Change Management in a Post-Merger & Acquisition Environment

September 17, 2004


Table of Contents

Introduction                                                                                                             1

Overview                                                                                                                    2                     

Section 1: Corporate Culture                                                                                     

           The Importance of Corporate Culture                                                               3

            Organizational Perspective and Analysis                                                        3

            Managing Cultural Integration                                                                       6

            Molding the New Corporate Society                                                              6

Section 2: Process and Procedure

            Cultural Influence                                                                                           7

            Objective Evaluation                                                                                      9

            Formulating Best Practices                                                                             10

            Implementation and Change Management                                                     12

Section 3: Systems Integration

            Procedural Imperatives                                                                                   13

            Technological Obstacles                                                                                 14

            Communicating Change                                                                                 14

            The Learning Curve                                                                                        15

Section 4: A Framework for Integration

            Key Principles                                                                                                 16

            Communication and Organization                                                                  16

            Impact Evaluation and Review Cycle                                                                 19

Summary                                                                                                                     20

Introduction

The purpose of this paper is to examine some of the challenges that are encountered in a post merger and acquisition (M&A), to propose change management guidelines for meeting those challenges, and to develop a general framework for success that can be applied to a broad spectrum of industries. The discussion will be conducted from an operational perspective, and limited to certain aspects as they relate to the internal workings of an organization; specifically corporate culture, process and procedure, and systems integration. The assumption made is that the merger itself has been determined to have value, and has already occurred.

The merging of two large organizations into one presents a number of daunting challenges. Understanding and applying the principles of change management is vitally important in this scenario. There exist interdependencies between the areas of concern under discussion that will drive all related undertakings and determine the level of success or ultimate failure of the endeavor. While this paper does not presume to address every issue that will affect the eventual outcome of a merger or acquisition, exploration of these key topics will provide insight to management teams that can lead to greater achievements when faced with the difficult assignment of making the whole greater than the sum of the parts.

Contrary to what some may think, these issues are very pertinent to the current business environment. The global economic slowdown that has been experienced over the last several years has accelerated, not reduced, merger and acquisition activity. The Wall Street Journal reports 123 mergers greater than $50 million per deal completed between January 30, 2004 and April 29, 2004  ("Wall Street", 2004).

The following table further illustrates the point:

Year

Net merger and acquisitions announcements

Number of transactions with purchase price disclosed

Total Divestitures

Divestitures as % of Total

Total dollar value paid
($billions)

Constant dollar value *
($billions)

1968

4462

1514

557

12.5

43.60

119.1

1969

6107

2300

801

13.1

23.70

62.4

1970

5152

1671

1401

27.2

16.40

41.7

1971

4608

1707

1920

41.7

12.60

31.1

1972

4801

1930

1770

36.9

16.70

40.0

1973

4040

1574

1557

38.5

16.70

36.6

1974

2861

995

1331

46.5

12.50

23.8

1975

2297

848

1236

53.8

11.80

20.3

1976

2276

998

1204

52.9

20.00

32.9

1977

2224

1032

1002

45.1

21.90

33.8

1978

2106

1071

820

38.9

34.20

49.0

1979

2128

1047

752

35.3

43.50

56.1

1980

1889

890

666

35.3

44.30

50.3

1981

2395

1126

830

34.7

82.60

86.0

1982

2346

930

875

37.3

53.80

53.8

1983

2533

1077

932

36.8

73.10

71.9

1984

2543

1084

900

35.4

122.20

117.8

1985

3001

1320

1218

40.6

179.80

171.7

1986

3336

1468

1259

37.7

173.10

167.7

1987

2032

972

807

39.7

163.70

155.3

1988

2258

1149

894

39.6

246.90

228.6

1989

2366

1092

1055

44.6

221.10

194.6

1990

2074

856

940

45.3

108.20

90.8

1991

1877

722

849

45.2

71.20

58.5

1992

2574

950

1026

39.9

96.70

78.5

1993

2663

1081

1134

42.6

176.40

141.5

1994

2997

1348

1134

37.8

226.70

180.6

1995

3510

1735

1199

34.2

356.00

278.3

1996

5848

2658

1702

29.1

495.00

377.0

1997

7800

3013

2108

27.0

657.10

498.6

1998

7809

3091

1987

25.4

1191.90

911.9

1999

9278

3384

2353

25.4

1425.90

1072.1

2000

9566

3757

2501

26.1

1325.70

960.7

*Constant dollar value is the annual dollar value divided by the seasonally adjusted Producer Price Index, by Stage of Processing, Total Finished Goods (1982=100), Table B-65, p. 349, Economic Report of the President, January 2001.  (Leary, p. 3)

Overview

The first and perhaps most important subject to explore is corporate culture. In a very real sense, all other topics included in this discussion are a subset of this theme. Culture is defined as “a group of people whose shared beliefs and practices identify the particular place, time, or class to which they belong” ("C", 2001, p. 348). In a corporate setting, culture is manifested in the attitudes that reflect the organizational structure, process and procedure, the mission statement, and the corporate vision. The importance of corporate culture to the enterprise cannot be over-emphasized.  “The more clearly an organization’s shared perceptions and values are defined, the more strongly people can associate themselves with their organization’s mission and feel a vital part of it” (Greenberg & Baron, 1997, p. 472).

Secondly, process and procedure dictate how the enterprise conducts its daily business and should be designed to minimize the time and effort needed at all levels of the organization in order to maximize resource efficiency, thereby increasing profit. From a strictly operational perspective, this could very well prove to be the most difficult task to accomplish, and ties in very closely with corporate culture.

Systems integration is the third and final aspect of change management that will be addressed. Although most enterprises use common platforms (e.g., Windows Operating Systems, Oracle or SAP, Peoplesoft, etc.), integrating the two infrastructures will always present a number of technological obstacles that will impact the user community, and therefore have some influence on daily operations. Just as process and procedure is closely allied with corporate culture, systems integration will affect process and procedure to varying degrees. Paying close attention to change management during the course of project implementation will be of tremendous benefit as the infrastructure evolves, and will provide a solid foundation upon which to build a competitive, profitable organization.

Section 1: Corporate Culture

The Importance of Corporate Culture

Most enterprises don’t consciously create a corporate culture; it is something that evolves as a result of the company’s policies and procedures and is most often a reflection of top management’s values and beliefs. Regardless of whether the culture is deliberately formulated from inception or has grown and developed over the lifespan of the organization, it is vitally important that the values and beliefs embraced by corporate management are clearly stated and communicated. Culture has a definite effect on the success of a corporation.  "Organizations that have strong and unique cultures generally experience excellent performance" (Gayeski, 1998, p. 1).

While establishing a corporate culture is of considerable importance from an organizational perspective, care should be taken not to undervalue the role it plays in the arena of individual contribution. Whether one subscribes to Maslow’s widely accepted needs hierarchy theory, or Alderfer’s alternative ERG theory (for existence, relatedness and growth), a corporate culture must be designed to meet the basic human needs for physical security and psychological well-being. (Greenberg & Baron, 1997).

Corporate culture is a phenomenon that should be viewed from a holistic perspective, and as an artificial construct that requires constant maintenance and adjustment.

Organizational Perspective and Analysis

"One of the biggest misconceptions about corporate culture is that good cultures just happen—that some companies luck out. " (Duffy, 1999, p. 1).

Corporations that are interested in long-term success must adopt an attitude of introspection in order to maintain a healthy organization that is capable of sustaining its competitive edge. Most companies tend to focus their attention on external forces: changing market conditions, what their competitors are doing to address those changes, new technologies, etc., without realizing the importance of examining how those changes affect the mundane activities of the organization. Management must be willing and able to realign functional business units in their organizations, and to ensure that the resulting groups share common goals and objectives with the rest of the corporation.

Management’s job is to live every business minute complying with the organization’s basic beliefs. This is the first obligation of every manager. No employee should accept a management position unless they have already lived up to these basic beliefs, and no manager should be left in a management role unless he or she lives up to these basic beliefs. (Harrington, 1995, p. 108)

Unless those beliefs are clearly defined and stated, no manager can be held accountable for compliance. As the corporation evolves and its mission changes as a result of external forces, those beliefs must necessarily evolve and change in conjunction with the organization as a whole. Periodic assessment and evaluation of an organization’s culture is the only way to ensure that the individuals that comprise the organization are aligned with the strategic goals as understood by the executive staff. This is by no means an easy task.  "To do a complete assessment is very time consuming and expensive, but when you take a look at the alternatives it is usually less expensive in the long run." (Harrington, 1995, p. 108).

The connection between corporate culture and organizational structure is undeniable. Attempting to establish cultural ideals in an organization that is not designed to live up to those ideals will be difficult, if not impossible.

Table 1 – Key Strengths and Weaknesses of Typical Organizational Structures:
(IT examples)

Organizational TYPE

STRENGTHS

WEAKNESSES

Functional – e.g.'s Applications, Infrastructure

  technical excellence

  not customer focused

  not cost effective

  tendency to lose sight of business objectives

  slow response time

Team based – service teams to address customer problems, Project teams, Cross-functional Teams, etc.

  integration

  flexibility

  response time

  lacks focus on technical excellence

  size limited

  role clarity/alignment

Networked – where there is an internal core team, and various vendors are used to supplement & support the core team.

  cost effective

  load levels

  technical excellence

  flexible

  response time

  customer focus

  competitive advantage risks

Matrixed – combination of functional and project or geographic structures which usually focus on some work task like a project.

  technical excellence

  flexibility

  integration

  role clarity

  customer focus

Divisional – focus on units to service different lines of business

  customer focus

  integration

  load levels

  cost effective

Geographic – regional

  customer focus

  cost effectiveness

  integration

  load level

  flexible

  technical excellence

What organizational design elements and supporting mechanisms do we have available to manage the downside of the organizational structure changes, allowing the selected design to achieve maximum effectiveness?

Table 2 – Compensating Mechanisms

MECHANISM – key mechanisms

POSITIVE IMPACT – use as needed given weaknesses of structure or to reinforce goals

Information technology – this is anything from effective tools deployed, to email systems, to good use of Lotus Notes and principles of knowledge management.

  Integration

  Improve communication

  Improve response time

  Improve technical excellence

  Controls

Reward systems – anything from how appraisals are done, to bonuses, to recognition systems

  customer focus

  technical excellence

  role clarity

  team work

Selection - leaders and team members

  customer focus

  technical excellence

  role clarity

  team work

Systems, processes, policies and procedures - that impact delegation of authority and empowerment

  response time

  cost effectiveness

  controls

Skill development/tools

  technical excellence

Business or field experience

  customer focus

  cost effectiveness

Partnering

  integration

  response time

  technical excellence

Integrating roles– coordinators, account managers

  integration

  rapid response

  customer focus

Spans of control & layers

  cost effectiveness – fewer of each, the lower the cost

 ("Managing the", 1998, p. 1) 

The subject of organizational structure and how it relates to corporate culture in a post M & A environment is one that demands serious attention if the resulting organization is to succeed. Neglecting the issue will result in confusion, inefficiencies, and eventual dissatisfaction among the employees. Executive management should be aware of, and actively address this very important topic as an integral part of the planned fusion of multiple organizations into one.

Managing Cultural Integration

"Every age, every culture, every custom and tradition has its own character, its own weakness and its own strength, its beauties and ugliness; accepts certain sufferings as matters of course, puts up patiently with certain evils." (Hesse, 1929/1927, p. 22).

The most interesting part of the above quote deals with the concept of accepting the lack of perfection. Should an organization expect cultural perfection? Perhaps not, but neither should it tolerate gross inadequacies within the culture to address the needs of the individuals that comprise the organization, or the entity that is created as a result of the organizational structure. Close examination of the organizations will reveal existing, as well as potential need for adjustments to the components of corporate culture.

In a post M & A environment there is a natural tendency for the larger (stronger) of the two organizations to impose its culture on the smaller (weaker), but care must be taken not to seriously disrupt the daily business routines of an enterprise that is expected to retain (or regain) profitability.

While evaluating existing cultures, keep in mind that it is not wise to automatically assume the culture of the dominant company. The strengths of both company cultures need to be explored so the best of both can contribute to the success of the new organization. And, remember, that different cultures do not necessarily mean a bad fit. When properly integrated, diverse perspectives can dovetail, bringing new-found energy and vitality to the newly-formed entity.  (Turknett, et al., 2003, p. 1)

Corporate culture is the instrument of harmonization by which each individual contributes to the common goal of the organization. Failure to adequately define and communicate what that culture entails will most assuredly result in failure to complete the corporation’s stated mission. Nowhere is this concept more important than in a post M & A environment. Cultural integration may be the single most important factor determining whether profits can be sustained and grown in companies that acquire or merge.

One study shows, in fact, that of 150 deals worth more than $500 million only 17% created substantial returns, 33% created marginal returns and 50% eroded some-to-substantial shareholder returns. Many experts say this lack of success is due in large part to overlooking the details of implementation, especially the human resource issues of personnel and corporate culture. (Turknett, Turknett, & Anderson, 2003, p. 1).

Cultural integration involves change; effectively managing cultural integration must revolve around conscious and deliberate change management. Only by addressing the changing roles of groups and individuals within the organization can the enterprise realistically expect to thrive and grow.

Molding the New Corporate Society

The most unpredictable, and therefore the most interesting aspect of merging two large organizations into one is the human factor. The coalition of diverse cultural entities invariably results in the emergence of a unique entity that not only shares characteristics with the previous organizations, but develops a personality of its own.

An organization, after all, is nothing more than a collection of human objectives, expectations, and obligations. It is, in other words, a structure of roles filled by humans. And when reorganization sharply alters this structure by redefining or redistributing these roles, we can say that the old organization has died and a new one has sprung up to take its place. (Toffler, 1970, p. 114-115)

The structure of an organization in a post M & A environment inevitably results in duplication of roles in a variety of areas, most notably in services and general administration. In order to achieve operational (and financial) efficiencies it will be necessary to make adjustments to the quantity of personnel that the combined functional groups employ, and to redefine many of the roles that are played by individuals within those groups. These changes will have a definite negative effect when viewed from the perspective of need hierarchy theory (Greenberg & Baron, 1997); it is management’s responsibility to minimize the impact those changes have on the specific groups involved, and on the organization as a whole.

It is critical that managers view this particular situation from both a microcosmic and macrocosmic standpoint. "Events in human systems are seldom, if ever, of a singular cause-effect nature but are more clearly represented by dynamic interaction and multideterminism." (Pace & Faules, 1994, p. 57).  While this concept may seem overly fatalistic in nature, assuming that a reorganization of any one department will have no effect outside of that functional group is an invitation to disaster.

Orchestrating major structural and organizational changes in a manner that causes the least amount of disruption to groups and the individuals that comprise them requires a degree of finesse that most managers do not possess. It is exceedingly difficult to balance the needs of individuals with the goals of a commercial enterprise whose primary purpose is the generation of profits for their shareholders. The key to success in this arena is to establish credible and palatable processes for change that are communicated effectively.

A concern about responding to both personal and organizational needs has been a significant consequence of the groundwork laid by early behavioral theorists. An important distinction is made currently between developing good human relations and developing the human resources of an organization. Organizational communication seeks to provide the background for developing the quality of human resources in an organization, rather than just developing the quality of human relations, as important as they may appear. (Pace & Faules, 1994, p. 41)

Mergers and acquisitions bring about great changes to the organizations involved. In order to manage those changes effectively, the executive staff must first have a clear understanding of the importance of culture to the enterprise’s objective, be willing to conduct a realistic analysis and evaluation of the status quo, and formulate a framework for transitioning the resulting organization into a cohesive unit that is geared toward achieving the objectives.

Section 2: Process and Procedure

Cultural Influence

Process and procedure are integral parts of corporate culture and as such must be closely scrutinized at all times, but never is it more critical than in a post-M&A scenario. More often than not, daily routines define a corporate culture when in fact the enterprise should infuse the organization with cultural standards that drive the ongoing development of process and procedure.

An organization’s collective beliefs, behaviors, and assumptions affect daily business routines on two levels: the overt level, representing observable, intentional, and direct influences on operations (e.g., goals, policy and procedure manuals, and corporate philosophy statements), and the covert level, characterized by obscure, unintentional, and indirect influences on operations (e.g., informal ground rules, unofficial guidelines, or “the way things are around here”). (Connor, 1992, p. 166).

A corporation is an artificial culture that brings together persons from a variety of other naturally occurring cultures to form an organization designed for a specific purpose, which is, of course, to generate profit. The organizational design will be subverted over time by the influences of the multiple cultures imported by the individuals that comprise the organization unless there is a conscious effort to monitor and refine the culture as the enterprise grows.

Corporate cultures cannot be allowed to evolve in the manner in which social cultures do; they start out as engineered communities and must be constantly reviewed to ensure that the design criteria meet the current requirements of the organization. As global market and economic conditions change, and as technology delivers new tools and methodologies to address those changes, so must the culture of the enterprise be adjusted to take full advantage of the opportunities presented by a constantly shifting environment.

Refining the corporate culture is only half the battle. Cultural design changes must be accepted by the individuals and groups that comprise the organization. The unfortunate reality is that human beings are resistant to change; the key to acceptance is the judicious application of change management principles, and most importantly, effective communication. 

The theory of the business must be known and understood throughout the organization. That is easy in an organization’s early days. But as it becomes successful, an organization tends increasingly to take its theories for granted, becoming less and less conscious of it. Then the organization becomes sloppy. It begins to cut corners. It begins to pursue what is expedient rather than what is right. It stops thinking. It stops questioning. It remembers the answers but has forgotten the questions.  (Drucker, 1995, p. 31).

The most important point in the preceding quote is that the organization stops asking questions. It is easy to become complacent; if there are no disastrous events on the horizon it is simpler to accept the status quo and go on with the established daily routines.

Questions about Culture To Pose to Your Leadership Team

What would you say characterizes our culture?

Which of those elements are important to retaining our customers and employees?

Which of those elements may tend to impede performance?

How can we both maintain the values and styles that are the foundation of our identity and success and still develop a learning culture in which people and teams grow, and through which the organization learns, innovates, experiments and thrives?

How can the potential pitfalls of distance and diversity and size best be overcome and turned into opportunities?

What should be our learning priorities?

What are the elements (policies and practices) regarding communication and learning that will promote a distinctive culture and excellence in performance?

How do we learn and grow and continue to be us?

(Gayeski, 1998, p. 1)

The fact of change cannot, and will not, be ignored. Any organization that fails to realize the importance of culture, or allows process and procedure to define that culture will find themselves on the road to obsolescence and eventual inability to compete.

Objective Evaluation

The allegory of Plato’s cave can be applied to the concept of an objective, realistic evaluation of process and procedure. When conducting an assessment of daily business routines it is entirely possible, even probable, that what is being observed is actually a shadow of official policy and procedure. Unlike Plato’s theoretical subjects, managers have the freedom to turn their heads and view the object that is casting the shadow, and therefore gain a more pragmatic understanding of the object’s true form. (Cohen, 2002).  Any procedural review should involve more than merely ensuring that the procedures are being followed and explore whether or not the procedures, even if followed, are the best way to accomplish a particular goal.

In reality, most corporations execute processes and procedures that are products of evolution rather than conscious design. This is not to say that cultural evolution cannot be beneficial, but it is important for management to be aware that the evolutionary path down which an enterprise is traveling could lead to extinction. 

The process and the system which controls it represents the real problem facing business today, not the people who work within the boundaries set for them by management. Employees must work within the process and management must work on the process. (Harrington, 1995, p. 354).

In order to integrate process and procedure between two organizations, there must first be a clear understanding of what they are and how they relate to the operation of the business. Assessing and documenting an organization’s process and procedure is the first step in gaining the knowledge necessary to smoothly meld the daily routines of multiple workgroups into one.

The task of assessing and documenting should not be considered a one-time event. It is important to review and revise process and procedure to remain competitive in the constantly changing world of commerce.

‘Within the bounds of our business processes, a framework for continuous improvement attempts to organize people, processes and documentation.  Our first challenge is to capture an accurate snapshot of what we do now.  The content of the snapshot provides a process knowledge base that may include process charts, process objectives and descriptions, procedures, task descriptions and work instructions, the names and contact information of the people who do the work and improvement team members, improvements, results of improvements.

We need to organize this content in a repository that is easily accessible by anyone who needs process information or support.

Our "knowledge-base" provides no value unless it is used.  We want to encourage and promote the use of the content for training, to satisfy inquiries as to what we do now and as a baseline for further improvement work.  We want to share the content as best practices, to build on good ideas, to apply good ideas in other situations and to spawn new ideas.

We need to breathe life into the content, so that it evolves with our processes.  This means developing a systematic approach for reporting and seeking changes.’ (Graham, 2001)

No corporation achieves perfection when it comes to process and procedure, but the constant struggle to reach that goal will contribute greatly to the success of the enterprise and its ability to remain competitive and profitable. Organizations that prefer to ignore the fact that they must evolve and change to keep up with the times will find themselves at the rear of the pack, their view of the marketplace obscured by their rivals.

Formulating Best Practices

There are a number of basic concepts that must be embraced in order to foster an environment where best practices are formulated and implemented. The most important concept to understand is that each group within an organization has some measure of responsibility for achieving the corporation’s strategic goals, and that the most effective method of reaching those goals is to treat other business units within the enterprise as customers.

"Capabilities is a strategic framework that asserts that the focus of strategy is the nurturing of business processes and practices that deliver value and satisfaction to the customer. " (Boar, 2001, p. 167)

The idea of internal (vs. external) customers is not new, but most corporations espouse the ideals without actually putting them into practice. Each business unit within an organization must be willing to take the responsibility for the goods or services that are expected of them internally, and agree on a schedule of delivery and level of service that allows other business units to function efficiently. Whether the product is customer invoices, network services, or the external purchase of office supplies, having an established process that is streamlined and understood by the users will ensure the smooth flow of daily routines and allow the organization to concentrate its best efforts on dealing with the unusual situations that will inevitably occur.

A major obstacle to operational efficiencies when dealing with internal transactions and their associated obligations is the lack of empowerment at the task level. This lack ties in with the absence of a proper framework to make routine decisions, and the need for clear-cut direction from management as to the objectives of the group and the corporation. Management staff members should confine their efforts on an operational level to dealing with situations that do not appear to fit within the framework of everyday business functionality.

Companies that undertake reengineering , not only compress processes horizontally by having case workers or case teams perform multiple, sequential tasks but vertically as well. Vertical compression means that at the points in a process where workers used to have to go up the managerial hierarchy for an answer, they now make their own decisions. Instead of separating decision-making from real work, decision making becomes part of the work.  (Hammer & Champy, 1993, p. 53)

The notion of interdependency between functional business units must be clearly understood, and the appropriate methodologies formulated and implemented for effective decision making and communication to occur at any level.  When authority for decisions is delegated to non-management team members these factors increase in importance.

When creating interdepartmental relationships, the following subjects need to be taken into account: 

·         Sharing of information for both departments to make decisions.

·         Joint planning and commitment to the project’s success.

·         Equal understanding of the needs driving the project.

·         A win-win relationship of managerial power and influence.

·         Visible management commitment of necessary resources.

·         Sharing knowledge about the other’s expertise.

·         Giving permission to challenge each other.

·         Avoiding situations where “my need is your problem”.

·         Consensus implementation of plans, milestones, and feedback systems.

·         Sharing the glory as well as the efforts.

 (Miller, 1987, p. 124-125)

Gaining a clear understanding of each department’s role in the organization, and how those roles intertwine with those of other departments will go a long way towards guaranteeing the maximum measure of success possible. It is also important, however, to break down corporate strategic objectives to a series of manageable tasks.

                         ("Process flow", 2004, p. 1)

While the preceding graphic gives a high level view of a specific process, it is important to understand that it is only the first step in the formulation of best practice. It will be necessary to fill in the details of each procedural objective, while bearing in mind the ultimate goal of the process.

Translating strategic goals into specific tasks is obviously one of the most important aspects of innovation personnel management. The effectiveness of this process of strategy implementation substantially affects the ability of the entire company to realize its goals. It would otherwise be impossible to define the skills and staffing levels required to manage particular types of change. Evidence supports the view that there is a close relationship between the innovation task and knowledge of what the current organizational structure is capable of achieving.   (West, 1992, p. 129)

The creation of best practices can be an intimidating challenge for a corporation that is accustomed to a set of daily routines that have been accepted for an extended period of time. The principles of change management can be of tremendous value when properly understood, and applied to the effort of establishing an organization that is adaptable and prepared for the constantly changing world of modern commerce.

Implementation and Change Management

Managing change will always be a challenge, but the obstacles presented by implementing change can be overcome if an effective method of communication is first established, then put into practice. This is a crucial area that needs to be explored in order to determine what changes need to take place within an organization that wishes to create an environment that is amenable to modifications in process and procedure.

The act of communication within an organization is subject to a variety of interpretations, many of which are based on widely accepted fallacies. The most dangerous misconception is that communication consists of keeping the user community informed of impending changes and providing whatever training may be appropriate. In point of fact, communication should be a multi-directional exercise, and should mark the beginning of any process review and redesign.

In this society, knowledge is the primary resource for individuals and the economy overall. Land, labor, and capital – the economist’s traditional factors of production – do not disappear, but they become secondary. They can be obtained, and obtained easily, provided there is specialized knowledge. At the same time, however, specialized knowledge by itself produces nothing. It can become productive only when integrated into a task. (Drucker, 1995, p. 76).

Another popular misconception is that a procedural change within a business unit will have little, if any effect on other business units. This form of tunnel vision can have devastating effects on the enterprise, and negate any advantages that a new process or procedure has for the workgroup which is primarily affected. Functional groups within an organization do not operate in a vacuum; everything they do has some connection with at least one other group, and any changes made will have a ripple effect on overall operational efficiencies. Planning and implementing process modification requires that the architects of change comprehend and clearly define the desired end results and grasp the cross-functional nature of business processes.

 "Synergy is the soul of a successful change project. In a synergistic relationship, individuals or groups work together to produce a total effect that is greater than the sum of their efforts. " (Connor, 1992, p. 188).

Effective change management relies on several key concepts: a thorough understanding of the strategic and operational goals of the entire organization, how those goals can be achieved through inter-departmental cooperation, and consistent, productive communication.

Section 3: Systems Integration

Procedural Imperatives

Merging two or more organizations into one will require the integration of technology between the groups. Chances are many of the same business objectives are achieved utilizing different hardware and software platforms; in order to make similar business units function as one they must have the technology in place to enable their systems to communicate at the machine level.

The easiest way to achieve this is the migration of one group’s functionalities to the same technology platform as the other. Selecting the best platform to use, however, transcends the possible technological superiority of one system over another. More importantly, there are organizational considerations to keep in mind. As an example, one group may use Oracle as their primary accounting database, the other may use SAP. Without getting into the relative merits of either platform, the main focus should be on the ease of transition from one system to the other from the perspectives of process, procedure, and organizational structure. It may, in fact, be easier to transition larger groups of individuals to a new platform. A large part of this decision will be based on the nature of the merger or acquisition, and which group bears the responsibility for corporate level activity.

Another very important aspect to consider is the anticipated procedural changes that will take place as a result of the integration of systems and business units. One author suggests that the traditional marketing mix of product, price, place, and promotion, there should be two more “p’s” added: people and process. While it may seem like a radical idea to apply marketing principles to functions that are not readily visible to the outside world, the concept goes hand-in-hand with the convention of treating other business units within the enterprise as customers.  (Boar, 2001)

Regardless of where the lines are drawn, integrating system functionalities between enterprises is an important aspect of standardizing process and procedure, and culturally integrating diverse organizations

Technological Obstacles

There will be numerous technological issues to be faced when dealing with the question of systems integration or migration of a business unit’s functionalities from one platform to another. Do the different systems use compatible communications protocols? Can alternate software applications run on the current hardware?  Can the database entries from one system be transferred to the other without tedious manual entry?

…true integration is different from simply connecting different applications or computers together via standard network interfaces. True integration means integrating the organization’s business data and business processes into a single logical representation, or “blueprint”, so it is clear how everything fits or integrates together.  (Orthner, 2002, p. 1).

From a management perspective, the decision of which platform to use will depend on software licensing costs, hardware and software life cycles, and the total cost of migration in each direction. Because of the complex nature of information systems and the level of interaction with a variety of hardware and software platforms, as well as the diversity of the user community, it is wise to expect the unexpected. It is virtually impossible to anticipate all of the obstacles that will be encountered during the course of a major systems integration project; budgeting for unforeseen technical problems will ease the pain and lessen the total impact to the project.

Communicating Change

In a perfect world, introducing a new or unfamiliar system into the workplace would involve detailed analyses of various platforms, manufacturers, and vendors, and the gathering of information about existing process and procedure from the user community to ensure the best fit. Systems integration in a post M & A environment is undoubtedly the furthest from perfect that will be encountered in the world of information technology. The decision of which technology to use will be primarily based on economic considerations, and the choices will be limited to systems currently in use regardless of the potential availability in the marketplace of the ideal platform to use in the newly created environment.

This does not mean that the principles of change management should be ignored in these situations. On the contrary, effective change management will become the most important tool that an IT staff can use to ensure a smooth transition from one system to another. Advance notification of the impending change and input from the user community will pinpoint areas that need to be addressed in the areas of procedural transition, training, scheduling, and the implementation process.

Fundamental to successful communication is the concept of procedural justice. Procedural justice is the extent to which the dynamics of a process are judged to be fair by those who have to implement the actions and, even more importantly, by those who are affected by the actions.  (Boar, 2001, p. 306)

It is also important to keep in mind that a functional group comprises only one variable in a complex calculation. For example, changes in process and procedure in the accounts payable arena will most likely have an effect on the daily routines of shipping and receiving, materials procurement, inventory control, etc. As much as humanly possible, these effects must be anticipated and taken into account when planning a system implementation.

 "Any discussion of systems involves the notion of interdependence. Simply stated, interdependence suggests that a mutual dependence exists among components or units of a system. A change in one component brings about changes in every other component." (Pace & Faules, 1994, p. 43).

The potential effects of changes to process and procedure must be taken into consideration and analyzed carefully during the planning stages of any implementation project. In addition, post-implementation reviews should be conducted to ensure that any unforeseen side effects are examined and resolved quickly.

The Learning Curve

As users become more familiar with new systems, their rate of knowledge absorption will increase in an exponential versus a linear fashion. Hardware platforms are, for the most part, invisible to the average end user; the applications interface for any system comprises the bulk of the training regimen that needs to be addressed by the transition team. For this reason it is important to plan and execute a realistic training program, which should begin with an assessment of the current knowledge level of the user community. While it is impossible to tailor an educational program to each user, a realistic evaluation of a group’s general comprehension of technology will be of tremendous significance when preparing an instruction agenda.

The user training process should also be an educational vehicle for the transition team itself. As the user community is introduced to and trained on different systems, the groups responsible for teaching the users should be cognizant of the learning opportunities related to the process and procedure of instruction. Effective teaching is a combination of science and art; both of which rest on a foundation built from successful communication practices. The measurement of a good training system is the knowledge and ability the user can display when the instruction is thought to be complete. Implementation and training methods should be constantly reviewed, revised where deemed appropriate, and knowledge must be shared between team members and groups to achieve the maximum benefit from shared experiences.

...most large enterprises have hundreds of applications, dozens of hardware and software platforms, and an elusive goal of meshing them together into a single enterprise-wide information resource.


Ironically, integration projects themselves often follow [a] siloed approach, [which] can be successful for a one-off project, but for multiple projects, it's almost always a costly and labor-intensive option. (Fryman & Polly, 2004)

The salient point to consider in a post M & A scenario is that the educational experience should be viewed as an enterprise-wide, multi-directional process. Only in this manner can a corporation gain the greatest value from the considerable efforts expended to create a cohesive whole from many disparate elements.

Section 4: A Framework for Integration

Key Principles

Successful mergers and acquisitions are not particularly rare, but the degree of success as (measured by productivity) can be enhanced by adhering to a few elementary principles. The core organization must have a solid foundation, and at the same time be flexible enough to deal with the myriad of changes that will come about as the result of merging multiple functional business units into one. It is primarily the responsibility of executive management to foster an atmosphere of cooperation and communication between the diverse departmental management teams, and even within those groups. It is also essential to structure the organization along lines that will facilitate communication and teamwork, so that the enterprise functions as a cohesive unit when viewed from a high level. Last, but not least, the organization must overcome the natural fear of change and be open to the concept of constant modifications to process, procedure, policy, and practice.

In reality, even corporations that have never engaged in a merger or acquisition, nor have any plans to do so, would be well advised to adopt this type of philosophy to gain a competitive edge in the marketplace. Success often results in complacency, and the inability or unwillingness to recognize the need for change.

To understand why success breeds failure, it is necessary to look at how organisations use their success. Success is a learning experience for organisations: it reinforces behaviours which they must practice to succeed. Correspondingly, organisations "programme" themselves around their successful strategies and processes so that they can consistently replicate their success experiences. One way in which this programming takes place, is at the informal cultural level. Corporate success produces strong cultural norms, based on the belief in the correctness of one's actions. Such strong cultures, however, are also resistant to change, and reduce the flexibility of organisational responses. (Shukla, 1994, p. 1).

Communication and Organization

Communication sounds like an easy task to accomplish – there are numerous technologies in place in any organization that serve as platforms to exchange information and ideas: e-mail, phones, voicemail, inter-office mail, on-line request and approval for routine business needs, etc. What large corporations tend to forget is that effective communication requires that the flow of information is at the very least bi-directional. Input from one source should always result in some type of feedback, even if it is only acknowledgement that the information has been received. The inherent danger of implementing a communications model built along those lines is the probability of information overload. Individuals and groups within an enterprise must learn to gauge the value of information and refrain from overloading the system with redundant or irrelevant data.

 "The major fallacies of communication are the assumptions that 1) meanings exist in information or message displays, and 2) meanings can be transferred from one person to another. In reality, information and displays can only be presented or delivered to people; the recipients must make sense out of the displays." (Pace & Faules, 1994, p. 20).

To facilitate communications between individuals or groups, the ideas presented must be clear and concise, and avoid ambiguities. The following is an outline of rules to follow when utilizing the various communications methodologies that exist in a corporate setting:

  1. E-mail – always include the actual topic of the correspondence in the subject header of the e-mail. If there are numerous subjects addressed, include two or three of the most important items, and indicate that there are additional issues included. Indicate in the body of the e-mail if there is a response required. 

  1. Voicemail – announce the subject of the information to be presented at the beginning of the message. Be brief, state your preferred method of response if one is required, an acceptable timeframe for any response, and the phone number where you can be reached if there are questions or concerns related to your message. 

  1. Inter-office mail – although primarily replaced by e-mail, there are still times when it is necessary to send hardcopy documents to other individuals or departments within an organization. Include a note with the documentation with some explanation as to why it has been sent – don’t expect someone to automatically correlate an e-mail that was received several days ago with an envelope that was left on their desk today. 

  1. On-line forums – in the fast-paced world of business, there is not always time to have meetings to resolve issues, or address questions and concerns related to mundane operational matters. Corporate intranets are an ideal way to communicate between and within functional groups, especially when there are geographic boundaries to consider. Bulletin boards and on-line forums can be created as a means of discussion that will minimize the impact of differing schedules and the availability of the interested parties. 

  1. Voice and video conferencing; data collaboration – there will always be situations in which real-time interaction is the most effective method of communication. Most enterprises have the technology in place to accomplish this methodology across geographic boundaries.  

Having a variety of technologies at one’s disposal is not a guarantee of effective communication. It is vitally important that what is stated actually means something, and that the recipients can understand that meaning.

"MERRILL LYNCH: "When we became aware of a potential problem, we investigated and have taken steps as part of our continuing efforts to prevent problems"

A Merrill spokesman commenting on the fact that its former chief energy trader is being investigated for $43 million of alleged fraud activity, as reported by the FT's Gary Silverman. The Babbler likes the soothing sound of a company taking those first gentle steps in tiptoeing away from one of its people - Aug 13, 2003 12:21 PM EDT.

RESEARCH IN MOTION: "We are obviously pleased with today's ruling and believe that the District Court's decision to stay the injunction is especially appropriate given the frequency of successful appeals at the appellate level as well as the specific merits of RIM's appeal and the impending reexamination of the disputed patents by the U.S. Patent and Trademark Office." 

Lead counsel Henry Bunsow commenting in a press release on a U.S. federal judge's decision to order the company to cease production of its Blackberry device and pay $53 million in damages for trademark infringement. The Babbler is still trying to understand why they would be pleased, much less how that pleasure is supposed to be obvious.(author’s note: I am also curious as to where else in our judicial system, other than at the appellate level, that appeals would be heard).

AT&T: "To claim that everyone in the industry engages in efforts to lower their access costs is a true statement. That, however, is not the issue we are disputing with MCI. MCI has not simply been shopping around for the best deal. Instead, they have concocted an elaborate scheme, shipping voice traffic originating with their customers and routing it through three companies, across an international border and onto the AT&T network, for completion to high-cost areas in the U.S. In doing so, they have not simply lowered their costs. They have avoided them altogether. They have committed a fraud upon the shareholders of AT&T by tricking a competitor into paying a cost that is rightly theirs." 

Spokeswoman Claudia Jones commenting on MCI's that its alleged "call laundering" was actually normal industry activity, as reported by the NYT's Stephen Labaton. The Babbler found it worth wading through 104 words to find out the violation was "tricking a competitor." - Aug 6, 2003 1:53 PM EDT. (2003, p. 1-3)

The preceding examples illustrate how attempts at communication can fail to actually convey any discernible meaning. Corporate communications should be clear and concise, and adhere to the following general principles:

  1. Avoid using “buzz” words and phrases – this is particularly important in organizations that are geographically widespread, as regional dialects differ within a common language, which in fact may not be the primary language of all the recipients. 

  1. Always state the main subject of the communication, referencing previous communications when applicable. This will avoid any misunderstanding that could result from similar situations being discussed in regard to multiple areas of concern. If the communication is general in nature and addresses multiple areas of concern, say so. 

  1. Request some feedback from the recipients that will gauge whether the communication was effective – this will ensure that tactical and strategic planning will continue to proceed in the intended direction. 

Establishing good communications practices is only the first step – to whom those communications should be addressed also requires careful consideration. Organizational structure and communications conduits should be constructed so as to be complementary; keeping in mind at all times the interdependencies of functional business units as well as the strategic and tactical goals of the corporation. Because procedural changes typically have a ripple effect on the organization, it is wise to consider a non-traditional structure to deal with potential communications dilemmas.

"Matrix management is a descriptive term for the management environment where projects cut across organizational boundaries and involve staff who are required to report to their own line manager as well as to the project manager. This is not a radical departure from traditional hierarchical management; in fact the traditional vertical management structure is still in place but is enhanced by temporary horizontal structures representing each project."

("Project management", n.d., p. 1)

Impact Evaluation and Review Cycle

Building an organization that meets current business needs is an important first step towards creating a corporate structure that will stand the test of time. It is, however, only the beginning of the journey. No policy, no procedure, no business model is so perfect that it will be viable for all eternity. Corporations that want to continue to build shareholder value must engage in a constant cycle of review; examining how the corporate culture and its related business practices address existing needs, both internal and external. There are a number of key areas that should be scrutinized regularly to ensure that the organization has not become complacent.

Impact evaluations should be conducted from the outside in, from the inside out, and from a wholly internal perspective. Consider the following questions:

  • Does a particular change in the external (market) environment really signal a need for an internal change? Expending organizational resources to jump on a bandwagon that is destined for a short trip quite often proves to be unprofitable. 

  • Does a change in process and procedure address all the areas that will be affected? Taking a long, hard look at business unit functionality from the top down, from the bottom up, and from all sides will help to ensure that new and exciting problems are not created by focusing on a single aspect of a current or impending issue. 

  • Is the organization structured in a manner that facilitates communication? The purpose of a corporation is not to manufacture widgets, provide information, or fix problems. The goal of every corporation is to generate profit, and each individual and group within the enterprise should be as effective as possible in attaining that objective. Lack of communication can be an overwhelming obstacle to profitability; proper organizational structure is an absolute necessity for successful communication. 

  • Is the organization invested in the concept of education? Nothing is quite as frustrating to the workforce as being expected to execute new processes and procedures, or implement new technologies without advance notice and proper instruction. Too often, individuals and groups within the organization find out about changes to process and procedure when the old methods fail to achieve the expected results. 

  • Is the corporate culture amenable to objective evaluation? While internal perspectives are vital to effective management of the organization, they are, by their very nature, subjective viewpoints. Inviting outside management consultants to periodically assess the operational efficiency of the enterprise will prove to be of tremendous value to the corporation.

Summary

Effective change management relies on a number of core concepts that need to be embraced by everyone in the organization. Corporate culture must be designed to pave the way for progress as inevitable changes occur. The enterprise must be structured in a way that makes communication not just possible, but highly desirable. It must be clearly understood that successful project management requires a combination of knowledge, discipline, and talent. Operational changes must be thoroughly and objectively evaluated and communicated to all affected parties before they are implemented.

Determining where the organization needs to go is not enough. It is essential to also understand where the organization currently stands in regards to these key principles, and where it has been in order to devise a change management program that will help to ensure that evolutionary modifications contribute to the survival of the corporation. These key principles are:

  • Establish an effective framework for enterprise-wide communication – remember that providing the means and methods is not enough, the motivation to communicate has to be present as well. 

  • Define and communicate corporate objectives, and the departmental goals that will help to achieve those objectives. 

  • Don’t implement change for the sake of change – be realistic in evaluating the organization’s need and ability to react to market conditions. 

  • Conduct a periodic “health check” – make sure that the processes and procedures contribute in a meaningful way to the strategic and tactical objectives defined. 

  • Remember that the individuals and groups that execute process and procedure are an invaluable source of information when it comes to assessing and revising the manner in which operational objectives are realized. 

  • Invest in the educational process – justifying the “why” of procedural change is important, but the how, what, when and where is just as crucial. 

Change management should never be considered a corporate objective, but viewed as an integral part of the vehicle that will carry an enterprise on the road to success. Following these guidelines, and adapting them to the specific situation at hand will help to ensure a safe journey.

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