MGTO 630BManaging People Globally for Competitive Advantage

Mergers & AcquisitionsMergers & AcquisitionsSaturday, March 8, 2003Saturday, March 8, 2003

2

Summary of Ferodo Turnaround John Tharme arrived as Managing Director of FTL (spent only 2 days with Mr. Worawut, previous MD) Engineer, 30 years in SAfr. JV, few years as

MD Brought in by T & N management group Found out that Peter Farrell never visited

Thai factory, no strategic planning for Thai JV

Realized that Worawut was caught between being MD of FTL and being Mr. Subhawat’s friend

Had long-term view: JV would need 5 years before being profitable, need time to build up export, domestic markets

3

What Tharme did Provided marketing support for

Boonpong – Mr. Subhawat Cleared backlogged shipment to

Ferodo, Australia FTL bough back stocks from Boonpong,

used stock to fill remaining Australian orders Boonpong became non-exclusive distributor

David Jones brought in from South African JV to become Sales and Marketing Manager for FTL Could sell in domestic as well as export

market

4

Ferodo (B) illustrates

Successful transfer of business practices (Mr. Worawut Mr. Tharme)/ sales and marketing (Boonpong, Mr. Subhawat FTL, David Jones) knowledge from local (Boonpong) to global (FTL, T & N) Turnaround in JV performance

5

Characteristics of Knowledge Context specific versus

context generalizable Higher level versus lower level Individual versus collective Present versus future focused Tacit versus explicit General versus specific

6

Keys to Successful IJVs

Choose right partner Goals, strategy, reliability

Find right local general manager Local networks, ministries,

suppliers, markets, Choose right location Control the IJV Be prepared to be patient!

7

Alliance Takeaways Usually short-lived entities HRM manages interface between

alliance companies and people within them

Alliances characterized by duality between cooperation and competition, leveraging and developing competencies Common characteristic of these conflicts

is knowledge acquisition and learning – must be approached strategically for these learning objectives to be realized

Most important single factor determining IJV success or failure is CHOICE OF PARTNER

8

By the end of the M&A module, you should be able to:

Diagnose reasons for the failure and success of M&As

Develop strategy for improving success of M&A

9

Which factors influence the integration / differentiation of HRM Practices? Factors contributing to local

isomorphism (adapt to local context: internal consistency, integration) Sector Market Embeddedness in local environment Local environment

Factors contributing to differentiation Organizational origin Resource flows: capital, information,

people Corporate culture

10

HR practices that tend to be localized Time off Benefits Gender composition Training Executive bonus Participation

11

Knowledge Transfer and the Role of Alliances / M&As and Culture

National

Firm

Regional

Culture Motivation and

Incentives to form alliances, M&As

Ability to transfer Knowledge through alliances, M&As

Knowledge transferthrough alliances, M&As

12

AICC case

Does national culture and/or organizational culture influence what happened at AICC? What other factors contributed to the problems?

What are your recommendations for fixing the problems?

PDI UAI IDV MAS LTOSwitz.

34 (45)

58 (33)

68 (14)

70 (4)

--

USA 40 (38)

46 (43)

91 (1)

62 (15)

29 (17)

Country rank (out of 50 for all except LTO (23)) in brackets

13

“Ever since they tried to make us an organization, we have stopped being an enterprise” -- Ron Wheeler

Is the present situation the result of poor adaptation of AICC to the changing business environment or is it the result of the different culture imposed by Masseverk?

14

Figure 6-1 (p. 252). Trends in International Mergers and Acquisitions

Source: Mergers and Acquisitions Almanac, February 2001, p. 37.

15

Mergers & Acquisitions: A few observations Essential element of company

growth strategy Resource dependency and

transaction cost theory support M&A activity increase firm knowledge while

minimizing transaction costs

16

Are mergers successful? Measured by actual business results

in comparable companies, less than ½ of merged / taken-over companies successful No direct relationship between market

or share value paid for a company and success of the merger

No direct relationship between relative size of the merging businesses and success of the merger

No direct relationship between whether mergers took place in associated or different industries and success of the merger

17

“If we buy up a company and the most important knowledge workers make off, then we have lost out already. Loyalty of our employees has a considerably higher value than in the past”. –Andy Grove, former Chairman of Knowledge-Based Company.

18

Turnover Rate of Executives

Executive Turnover Rate

0

5

10

15

20

25

30

-5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9

Years surrounding acquisition

Tur

nove

r Rat

e (%

)

MergedNon-Merged

19

Summary: Reasons for M & A failures Difference in vision for new entity Loss of talent and capabilities,

other intangible assets Lack of understanding of system

and processes in acquiring company

High transition and coordination costs

Lack of cultural fit

20

Figure 6-4. The Wheel of Fortune at General Electric

Sou

rce:

R.N

. A

shken

as,

L.J

. D

eM

on

aco, an

d

S.C

. F

ran

cis

, “M

akin

g t

he D

eal

Real:

How

G

E C

ap

ital

Inte

gra

tes

Acq

uis

itio

ns,

” H

arv

ard

Bu

sin

ess

Revi

ew

, Ja

nu

ary

-F

eb

ruary

1998, p

. 167.

21

Synergon Case

Would events have unfolded differently if the M&As had been systematically planned? Use the GE Pathfinder model in

the previous overhead to diagnose what went wrong.

Develop recommendations about how you would fix the problem.

22

Why Mergers are Successful, part I Effective strategic formulation of

vision Clear objectives of merger Practical planning of phase BEFORE

companies merged Careful integration following merger

Source: Booz Allen Hamilton, 1997

23

Why mergers are successful, part II Complete as quickly as possible (change is

expected, don’t prolong the change process) Make decisions quickly, communicate them

openly Specified schedule observed without

deviation Conflicts between partners to merger

discussed openly New company set objectives that are as

ambitious as possible

Sources: Daniel Vasella (1st Chairman of Novartis (formerly Sandoz and Ciba Geigy); Jurgen Schrempp (Daimler Chrysler);LSE study.

24

Best predictor of M & A success is previous experience with M & As

Vision and strategy for combined organization a must

Post-merger integration of culture and people consistently rank among main obstacles

HR contributes to M & A success by assessing culture and people practices to ensure retention of key personnel in both organizations

100 day period critical: insight, information, involvement, inspiration

M & A Takeaways