Set Expectations

GOAL: Ensure that employees, the press, and investors
perceive the merger as successful.

If you don’t set appropriate expectations of what
constitutes success — and how it will be measured —
employees, investors, and the business press will make up their own metrics and
then hold you accountable for them. “It’s entirely possible
for a merger to actually be successful and yet not be perceived as successful,
simply because the marketplace set an unrealistic expectation,” says Dave
Mack, CEO of Technology Business Research, a high-tech analyst firm. “HP’s
acquisition of Compaq was originally viewed as a failure because top management
failed to adequately explain that it would take half a decade to build true
synergy.”

Once the merger is public, immediately be clear, through public
announcements and briefings, about what the merger is to accomplish and how
success will be measured. This creates a
sense of momentum and gives a company enough time to absorb new employees and
products, according to high-tech analyst Rob Enderle of the Enderle Group. He
contrasts HP’s initial bungles with the relatively seamless way Oracle
managed its recent acquisitions of PeopleSoft and Siebel Systems. “[Oracle
CEO Larry] Ellison made it perfectly clear that these were long-term plays that
would gradually strengthen Oracle’s market position,”
Enderle says. “As a result, the analysts have been generally
forgiving of the fact that the company’s product strategy isn’t
as coherent as it was prior to the acquisitions.”

Resolve Differences in Management Style

GOAL: Understand the business culture of the acquired
company and allow it to coexist with your company culture.

If you’ve done your due diligence prior to the merger,
you should be reasonably assured that the acquired firm will blend with your
existing organization. Even so, there are likely to be some lingering
differences of management style inside the acquiring firm that may seem
confusing or hostile to the new employees. If such differences fester, it can
cause an exodus of talent. According to Brad Finn, former president of the
Mootsies Tootsies division of women’s and girls’ shoes at
Maxwell Shoe and currently president of Marlboro Corporation, when Jones
Apparel acquired Maxwell, “there was a complete lack of respect for
how we operated. Our culture was individualistic and goal-oriented, but the
head of Jones’ shoe business told us right off, ‘We don’t
need any mavericks around here,’” he says. “That
was a pretty strong clue that this wasn’t the right place for me to
be working.”

To nip such problems in the bud, resist the urge to immediately
cram two organizations together simply because they’re in the same
general market, says Rob Salvagno, a senior director in the corporate
development group at Cisco Systems, which has acquired 126 different firms
since 1993. “Acquiring a small company demands tighter and faster
integration than a major acquisition of an entire suite of products and
infrastructure,” he explains. He cites the example of Cisco’s
recent acquisition of consumer networking giant Linksys. “As a
consumer-focused firm, they naturally had a somewhat different culture than the
parts of Cisco that are business-focused,” he says. “We
therefore allowed them more latitude and independence than if they were a
simple technology buy.”

It doesn’t hurt that Cisco treats acquisition as an
innovation strategy equal to internal R&D. “Approximately a
third of all VP-level positions are held by executives who came into the
company through an acquisition,” Salvagno says. “They’re
more willing to embrace ideas and welcome personnel that come into the company
in the same way.”

Orient New Employees

GOAL: Quell rumors, forestall an exodus, and build
enthusiasm for the new organization.

Every day into a merger that you leave newly acquired employees
in a state of limbo leeches value from the deal. Work grinds to a halt while
everyone, predictably, updates their resume. “People are irrational
when it comes to their perceived value to the company and the implications of
change on their career,” says Kerry Gumas, CEO of Questex Media
Group, a B2B media services company that’s grown through a series of
acquisitions from a startup to a $130 million a year business.

“There are three dimensions to every change:
emotional, political, and rational,” adds Robert Gray, who previously
headed up the strategic transactions practice for consulting firm BearingPoint.
Gray recommends a management-sponsored orientation for all employees within two
weeks of the deal close. The orientation should provide a thorough introduction
to the new corporate entity. “The political dimension will play out
over time through internal meetings, but getting started on the right foot can
answer most of the rational questions that people have and help them cope with
the inevitable emotional challenges,” he says.

Gumas suggests setting a tone at the orientation that reflects “the
flavor and essence of what the company is all about,” as well as
using the event to set expectations about the corporate relationship. For
example, if the new company is less formal than the old, the orientation might
include opportunities for employees to talk directly to top management, either
one-on-one or in small groups. In general, it’s a good idea to keep
the obligatory speeches short and end with some kind of celebration that
mirrors the culture of the acquiring company. When one division of Honeywell
absorbed another division some years ago, they celebrated by handing out
bottles of “bulldog beer” in honor of the new division’s
corporate logo, a bulldog sculpted from electronic components. Since the
acquired group consisted mostly of young programmers, the gesture was quickly
consumed and much appreciated.

Realign and Restructure

GOAL: Quickly shed duplicate overhead and position for
future growth.

Except in rare cases, a merger always results in redundancies,
which mean (at best) reassigning people, and (at worst) laying off employees.
Even if the acquired firm will be operating as a separate entity and staffing is
to remain at pre-merger levels, there will be changes in reporting structure,
internal operations, job roles, and probably job titles.

It’s generally impossible to make such decisions
without getting to know and understand the details of what’s working
(and what’s not) inside the existing organizations. The new
management should quickly analyze the new organization, and any other
organization that is affected by the merger, and devise a restructuring plan
that at least looks likely to deliver on the promise of the merger, says Mack
of Technology Business Research.

What’s important here is speed rather than perfection,
according to Willy C. Shih, senior lecturer at the Harvard Business School and
former vice president at IBM, Digital Equipment, Silicon Graphics, Kodak, and
Thomson. “Any time there’s a layoff, you need to put some
structure around that very quickly and get it stabilized,” he says.
The best way to do this is to publish an organization chart, with roles and
responsibilities framed as clearly as possible — even though that
structure is likely to change over time. “The worst thing you can do
is to restructure a little at a time,” Shih says. “You
really need to make your cuts, get them behind you, and then get some stability
in the organization so that it can function again.”

Integrate the Computing Infrastructure

GOAL: Make certain the entire organization can
communicate and collaborate.

Every organization comes with technical baggage that must be
adapted to fit the new corporation. This means spending money to get the
computing infrastructures working together, according to former Bristol-Myers CIO
Jack Cooper, who was involved in nearly a dozen major acquisitions at the
company. “Integration can be a major hidden expense that’s
seldom included in the cost-analysis for the merger,” he says. “Even
when fully funded, such projects can take time, especially if they involve
significant back-end programming and the retraining of an entire staff.”

The trick to merging infrastructures is to move the project
forward in logical steps, according to Cooper. “Start with the email
system and office automation because that’s relatively simple and
standards-based,” he says. Then move to either the sales or
manufacturing automation systems, depending upon which function is the most
mission-critical.

Warn employees that technical glitches may occur. “It’s
going to take time and there’s going to be some frustration,”
says Gray, formerly of BearingPoint. “Don’t let your IT
workers become the whipping boys for the merger by failing to fund and schedule
the necessary technical work.”