Like snowflakes, no two integrations are quite the same. Just ask Jill McGruder.
McGruder, president and CEO of IFS Financial Services Inc., a division of Western & Southern Financial Group, has shepherded her $3 billion company through two integrations, each with its own set of circumstances and challenges.
McGruder says that a stumble in folding either or both of the two companies into IFS Financial Services could have risked the parent companies’ reputation for service and rigorous financial management. “The biggest thing for us would have been the reputation risk,” McGruder says. “We’re a 118-year-old company that has very much a service culture with strong financial discipline.”
And with a stumble, any plans McGruder had to build IFS Financial Services with additional acquisitions might have gone unsatisfied, as the parent company might have opted to turn off the cash for more expansions in the wake of a poor integration effort.
McGruder had to integrate two types of businesses, each with its own unique challenges. And the integrations had to be done quickly and with minimal disruption to IFS and the acquired company.
Fixing an ailing company
In the first case, McGruder wanted a mutual fund business to expand IFS’ portfolio of investment products, but along with the mutual fund company acquired in 1999 came a services company. “We really bought the company because, strategically, it served us very well because the Western & Southern Financial Group is trying to grow its fee-based businesses and its investment management businesses, and we also have a great reputation for services,” McGruder says. “So we bought it for the money management business, but with it came this servicing company. “Would we have struck out and bought a servicing company on a stand-alone basis? Probably not, but this servicing company was so much a part of the mutual fund business, because it’s your back office operations, that it made sense to buy it, both to keep the funds operating efficiently and strategically, to get into more fee-based businesses, again, as part of our strategic plan. “We knew it had issues, to be quite honest. It needed investments in people and technology. There was no question about that, and they were at a crossroads strategically when they said, ‘How much more are we going to continue to invest in this business?’”
McGruder says the growth of the business had outrun its capability to serve clients, as billions of dollars poured into the markets during the technology boom of the late 1990s. And it was its own technology lag that was strangling the company’s ability to carry on. “They had a client that had a huge run-up in business assets, and they didn’t have an infrastructure that was capable of supporting a fund that went from a couple hundred-million-dollars in assets to $7 billion in assets, literally in no more than six months,” McGruder says.
You can’t know everything required to get a business on track, McGruder says, so it’s critical to have a team that has the resources to solve the problem. “The first thing is to get the best heads together at the table, the brightest minds, the most experienced people you can because you can’t do anything in a vacuum,” McGruder says. “I knew I didn’t know enough to fix the business, so I had to surround myself with people who did know what to do. That’s the key, putting that team together who did know what to do.”
The team was an entirely new one that understood the business, the technology and what it would take to turn things around. “It worked out very well because you had to let that team that I brought in, you had to let them do what they know how to,” McGruder says.
While she allowed the team to operate independently, McGruder kept close tabs on their progress throughout the process. “Because this is a very technical business, it wasn’t difficult to track what was going on, but again, regular meetings, regular updates reviewing each functional area, what progress was being made, from a staffing perspective, from establishing controls” all were critical, McGruder says.
In the case of an ailing company like this acquisition was, it is important to focus in the early stages first on the functional improvements rather than strictly on financial performance. “While there are a number of objectives behind the decision to integrate, including financial, the ramp-up itself is very process-driven, so the measures have more to do with monitoring timelines, effectuating knowledge transfer, process mapping, staffing and so forth,” McGruder says. “Once the integration is complete, attention turns to whether the financial objectives of the integration are, in fact, being achieved.”
She says she had to recognize that there were things she didn’t know, and in this case, technology was a key area where her knowledge was limited. Making decisions about which technology to invest in, for instance, was based on the scorecard measures that the company uses to guide the business. For McGruder, it was a matter of determining, with the help of the technology team’s recommendations, whether a particular technology solution met needs of the business. “When you bring me the business case, you tell me which of the scorecard measures this investment will drive and how it will drive it, how far it will drive it and, what it will take away from, because after all, there’s a trade-off,” McGruder says.
Changing a culture
In the other integration, an acquired annuities company located in another city operated independently for several years before it was integrated into IFS Financial Services. In this instance, McGruder faced cultural and organizational challenges. “We let it run independently for five or six years before we integrated it, and the issue was truly, how do you transform from one cultural mindset to another,” says McGruder of the company, which was acquired in 2000 but not integrated until 2005. “It was an organization that was very, very top-down driven. The CEO said, ‘Here’s what we’re going to do, here’s the plan,’ everyone rallied around it, and people didn’t ask a lot of questions about why are we doing it this way, is this the best way to do it. “When we integrated the business, we didn’t really run the business that way. We run the business here very quantitatively, on facts and financials. We use scorecards, but everybody participates in the development of their scorecard, the measures embodied in their scorecard. It’s much more participative. So trying to convert that group from a top-down model to a much more participative, quantitative model was a whole different kind of challenge.”
To facilitate the integration, McGruder enlisted an internal group at Western & Southern to help the integration team. “We have a group here that focuses on process re-engineering, looking for cost efficiencies, expense reduction, and that works across our entire Western & Southern Financial Group,” McGruder says. “We brought the proper people on, and they really drove the integration team.”
McGruder discovered that it wasn’t easy to change the company from a top-down model to one based on accountability. “The first step in changing the culture to one focused on measures and results was to make certain that those being asked to adapt to an accountability-based culture understood the benefits of the change to both the organization and to them as individual stakeholders,” McGruder says. “Honestly, it wasn’t easy for some people to see the benefits of the change through the pain of the change. So the best tactic I could use was to constantly showcase the results of other businesses and individuals who had successfully navigated the same kind of cultural transformation and were proudly producing phenomenal results.”
McGruder says that tactic seems to have worked, as the financial results, despite the integration, were improved over the prior year’s performance. Sales increased by $210 million, or 32 percent, and the bottom line has improved 39 percent compared to the prior year.
The second challenge was integrating the people into the larger organization, moving those who decided to relocate to Cincinnati and hiring new people to fill the jobs left vacant. “What we did was mapped every job, every function that was being performed in that company to our company here,” McGruder says. “As you might imagine, we had 310 people, and it wasn’t easy to do it in the time frame we had, but that’s how we did it, with job-mapping to get the other organization aligned with ours, to get it as close as we possibly could to get the integration started. We learned a lot about the business by doing that, and it made the integration a smoother process than it might have been.”
While the two integrations were different in terms of what each acquired company needed to make it successful, McGruder says they share some important characteristics. “Once the decision to integrate is announced, my experience indicates it is best to act quickly,” McGruder says. “One should be patient in assessing the decision to integrate or not, but once the decision is made and announced, it is important for the continuity of the business to act quickly, even if mistakes are made.”
And it’s necessary to solicit input from all parties and not make assumptions based on previous experiences. “Hear everyone out, to the extent humanly possible,” McGruder says. “Never presume that the way things have been done in the past by either the integrator or integratee is the right way. In all likelihood, the combined organizations will not operate the same way, either, operated on a stand-alone basis.”
McGruder says building effective leadership teams can be accomplished by the CEO putting the team together or by allowing the managers to choose their own teams. Either method can work; the difference is in deciding when the CEO needs to take direct control and when he or she needs to delegate it. “I have selected leaders for newly acquired organizations and let them build their own teams, but I have also helped managers build their teams,” McGruder says. “I think the role of the CEO is to know when to jump in and when to let go.”
And once the integration is complete, it’s critical that financial discipline is instilled across the organization.
Says McGruder: “You always expect the CFO to have a good handle on every line on that income statement, every revenue line, every expense line, how it drives your results. But you really have to get that embedded in the management team so that they think of that as their own business. “That’s the key to getting all these companies on the growth curve that they’re on.”
HOW TO REACH: Western & Southern Financial Group, www.westernsouthern.com