Case Study of a Large Scale Merger & Integration in Volatile Marketplace
Abstract: According to a recent study by an international consulting firm, too few management teams spend the time to learn what works and what doesn’t when it comes to integrating new businesses with the result that too many M & As fail to deliver their promised value. At the same time two thirds of those involved in leading change felt that they had been insufficiently prepared for these tasks by senior management. Another similar study suggested that more than nine out of 10 corporate mergers and acquisitions fall short of their objectives because business leaders too often got bogged down with finance and technology issues and fail to spend enough time integrating corporate cultures and management styles. However, in this volatile scenario Questra Technology has emerged out as clear exception. This company has demonstrated that a systematic and well planned initiative can always ensure smooth and highly successful transition of the entire integration process. During last one year this company has undergone massive integration initiative without loosing any key employee. As part of their strategy, they have made lot of critical decisions even before the announcement of the transaction followed by a robust communication programme and new culture formation initiative. CEO himself drove all the key off-site strategic decision making forums as part of the employee engagement initiative and rolled out highly flexible organizational structure coupled with some of the path breaking employee development initiative. As a result new culture included the best element from all the three companies. According to the CEO, unless people receive clear guidelines and an understanding of how they themselves can participate to the overall goal, their energy will deplete rapidly. This energy can be fully utilized if top executives actively drive the pace of integration, embrace it in specific ways, make it personal, and ensure that the company takes full advantage of emerging opportunities to improve individual and organizational competencies.
Key Words: merger & acquisition, large scale integration, organizational development, change management, human resources management, leadership, organizational transformation, talent management.
References: It is a Real Life Case Study. The entire Case Study is a result of my personal involvement in the entire initiative. Therefore I have not used any reference to write this case study. For the purpose of confidentiality, I have changed the name of the company, HR Head and the CEO.
Introduction: According to a recent study by an international consulting firm, too few management teams spend the time to learn what works and what doesn’t when it comes to integrating new businesses with the result that too many M & As fail to deliver their promised value. At the same time two thirds of those involved in leading change felt that they had been insufficiently prepared for these tasks by senior management. Another similar study suggested that more than nine out of 10 corporate mergers and acquisitions fall short of their objectives because business leaders too often got bogged down with finance and technology issues and fail to spend enough time integrating corporate cultures and management styles. Today when Sanjay Gupta is preparing himself for the last and closing review meeting of year long massive merger and integration programme company had undergone, believes that in this volatile scenario, Questra Technology has emerged out as clear exception. Having spent 22 years in the industry and three years as Head-Group Human Resources at Questra Technology, a three billion dollar globally admired next generation broadband technology company, Sanjay considers last one year of large scale merger and integration programme as the most successful assignment he has driven in his career. In fact, one year back, board of directors of this company had decided to acquire two new next generation telecom company simultaneously, operating in the same business segment to yield synergies from economies of scale and scope, best practices, the sharing of capabilities and opportunities. These two companies are Sequence Technology, a 70 million dollar next generation six years old company operation in internet protocol domain and Emarin Inc, another 55 million dollar US based company operating in mobile technology domain. This merger and integration become more critical since the product of all three companies are young next generation knowledge workers and that collectively accounts 24,000 plus as on date. All three companies together hired some 7500 employee in 2006, but expect to hire 10,000 plus this year and 18,000 in 2008. Much of this recruitment is aimed at hard-to-find experienced telecom engineers, especially important in the high technology business where cutting edge knowledge is extremely valued. The most intractable challenge is that there are never enough competent or well trained people to go around. Just as competition for the best talent has grown, the talent dynamics has also changed, beside large number of graduates masks low numbers of truly high-quality candidates.
Human Issues with Merger: From there past experience, stakeholder as well as large number of employees of Questra Technology knows very well that mergers are risky. Ironically, five and a half years back the same company had undergone its first merger initiative that has remained highly painful for many. Though ultimately the deal was successful, but company had encountered several issues related to post merger integration.
Naveen Tandon, a senior manager having spent more than eight years in the Questra Technology believes that several employees resisted change at that point of time because they feared negative consequences. Unless employees know how the merger going to affect them, they will resist such move. But that does not mean employees do not support merger. Instead, resistance may indicate that employee do not understand the merger and how it affects them personally. Moreover, downsizing and consolidation of employees are normal after mergers, as management tries to eliminate redundancy. Because the merger threatens their careers and jobs, employees worry about their future. When faced with loss of employment, they may suffer identity crisis. Many a times communication by top management stops while they try to figure out what they are doing. Further, merger puts middle management in real confused state. Their subordinate look to them to clarify policies, procedures and responsibilities before top management decides those matters. In addition, questions are being raised on whether the acquiring company imposes the policies and procedures on the acquired company or vis-versa. Inevitably, employees may see the other company’s policies as arbitrary, unreasonable or less effective than their own policies. A battle may follow over which policies survive. In addition, many employees may believe they must choose between taking care of themselves and supporting the company. They may also have loyalties to specific senior executives. Senior management may try to protect their employees and their team. Consequently, many employees view the merger as a catastrophic event.
Sharad Goklani, another senior manager who has also spent nine years with the company has different story to tell. He found that role and responsibilities change when companies merge. It may not be clear who is in change, who makes decisions and what authority employees have. Many aggressive employees seize the opportunity and assume they are better off asking for forgiveness then for permission. Some other passive types wait until someone in authority clears the confusion. Without clear roles and responsibilities, productivity suffers as employee postpone work until they know who is supposed to do it. During last merger he also found that, many employees choose the certainty of a new job over the uncertainty of staying with the merged company. They may leave because they feel betrayed. Whatever the reasons, expect employees turnover to rise. The irony is that better employees are the ones that leave because they can find other jobs easier. The deadwood often stay because they do not have other options. This increases the danger of turnover within the company. It may represent a deterioration in the quality of employees.
Ironically, all top executives of Questra Technologies are fully aware of all such issues. Inevitably, this time they decided to spend as much time addressing “employee” issues such as integrating cultures, managing talent, sharing knowledge and retaining key employee as they do on cost savings, merging processes, technologies and divisions. The entire senior management identified talent retention as their biggest challenge in leading the integration process, followed by making the deal generates long term value.
Key Decision Making Process: To begin the entire employee restructuring initiative, the company decided to make lot of critical decisions even before the announcement of the transaction. Therefore the company was able to come to the table immediately and that served to reassure the employee affected by this [merger] that it was a well-thought-out and well-planned one and not just an opportunistic activity that the company had to figure out. Company named Sanjay Gupta as the Integration Officer right up front. In his role, one of the first set of decisions that Sanjay had to facilitate with CEO was who would occupy which top executive positions in each department, group, location and division. In other words, the most crucial decision, the appointment of top executives, comes earliest in the process. For each top executive position, Sanjay Gupta came across with at least 2-3 strong contenders. He is very much aware that any negligence at this stage may even sank the entire merger deal as it happened with high profile Glaxo and SmithKline Beecham merger announcement during 1998. Therefore it is very much important to keep all potential influential internal players on the radar screen, without losing sight of their interests or their capacity to affect the deal. What is “rational” for the whole may not be so for the parts. He quickly made a detailed exhaustive comparative analysis of all the contenders and presented the same to the CEO. CEO, Mr.Philip Mathew immediately finalized the name of the best contenders from the panel. On the basis of this decision, all top executives from the three companies decided to meet and develop a list of employees indispensable to the new re-organized Questra Technology. Commenting on this process, Mr.Philip Mathew, CEO said that the top team went through the organizational structure line by line and said “who are the key employees we need to make sure we keep?” He further added that “you have to identify the good performer very early on, even when it’s at any level of the company. Having good employee leading the effort make all the difference in the company. However bigger challenge is to develop a merit based objective criteria acceptable to all stakeholders and implement the same across the company at the earliest”. Within next three days, the team came out with short-listed employees name and on that basis one top executive for each division made responsible for managing the business of keeping key employees on the board. To facilitate the entire process, Sanjay Gupta and his team worked with other top executives in developing a detailed matrix of all the key employees to keep track of the entire process.
Eventually, on the day of the announcement, top management had a detailed master list of the key employees. Sanjay Gupta with other top executive immediately got in front of the newly acquired employees and therefore top team met almost all the key employees that day at the shop floor. The top team stayed in front of the key employees as long as they wanted them to stay, and explained the fundamentals of the merger in detail beside how company would be dealing with this entire process in future. All the top team members were very candid, up-front, and open. There were many employees located outside headquarter in several remote international locations in different countries due to their nature of business. The top executive team got in touch with almost all such employees through phone and internet within two hours after the announcement of the deal. During their conversation, Questra official said that “we want you to know that we are really excited about this acquisition and you are a key part of it. We are going to have a meeting in your place within next couple of weeks and we want you there because we want to tell you why we made this integration and how important you are”. Commenting on this process Mr.Mathew said “you have to be in front of employees very fast, communicate extensively, and tell employee what you know long before they come across with rumors, though many critical informations cannot be disclosed at any time. Moreover, you need to communicate what you do not know, and assure them that when you do know it, you will tell it to them.”
However this process also faced many serious issues, especially from the hostile and average performers faction. Many such employees asked “we are the acquirer, not the acquired, so why we are loosing our job?” Further, it was found that the employees who were coming from the acquired company had very good experience of working for that company and therefore many such employees started asking “Are they going to value us in the long term future? Are they going to behave in a highly professional manner? Can I trust them for high standard of professionalism?” However Sanjay Gupta believes that the focus of Questra Technology is to make the new employee feel well about their expertise without alienating the existing employee. According to him, to keep good employee, the assessment and selection process must precede as quickly as possible. By rolling out right assessment process and by implementing the same throughout, company can keep unwanted turnover to a minimum and improve its chances of making merger and integration successful.
Communication Programme: Having successfully completed the first phase of merger process, Questra management believed that the situation is very much fragile and an extensive communication programme is the need of the hour that can stabilizes various issues and concern areas. With this objective, company launched a detailed employee communication initiative which includes a statement of guiding principles and policies on employee relation processes beside other critical HR policies. It is believed that such a statement helps ensure consistent standards for managing employees in the entire company and powerfully communicates its new goals and values. Management also decided to tailor the statement to the merger deal to match the same with the guiding principles. Some of these statements are:
i. We seek to capitalize on the strengths of both companies in the employees selection process,
ii. Employee selection will be strictly meritocratic, depending solely on how well the competencies, and experience of the candidates suit them for the positions in question,
iii. A Committee consisting of the CEO, the head of HR and other top executives will review all conflicting cases etc.
Further, company also organized several workshops, interactive sessions, presentations etc to develop a mutual understanding on the entire merger process during next few months.
New Culture Formation: While launching company-wide communication programme, Questra management also very quickly decided to launch a new culture formation initiative across the company. According to them, this process will influence the performance of the company, since it determines the way company tackle issues and challenges, the way employees interact with each other, the way company interacts with its various stakeholders, employees commitment to business etc. They also believed that integrating cultures are much harder to achieve, however, in the long term they promise much better results. Mr.Mathew, CEO of Questra Technology believes that it is necessary to harmonize and to communicate all other elements that influence culture, e.g. learning and development, hiring and recruitment, performance management, employee engagement and empowerment initiatives etc. He further believed that to avoid the backward looking “We Vs Them” – thinking, it is advisable to form new teams with employees from all three companies. This new culture should include the best elements from all three companies. On the basis of above guidelines, Questra management carried out a detailed analysis of all the three companies culture. This analysis includes detailed diagnosis of existing culture, value systems, norms, differences and common elements of all the three cultures, identifying cultural barriers, the basic ingredients of new culture, establishing “linkages” among all three companies to achieve mutual understanding etc. This analysis has helped Questra management to evolve a detailed road-map for immediate implementation. This road-map includes identification of best value systems from all three cultures, critical diversity issues, development of detailed code of conduct including positive and negative behaviour for all stakeholders, a detailed action plan for incorporation of above code of conduct in all HR systems and procedures within the specified duration.
New Team Formation: Once company launched new culture formation programme, Sanjay Gupta and Philip Mathew decided that their immediate next priority is to incorporate all employees into the activity of re-organized Questra Technology. This is definitely not the same as communicating or motivating employees. It is reintegration. It means engaging employees as meaningful contributors (not just employees) in the strategic challenges facing the company. It means considering employees as stakeholders who decide each day whether or not to contribute the extra amount of additional energy that differentiates the company from its best competitors. Although Questra Technology shares such idea of participatory management, employee involvement, and self-managed teams, it is something more. Its distinct advantages include the use of concrete, emerging business issues to generate a sense of urgency; the cascading influence of every employee starting at the very top of the company and continuing down through the organizational levels; and the creation of influence generated and carried out by employees across hierarchy and function. With the above priority in mind, Mr.Philip Mathew and Mr.Sanjay Gupta scheduled a four day off-site engagement programme and asked all 125 of Questra’s re-organized senior and midlevel managers to attend.
Senior technocrat of a middle management strategic initiative team kicked off the meeting with a brief presentation of three key focus areas aimed at repositioning Questra and leveraging competitive advantage. The first key area focused on creating and improving partnership with the large customer base of newly acquired Sequence Technology and Emarin Inc, thus creating opportunity for and putting their competitors at a disadvantage. The second focus area was to integrate the business processes of all three companies and the third was to offer an integrated product and service offering to its customers. As part of the next strategy, small groups were formed and members were then asked to identify the critical dimensions in these strategic focus areas. There were several requests for modifications and improvements from the members when all the group reconvened, but at the end there was general agreement with all the ideas. The next step was an internal assessment and evaluation. One component of strategic structure and processes were divided among each of several large teams and subsequently analyzed how it might affect all the three focus areas. During the concluding session, when this analysis were shared with the larger audience, it was very much clear to most employees that Questra’s business strategy would be seriously influenced by the new initiative. In due course of time, many of Questra’s employees become aware of the changing competitive pressures influencing the company and were encouraged to take part in developing a response. Mr.Philip Mathew believed that such encouragement is the aim of any well-designed integration process. On the other side of the meeting, as junior level managers gained good knowledge of business priorities and saw where Mr.Mathew wished to take the company, the vast majority of them bought into the plan, which left hostile managers isolated and exposed. One such senior manager, recognizing that his hand had been called, chose the last twelve minutes of the meeting to focus his differences with Mr.Mathew publicly. Mr.Mathew sacked him one week later – a firing at Questra, where this sort of thing was never done. Commenting on the same Mr.Mathew said that he fired the manager not for disagreeing but for never disagreeing in the past or at any time during the meeting except in the penultimate minutes. Most Questra employees accepted this explanation. Rather than create a fear of openness, the termination of a manager widely seen as an opponent of change was appreciated as a defining moment in the development of the larger involvement and higher commitment that is in demand.
Having successfully organized this meeting, Mr.Mathew organized a two day off-site event for select operational level front-line employees. In this programme, 75 plus employees split into smaller groups of peers from each of the major functional groups from the re-organized company. At this meeting issue was the new concept proposed in the last strategic meeting. Mr.Mathew’s objective was, first, to give customers a single point of contact with Questra and, second, to develop the customer service team to break bureaucratic hurdles and delight customer needs. Mr.Mathew is of the opinion that, it is very difficult to shift and develop capabilities so quickly that customer service team will be able to break deadlocks and redeploy resources. This is the area, the company found most difficult to improve during last few years. Therefore in this current meeting, each functional team is asked to write a description of its grievances with any of the other teams in the room, pinpointing what it does to improve efficiency and what is likely to get in the way of a successful customer service team. Subsequently, all teams are given time to discuss all the grievances they received and then select five issues they think specially important to resolve. All the teams then met for two hours to come up with a detailed plan for development of action that can be executed within next four to six weeks. Each team was also asked to name a member of its team who will be accountable for delivering the action. As a result, during concluding meeting, each employee presented a detailed action plan for implementation. Mr.Mathew believed that the good use of these and other frameworks, over the period of last one year has helped Questra Technology to foster a new level of energy, a new level of integrity and commitment of its employees , a new kind of engagement and empowerment with a very strong passion for learning that is the most critical component of a great company.
Structural Changes:- Integration does not begin and end with few off-site meeting, however effective it might be. Mr.Mathew’s next move was structural changes. Looking into the fast changing talent dynamics, he decided to make several changes in the newly formed organizational structure. According to him, success at a traditional company means climbing to one of a few top positions – and probably helping others aside in the process. Off late in many large organizations this process has failed to encourage and stimulate youngsters especially top class performers. To combat this development, Mr.Mathew decided to make the organizational structure flexible enough to accommodate all high performing individual. He believed that growth should not just be up the ladder or depend purely on acquiring managerial competencies. Another productive growth path is horizontal and progressive organizations have created lateral paths that allow employees to broaden their competencies within their disciplines and roles. Many globally admired companies have instituted technical mastery programmes to allow individual contributors and specialists to develop their expertise and competencies and to be paid and recognized for it. This means employee can advance based on their ability to learn rather than have to change jobs or be promoted to get ahead. According to Mr.Mathew, they are also consensual in style, which is important when managing highly talented individual. The idea of consensual management help to encourage ownership, networking and cooperative behaviour though decision making and innovation can be a lot tougher when many people have to be consulted.
Employee Development Initiative: In the subsequent stages company launched few other unique employee engagement initiatives. In one such well accepted initiative company decided to identify competencies needed for a gamut of roles, each of which carries a rating from one for beginner to five for a master. The idea is that in this industry, junior employees have limited influence over their assignments but they are the most precious resource. Looking into this emerging trend, Sanjay believed that they must be given a clearer idea of how their career might shape up and greater control over it. Using this, soon employees were in a position to view not only a profile their competencies but also what competency they need to acquire in order to move into a more challenging positions. Many of the trainings and development initiatives were delivered through internet. By giving employee more control over their career development, top management recognized that an overly aggressive “stay or move” approach is risky strategy when competency and talented employees are in short supply. Sanjay further added that “not everyone will be a senior employee, but they can still be extremely valuable to the company.”
Moving forward, Questra Technology has also launched a programme called “Fast-Track”, which identified 15 career milestones on the path to becoming a senior management executive, each of which triggers development activities. Further, an unique two months residential course for a hand-picked group of would be senior executive from across the company also received very high acceptance among large number of employees. As per the programme employees are expected to keep learning and networking after they have been made a senior executive too. To keep employees happy and energized, company also launched another programme to help prepare partners for life outside the company, beside helping them to enhance their competencies. In addition, recently launched programmes to keep the company in touch with the former employees, offering more flexible career paths and making employee development an explicit part of the incentive system for senior executives has also received well recognition.
Conclusion: What was the outcome of this year long initiative? “One hundred percent retention of key talent”-said Mr.Philip Mathew, CEO of Questra Technology. Today, when Sanjay Gupta is preparing himself for the last and closing review meeting of post merger integration programme, he realizes that a systematic and well planned initiative can always ensure smooth and highly successful transition of the entire integration process. To make this types of transition highly successful, top management executive of any company must ask some hard people related question to themselves such as whom to integrate? Integration are about changing not only processes and strategies but also people. They must identify key role that will have to be integrated to support the objectives of the merger and integration process. Globally, often it was found that company executive get excited about a merger and drive straight into initiatives wrongly assuming that one speech from CEO will get everyone on board. Further, a dynamic integration programme always helps to make employees understand what must change and why. The organization structure, systems, processes etc must align employees with the goals of the integration plan by rewarding certain behaviour and discouraging others. Only motivating employees to perform is not enough, they must also be motivated to change themselves and the company. Moreover, if of large number of cases it was found that merger and integration generate excitement and hope in their early stages, but the leaders driving them fail to maintain that energy and channel it behind strategic intent. Unless, people receive clear guidelines and an understanding of how they themselves can participate to the overall goal, their energy will deplete rapidly. This energy can be fully utilized if top executives actively drive the pace of integration, embrace it in specific ways, make it personal, and ensure that the company takes full advantage of emerging opportunities to improve individual and organizational competencies. Top executives must realize that competency development helps fuel new energy when other aspects of the process start feeling routine. Integration initiative that involves learning and growth, can be extremely powerful.
Author: Joydip Dey is a Post Graduate from X.L.R.I. Jamshedpur, India having more than 16 years of complex industry experience in next generation companies and currently Vice President-Human Resources in a Fortune 500 Company based in New Delhi, India. He can be reached at deyjoydip@rediffmail.com
