Back in 2003, the telecommunications industry was going through what Timothy Jenks describes as a “downturn and compression,” as large equipment manufacturing companies — his customers — increasingly consolidated and reduced their vendor base to manage costs. The result was that many companies in the telecommunications components industry, which NeoPhotonics Corp. occupied, were being put out of business.
“As a small technology company, clinically a start-up, it was difficult to gain mind share let alone market share at these very large companies as they consolidated their own operations,” says Jenks, the chairman, president and CEO of the San Jose, Calif.-based optical components supplier with approximately 3,000 global employees.
Jenks saw that the company needed to enhance its core value proposition in a way that would resonate with this core customer group and help it win its business. After spending a year looking at M&A opportunities, he and his management team soon found their solution in Photon Technology Co. Limited, China's largest supplier of active optical components at the time.
“It was complementary technology to our core technology and with an established customer base,” Jenks says. “We had both cash and technology and they had certain products, customer base and manufacturing capability. So together we felt that we would have all of the requisite elements to be an important supplier going forward in the industry.”
By acquiring Photon in 2005, the company now had the opportunity to become a global, one-stop shop for optical components, a value proposition that would click with the needs of its customers. But Jenks now had the task of taking the two companies with different languages and different cultures on different continents and creating one new entity consisting of 1,200 employees and more than 100 customers around the world.
Before they could align everyone directionally and operationally, Jenks and his leadership knew that they needed to spend time with the employees in China to initiate a comfort level of understanding between both teams.
“In order to do that with very strong differences in language, culture and location, it took an awful lot of personal time and attention to develop mutual understanding,” Jenks says. “With mutual understanding, we could get alignment. With alignment, we could execute on the goals. With the goals being clear, we could make good progress.”
While Jenks had a number of people on his team and several from China who were bilingual, there were still communication differences and cultural differences that needed to be addressed in the new company.
“You need to be compassionate, taking the time and effort to understand our global brethren and what are issues from their point of view?” Jenks says. “Everyone is not the same but everyone is important.”
In-person communication in the preliminary stages of the merger was helpful for both leaders, who needed to establish a plan for integration. For about a year and half, Jenks travelled to China for one week or more every month to meet with direct reports and develop an approach of how to provide a clear direction to the key managers in the combined company.
“The face to face matters not just because it’s face to face, but because it allows people on both sides of the table to jointly see momentum,” he says. “If they see you once a month or once occasionally, there just isn’t much momentum.”
The benefit of being face to face with employees who are being acquired is also being able to see the realities of how people operate and manage the ins and outs of daily business. Jenks says that in retrospect he would have moved to China during this time, now that he’s seen the value of this personal time.
“Living in each other’s shoes by being together causes you to understand the issues that you’re facing not on too high of a level but much more day to day, hour to hour, the real issues that we’re facing and how can we jointly solve them,” Jenks says. “My experience is when people have the opportunity to face challenges together and find solutions together, that is what defines successful integration.”
Build alignment on new goals
This first phase isn’t about getting everyone to agree, but cultivating a comfort level and understanding between your two companies so you make decisions easier.
“We spent a lot of time and effort to understand each other, but we didn’t make it the biggest priority to gain consensus on decisions,” Jenks says. “It was to gain consensus on understanding, not consensus in decisions. Decisions had to get made and we had to move forward.”
The next step was getting the two companies to act as one global company, with one set of goals, one vision and one mission moving forward. Getting this alignment involved eliminating all of the previous goals from the individual businesses and creating one set of goals for everyone.
“The company in China wanted to operate on the global stage and the company in the U.S. wanted to be successful and deploy its technology globally,” Jenks says. “So putting those two nuanced sets of personal goals into one set of company goals was a challenge.”
After a merger, there may be a tendency for employees from either company to hold on to the old way of doing things. Where problems arise is when people become so attached to their previous goals that they don’t focus their efforts on new business growth.
“We had a company in the U.S. that was used having objectives that were local objectives, and we had a company in China that was used to having objectives that were Chinese objectives,” Jenks says.
So part of the strategy to get buy-in was to do away with any past performance goals that distracted people from the new global strategy. All financial incentives for employees in the future would be tied to global instead of local performance.
“It was to eliminate and remove all of those objectives and any references to them and replace them with goals so that people in China have to help the global result,” Jenks says. “People in the U.S. had to help the global result. Then even though they understood it, if they weren’t willing to embrace it, there wasn’t a role for them.”
Jenks and his team collaborated with the leadership in China to develop the new set of objectives.
“We actually spent a lot of personal time to write goals to be one company, not to be two companies, and to express with our managers our values that we would embrace and how we would operate,” Jenks says. “That included people from East and West in the senior most management to share ideas, share understanding, share goals and execution plans.”
Getting input from both teams is important, because it helps everyone embrace the new goals as their own, adding to the synergies in the combined company. Once your topmost leadership is aligned on the new corporate goals, you can proceed to build alignment throughout the organization.
“The key thing is that we did express a group of values to be one company and to focus on those global goals, which implicitly meant that staying on the fence was not an option,” Jenks says.
Again, talking with your people face to face to share the new strategies and goals is critical in getting everyone on the same page.
“It causes integration to happen faster, and people find energy in integration success that allows you to move to the next chapter together instead of moving to the next chapter staying individually who you used to be,” Jenks says.
Get the right people on board
Jenks knew that inevitably there were people in the U.S. operation that didn’t want to spend time working on business in China as well as people in China who preferred working for a Chinese company. There were some people who had the skills to succeed in the new environment but weren’t interested in the new direction.
“It was difficult for some people who are not necessarily comfortable living in a language that they don’t speak,” Jenks says. “Moreover, it may be uncomfortable for people who are linguistically gifted but then may have a larger burden because of their abilities.”
During a merger, you have to accept that there are people who will embrace the change and people who won’t. To an extent, the employees who won’t will self select.
“Ultimately, strong performers and people that were good at execution were strongly encouraged to come over to the one-company side of the fence,” Jenks says. “If they were unwilling to do that, they left. That was perfectly OK. If these are not the objectives that you want to work on then there’s no reason why you should work on them, but then you shouldn’t work here.”
In the course of this kind of transformation process there will likely be turnover. As long as you are very clear about the new goals and direction, then you can be fairly confident that people who aren’t excited about it probably don’t have a role in your new company anyway.
“We had to look beyond the level of turnover and say we’re operating to a larger goal and the goal was to be successful and competitive on a global basis,” Jenks says. “That was embraced by a large majority of the employees in both locations. So having that dedicated and engaged group of employees was a really important part.”
To further engage and motivate people, make it clear that with the new vision comes new opportunities for those who are willing to put in the work. That could be everything from more career opportunities, travel opportunities or selling opportunities. Jenks made sure that the Chinese company recognized it now had access to the U.S. R&D and technology and let U.S. employees know that they could enjoy larger manufacturing and a better cost structure. He also knew the added capabilities of the combined company would particularly appeal to sales people as they sought out new business.
“Sales people are always interested in a higher, broader, deeper value proposition to offer to their customers,” Jenks says. “So there was a natural affinity in terms of our customer facing efforts, meaning sales people, whether they were from East or West, suddenly had a broader group of products because they had the merger partner’s products. They had a better roadmap of what they might be able to offer in the future and they had a bigger story to promote with a customer.”
The employees who embrace change are the ones who will do what it takes to make it successful. “I think it’s been a great experience for all of the people who have stayed with the company over the last five or six years,” Jenks says.
Since the merger, the company has grown from approximately $35 million to $181 million in revenue for 2010. In 2011, it completed another acquisition to purchase San Francisco-based Santur Corp., a privately-held components manufacturer with approximately 150 employees.
“So the principles used back in 2005 and in some subsequent deals are being applied again to develop as one company moving forward and to work jointly on what our goals and objectives are,” Jenks says.
How to reach: NeoPhotonics Corp., (408) 232-9200 www.neophotonics.com
1. Gain understanding by getting face to face.
2. Build alignment around shared goals.
3. Encourage people to buy in or opt out.
The Jenks File
Chairman, president and CEO
Education: U.S. Naval Academy, B.S., Mechanical Engineering
Massachusetts Institute of Technology, S.M. Nuclear Engineering
Stanford University, Stanford, Calif., MBA
What is one part of your daily routine that you wouldn’t change?
A quiet morning moment for a cup of coffee alone with my wife
What do you to regroup on a tough day?
I like to have a brisk walk with my dog, but unfortunately most tough days don’t offer the opportunity to regroup. That’s why they are tough.
What do you like most about your job?
I like the global aspect of it. I have friends, colleagues, customers and suppliers all over the world and it really makes me feel like I live in a 21st century existence. My friends and family sometimes are astounded by the regularity in which I find myself dealing with other parts of the world, and it’s a fun thing. At the same time, realizing that what we do really makes a difference. The vast majority of the world does not yet have access to online content. There’s a lot left to do.
What’s the best business advice you’ve ever received?
Hire people you’d be willing to work for, because you may. If you’re picky who you work for and you only hire people that you’d be willing to work for, then you end up with good people.
And, build a business with good people. Good people tend to hire good people.
M&A tips for the next time around: One of the lessons that I learned is that if you’re going to spend an effort to try and merge two companies and you’re in a leadership role, the best thing you can do is move there. For example, doing a transaction with (San Francisco-based) Santur, the first thing that I did is I did take an office there.