• 1. 14 March 2002, Shanghai Kwan Chee Wei Director Human Capital Group Watson Wyatt Singapore The Importance of Cultural Integration in Mergers and Acquisitions
    • 2. Agenda M & A Statistics A Case Study WW’s Approach to Cultural IntegrationWhat is Culture?Q & A 2
    • 3. AgendaM & A Statistics A Case Study WW’s Approach to Cultural IntegrationWhat is Culture?Q & A 3
    • 4. ‘Cultural & People’ Issues Often Present the Biggest Challenges“The hard stuff is easy - it’s the soft stuff that’s so hard to change.” - Frederick Smith CEO, Federal Express4
    • 5. Watson Wyatt M & A Survey 1998 (190 CEOs, CFO, Top Executives) 75% are clearly disappointing or outright failuresSource: Watson Wyatt Worldwide M&A Survey, November 199850% suffer an overall drop-off in productivity in first 4-8 months47% of acquired company executives leave within the first year; 75% within the first three years“People problems” are cited as the top integration failure factor by a sample of 45 CFOs from Fortune 500 companies who have recently merged/acquiredOnly 23% of all acquisitions earn their cost of capitalOn average, management grade the financial performance of their alliances as a “C minus” (on a scale of A to E)5
    • 6. Corporate culture is identified as one of the most important integration issues Source: Watson Wyatt Worldwide M&A Survey, November 1998Activities required for “successful” integrationDownsizingRedeployment of workersRecruitment of new staffRetraining workforceAlignment of comp & ben progLabor relationsManaging resistanceIntegration of corporate culturesRetention of key managersRetention of key talentCommunication37%40%59%57%36%63%78%88%91%90%010203040506070809010036%6
    • 7. Cultural incompatibility is the biggest problem, yet results indicate that it is the area least likely researched during due diligence.46%47%54%56%72%72%82%86%01020304050607080Organizational culture and dynamics of changeWorkforce potentialHR policy mattersMajor shareholdersManagement capabilities and willingness to cooperateFinancial aspects of HR functionMarket share, distributionHard assets90100Technological and business competencies75%Percentage of companies citing the type of information gathered during due diligence Source: Watson Wyatt Worldwide M&A Survey, November 19987
    • 8. Reasons for successful integrationSource: Watson Wyatt Worldwide M&A Survey, November 1998Percentage of companies citing reason for success8%41%31%37%52%70%Shared responsibility of costs involvedEarly mgt of “What will happen to me?” employee issuesCultural compatibilityMutual agreement of road map by partnersExpedient integrationWell planned communication throughout the deal processLeadership010203040506070809010035%8
    • 9. Additional M & A Statistics 1992 (Coopers & Lybrand) :- In 100 failed or troubled mergers, 85% of executives who were surveyed said the major problem was differences in management style and practices.1996 (British Institute of Management) :- reported the difficulties involved in merging two cultures to be a major factor in M & A failures.1997 (A.T Kearney) :- reviewed 155 M & A deals and determined most failures to be people-related. Hewitt Associates - 69% of respondents in 162 organizations involved in M & A reported the top challenge to be integrating two organizational cultures. 9
    • 10. How integration is handled will make the difference between success or failure ...Earlier realization of financial “deal” goals (e.g. cost synergy, strategic initiatives) Protect productivity Maintain customer focus Smoother transition Employees are focused on their jobs and not on personal issues10
    • 11. Organizational Effectiveness Levers Career Development Performance ManagementStaffingCompensation, Benefits & RewardsEmployee Communication Organization Design & StructureBusiness Strategy & Aligned Culture Leadership Effectiveness11
    • 12. AgendaM & A Statistics A Case Study WW’s Approach to Cultural IntegrationWhat is Culture?Q & A 12
    • 13. What is culture?Definition of Culture: The attitudes and benefits about something that are shared by a particular group of a people or in a particular organization (Longman) The set of important assumptions that members of a community share in common (e.g Schein)Simply put :“ Corporate Culture is the way you do things in your organization” 13
    • 14. Reflects “What is tangible”, e.g. Organisational structure & processes Policies & procedures Physical environmentReflects the “Way we do things”, e.g. Degrees of collaboration Decision-making patterns Approaches to process improvementComponents of CultureValues have little meaning unless they bring about specific behaviors ...VISIBLECore ValuesBehaviourINVISIBLEattitude14
    • 15. Implementation PlanImplementation PlanImplementation PlanThe implementation plan will encompass initiatives to create and support these behaviors.Core ValuesBehaviourThe best way to achieve culture change is to focus on desired behaviors ...15
    • 16. AgendaM & A Statistics A Case Study WW’s Approach to Cultural IntegrationWhat is Culture?Q & A 16
    • 17. Our Approach to Cultural IntegrationPerform Gap AnalysisDesign Desired Culture ------------ Top Team Workshop Validation/ OwnershipCustomer StrategyAssess Current Culture ------------Interviews Focus Groups Culture AuditBusiness ObjectivesDISCOVER Defining Organizational CultureImplement Culture Change Programs ----------- Training Org. Dev. Communication MeasurementDELIVER Reinforcing Organizational CultureKnowledge sharing, involvement, and communicationsDevelop Culture Change Programs ------------- Leadership Development, Culture Change Teams & Learning & DevelopmentINVENT Developing Organizational Culture17
    • 18. Agenda M & A Statistics A Case Study WW’s Approach to Cultural IntegrationWhat is Culture?Q & A 18
    • 19. A Case Study: Background InformationTwo organizations merged to form a new entity Both organizations existed as government statutory boards with regulatory functions New company got listed on the local stock exchange with a clear bottom-line objective New company aims to be performance-driven, improve competitiveness and grow through strategic partnerships19
    • 20. Interviews Focus Groups Management WorkshopBest Practice ResearchInterviews Focus Groups Corporate Culture Audit Current Culture List of Desired Values Behaviour IndicatorsCulture Development Programs Desired CultureThe Process of Culture Development 20
    • 21. Mission # 1 in the region Customer Focused Profit DrivenInternal Environment Professional and flexible Better decision making process Clear Performance - based rewards More Inter-department collaboration Tailored employee communication Strategy Bottom-Line orientation Profitable products and services Cost efficiency Market confidence Expansion into other markets Strategic alliances Service efficiency Technology is importantExternal Environment Intense competition Increasing customer demands and sophistication Leveraging leading-edge technology Core Values??What is the Current Culture?21
    • 22. Defining the new Core Values Strategy Mission Internal Environment External EnvironmentCore Values??22
    • 23. Core Values: Customer service quality Bottom-line drivenDefining the Core Values # 1 in the region Customer focused Profit drivenMissionCore ValuesMissionStrategyExternal EnvironmentInternal Environment23
    • 24. Core Values: Bottom-line driven Objectivity and integrity Product innovation Customer service quality Technology leveragedDefining the Core Values Bottom-line orientation Profitable products and services Cost efficiency Market confidence Expansion into other markets Strategic alliances Service efficiency Technology is importantStrategyCore ValuesMissionStrategyExternal EnvironmentInternal Environment24
    • 25. Intense competition Increasing customer demands and sophistication Leveraging leading-edge technologyCustomer service quality Speed and efficiency Flexibility Technology leveragedCore Values:External EnvironmentDefining the Core ValuesCore ValuesMissionStrategyExternal EnvironmentInternal Environment25
    • 26. Professional and flexible Better decision making process Clear performance - based rewards More inter-department collaboration Tailored employee communication Internal EnvironmentDefining the Core ValuesCore Values:Core Values: Employee of choice Efficient decision making - initiative, flexibility Objectivity and integrity Open communication TeamworkCore ValuesMissionStrategyExternal EnvironmentInternal Environment26
    • 27. Mission Customer service quality Bottom-line driven New set of Core ValuesInternal Environment Employer of choice Efficient decision making - initiative, flexibility Objectivity and integrity Open communication Teamwork Strategy Bottom-line driven Objectivity and integrity Product innovation Customer service quality Technology leveraged External Environment Customer service quality Speed and efficiency Flexibility Technology leveragedNew Set of Core Values 27
    • 28. New Core ValuesOrganisation Bottom-line driven Employee oriented Teamwork Technology leveraged Customers / Stakeholders Customer service quality Objectivity and integrity Product innovation 28
    • 29. Interviews Focus Groups Management WorkshopBest Practice ResearchInterviews Focus Groups Corporate Culture Audit Current Culture List of Desired Values Behaviour IndicatorsCulture Development Programs Desired CultureThe Process of Culture Development 29
    • 30. Reinforcing New CultureDesired CultureCommunicationPerformance ManagementCulture Development Initiatives Performance Mgmt Plan Total Rewards StrategyCulture Development TeamLearning& Development PlanCommunication PlanLeadership Development Plan30
    • 31. Employee acceptance and support was enhanced through a comprehensive communication planKnowledge sharing, involvement, and communications Phase ScopePurposePhase 1Awareness Building"This is what is happening"Company-wide* Link change initiatives with strategic plans* Give specific information about the process.* Announce senior management's involvementPhase 2Program Status"This is where we are going."Company-wide* Demonstrate senior management commitment.* Identify managers' and employees' issues.* Gain information from pilot tests.* Provide the "big picture".Phase 3Roll-Out"This is what it means to you."Program Specific* Provide specific information on the changes being made and how they will affect people.* Provide training in new roles skills and methods.Phase 4Follow-Up"This is how we will make it work."Team Specific* Listen to and act on manager's and employees' needs to implement changes.* Refine changes to ensure success.31
    • 32. Communication PlanCommunication of Core Values to ALL employees Core Values statement Video from CEO Divisional briefings Incorporate into orientation for new staff Incorporate into Performance Management training via competency model32
    • 33. Performance ManagementUsing the Balanced Scorecard approach, we helped develop the organisation scorecard develop the departmental scorecards define the performance targets Developed a competency model based on Core Values Performance management training for all employees33
    • 34. Recognition ProgramsBonuses/IncentivesIndividual MeritBase PayBenefitsPerformance Results-Related ProgramsCore ProgramsStockTotal Rewards Strategy34
    • 35. Culture Development InitiativesLearning & Development PlanIdentify organisational development needs Develop learning and development plans that link to business and strategic objectivesLeadership Development PlanConduct one-to-one sessions with management team members to develop individual leadership development plan Culture Development TeamsBuild cross-functional teams WW facilitates the interactions, planning and decision making of the teams Encourage and appraise the demonstration of desired behaviours35
    • 36. Leadership Development Plan“Leaders walk the talk.”The degree to which the Top Team accepts the change plan as the best one under the circumstancesThe degree to which the Top Team accepts the new culture as being in line with their personal goals.The competence of the organization, in terms of abilities, systems, infrastructure in achieving the change plan.The extent to which the Top Team shares the interpretation of the new culture.In any change initiative, the critical point is to give people the competencies they need to make change happen. This should start from the leadership team who needs to act as Role Models. Through a self assessment, we assisted members of the senior management team to build an individualized leadership development plan. 36
    • 37. Learning and Development PlanLEARNING AND DEVELOPMENT provides the knowledge, skills and the information sharing forum to help employees change their behaviors to match the culture and vision. Tackles the areas needing development in the whole organization. The training or development might take several forms: project work, customer visits as well as classroom training. We identified the organization-wide gaps and a development plan to bridge them. We then monitored the implementation of the plan. 37
    • 38. Teams created within each Business Unit to address existing barriers that prevent the desired culture from being demonstrated. Issues may involve: rules and policies goals and measures physical environment organizational structure HR culture teams can address these issues: staffing and selection training and development ceremonies and events rewards and recognition Culture Development TeamsCULTURE DEVELOPMENT TEAMS instill new culture,values and behaviors by solving critical business problems, caused by old work culture and thinking, that prevent us from most effectively supporting the strategy.38
    • 39. Organization MeasurementSurveys“We keep a continual pulse check on whether we are staying true to our culture/ vision.”MEASUREMENT Regularly tracks the current state and progress to enable readjustment of goals and methodsMethods might include: Culture Audits 360 Degree Feedback Employee Opinion Surveys Customers Surveys 39
    • 40. Lessons LearnedImportant to get the CEO’s personal involvement in culture development or any other major HR initiatives Understand the CEO’s style and personality and adapting the approach accordingly. Intimate involvement of client (HR team) at all stages of project e.g. getting their sign off on any communication documents interview questions presentation slides liaison for all meetings Be open to changes in project scope and deliverables40