Who's Managing the Business if Your Managers Are Managing the Integration?

8/3/2019 Who's Managing the Business if Your Managers Are Managing the Integration?

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Whos Managing the Business If

Your Managers Are Managing the

Integration?Ed Kozak

Introduction

Lets face it, the integration of two

companies into one is not an everydayoccurrence, nor is it an easy one. Done

properly, a successful post-

merger integration requires a large

amount of dedicated time in order to properly plan, execute, manage, and

control it. With industry literaturetelling us that 53% of mergers failed to

achieve their desired results (Merger

Integration: Delivering The Promise,

Booz-Allen & Hamilton, 2001), its easyto see that many companies, after

spending tens of millions of dollars on

the transaction itself, did not dedicate theresources, the planning, and/or the time

required to make the integrationssuccessful. This isnt to say that theydidnt apply all of the necessary

resources once the transaction was

inked. Therein lies the problemmanyof those acquisitions that failed to reach

their desired strategic or financial

outcomes did so because the post-merger

integrations were reactive, not proactive. While considerable financial

and legal due diligence was performed,

it can be argued that integration duediligence was lacking.

It is understood that not everyacquisition is performed concordantly;

some are the results of corporate rescues,

contested situations, and even raids,

leading to a lack of willingness on the

part of the targets employees to assist in

an easy transition. Be that as it may, it

has been documented that even

collaborative mergers have resulted inpoor performance. For these, data shows

that while there might have been a great

effort at negotiation and deal structuring,

there was poor post-merger integration.Poor post-merger follow-up, i.e.

integration, is best understood when oneconsiders that managing a merger is

vastly different from managing ongoing

business operations. Why is it then that

many organizations continue to managetheir post-merger integrations as if they

were ongoing operations? The skill set

required to run a project successfully isvastly different from that required to

make someone an outstandingoperational manager. Moreover, howare the operational managers, who are

now tasked with managing the

integration as well as carrying on withtheir daily operational activities,

expected to do both at the level to make

both a success? Many times theyre

faced with a dilemmado they focus onleading the integration and take their

eyes off ongoing operations or do they

continue to focus on ongoing operationsand divert their attention to the

integration only when a crisis arises or

when time allows? Neither of thesescenarios is optimal for an organization

because the demands of the integration

and the demands of ongoing

operations are at odds with each other,Whos Managing The Business If Your Managers Are Managing The Integration?

Successful Projects For Leaders. No portion of this document may be copied or distributed without

the expressed written consent of the author.

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each requiring full-time attention. The

bottom line is that, unless an

organization employs a formal projectmanagement approach to managing the

post-merger integration, it can be

virtually impossible to get through theintegration without damaging the

potential of the deal.

One of the issues faced by companies in

acquisition mode is the possible loss of

existing clients. Most of the customer

issues related to a merger involveensuring that the correct level of service

is maintained throughout the integration

work. External customers are often

suspicious of mergers and may use thechanges as an excuse to buy elsewhere.

This means that its extremely importantto manage clients expectations during

the transition. In one scenario, some

clients might be unhappy with the

service that they received from theacquired company prior to the merger

and will expect an instant improvement

immediately following the merger. Inanother scenario, customers who might

have been happy with services

before might be worried that the newly-combined organization may change for

the worse, fearing that the new

organization will be preoccupied withsolving the problems of the acquired

company rather than meeting their own

needs. Meeting customer expectations

during the transition must remain animportant objective during the

integration and so this places an even

larger burden on the attention ofoperational managers. The last thing the

acquiring organization wants to do is to

provide customers with a reason forthem to stop being customers.

Consider also the speed at which the

post-merger integration is conducted. In

a study reported by Savill and Wright

(2002) it was found that companies that

managed the process of integration on afast track basis achieved higher levels of

profitability, productivity, cash flow and

gross margins and that during the courseof the integration the concept of speed

gains in importance for senior

management. How can both of these beachieved throughout the full lifecycle of

the integration at an optimal level if the

organizations management team is

expected to manage day-to-dayoperational activities and the

integration? Simply put, it cant.

Enter The Program Manager

Very few Parent companies conduct thetype of work that would enable them to

have a pool of project managers it could

select from to use to manage their post-

merger integration. Even if they did andthere were some project managers free

from managing other projects, a post-

merger integration is not a simple projectthat any project manager is skilled at

managing. It might require various

aspects of HR, Accounting,Merchandising and Marketing,

Sales/Call Center(s), Operations, IT,

R&D/Product Development,Communications, Procurement

(including Contracts, Purchasing, Supply

Chain), or some other area to be

integrated concurrently. In projectmanagement parlance, the post-merger

integration would be considered

aprogram which requires someone withsolid program managementexperience.

Programs are more complex in nature.

Whereas a project is a set of interrelatedtasks, all being conducted to reach a

predetermined goal, a program is a set of

interrelated projects, all being conducted

to reach a predetermined goal. EachWhos Managing The Business If Your Managers Are Managing The Integration?



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project in a program has its own

schedule, its own budget, its own risks,

its own outcomes, its own resources, andits own requirements and these roll up to

yield the total schedule, the total budget,

the total risk profile, and the total outputof the program.

The stage must be set correctly for asuccessful post-merger integration and

your program manager, more

appropriately named the Integration

Manager in this case, can do that.However, it must be performed early on

in the process, during due diligence. IT,

R&D (if appropriate), and other

strategies need to be linked to the business strategy very early in the

process before the M&A is publiclyannounced. This allows the IT and

Portfolio Management strategies to be

coordinated with the financial goals so

that the proper framework of integrationdue diligence can be performed. Data

compatibility needs to be assessed as

early on as possible before the mergertakes place so that a more realistic

assessment of data conversion costs can

be madeintegrating dissimilarcomputing environments can take 40%

more effort than integrating similar

systems. It also allows the two businesscultures to be assessed for goodness of

fit, as well as HR initiatives to be

planned out to ensure that subject matter

experts and other high-priorityemployees in the target company dont

jump ship. Lets not forget also about

the Targets commitments with respectto benefits and pension plans. One

Parent that I worked with acquired a

company that itself grew throughacquisitions and ended up inheriting a

number of defined-benefit plans on top

of the many that it already was

managing along with 7 disparate

payroll/management systems. The

mapping, gap analysis, data cleansing,

and consolidation of those systems intoone platform, keeping in mind the

specifics of the inherited benefit plans

that the cleansing required that had to behard-coded as test cases into the

cleansing software, was a 60 person-

month endeavor in and of itself. Lastly,from an R&D perspective, the Target

may have ongoing projects that

align poorly with the Parents strategic

objectives or might be redundant. Themore quickly these are brought to a halt

once the acquisition has been transacted,

the larger a financial benefit there will

be.

A Stakeholder Analysis must becompleted as well and this is a

requirement of the Integration Manager

to perform. In project/program

management argot, a stakeholder isdefined as anyone who might be

positively or negatively impacted by the

project. Certainly in an acquisition thereare stakeholders on both sides. Politics

must be taken into account as well as

Cultural Differences (big vs. small,hierarchal vs. flat, bureaucratic vs.

entrepreneurialnot necessarily U.S. vs.

international).

A Project Charter is a must and this will

be documented by the Integration

Manager with the assistance of SeniorManagement. The charter outlines the

post-merger integration organizational

structure and the reporting channels. Itidentifies the positions that will be used

to coordinate the integration, and

describes the roles and responsibilities ofthe parties in the integration.

The Integration Manager is also tasked

with preparing the integration plan andWhos Managing The Business If Your Managers Are Managing The Integration?



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detailing the scope of the integration.

What systems need to be integrated?

How will they be integrated (e.g. fullintegration, partial integration, delayed

integration, upgrade, or left as is)? What

is the cost of that integration and howdoes its budget impact the financial

strategy of the acquisition? How the

cost estimate was created, what is itsaccuracy, and what potential impacts to

the financial objectives does

the respective accuracy pose? What

assumptions are being made with respectto the individual pieces to be

integrated/left alone? What are the

major milestones to be hit on the

program and when will those bereached? How will issues be resolved?

What is the risk management plan?How will the cultures be integrated and

what will the deliverables be? Lastly,

what will the progress measurement and

feedback look like? Let me interject acaveat here. The idea is not to find

some needle-in-the-haystack person with

such broad experience and knowledge tobe able to address each of these areas

single-handedly. No one person exists.

Rather, the Integration Managersresponsibility for the integration plan

would be that of a coordinator, working

with the various subject matter expertson both sides of the acquisition,

identifying and documenting.

The Integration Manager is alsoresponsible for preparing the Program

Work Breakdown Structure (WBS).

This is the roadmap that the programwill followed in order to get from two

companies in transition to one company

providing enhanced customer value,capturing synergies, and hitting financial

and strategic targets. The WBS is one of

the most important program documents

since the schedule, budget estimate, and

risk management plan are all derived

from itand yes, the Integration

Manager will also be responsible forcoordinating this activity.

One other item that the IntegrationManager must be responsible for is the

Change Management Plan. No moving

target is easy to hit and attempting to doso wastes money. Projects are

dynamic; issues or opportunities may

arise that require a change in the scope

of the work. Other times, businessleaders might want to change the

direction certain aspects of the

integration are moving in or even want

the integrations to encompass more thanoriginally desired. Its imperative

that proposed changes are weighed todetermine their necessities and priorities

and to ensure that the positive and

adverse effects to the individual projects,

the whole program, and/or eachstakeholder group are clearly thought out

before a decision is made. A Change

Management Plan is that document thatis used to describe the method by

which changes formally will be

proposed, reviewed, decided upon, andacted upon.

Summary

While a great effort is performed by

most Parent companies to try to validate

financial and legal information prior toacquiring a target company, research

indicates that the same cannot be said

about planning and validating theintegration of the two. Perhaps those

companies have had good reason to take

a wait-and-see approach in determiningwhat to integrate and when to do it.

Perhaps the legal and financial due

diligence, as well as structuring the offer

itself, take up so much time and so muchWhos Managing The Business If Your Managers Are Managing The Integration?



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focus that the aspects of the integration

are given a lower priority until the

transaction has been completed.Whatever the reason, the resulting

scenario is that the Parent and its

personnel are forced to go from thetransaction directly into the immediate

crisis of getting the transaction to work,

or even worse, force-fitting it to try tomake it work. This doesnt need to

occur. With proper planning done much

earlier in the stages of an acquisition, the

acquisition can make a smoothertransition from the purchase to the post-

merger integration to the ultimate

success of achieving the desired strategic

and/or financial goals, and with adedicated Integration Manager onboard,

the Parents Management team doesntneed to take its eyes off of what they do

bestmanaging the business.

About the Author

Ed Kozak, M.S., M.B.A., PMP is

President/CEO of Successful ProjectsFor Leaders, international project and

program management consultants

providing businesses with post-mergerintegration management, Chief Project

Officer services, project

turnaround/rescue services, and projectmanagement process improvement,

allowing organizations to realize the

financial and strategic benefits they set

out to achieve.

The staff of Successful Projects For

Leaders works with organizations that,as part of their core business activities,

dont conduct projects for their clients.

These same organizations yet face theburden of conducting projects internally

upgrades, installations, product

development, acquisitions, etc. It is

estimated that as little as 20% of

companies in this category successfully

meet with budget, schedule, or end-user

goals. Successful Projects For Leadershelps these companies improve their

profitability by cutting wasteful project

costs (sometimes even by 50% or more)and improving their overall management

of projects in order to reduce risk,

schedule slippage, and product rework.As a result their clients are able to exert

more control over their projects;

improve target schedule performance;

monitor and control cost performancebetter; increase their successes at hitting

budget estimates; improve quality and

satisfaction; and recognize the

substantial financial benefits that comealong with that.

Successful Projects For Leaders is hired

as project turnaround experts and is

brought in on critical projects that are

having budget, schedule and/or qualityissues, or projects that are plagued by

one problem after another. They analyze

and correct the problems, set a newbudget and schedule, and work with the

incumbent project management team

to bring the project to completion.

Successful Projects For Leaders also provides Corporate-wide project

governance, strengthening companies

Management teams by assuming the roleof Chief Project Officer. In this role our

qualified staff provides the link between

Management and the project teams,developing standards and practices

directed at the effective execution of

projects and the attainment of schedule,

cost, scope, and quality objectives, aswell as ensuring that enterprise-level

objectives are consistently

communicated to the respective projectgroups in the most-appropriate way for

them to follow and that projectWhos Managing The Business If Your Managers Are Managing The Integration?



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information is communicated to

Management in business terms so that

Management may determine if effortsare efficient and effective, if projects are

still the best ones to support strategic

objectives, whether there are performance issues associated with

meeting objectives. In this role

Successful Projects For Leaders assistsorganizations in Identifying

opportunities and needs; Project

Selection & Gating; Project

prioritization; Resource Prioritization;Aligning projects with strategic

objectives; Evaluating project value and

benefits; Evaluating project risks;

Maintaining a balanced project portfolio;Providing oversight for projects; and

Project manager mentoring

Ed has over 23 years of experience as aproject/program manager in the private

and Government sectors and includes the

management of multi-year, multimilliondollar programs for his clients in fields

such as IT, healthcare, research &

development, and manufacturing. His

expertise includes the re-organization ofunderperforming project management

departments. Ed also has over 14 years

of corporate management experience.

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