Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com.

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com Chapter Summaries Achieving Post-Merger Success: A Stakeholder’s Guide to Cultural Due Diligence, Assessment, And Integration J. Robert Carleton Claude Lineberry

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 3 Presentation Contents PART 1: MERGERS, ACQUISITIONS, AND ORGANIZATIONAL EFFECTIVENESS 1.MERGERS, ACQUISITIONS, AND ORGANIZATIONAL CULTURE 2.THE ORGANIZATION AS A SYSTEM 3.ORGANIZATIONAL SYSTEM ALIGNMENT PART 2: CULTURAL DUE DILIGENCE AND ASSESSMENT 4.OVERVIEW OF CULTURAL DUE DILIGENCE 5.PERFORMING CULTURAL DUE DILIGENCE PART 3: CULTURAL ALIGNMENT AND INTEGRATION 6.ALIGNING AND INTEGRATING THE EXECUTIVE GROUP 7.ALIGNING THE MANAGEMENT GROUP 8.ALIGNING THE TOTAL ORGANIZATION 9.SUCCESS MEASURES 10.SUMMARY AND CONCLUSION

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 4 Part 1 Mergers, Acquisitions, and Organizational Effectiveness CHAPTERS 1.MERGERS, ACQUISITIONS, AND ORGANIZATIONAL CULTURE 2.THE ORGANIZATION AS A SYSTEM 3.ORGANIZATIONAL SYSTEM ALIGNMENT

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com Chapter One MERGERS, ACQUISITIONS, AND ORGANIZATIONAL CULTURE

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 6 Chapter One Mergers, Acquisitions, and Organizational Culture Introduction The pace of mergers and acquisitions around the globe is increasing. Forming alliances – mergers, acquisitions, alliances, etc., is the growth strategy of choice for large and small companies.

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 7 Chapter One Mergers, Acquisitions, and Organizational Culture The M&A Report Card The failure rate of M&As is unreasonable, unacceptable, and unnecessary. Between 1965 and 1997, some 55-77% of M&As failed to deliver their anticipated results.

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 8 Chapter One Mergers, Acquisitions, and Organizational Culture M&A Failure Costs Average 3% loss of equity Loss of external focus Low staff motivation and morale Loss of key executives and staff Loss of brand focus Decreased customer satisfaction

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 9 Chapter One Mergers, Acquisitions, and Organizational Culture Why Mergers and Acquisitions Really Fail Culture clash is primary cause What is generally done about it Little or nothing at all

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 10 Chapter One Mergers, Acquisitions, and Organizational Culture Why so little effort to manage culture Arrogance that no culture issue exists or Belief that, if culture clash exists, nothing can be done about it This could be interpreted as malfeasance!

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 11 Chapter One Mergers, Acquisitions, and Organizational Culture Prevailing wisdom is wrong Body of knowledge exists Experience British Airways – the first successful large-scale corporate transformation Many other examples But …. still the exception, not the rule

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 12 Chapter One Mergers, Acquisitions, and Organizational Culture Misunderstanding of culture What is meant by corporate culture  Culture has many components  A manifestation of an overall system  Cannot be dealt with in isolation  Almost every aspect of an organization affects its culture

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 13 Chapter One Mergers, Acquisitions, and Organizational Culture Definition of organizational culture Many different definitions “the way we do things around here” A critical aspect of organizational survival and success

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 14 Chapter One Mergers, Acquisitions, and Organizational Culture Culture and performance – hard data Kotter & Heskett – comprehensive study Adaptive vs. non-adaptive cultures;  Revenue increase of 682% versus 166%  Workforce expansion of 282% versus 36%  Stock price increase of 901% versus 74%  Net income increases of 756% versus 1%

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 15 Chapter One Mergers, Acquisitions, and Organizational Culture National Versus Organizational Culture Outside scope of this book, but; Well-researched subject Different national cultures add complexity to analysis of corporate culture References:  Rhinesmith (1996) A Manager's Guide to Globalization  Medina-Walker (2002) The Guide to Cross Cultural Success  Hofstede (1991) Culture and Organizations

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 17 Chapter Two The Organization As a System Organizations are systems and obey the following: The behavior of each element of a system has an effect on the behavior of the whole system. The behavior of the elements of the system, and their effects on the whole system, are interdependent. However subgroups of the elements are formed, each has an effect on the behavior of the whole and none has an independent effect on it.

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 18 Chapter Two The Organization As a System System thinking awareness Almost all agree organizations are systems Little awareness of what this means at executive level – executives must: represent and champion their function and be an advisor to the CEO of the group on overall organizational system effectiveness A critical skill during change

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 19 Chapter Two The Organization As a System The individual as a performance system Geary Rummler’s six areas of analysis critical to understanding individual performance Skills & knowledge Feedback Individual capacity Performance specifications Task support Consequences

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 20 Chapter Two The Organization As a System Winning the battle while losing the war Without systemic thinking: Rational changes in one department can cause adverse effects in another Net result is worse than before the change

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 21 Chapter Two The Organization As a System Non-systemic working puts individual team needs before the needs of the whole organization Unresolved conflict between departments and teams Members of senior management teams thinking only within their silos Optimizing each part of a system does not optimize the system.

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 22 Chapter Two The Organization As a System Synthesis before analysis When examining a “problem area”: 1.Understand how the problem area fits into the overall system and how the overall system affects the problem area 2.Analyze the problem area

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 23 Chapter Two The Organization As a System Culture is not a system component, but: It is embedded in the system It is a product of the system It cannot be taken out of the system or dealt with in isolation Culture is a result, not an element, of the overall organization system.

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 24 Chapter Two The Organization As a System Daily managerial behavior People notice Not what managers say, but What managers do "What you do speaks so loudly that I cannot hear what you say!"

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 26 Chapter Three Organizational System Alignment Organizational Alignment Based on diagnosis – data-based, not solution-based Systemic and systematic Organizational Scan process Helps determine best and most effective actions to take to resolve the issues confronting the organization

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 27 Chapter Three Organizational System Alignment Systemic approach Two keys to effective change: 1.First - ascertain what factors, both formal and informal, are driving the current system 2.Second - plan for altering or modifying those factors needed to support and sustain the new desired performance

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 28 Chapter Three Organizational System Alignment solid, proven, and highly intuitive diagnostic template for initial diagnosis of the organizational system drivers Organizational Alignment Model

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 29 Chapter Three Organizational System Alignment Organizational System Model A model to sort out the complexity considering an organization as a system Gives guidance as to what to look for and where to look Incorporates the industrial engineering model of work with the sociological model of work

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 30 Chapter Three Organizational System Alignment Combines the Industrial engineering model of work - a set of conditions exists within which a process operates to deliver an output With the Sociological model has work being performed by people within an organization Organizational System Scan Model

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 31 Chapter Three Organizational System Alignment Experience, research, and advancements in the understanding of organizations showed an adjustment was needed The development of another row of three boxes, focused on External Factors of the organizational system This new row represents the organization’s perception of and direct response to the external environment in which it finds itself operating Organizational System Scan Model – additions

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 32 Chapter Three Organizational System Alignment The organizational system model reflecting our current understanding of the dynamics of an organizational system

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 33 Chapter Three Organizational System Alignment Purpose To gather current data on the "organizational situation," as perceived by its functions and people, for use in decision making by top management The Organizational Scan clarifies organizational intent and direction and captures information about the "real organization’s" alignment with that direction — its values and belief system, day-to- day life, priorities — in short, its culture. It also assesses relevance and helpfulness of organizational systems, policies, and procedures. Benefits Provides the CEO/Top Management with an efficient and comprehensive diagnostic scan of the organization at all levels Identifies areas of potential greatest leverage for increasing organizational effectiveness as desired Indicates priorities for action to move/transform the organization, which focuses and facilitates planning Provides an assessment of the organization's readiness for change, and the adequacy of the organization's leadership and management to effect that change and, perhaps most significantly Enables the alignment of the organization's strategy, culture, and infrastructure to the business reality confronting it Uses of the Organizational Scan Model

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 34 Chapter Three Organizational System Alignment There is very little in organizational life that has broader impact and a greater number of potential changes in daily operations than the merger of two organizations into one new, integrated organization, as happens in a merger or acquisition. This is system change at its fullest, where a system model like the Organizational Scan Model can be extremely valuable. The issues are many and complex, and an organizational system model can be invaluable in helping to sort out and organize all of the data and information that must be considered.

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 35 Part 2 Cultural Due Diligence and Assessment CHAPTERS 4.OVERVIEW OF CULTURAL DUE DILIGENCE 5.PERFORMING CULTURAL DUE DILIGENCE

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 37 Chapter Four Overview of Cultural Due Diligence Due Diligence The investigation of one party by another party to gather information that will assist in decision making and risk analyses In conjunction with transactions between people or companies

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 38 Chapter Four Overview of Cultural Due Diligence Traditional Due Diligence considers;  General Corporate Information  Management  Industry, Market, and Competitor Assessment  Financial Information  Assets and Facilities  Intellectual Property  Contingent Liabilities  Tax Information  Legal Information  Insurance  Sales and Marketing  Customers  Strategic Alliances Rarely if ever gives any consideration to the dynamics of the two organizations’ cultures, their degree of compatibility, or the potential culture clash problems that are almost sure to arise after the deal is done.

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 39 Chapter Four Overview of Cultural Due Diligence The case for CDD Culture clash is the main reason why some 55-77% of mergers and acquisitions fail in meeting their intended results By assessing the characteristics of both organizations’ cultures as soon as possible in the merger process, potential culture clash problems can be predicted, prioritized, and focused on in a comprehensive Cultural Integration Plan Proactive problem solving in advance

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 40 Chapter Four Overview of Cultural Due Diligence Cultural Due Diligence is appropriate in a number of key business situations, including: When considering mergers and acquisitions as a growth strategy When selecting a target company for merger or acquisition When finalizing the decision to do the deal or not with a target company Immediately after execution of the Letter of Acceptance by the target company Immediately after finalization and approval of the merger or acquisition As "cultural triage" after the merger or acquisition becomes effective, to deal with culture clash problems that surface

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 41 Chapter Four Overview of Cultural Due Diligence CDD activity sequence Acquirer self-assessment  Objective assessment of “own” culture Assessment of target companies  High-level initial CDD of a number of target companies Detailed cultural assessment of selected target company  A full and detailed cultural assessment of the target company and comparison with that of the acquiring company Alignment/Integration Planning  Informed, data-based design of the overall Integration/Alignment Plan

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 42 Chapter Four Overview of Cultural Due Diligence CDD by attributional model Off-the-shelf survey type assessment No single assessment model of organizational culture exists Lack granularity or depth in their findings Does not differentiate between value-based and non-value-based differences Daily behaviors still need to be determined by interview, focus groups, and observations

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 43 Chapter Four Overview of Cultural Due Diligence CDD by customized assessment model Based on a functional model of culture Comprises  Interviews and focus group  Workplace observation  Document review  Subsequent web-based large-scale customized surveys

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 44 Chapter Four Overview of Cultural Due Diligence 1Intended Direction and Results 2Key Measures 3Key Business Drivers 4Infrastructure 5Organizational Practices 6Leadership/ Management Practices 7Supervisory Practices 8Work Practices 9Technology Use 10Physical Environment 11Perceptions and Expectations 12Cultural Indicators and Artifacts CDD cultural domains Typically, the data is organized and presented within the following cultural domains, where the organization's culture is on display every day.

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 45 Chapter Four Overview of Cultural Due Diligence CDD Deliverables Detailed Cultural Profile of Both Organizations Baseline Perceptions of Various Constituencies of Both Organizations About Current Culture and the Merger or Acquisition Specification of Cultural Similarities Within the Twelve Cultural Domains Specification of Cultural Differences Within the Twelve Cultural Domains Prediction, Specification, and Prioritization of "Culture Clash" Problems and Their Impact on the Merger Specification of Degree of Difficulty in Integrating the Two Cultures Specific Recommendations on Avoidance and/or Minimization of Culture Clash Problems in Integration Integration Road Map for Implementation of Recommendations

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 46 Chapter Four Overview of Cultural Due Diligence Legal restrictions to due diligence Full CDD can generally only occur after Letter of Intent or Acceptance  Access to people in target company limited before this

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 47 Chapter Four Overview of Cultural Due Diligence Pre Letter of Intent or Acceptance activities 1.self-assessment of the acquirer 2.high-level estimate of the probable cultural characteristics of potential target companies 3.assessment of the potential compatibility with target company executive teams 4.information to inform recommended retention strategies for key people at the target companies

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 48 Chapter Four Overview of Cultural Due Diligence Self-assessment of the acquirer Identify and manage Things that are not going all that well internally, have not been dealt with, and are not desirable to take forward into a new, merged operation after an acquisition Areas within the acquiring company that are less than supportive of an acquisition in general

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 49 Chapter Four Overview of Cultural Due Diligence High-level estimate of the probable cultural characteristics of potential target companies High-level assessment of the target organization's culture Very detailed review of any documents that directly or indirectly give indications of aspects of the organizational culture Compare notes with other, non-culture, DD teams

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 50 Chapter Four Overview of Cultural Due Diligence Assessment of the potential compatibility with target company executive teams Series of visits, meetings, and social events in the pre letter period Enable objective assessment of future key managerial positions

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 51 Chapter Four Overview of Cultural Due Diligence Information to inform recommended retention strategies for key people at the target companies Structured interviews of key people – both managers and individual contributors Understand what they value in their current organization Enable design of strategy to engage their hearts and brains in the new merged organization

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 52 Chapter Four Overview of Cultural Due Diligence Assessing degree of difficulty of cultural integration Preliminary estimate of the degree of difficulty and resources required in integrating the two companies possible Allows intelligent and informed comparison with several potential target companies Informs the design of the eventual full CDD of the selected target company

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 53 Chapter Four Overview of Cultural Due Diligence Getting it right – H-P / Compaq merger CDD early in the merger process Cultural integration team from the start Studied previous merger problems CDD and cultural integration planning played a major role in this successful merger After a full year of operation, success measures of the new hp are positive

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 55 Chapter Five Performing Cultural Due Diligence The CDD Process Qualitative  Interviews  Focus groups  Workplace observations  Documentation review Quantitative  Web-based survey(s)  Related to domains or characteristics of the culture identified from the qualitative process

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 56 Chapter Five Performing Cultural Due Diligence Typical components of a CDD process 1.Qualitative - High-level interviews 2.Quantitative – Web-based surveys to sample of the whole population 3.Qualitative – Interviews across the organizations 4.Quantitative – Web-based surveys to entire populations Each stage is informed by the previous stage(s)

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 57 Chapter Five Performing Cultural Due Diligence 1Intended Direction and Results 2Key Measures 3Key Business Drivers 4Infrastructure 5Organizational Practices 6Leadership/ Management Practices 7Supervisory Practices 8Work Practices 9Technology Use 10Physical Environment 11Perceptions and Expectations 12Cultural Indicators and Artifacts CDD Data organization Typically, the data is organized and presented within the following cultural domains, where the organization's culture is on display every day.

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 58 Chapter Five Performing Cultural Due Diligence 1. Intended direction and results Ascertain, from the top of the organization on down, what the company intends to accomplish  What is the business plan about, what is the strategic intent and purpose of the organization, what results are expected from the business activity of the organization, and, most importantly, how are these things talked about, described, and communicated?

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 59 Chapter Five Performing Cultural Due Diligence 2. Key measures What the company measures, why, and what happens as a result  The key measures say a lot about the manner in which the company and its executives and staff are driven, particularly when the consequences for each measure are considered.

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 60 Chapter Five Performing Cultural Due Diligence 3. Key business drivers What are the primary issues driving the business strategy? Is the focus on competitive edge and, if so, how is that defined — price differentiation, quality, market share, service, reliability, or what?  This tells you how the company views its industry and its subsequent efforts within the industry – that is, how it defines success

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 61 Chapter Five Performing Cultural Due Diligence 4. Infrastructure How is the company organized?  For example, are people expected to “go directly to whomever you need to talk to” or must proprieties be observed between different levels or functions? Are business units supposed to drive their business priorities first and foremost and respond to corporate, staff, or other unit needs when convenient, or vice versa?

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 62 Chapter Five Performing Cultural Due Diligence 5. Organizational practices What formal and informal systems are in place and what part do they play in the daily life of doing the work? How much flexibility is allowed at what levels in which systems? What is the relationship between political reality and business reality?  For example, how are budgets developed and managed?

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 63 Chapter Five Performing Cultural Due Diligence 6. Leadership/management practices What is the balance between leadership and management approaches with staff? What are the basic value systems about employees? How are people treated and why? How is the business plan implemented through the management system? How are decisions made?  Which approach is predominant in each area / department of the company?

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 64 Chapter Five Performing Cultural Due Diligence 7. Supervisory practices What dynamics are involved in the immediate oversight of the performance of work?  Supervisory practices have a major impact on employees’ feelings about the company and the work they do. The nature of the interaction between the employee and the immediate supervisor is one of the primary climate-setters for the culture of the company.

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 65 Chapter Five Performing Cultural Due Diligence 8. Work practices How is the actual work performed?  Is the emphasis on individual responsibility or group responsibility? What degree of control, if any, does the individual worker have on the work flow, quality, rate, tools utilized, and supplies needed?

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 66 Chapter Five Performing Cultural Due Diligence 9. Technology use What is the company's technology base, and how is technology used?  This must be considered in relation to both internal systems and equipment, as well as the services and products provided to customers. How current is the technology being utilized? What are people used to in relation to technological support/resources?

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 67 Chapter Five Performing Cultural Due Diligence 10. Physical environment How do the workplace settings differ?  Open work spaces versus private offices, high security versus open access, buildings, furniture, grounds — all can have a bearing on how people feel about work and the company. Changes in these areas, particularly if they are perceived as arbitrary, can result in bad feelings for years.

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 68 Chapter Five Performing Cultural Due Diligence 11. Perceptions and expectations How do people expect things to happen? What do they believe is important? What do they think should be important, versus what they perceive the company feels is important?  Strongly held beliefs (perceptions) can be at the core of their inability to work together.

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 69 Chapter Five Performing Cultural Due Diligence 12. Cultural indicators and artifacts How do people dress and address each other? What is the match between formal work hours and actual hours spent working? What company-sponsored activities exist and what are they like?  Social norms form an important part of organizational culture.

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 70 Chapter Five Performing Cultural Due Diligence Values and Beliefs, and Myths, Legends, and Heroes Often referred to in cultural assessment Not included as specific domains In actuality, these are imbedded in the 12 domains More effective than direct questioning

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 71 Chapter Five Performing Cultural Due Diligence Qualitative data most important Rich in anecdotes and examples Provides breadth and depth Gives personal meaning to the culture Eases the task of cultural change

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 72 Chapter Five Performing Cultural Due Diligence Cultural assessment the comparison of data and information about the cultures of the two companies involved in the merger or acquisition Inputs  Qualitative CDD data  Quantitative CDD data  Cultural data form Legal, Financial, and other due diligence processes

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 73 Chapter Five Performing Cultural Due Diligence Findings Typical subject headings for CDD findings  The merger  Culture  Organizational change  Leadership

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 74 Chapter Five Performing Cultural Due Diligence Cultural Alignment and Integration Plan Includes  Summary of CDD activities and data sources  Summary of the results of the CDD activities  Summary profiles of the cultures and sub- cultures of each company, together with any geographical cultural differences  The key cultural synergies between the companies

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 75 Chapter Five Performing Cultural Due Diligence Cultural Alignment and Integration Plan Includes (cont)  Identification of areas of probable culture clash between the organizations  Whether Company A and Company B can be merged to create a new organizational culture  The estimated difficulty of cultural integration and the scope of the time and resources required to accomplish the integration

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 76 Chapter Five Performing Cultural Due Diligence The Cultural Alignment and Integration Plan specifically:  Addresses the leading cause of the failure of mergers and acquisitions - culture clash between the two organizations  Provides detailed information that will facilitate development of an efficient and effective Cultural Integration Plan, which addresses the second major cause of failure - lack of speed in integrating

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 77 Part 3 Cultural Alignment and Integration CHAPTERS 6.ALIGNING AND INTEGRATING THE EXECUTIVE GROUP 7.ALIGNING THE MANAGEMENT GROUP 8.ALIGNING THE TOTAL ORGANIZATION 9.SUCCESS MEASURES 10.SUMMARY AND CONCLUSION

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com Chapter Six ALIGNING AND INTEGRATING THE EXECUTIVE GROUP

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 79 Chapter Six Aligning and Integrating the Executive Group Cultural integration is an essential factor in: Implementing the new organization's business plan Getting support of and commitment to the plan rapidly from the organization's people Primarily an issue of organizational alignment NB: At this stage, a target company has been selected and the merger or acquisition is going to happen

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 80 Chapter Six Aligning and Integrating the Executive Group Aligning the Organization Clear mission and vision (intent and purpose) Align, with the mission and vision:  Infrastructure (policies, procedures, internal systems)  Strategy (goals, objectives, and daily tasks)  Culture (values, practices, daily behaviors) in order to achieve desired organizational results

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 81 Chapter Six Aligning and Integrating the Executive Group Alignment priorities Alignment process  Best begun at the top of the organization  Greatest amount of effort and time spent per employee is generally at the top of the organization  Least amount of time required per person is at the lower levels

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 82 Chapter Six Aligning and Integrating the Executive Group Nine-step alignment and integration process 1.Review business plan and overall organizational intent 2.Discuss with CEO to achieve ringing clarity on organizational intent and business plan 3.Complete a CDD and assessment on both acquiring and target companies 4.Review results with CEO and plan work sessions with executive group 5.Conduct issues-based team-building sessions with executive group of the new organization

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 83 Chapter Six Aligning and Integrating the Executive Group Nine-step alignment and integration process 6.Conduct all-managers sessions with all managers in the new organization 6.a - If necessary creation of Tiger Team to investigate and resolve infrastructure issues 7.Conduct feedback-based planning sessions for executives and managers 7.a - Follow-up sessions as necessary 8.Conduct all-staff sessions 8.a - Follow-up sessions as necessary 9.Conduct work process re-engineering sessions as needed

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 84 Chapter Six Aligning and Integrating the Executive Group Review of all the findings of the organizational scan with the senior executive, including identification of all broad systemic and alignment issues that require immediate resolution and time-sensitive issues that require immediate resolution before any further cultural integration activities can be initiated

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 85 Chapter Six Aligning and Integrating the Executive Group These time-critical issues and opportunities should be the first activities engaged in by the merged operation. You might say these represent the “low hanging fruit” that can be leveraged for immediate positive impact. Once the immediate time-sensitive issues covered in the first part of the integration plan are dealt with, or at least well begun, the alignment activity needs to follow in very short order.

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 86 Chapter Six Aligning and Integrating the Executive Group Arguably the most critical aspect of leadership and management in a cultural integration effort is the development of a mission, vision, strategy, and cultural values for the new organization and their communication with absolute clarity Issues-based team building focuses on the individual and collective behavior and effectiveness of the new organization's executive team in providing direction, motivation, guidance, and clarity to the new organization Generally three to five days of intensive work Outside facilitation experienced in the program is required

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 87 Chapter Six Aligning and Integrating the Executive Group Issues-Based Team Building For senior executive team Achieve ringing clarity on vision, mission, strategy, and cultural values Identify time-sensitive issues Needs honesty and candor to achieve real agreement Outside facilitation best Further meetings may be necessary

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 89 Chapter Seven Aligning the Management Group It is the management group, ranging from senior managers to first-line supervisors, who are the primary drivers of organizational behavior. Their day-to-day behavior is quite possibly the most powerful form of cultural communication and influence in the organization. It is important that all managers in the new organization be absolutely clear on and committed to where the organization is, where it is going, why it is going there, and how it will get there. Outside facilitation recommended is.

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 90 Chapter Seven Aligning the Management Group All Manager Session Attended by;  All who manage people, whether as managers or supervisors  Significant individual contributors Achieve clarity on mission, vision, strategy, cultural values – presented by members of the executive team Understand consequences of failure, collectively and individually Work out how to pass on this information to the teams Identify practices for the cultural values Highly participative cross-functional process

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 91 Chapter Seven Aligning the Management Group All Manager Session 2 Managers group and regroup for maximum interaction to create a valid all manager result Collect issues coming out of discussion CEO final briefing  Results of session  Issues collected  Need to communicate to teams  Explain that the chosen practices are the basis for future 360-degree feedback sessions

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 92 Chapter Seven Aligning the Management Group The investigation and resolution of any infrastructure issues that have surfaced during the CDD or in the issues-based team building or all manager session by 3-10 person "Tiger Teams" Involves lower level management and staff directly with issues Teams model quick and definitive action

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 93 Chapter Seven Aligning the Management Group The all managers session is not sufficient to achieve significant modification in day-to-day manager behavior to effectively implement the new management practices that support the new organization's values. A series of feedback-based management-planning sessions is required to help managers identify the change and development that they need to model the values and practices on a day-to-day basis.

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 94 Chapter Seven Aligning the Management Group Feedback-based planning session Individual 360-degree feedback on how managers are perceived in implementing the new management practices in support of the new organizational values Enhancement of change management knowledge and necessary skills and knowledge where the CDD or the 360-degree survey has shown a general pattern of deficiency Each manager understands what it will now mean to be a manager in the new organization and what is now expected from him or her Managers leave with a personal short-term action plan Event finishes with CEO forum with Q&A session

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 95 Chapter Seven Aligning the Management Group Typical feedback chart The manager is rated by self, boss, direct reports, and peers on each of the management practices. The numeric ratings focus on the frequency with which the manager demonstrates the practice, and the importance of that practice from the rater's perspective.

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 96 Chapter Seven Aligning the Management Group Monthly half-day follow-up sessions for at least six months. Reconnect meetings should be held at 30, 60, 90, and 180 days after the feedback-based planning session at a minimum, with a 360-degree feedback re-survey done in conjunction with the 180-day meeting These sessions are scheduled and run on a team basis, so the group of 5 to 7 managers who were on a team together become an ongoing support group for individual change. By meeting each month and briefing each other on their individual progress - successes and problems - in carrying out their action plans and amending them as necessary with the support of this group, followthrough is significantly enhanced.

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 98 Chapter Eight Aligning the Total Organization Engages every staff member directly in order to gain their understanding of and commitment to the new organization by involving them in the reasons for the merger or acquisition, the direction of the new organization, and the changes that are required for its success Carefully orchestrated sessions where the primary presenters are the organization's executives and senior managers—an outside consultant or facilitator is required One-day events, composed of from 20 to as many as 100 people, organized in groups of 10 facilitated by a manager.

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 99 Chapter Eight Aligning the Total Organization All-staff sessions agenda Case for change Mission, vision, strategy, values, and practices Management 360-degree feedback and action plan process Exercise to create personal engagement in the change effort – performance improvement suggestions – must be followed up

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 100 Chapter Eight Aligning the Total Organization When there is a need for major infrastructure changes, can either: Expanded use of tiger teams Large group re-engineering session (This approach is much more effective in dealing with infrastructure issues that cross multiple departments or work units across the organization than are smaller tiger teams or action learning teams)  Rapid and efficient  Quick decision making due to complete representation

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 102 Chapter Nine Success Measures General success measures 1.Increase or decrease in share price 2.Increase or decrease in revenue 3.Increase or decrease in operating profit 4.Increase or decrease in profitability 5.Payback of capital costs

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 103 Chapter Nine Success Measures General success measures 6.Recovery of any premiums paid 7.Increase or decrease in productivity levels 8.Increase or decrease in market share 9.Loss of key executives 10.Loss of key staff

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 104 Chapter Nine Success Measures Success measures Staff opinion/attitude survey Web-based CDD re-survey 360-degree leadership and management survey Monitoring cust. serv. and satisfaction levels Current organizational measures “Listening posts” and focus groups Customer interviews/focus groups/surveys Other specific measures

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com 106 Chapter Ten Summary and Conclusion Achieving Post-Merger Success Is possible ! CDD and cultural alignment are necessary components Stakeholders should be tougher in insisting on CDD before, and cultural alignment during, a merger or acquisition Board members and senior executive accountability require CDD and cultural alignment activities

Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com.

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Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com.

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