This reality probably explains the skepticism that followed news of a planned merger between Indonesia telcos Indosat Ooredoo (IO) and Hutchison Tri Indonesia. Such was the pessimism that American credit rating agency Fitch placed Indosat on negative watch when the plans were announced in 2021.
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From my observations, it seems the key for successful mergers is a focus on leadership challenges. Organizations do not just merge names—when organizations combine, people must also come together. Here are some leadership lessons from the IOH experience.
Addressing issues of trust
Yet, results since the official merger in January 2022 seem promising. Not only did revenues of the newly formed Indosat Ooredoo Hutchison (IOH) grow by 49%, subscribers increased by six million in the first-year post-merger. Additionally, it did so while increasing employee satisfaction. How did IOH buck the trend for failure, and what lessons can its experience offer?
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Interestingly, one of the stipulations from shareholders was that the C-suite needed to incorporate executives from both organizations equally. Consistent with my research, this might have helped alleviate USD and ensured that the status hierarchy at IOH remains stable and fair.
A people-centric approach
There were reasons for these doubts. Typical post-merger issues include differences in organizational culture and operational structures, insufficient network integration, and a tendency to prioritize cost savings over consumer experience. All these factors were evident in this specific case.
Fostering benevolence-based trust can be even more challenging if one organization involved in the merger is seen as acquiring a smaller firm, yet both teams view themselves to be of equal standing. This was a sensitive dynamic that needed to be managed. If not, a detrimental organizational phenomenon known as upward status disagreement (USD), where individuals disagree about who has a higher status in an organization, might occur. USD is the precursor to status conflict, which undermines organizational performance and collaboration.
To further remove accusations of bias, IOH brought in independent and credible third-party consultants to conduct staff assessments and formal reviews. At the end of this process, 800 people, including 40 in leadership positions, were designated redundant. Yet, due to the transparent and objective approach, there was 100% acceptance on the first day. Even if you can never please everyone when redundancies need to be made, the procedures and processes can be fair in that they are transparent and consistently applied to all employees.
At IOH, a lot of time and resources were spent building trust among C-suite members. This involved intensive training sessions and workshops conducted by external partners. Employees not only got to experience working together but also learning together. This allowed employees to better understand one another’s abilities and help each other sharpen their skills. Teams that learn together stick together, and these initiatives helped foster ability-based and benevolence-based trust.
This vision was clearly and carefully imbued in all aspects of the organization. Even the new logo was designed to place Indosat as overarching and dominant while equally connected to both Oredoo and Hutchinson. The key message was constantly reinforced: The merger was not just going to be good for an individual company, but good for all Indonesians.
It was therefore essential to develop a clear vision for the post-merger firm. With this in mind, a “guiding principles” project team was set up in May 2021 to ensure this vision was ready to roll out once the merger was ratified. These six guiding principles offered a clear framework to help leaders in their decision-making process.
Indeed, the first complaints of bias arose within a few days of the merger’s completion. Although there was no foundation for the claims, senior management knew they needed to take them seriously. “It was important to work with the idea that perception is the reality,” explains the CEO of IOH, Vikram Sinha. “You have to take the noises seriously, as if they are factual.”
Management
Leadership Challenges When Companies Merge
When organizations merge, people must come together
Developing trust among employees beyond the C-suite also presented challenges. In pre-merger surveys, 45.4% of staff listed their employment status as a leading concern, while 49.4% identified post-merger organization as a worry. Both were valid fears, as mergers typically result in major streamlining and restructuring.
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This objective was addressed from Day One post-merger at a luncheon for the C-suite to ensure collective agreement and shared ownership of the principles. The next day, there were meetings with the top 100 executives to ensure their buy-in. Over the first 30 days, key members of the C-suite traveled across Indonesia to conduct multiple town halls with all relevant employees, distributors, and stakeholders from both companies. Indeed, leaders can never undercommunicate in a merger. Rule No. 1: Communicate, communicate, communicate.
With time needed for these principles to trickle down in such a large organization, it was vital that leaders felt empowered by the guiding principles. In Sinha’s words, they could provide them with a “mantra to make decisions without supervision and committees. The top team needed to be solid and invested.”
Increased competition, the pressure for infrastructure investments, and digital transformation are all driving this trend. Mergers promise extra capital, potential cost savings, and the continued growth of digital consumer services.
Merger misgivings
With the concerns of employees identified as a major obstacle to success, the human resources teams from both IO and Hutchinson began sharing knowledge eight months before any official ratification was signed. The teams entered into a gentlemen’s agreement to share details of processes and structures with the understanding that any shared information would not be used for competitive advantage if the deal did not proceed.
As with most mergers, redundancies were a reality. In total, there was a 15% reduction in staff numbers in the first year. The challenge was how to be transparent about the decision-making process. Accusations of favoritism toward one set of employees over another can be extremely damaging and affect the morale of those who remain at the new firm.
Management continued to focus on the people agenda post-merger. In the first year, there were no fewer than 72 board meetings focused on organizational and people mapping. A dedicated training program for teams to undertake joint activities allowed them to learn about each other while bringing them together under a new common purpose as one entity.
Fostering integrity, trust, and fairness
IO was the latest iteration of a long-standing, well-respected Indonesian corporation whose roots could be traced back to the 1960s. PT Hutchinson was less than 20 years old and had a relatively contemporary business structure. Assimilating the two entities wasn’t just a case of people getting to understand different ways of working. The new senior management team of IOH had to develop a level of trust in their new colleagues.
Yet the track record of mergers is patchy, with studies estimating a failure rate of between 70–90%. The telco sector is no exception. From Sprint and Nextel in the United States to the ill-fated union between Vodafone and Idea in India, there are plenty of examples where mergers haven’t gone according to plan.
This article was published Jan. 29, 2024, by INSEAD.
IOH therefore developed an objective approach to the restructuring process. The message was clear: It was all about finding the right people for the right roles in the new organizational structure, regardless of any legacy. This saw them embracing data analytics, combining multiple data points to inform the needs of the company now and in the future.
1) Ability-based trust: Do I trust you are competent and can get things done at work? 2) Benevolence-based trust: Do you have good intentions toward me? Are we on the same side? 3) Integrity-based trust: Do you adhere to a set of values and principles that I find acceptable?
Learning how to trust
Published: Thursday, February 15, 2024 – 12:02
One major challenge with any merger is how to successfully integrate different individuals and teams who may never have met, let alone worked together before. In fact, many new colleagues had recently been direct competitors in this example. The need to align different working cultures further increased the complexity for IOH.
A dedicated training program allowed teams to learn about each other and brought them together as one entity.
Mergers have become the norm in the telco sector recently: Far EasTone and Asia Pacific Telecom in Taiwan in 2022, True and DTAC in Thailand, as well as Celcom and Digi in Malaysia both in 2023. These represent a global shift toward an era of two or three players in each market, especially in Asia.
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Mergers and acquisitions are an uncertain business, and evidence shows they are fraught with pitfalls. The IOH example can offer useful pointers for firms entering a merger. It has shown that rigorous planning to manage the issue of trust, a clear vision, and effective communication can help mitigate the challenges that arise in the process.
A lack of clarity (and unity) over the organization’s aims and direction post-merger can also lead to problems. For IOH, the decision for both firms to continue operating under their respective brands added a further level of complication. There was a potential for conflicts of interests when making day-to-day business decisions that benefited one company at the expense of the other.
For the merger to be a success, the firm needed individuals to play their part in implementing the post-merger strategy. Drawing upon existing research on trust, the course I teach on executive presence and influence highlights that people judge the trustworthiness of others based on three dimensions:
