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 PerformanceManagementStaffingCompensation,Benefits &RewardsEmployeeCommunication OrganizationDesign & StructureBusinessStrategy & AlignedCulture LeadershipEffectiveness11
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”
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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 IntegrationPerformGapAnalysisDesign DesiredCulture
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Top Team Workshop
Validation/ OwnershipCustomer StrategyAssess Current Culture
------------Interviews
Focus Groups
Culture AuditBusiness ObjectivesDISCOVER
Defining
Organizational
CultureImplement Culture Change Programs
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Training
Org. Dev.
Communication
MeasurementDELIVER
Reinforcing
Organizational
CultureKnowledge sharing, involvement, and communicationsDevelop Culture Change Programs
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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
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28. New Core ValuesOrganisation
Bottom-line driven
Employee oriented
Teamwork
Technology leveraged
Customers / Stakeholders
Customer service quality
Objectivity and integrity
Product innovation
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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
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.
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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.
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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
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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