakes of a merger or acquisition emerging successfully are significantly and historically high — with a low probability of success.

    A 30-year study from 1971 to 2001 looking at the success rate of mergers and acquisitions found that most are not profitable, and 70% to 80% fail to create significant value over the annual cost of capital.19 The operations leader responsible for achieving alignment and creating synergy has a multitude of challenges and, as studies show, faces a high, historical probability of failure.

    Achieving a profitable merger or acquisition is possible through a deliberate and sequenced approach to manage the change that must align the culture to process to operations. The MSAP provides a concise and test approach to close gaps, evaluate impact and deliver synergistic value.

    Notes:

    1. Armstrong Jr. N, Subramaniam R. “Taking Stock of the Efficiencies Defense: Lessons from Recent Health Care Merger Reviews and Challenges.” Antitrust Law Journal, vol. 82, no. 2, June 2019, pp. 579–91.
    2. O’Donnel EM, Lelli GJ, Bhidya S, Casalino LP. “The Growth of Private Equity Investment in Health Care: Perspectives from Ophthalmology.” Health Affairs. 2020 Jun;39(6):1026–31.
    3. Braun D. Assembling an A-TEAM for Acquisition Efforts. American Management Association. 2013;(World Winter 2013-2014):28–30.
    4. Clayton BC. “Shared Vision and Autonomous Motivation vs. Financial Incentives Driving Success in Corporate Acquisitions.” Frontiers in Psychology, vol. 5, 2014, p. 1466. PubMed, https://doi.org/10.3389/fpsyg.2014.01466.
    5. Horowitz B. What You Do Is Who You Are: How to Create Your Business Culture. HarperBusiness, 2019, New York, NY.
    6. Duhigg C. “What Google learned from its quest to build the perfect team.” The New York Times. Feb. 25, 2016. Available from: https://t.ly/hdKnv.
    7. Clayton BC.
    8. Kristiana Y, Panjaitan A, Goeltom V, Prasetya A. “Managing Employee Retention in Mergers and Acquisitions: A Systematic Review.” International Journal of Sociology, Policy, and Law. 2021 Aug;2(4):44–50.
    9. Garvin DA, Edmondson AC, Gino F. “Is Yours a Learning Organization?” Harvard Business Review. 2008 Mar;16.
    10. Garvin DA. “The U.S. Army’s After-Action Reviews: Seizing the Chance to Learn.” Harvard Business School Press, 2000.
    11. Ibid.
    12. Chait L. “Spring22 S01 Strategic Planning and Value Creation in Integrated Healthcare.” Module 3 C9 S7 -S8 Presentation Slide 17-20.
    13. Chait L. “Spring22 S01 Strategic Planning and Value Creation in Integrated Healthcare.” Module 3 C9 S1 -S2 Presentation Slide 105.
    14. Chait L. “Spring22 S01 Strategic Planning and Value Creation in Integrated Healthcare.” Module 3 C9 S7 -S8 Presentation Slide 17-20.
    15. Ibid.
    16. Ibid.
    17. Devine R, Lamont B, Harris R. “Managerial Control in Mergers of Equals: The Role of Political Skill.” Journal of Managerial Issues. 2016; XXVIII (1–2):50–61.
    18. Kotter T. “Leading Chang: Why Transformation Efforts Fail.” Harvard Business Review. 2007 Jan; Best of HBR:1–9.
    19. Bruner R. “Where M&A Pays and Where It Strays: A Survey of the Research.” Journal of Applied Corporate Finance, vol. 16, no. 4, Sept. 2004, pp. 63–76. DOI.org (Crossref), https://doi.org/10.1111/j.1745-6622.2004.00007.x.
    Thomas F. Matthews

    Written By

    Thomas F. Matthews, MBA, MHL

    Thomas F. Matthews, Regional Director of Operations, EyeCare Partners, can be reached at thomas_matthews@alumni.brown.edu.


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