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Linked and Blended Organizations – Strategies for Success
The current business environment has been bursting with organizational blendings; most noticeably, mergers & acquisitions. Early on, you must create a management structure that blends all linked locations into a single manageable entity. Also you will want to enjoy the strengths of your larger organization without losing responsiveness to your assimilated customer base and employees. To better focus on the opportunities rather than be bogged down with the challenges, use the ideas in this chapter to increase your chances of success.
Decide Synergistic Expectations
Be clear on what you are looking to have happen, resulting from your merger or acquisition. What end-results do you believe are possible? How do you intend to create the axiomatic equation of one plus one equals three? Listed are several areas to explore.
· Economies of scale for cost savings in procurement, management, manufacturing and distribution.
· Do you want to encourage entrepreneurship, initiative and risk taking on a local, regional, national or global level? Do you want collaboration among the units? Or do you want a traditionally hierarchical organization?
· How do you intend to create and deliver innovative value-added services?
· Will you take a broad marketing approach or focus on markets requiring distinctive competencies?
· How will you achieve continuous improvement?
· Will your new size and strength encourage you to pursue additional strategic acquisitions?
· What about staff considerations? How do you keep the employees that possess the intellectual knowledge and skills critical to success? Employees from both companies will be concerned about job security. Additional considerations will be to help surviving employees understand why they were selected to remain. Some of these surviving employees will have guilt issues to deal with. They could have issues with why certain employees were not kept on that they thought were doing a good job.
Communication is important here as executive search headhunters firms could be contacting your remaining employees. If they do not have an understanding of their value, they could be seduced into a new position elsewhere; leaving the merged company empty handed in some areas.
· What incentives and rewards will be put into place as motivation for retained employees?
· Even the name of your new merged organization is important. This will identify your marketplace position and inform all of your new identify. Create your new early in the process.
Inventory Internal Expectations from Each Organization
Inventory the expectations of employees, management and executives. Job security will most likely on the minds of middle management and workers. Executive compensation parity will also be an issue as will be control. When the deal is put together a battle starts for the mind’s of the employees. You will have to sell the people in your blended organization on where it is going. While you want to paint the most positive picture possible, be cautious not to over-promise.
There is always a honeymoon or transitional period, make the best uses of it. Meet with counterparts from the other group(s). Be careful not to play ostrich, keep your head out of the sand so you can see incoming relationship bombardment and do something about it before it blows up in your face. Depending on the ownership and size of your new organization, you may also find it necessary to work the media before they start trashing the deal.
Inventory Core Competencies
Inventory the core competencies from each company. When products and services from each differ, but serve similar markets that’s synergy. Yet, when products are similar but have different markets, which also can mean synergy. Have a strategic plan about how economies of scale will be achieved, through sales, through purchasing, or hopefully, both.
This is an area where cross-functional teams will help you to both identify strengths and weaknesses. Additionally, the teams can be helpful in the daily fire fighting of unexpected blending issues and challenges. Find areas where economies of scale now become possible. This is the area for profitability increases through cost savings.
Inventory Cultures and Policies
Inventory the cultures and policies of each company. How is employee training and reward viewed? How are goals set and measured? Varying levels of formality (Silicon Valley to New York City) can prove to be an Achilles heel if not addressed. Also, words used by both organizations may have taken on different meanings. Each organization must give a little in the area of policy. Don’t be married to the past and the, this is how we’ve always done it mentality. With DalmerChrysler, the German’s beer breaks have been interesting for the Americans to accept. While the Germans have difficulty with the casual atmosphere of the Americans.
This can also be a good time to reevaluate your suppliers. In a merged situation, there is a good chance some suppliers will not make the new team. This can be an excellent opportunity to make some changes and/or negotiate a better total value package.
Circles of Interest
Decide where circles of interest, expectations and inventories from above overlap, and where they do not. Each person should get to know his or her counter parts in the other company. Rather than my way and your way, focus on what the culture’s share in common. The common ground will exhibit the greatest possibility for the kind of synergies that make mergers valuable. The more the circles of interest from each organization overlap, the more reason each has to make the marriage work. This was an important problem worth taking notice with the failed merger of Price/Costco Warehouse stores in the mid-nineties.
When an executive integration team first met as part of DaimlerChrysler’s merger, each member of the group received half of a stock certificate framed. Co-chairmen, Jurgen Schrempp and Robert Eaton told them that it was up to them to make the merger successful. They also told them that they would get the other half of the stock when the merger was a success. This is a great way to get the circles of interest among the factions to see the overlapping possibilities. Unfortunately, after a few years the German management learned that their style was not successful overseeing an American corporation with such an ingrained culture and sold Chrysler for a loss.
Uncover Road Blocks
Struggle is inevitable in any organizational blending. Uncover expected roadblocks to the blending process before you merge. Go back to the earlier chapter on Partnering Pitfalls, you will find that many of the issues will be the same.
Executives can see the world through different windows. With the failed 1993 Price Co. and Costco Wholesale Corp. merger, it was the ancillary issues of office buildings and mall development that they couldn’t on that kept their focus off the core competencies and developing synergistic economies of scale. Bob Ortega, in his Wall Street Journal article said, “In an interview, Mr. Price said that he and Jim Sinegal, the former Costco chief executive who holds that position at the merged companies, ‘have a lot of philosophical differences.’ He declined to elaborate.”
Information technology can be a deal breaker. If the computer systems do not fit, the merger may blunder. HMO, Harvard Pilgrim posted a $94 million operating loss for fiscal 1998. CFO magazine reported, “The deficit was unprecedented, forcing the resignations of CEO Allan I. Greenberg and CFO Thomas J. Brophy last May .” While the merger that created Harvard Pilgrim was formed in 1995, by 1999 they still had not integrated their computer systems. A pre-merger claims-processing system that successfully handled half a million subscribers was expected post-merger to handle over twice that amount. Unfortunately, it couldn’t.
Edward Teach, in the same article, reports, “One fast mover that lives up to its name is Fleet Financial Group, which considers its in-house integration abilities ‘one of our strategic strengths,’ says vice chairman and CFO Eugene M. McQuade. ‘We devote mind-boggling resources to its capability.’
Those resources have been put to the test again and again, notably in the $3.7 billion merger with Shawmut National Corp. in 1995, the $3.6 billion merger with NatWest National Corp. in 1996, and now the $16 billion megamerger with BankBoston Corp. ”
There are several additional areas of potential roadblocks, they include:
· Communication problems are not always readily apparent. Build a conduit for heavy communication flow, in all directions. Many of the problems that surface in mergers could have been avoided through an open channel of communication. Additionally, words and terms must be defined for the merged organization. The same word may have been used differently in both the previous organizations. This seemingly small point has been the root of many communication debacles.
In-person communications are best, the more face time, the better. When this is not possible, short written communications sent out frequently are better than long and infrequent ones. Plenty of town hall type meetings works well. Remember that communication must happen in all directions, not just from the top down.
· The not-invented-here mentality.
· Blaming everything on the merger, especially poor productivity can be commonplace.
· Technology compatibility in all areas of the newly blended organization.
Publish the Findings
Publish the above findings for all employees of both companies. Otherwise they will fill-in the blanks for themselves, usually with erroneous information. Factual merger information will go a long way to sooth fears and help all concerned understand the strategic plan and all the challenged in its implementation.
Unity verses Uniformity
Your desire to build unity rather than demand uniformity reveals your increased chances for successful culture merging. To help employees of both cultures become contributing members, a feeling of community needs to be built. This is done through:
1. Setting Perameters.
2. Focus on a common vision or master plan.
3. Empowering people and helping them to understand their accountability to one another.
4. Encourage social events that can be fun. This will be worth it=s weight in gold toward employees feelings of belonging.
5. Celebrate all early successes, no matter how small.
6. Recognition of both effort and achievement.
7. What you do not want is mindless drones simply doing what they are told. If so, where are the synergies? What was the value of the merger in the first place?
Help everybody from entry-level employees to the staff in the executive suites to have a their own emotional ownership in the success of your recently merged organization. Your leadership must both support the change and lead the charge. Some points to consider:
· You will want to offer a common vision behind which all can rally.
· Look for areas that have alignment issues with the vision and go some quick surgery. Structures and processes must be in alignment with your new vision. Do not delay in making the changes you deem necessary.
· Identify early groups that are experiencing successes in areas that are aligned with the vision and make much noise in touting their commitment.
· Developing how-to road maps will go a long way in helping both organizations blend with the change.
· An important element in your road map is the conduit and mechanism you have developed for multi-direction communication.
· As you blend support functions such as general management, purchasing, information technology, manufacturing, distribution and marketing, Select new department leaders that exhibit strong alignment and act consistent with your new vision.
· Continue to drive the message of customer satisfaction and execute actions consistent with your message.
· Re-recruit early and continuously those key people you have identified as crucial to your success. These are the people you do not want to lose. Discover what you must do for them in order to keep them on board and have a strong sense of loyalty.
· There generally are two waves of deserters. The first happens very early, these are the people that are not interested in the newly merged organization. Second comes about a year down the road. These people are the ones that gave the merger a chance but now do not like the changes they see taking place.
· Create an organizational blending event.
DalmerChrysler made a celebration of the first day the newly merged organization’s stock traded on the New York Exchange. They called it Day One. They gave all their over 420,000 employees a merger kit that contained a 44-page tabloid magazine featuring information and an overview of the new company. In the kit, employees also found their own commemorative Swatch watch bearing the new company name, DalmerChrysler.
Employees viewed satellite coverage of the opening of the New York Stock Exchange where Co-chairman Robert J. Eaton (from Chrysler) rang the opening bell. Day One activities also included flag-raising ceremonies, tree plantings, product displays and cross-cultural eating (American food on German facilities and German food in American facilities).
Allan Nahajewski, senior manager, communications programs says, “We realized that the first day of the company would be an emotional one for the employees, but this was an opportunity to capitalize on. Day One brought the results it was designed to produce. It’s all a matter of making sure the respect for the previous cultures is strong and mutual, and you don’t lose it when you’re creating a new culture.”
Co-chairman, Jurgen E. Schrempp said, I was overwhelmed by the positive reactions from employees. I heard from locations all over the world that Day One really enhanced the spirit of working together, of becoming a family.”
Employees from both cultures will have a feeling of belonging if they are working toward a cause. This will help them to have the emotional ownership for which executives hope. Sure, it is much work, and it takes more than the above steps, opportunities abound. For those who are willing to be flexible and open to possibilities, being part of a newly merged organization can be the opportunity of a lifetime.
For a successful merger, Sandy Weill suggests:
· “Use shares, options and other methods for encouraging employee ownership to make everyone feel part of the new company.
· Be straightforward with people when making personnel decisions…It’s very important to be honest and tell somebody your decision right off.
· Include spouses and keep them informed…It will create a family feeling…The more they know about strategy, what the company is doing and what it has set out to accomplish, the more support I think you get from the whole household.”
Pritchett and Gilbreath, in their booklet titled Mergers, Growth in the Fast Lane say, “During the early months of merger integration, about the best you can do is to manage the blur–ride the waves, so to speak, instead of trying to be boss of the ocean. You can’t avoid the rough water, so you might as well make the most of it. The ride may be wild and scary, but you sure can cover some miles.
Believe it or not, there is a blessing in all this. Several in fact. With things in such a state of flux, you have a window op opportunity during which you can do dramatic things. It’s like having a license to make wholesale changes, to take actions that are long overdue.”
You can buy the brick and mortar, but can you keep the employees? Brick and mortar is easily attainable. Throughout this chapter, employees have been mentioned. To realize the organizational blending benefits you desire–post blending employee retention is crucial.
According to Robert House, a professor of organizational behavior at the Warton School for Business at the University of Pennsylvania in Philadelphia, “Almost 60 percent of mergers are disappointing due to poor post-merger communications within a company. There’s a lot of power at stake, a lot of fear and confusion. Most organizations aren’t as sensitive as they should be to the human dynamics of a merger situation”
As your merger progresses focus on cooperation rather than competition, continue to build on the areas of mutual agreement and remember that the behavior you reward will be repeated–positive or negative. The above ideas will help you deal with the inevitable conflicts that will occur in your organizational blending journey. Enjoy the ride.
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