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 / Winter 2008 /Issue 53(originally published by Booz & Company)


Recent Research

On sleep-deprived teams, postmerger executives, an unreformed industry, and unanticipated turnover.


Photograph by Jean Paul Endress

Retaining Management after the Merger

Title: The Big Exit: Executive Churn in the Wake of M&As (Subscription or fee required.)
Authors: Jeffrey A. Krug and Walt Shill 
Publisher: Journal of Business Strategy, vol. 29, no. 4
Date Published: July 2008

It’s no surprise that executive turnover goes hand in hand with mergers and acquisitions. What is stunning, however, is that churn rates at target firms can remain a problem for more than a decade after the deal is closed. The authors of this study reached this conclusion after examining client data from the consulting firm Accenture (where coauthor Walt Shill is a managing director). They reviewed corporate acquisitions involving more than 1,000 firms in the financial-services, securities, telecommunications, oil and gas, consumer goods, retail, and manufacturing industries, and mapped the careers of more than 23,000 executives at these companies over 17 years.

In the first postmerger year, the authors found, more than 30 percent of executives left, but that percentage fell just 10 points the second year, and remained at a whopping 21 percent when 10 years’ worth of postmerger data was averaged; this rate of turnover is more than twice the rate at nonmerged firms. Companies that were acquired multiple times lost an even greater percentage of their executive team: nearly 50 percent the first year, and an average of 32 percent each year over a 10-year postmerger period.

This data suggests that leadership continuity should be a top priority for companies bent on mergers, and that without a clear-eyed focus on executive retention, businesses can expect instability in their top ranks over the long term. Since research has shown that revolving-door leadership can result in lower performance for several reasons, including project delays, difficulties in reestablishing trust with employees and shareholders, and loss of long-term institutional knowledge, making management retention a priority during a merger can help to optimize future prospects.

Bottom Line: If an acquired firm was purchased primarily for the brains of the people running it, watch out — unless there is a careful strategy in place to avoid churn, acquirers can expect more than one in five executives to depart each year for the ensuing decade.


The Dangers of Sleep-deprived Employees

Title: Sleep Deprivation and Decision-making Teams: Burning the Midnight Oil or Playing with Fire? (Subscription or fee required.)
Authors: Christopher M. Barnes and John R. Hollenbeck 
Publisher: Academy of Management Review, vol. 34, no. 1
Date Published: Forthcoming, January 2009

It’s clear that sleep deprivation can lead to disastrous workplace mishaps, with some of the worst accidents on record, including the meltdowns at Three Mile Island and Chernobyl, occurring between 2 and 4 a.m., when the effects of sleep deprivation are most pronounced. But what happens to team dynam­ics and problem-solving ca­pabilities when one or more members have failed to get enough rest?

That question served as the authors’ starting point for a study that deconstructed the effects of sleep deprivation on teams as varied as highly specialized surgical units and groups of accountants working on a company audit. Broadly speaking, the research showed that “burning the midnight oil,” often seen as a sign that employees are motivated and responsible, can lead to a significant decline in team performance and decision making.

The authors identify several forms of sleep deprivation, including the case of the industrious worker who spent 20 hours finishing a specific task and that of the leader who hadn’t slept more than six hours a night in several weeks. In teams with a high level of vertical differentiation — that is, teams in which members have very stratified levels of seniority and authority — a sleep-deprived team member or leader can drastically change the outcome of a specific task. The au­thors use a hypothetical scenario involving a team working on a product recall to highlight the difficulties sleep deprivation could pose to a highly specialized team. In their example, the crisis response team tasked with handling the product recall would likely consist of a lawyer, a public relations representative, an engineer, and a medical expert, among others. With such specialized skill sets, it’s unlikely the engineer could step in for the lawyer, or vice versa, if one were too sleep deprived to function. Conversely, when groups are hor­izontally differentiated, meaning they have similar skill sets and have access to the same information, as with a team of accountants, one worker can assume the responsibilities of another, and the effects of sleep deprivation on a single team member are not as pronounced.

Bottom Line: Sleep deprivation is a part of daily life, and a factor in the workplace. Companies should be diligent about watching for the signs of sleep deprivation and should organize teams so that a tired member does not destroy the entire team’s performance.

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