If you consider the challenges of integrating any two corporate cultures, it is no surprise that so many mergers fail. The probability that two or more cultures have identical histories or ways of doing things is virtually zero. So, from the time of the merger announcement forward, the importance of leading well and managing behavior begins.
The paper avalanche of a merger discloses legal and business due diligence about both companies. Unfortunately, the documents and the due diligence process don’t disclose the depth of cultural differences.
In other words, merger documents rarely reveal the patterns of behavior that have been shaped over decades by the systems and people within each organization. With a merger, the players abruptly change, leaders and leadership structures are altered, and expectations and behaviors that get rewarded also shift. The result: The old conditions that encouraged important behaviors no longer exist, and resulting behaviors become much less aligned with what made the individual companies so successful prior to the merger.
Under less successful conditions, subcultures can exist where the pockets become identified as the old “XYZ Co. sales guys” or the old “PFG Co. sales guys.” What are people really identifying when they use these labels? They are using “code” for identifying the behaviors those leaders predictably and reliably encourage — the way they “still” get work done. And so it is easy for these subcultures to become embedded, and the development of a new culture to be delayed — while profits suffer and full integration is put off. Leadership is key in preventing this from occurring.
Creating a new culture
Leaders can create a new culture and help encourage new behaviors by aligning expectations (like a new vision statement) with desired behaviors and by ensuring that leadership feedback and coaching actively encourages those behaviors. Taking the time to do this work is where most mergers fall short.
In the frenzy to get FTC approval and names plugged into organizational charts, it is tempting to view “culture” as a distraction and a waste of time. Dedicated leaders, doing everything imaginable to hit pro forma targets, often forget that it is their leadership that most powerfully influences how their organizations perform.
Key leadership actions for successful merger integrations include:
Invest time in clearly articulating to everyone the vision, strategy and means of success for the future. Make the expectations clear and consistent. Encourage new teams at all levels to work together and to review the critical results targets at their levels. Identify key behaviors that need to occur for the targeted results to be met.
Invest time to plan and deliver positive consequences for achieving those results and decide how those who engage in less desirable behaviors will be coached. Don’t leave success to chance. Ensure that every interaction the leaders have with the organization are leveraged as opportunities to show what the company stands for and encourage the desired behaviors needed for success.
Steward business plans with oversight of performance versus plan. Use this opportunity to track progress, reinforce success, remove barriers and take corrective action. Show through words and actions that the performance is the best lagging indicator of how things are working inside the organization.
Ensure that rewards and recognition systems are aligned with the behaviors needed for business success and for behaviors critical to the desired new culture. Maintained or improved business results are especially key in a post-merger situation. Leaders need to actively coach and encourage desired behaviors, and the consequence systems need to reward them.
There is no substitute for leadership’s role during merger integration.
Leslie W. Braksick, Ph.D., is the co-founder of CLG Inc. and the author of "Preparing CEOs for Success: What I Wish I Knew and Unlock Behavior, Unleash Profits." Braksick consults with top executives and their boards on issues of executive leadership succession and effectiveness and strategy execution, including merger integration.
Reach Braksick at email@example.com or visit CLG Inc. at www.clg.com.
Jerome Webber approached the effort to green the vehicle fleet at AT&T Inc. just as he would any other business initiative.
“You have to learn before you leap,” says Webber, vice president of fleet operations in St. Louis for the Dallas-based telecommunications company. “If you have a simple fleet and all it is is several hundred passenger cars, then it’s probably pretty simple. But for most of the large commercial fleets, most of them have a somewhat diverse fleet that spans across the nation. Learn what works best for your fleet.”
AT&T began with a pilot project in 2008, placing about 100 alternative fuel vehicles in different departments and different locations across the company. The effort gained some traction and received a commitment from Chairman, President and CEO Randall Stephenson to spend about $565 million over the next 10 years to green the rest of the company’s fleet of nearly 76,000 vehicles.
“The commitment came from the top,” Webber says. “We did our work making sure our key stakeholders understood the success of the pilot we did in 2008.”
The lesson is that even with a project that attracts attention like an effort to go green, you have to take a methodical approach and look at how to properly and successfully incorporate it into your organization.
“It’s good to have some guiding principles,” Webber says. “Understand what it is that you are trying to do. Whatever it is you’re trying to do, you need to make sure you stay on task with driving your activities toward that particular set of guiding principles.”
Take the time to talk to your people and study the numbers so that you can come up with a plan that everybody feels good about and addresses any concerns that may exist.
“Give them a, ‘What’s in it for me?’” Webber says. “We have to make sure we connect the dots for them. How does this work for them? What impact does it have for them? We spend some time always making sure we educate them as to the effect it has on the overall business of AT&T.”
For AT&T, Webber focused on the savings that could be accrued through better fuel efficiency.
“A lot of the technologies we’re deploying have anywhere from a 30 percent to 50 percent impact on their operating costs,” Webber says. “That’s huge for a lot of these department heads that want to understand what does it do for them other than just say, ‘AT&T is greening their fleet.’”
But he also used the program to encourage employees in the company to alter the way they drive when they’re out on the road.
“We kicked off in 2008 a national anti-idling program that basically says, ‘Don’t idle,’” Webber says. “Employees that hear those kinds of things and see that a company of our size and stature is taking those kinds of steps to ensure that we are doing the right things from the standpoint of sustainability, they buy in to that.”
It’s OK to toot your own horn and talk about the good things that your company is doing when that helps boost your image with the general public.
“Customers want to know that they are dealing with a responsible and conscientious company,” Webber says. “When our vehicles are riding up and down the street, they are moving billboards. There’s a lot of people that get a chance to see that.”
In order to take advantage of these opportunities, you need to start with a plan.
“Just make sure people understand what you’re doing, what it’s about and how you’re going about it,” Webber says. “Your employees are one of your greatest assets to make this happen.”
How to reach: AT&T Inc., www.att.com
Find a plan that fits you
You can make a difference in the environment even if your business does not have a fleet of thousands of vehicles taking the road each day. That’s the message from Jason Mathers, project manager for the Environmental Defense Fund, a nonprofit organization that helps businesses find solutions to environmental challenges.
“Anything an employee is doing for the company on behalf of the company, the emissions associated with that are part of the environmental footprint,” Mathers says. “Just because you’re not able to easily track something doesn’t mean it doesn’t exist.”
Figure out what impact your company does have in terms of the number of vehicles you put on the road and how much they are used. Encourage your employees to be better drivers by not speeding, idling or hauling unnecessary weight in their vehicles.
“You’re talking about vehicle efficiency and routing, driver behavior and all of these things that have a very significant return on investment,” Mathers says.
If you do have fleets, look at the vehicles you have and whether a more fuel-efficient model could do the same job.
“If you can take a modest step over your entire fleet, that can add up to a significant impact,” Mathers says.
You’ve trimmed all the visible fat from your operations and improved efficiency as much as you can. Yet your bottom line still isn’t where you want it to be. So now you’re thinking about diversifying into a new market or product to improve your bottom line. Not a bad idea. Done right, diversification can be a lifesaver. Done wrong, however, it can be, at the very least, a letdown and, at the very worst, a quick path to disaster.
“Business owners diversify for many reasons, such as to gain a competitive advantage, minimize risks from concentrating too heavily on a particular market, or as a method to adapt to customers’ needs,” says Steve Williams, managing partner at HMWC CPAs & Business Advisors in Tustin. “Branching out to new lines of business, markets and suppliers may seem like a good idea, but, without a careful strategy, adequate resources and realistic expectations, it could turn out to be a bad one. We help our clients to be successful from the initial stages.”
Smart Business spoke with Williams about the best path to diversification.
What are some typical strategies for diversifying?
Diversification can take on many forms. You can take advantage of new market opportunities through introduction of a product developed through research and development. You may want to expand a product or service line to gain additional customers. Another alternative is to take on an entirely new area of business through a merger or acquisition.
Sometimes it makes sense to buy another company for economies of scale, reduced supply-line costs or other economic reasons. One type of diversification is horizontal integration, which involves expansion into the same industry and/or a similar product area. For instance, a vehicle dealership could buy another dealership.
Another type of diversification is vertical integration, in which a company moves into a different level of the supply chain. Usually each subsidiary, owned by the parent company, combines together to form a more efficient and cost-effective supply chain. For example, a manufacturing company might purchase a distributor or retailer. Some businesses use vertical integration strategies to eliminate the middleman — such as wholesalers and retailers — and keep the profits in-house.
These diversification strategies typically require significant capital expenditures. In most cases, you’ll have to pay (i.e., acquisition costs, time, operational changes and other resources) before you can reap the benefits, which may take time to materialize.
What are some easier, less-costly strategies?
There are several less-expensive methods to enhance your product lines and service offerings and provide the best value for your customers while maximizing your business’s growth over time. Some strategies to consider:
- Ramp up sales. If you don’t have an outside sales team, consider hiring salespeople (or contracting with independent sales reps) to prospect for customers. Your distribution channels, which are in contact with a diverse customer base, can also be instrumental in finding new business.
- Add the extras. You can compete nationally and globally by offering value-added services to your customers. For instance, don’t just sell a product; offer a complete package that includes warranties, preventive maintenance contracts, educational and training offerings, and any other services that will make the product more attractive.
- Know your customer. Get to know your customers’ businesses and the changes they’re making, such as an increase in production capacity or new packaging for a product. Offer to support their new business goals by customizing products, services and other offerings to fit their needs. This will convey your value to them, help develop a new business opportunity and keep your customers satisfied.
- Seek smaller fish. Many companies rely heavily on large-volume customers who make up a significant portion of their sales base. Consider diversifying your customer base to lessen the impact should a major customer decide to depart.
Is a business plan needed?
Adding successful products or services, for example, isn’t as simple as just buying equipment and finding building space. Develop a business plan that encompasses goals, production, human resources, financial and marketing issues. Goals, for example, may include increasing sales, gaining a broader product line, and having greater control over quality and delivery. Make sure that the plan identifies important details, such as capital costs, incurring additional debt, time commitment to manage the new product line, etc. Calculate the potential profitability by projecting an income statement that considers all the additional revenue and expense (both fixed and variable costs) factors. Consider how your projected balance sheet and income statement might affect relationships with banks or investors. These are just some of the issues that should be addressed in your business plan.
What about ‘barriers to entry’?
When you expand into new markets, there are ‘barriers to entry,’ which can include capital investment costs, branding, government regulations, taxes and permits, unions, heavily entrenched competitors and a wide array of other factors. For example, when you look to get into new markets you’ll likely be up against many established relationships, so you’ll need to identify solid reasons for customers to jump ship.
Barriers to entry should be fully analyzed, especially the financial factors, before committing to a diversification plan. Consider your company’s strengths (such as a highly skilled work force or any specialized equipment you can bring to the table) as well as its weaknesses (i.e., poor cash flow at the moment). Be objective, honest and realistic in this assessment.
Steve Williams, CPA, is the managing partner of HMWC CPAs & Business Advisors (www.hmwccpa.com) in Tustin. He also heads the firm’s Healthcare Practice and has served healthcare clients for more than 25 years. He can be reached at (714) 505-9000.
Most business owners know that the key to keeping business costs down — including insurance costs — is to look ahead.
Sergio D. Bechara, chairman and founder of Millennium Corporate Solutions says there are several factors keeping rates somewhat flat for now, but further increases are on the horizon. Companies should begin planning now to keep the rising costs to a minimum.
“A bend in the road is not the end of the road unless you fail to make the turn,” Bechara says. “It’s not all doom and gloom, just different variables we will have to navigate through, which in years past were non-issues.”
Smart Business spoke with Bechara about what businesses can expect in the future, and how these changes will affect their insurance costs.
What factors are keeping rates flat for now?
One is the reserves insurance companies have built up. Many carriers are using those reserves as capital to redeploy into any number of investment vehicles. But for the most part the carriers use it to buy more market share. The carriers are using capital to not necessarily acquire other carriers but different accounts, and they’re doing it with lower premiums.
Sometimes the rates are lower today than they were three or four years ago, and the risk has not improved. In some cases, the risk might even have deteriorated.
We’re hitting a point where a lot of the capital that is eroding is now going to translate to a rise of rates. The upward trend probably will start in 2012 or the last quarter of 2011. It probably will not be a volatile trend, but it will start trending up.
In essence, this will happen because insurance companies are now reserving appropriately. So if they bought business by low-balling prices in 2009, they will have to apply reserves on the claims for 2009 that are appropriate to that particular year.
Another factor that contributed to softening rates was price competition. When AIG was a damaged brand, its only way to compete was to slash its rates. That had an artificial effect of lowering rates because, to keep their market share and to compete, other carriers had to meet AIG pricing. Today, that is less an issue than it was in 2008.
What are some steps companies should take to prepare for these changes?
One is preparedness from a budgetary or pricing standpoint. If insurance costs are large enough from a budgetary perspective, companies need to know where the pricing trend is going. Then, they can adjust their burden lines appropriately so they don’t accept today’s reality as continuing in perpetuity.
Second, the insurance community fosters a financial partnership between a carrier and the insured. It is very similar to the partnership between a lender and the entity seeking a loan. The one that can best prove they are not going to need the insurance will pay the lowest premium. Just like the ones that can best prove they don’t need the money have the highest likelihood of getting a bigger line of credit or a lesser rate on money borrowed from the bank.
In past years, watching claims has not been as important as it will be in the coming years. Now, there is a malaise about claims. It’s not resulting in higher premiums, so no one is paying attention. When we turn the corner, carriers will point to claims experience as a means of pricing future premiums. Then it becomes important. Between 2012 and 2015, there will be a lot of talk about what’s going on with claims. Focusing on claims now is essentially making sure we gussy up the report card before it becomes relevant.
What can companies do to ensure they determine the right course of action?
Take a proactive approach. That could mean developing a rapport with different carriers or brokers, beginning to negotiate multi-year contracts with insurance markets, or negotiating contracts contingent-based on loss ratios.
Looking forward, it is hyper-critical to manage the claims. Don’t just hand them over to the carrier with the hope that all goes well. Nobody is going to care more about your claims than you do.
The concept of risk management is that the steps you initiate today are benefits you realize about a year or so from now, sometimes even longer. This is one of those areas that will be more important with carriers switching to underwriting for profitability rather than market share. When they make that switch, then you need to demonstrate to a carrier how you will be a profitable account for them.
What other issues will affect future pricing?
Like many other states, California is in a position of financial weakness.
The Division of Occupational Safety and Health (Cal/OSHA) will have a more pronounced presence in the business community than it does now. OSHA compliance is going to be an important factor, not just for insurance costs but costs in general.
A soon-to-be-popular question is ‘Where does it stand with OSHA?’
Companies should prepare for that by establishing sound policies and procedures for OSHA compliance. Build the ark before it rains. It’s important to do that now, because there are going to be more visits from compliance officers than there were in the past, because OSHA is under edict to become a self-funded part of the state government.
Businesses should also pay attention to AB 2774, which became law in California on Jan. 1, 2011. It’s one of the most important pieces of occupational safety and health legislation since Cal/OSHA came into existence. It provides the Division of Occupational Safety and Health with a series of steps that must be completed to establish a serious violation. And if the steps are followed, employers will face major fines that are more likely to stick — and stick without reduction.
Sergio D. Bechara is chairman and founder of Millennium Corporate Solutions. Reach him at (949) 857-4500 or firstname.lastname@example.org.
Family-owned businesses can be one of the most rewarding types of business, but also can be one of the most difficult to manage, especially when it comes to working relationships. Everything from advancement and salaries to hiring new talent and changing vendors can be overlooked or mishandled so as to not offend a family member.
Smart Business learned more from Donna Mittendorf and Jim Terrell of Comerica Bank about managing a family-owned business and how to prevent the problems and pitfalls that typically arise when working with those with whom you have close personal ties.
What are the advantages of having a family-owned business?
Donna: There are numerous advantages to having a family-owned business, such as the continuity it affords with customers and vendor relationships. Customers and vendors know your family name and will continue to work with you as a result. There is also a built-in loyalty to the business, and its long-term approach and nature gives it a competitive edge. Family-owned businesses tend to spend money wisely since they are building wealth to pass on to future generations, and they are typically more stable as they are less likely to make radical cutbacks during an economic downturn.
However, don’t turn these advantages into complacency. It’s easy for a family business to become complacent and not welcome change if the business is successful. The problem is your competition is keeping up with technology, product advances and other advancements that could render your business ineffective.
How can you minimize conflict when working with family?
Jim: It’s difficult to balance business relationships with family ties. A clear understanding of the roles and expectations of each family employee can prevent many of the problems that tend to pop up in family-owned businesses. Keep everyone accountable and, when a major decision needs to be made, make sure it’s made with the growth and stability of the business in mind.
How should a family-owned business plan for change?
Donna: If the business is going to be handed over to the next generation, the decision needs to be made well in advance. Other issues like how management will change with the new generation and what the responsibilities are for each member also need to be addressed well ahead of any leadership change.
Business owners also need to make sure to have their estate planned out and have items like a will and stock transfers in order in case of a sudden emergency. It’s also a good idea to have leadership transition and family ownership plans in writing so there is no confusion.
Family businesses often take great pride in their traditions, but make sure you don’t take this to an extreme and forget to change and grow. This is one of the most common mistakes family-owned businesses make and one of the main reasons some are unsuccessful.
How should family-owned businesses handle succession?
Jim: There can be resentment among family and longtime non-family employees if succession is not handled properly. It’s not easy to bring in a son or daughter and introduce him or her as the new boss to people who have been working at your business for decades. Make sure family members are brought in at the bottom, or close to the bottom, and let them work their way up. They will feel they earned the position and there will be less resentment from other employees than if they start off in a corner suite.
When should a family-owned business look for outside help?
Donna: It’s a good idea to look for outside advice on plans for succession management, buy-out arrangements or in the event of aging of principals, illness of an owner, or children who want in or out of the business. Business owners should seek reputable organizations and professionals and assess what each can offer. Ask the institution for samples of the work they have done and if possible, try to get previous customers’ testimonials. Comerica advisers can help with everything from estate planning and portfolio management, to trusts and insurance.
DONNA MITTENDORF and JIM TERRELL are senior vice presidents for Comerica’s Texas Small Business Banking Division. Comerica Bank is the commercial banking subsidiary of Comerica Incorporated (NYSE: CMA), the largest U.S. banking company headquartered in Texas, and strategically aligned by three business segments: The Business Bank, The Retail Bank, and Wealth & Institutional Management. Comerica focuses on relationships, and helping people and businesses be successful. In addition to Dallas, Houston and Austin, Texas, Comerica Bank locations can be found in Arizona, California, Florida and Michigan, with select businesses operating in several other states, as well as in Canada and Mexico. Comerica reported total assets of $55.0 billion at September 30, 2010. To receive e-mail alerts of breaking Comerica news, go to www.comerica.com/newsalerts.
Want to get maximum buy-in from employees when you’re introducing a new project? Make your goal their idea. The more people feel invested in your plan from its inception, the more support and enthusiasm you’ll have weeks — or even years — down the line. Inviting your staff members to speak up with their thoughts and concerns at the very first meeting is crucial to getting sustained support. Here are my top strategies for building enthusiasm on day one.
1. Forge the goal together. You can often do this by presenting a challenge instead of a plan. Ask for ideas to help meet the challenge, then listen for answers that align with what you hope to accomplish. In most situations, there are not infinite possibilities, so if you ask the right questions, sooner or later people are going to respond with the answers that support your goal, at which point you can agree with them. Now it’s their idea, too.
2. Use other people’s comments to tie your plan together. Pay attention to what the others are saying. Jot down notes next to their names so you won’t forget who said what. When you want to move the discussion to the next topic or underline a point, use their comments: “That goes back to what Maggie said about product liability, and it also relates to Walt’s ideas about building the consumer feedback links. With that in mind, I’m thinking a time frame of four months.”
3. Use your listeners’ language to describe the goal. It can be playful, like adopting a term someone coined as part of the unofficial lingo of the project. Or you can repeat key points made by the others, incorporating the person’s phrasing. A great way to use your listeners’ language is to ask them to name an element of the project, whether it’s a product, a strategy, a document or even just the schedule.
4. Say, “From my perspective.” This phrase liberates your listeners by implying that everyone is entitled to an opinion. You have a perspective, and so can they. It automatically opens up the discussion.
5. Recognize their reality. No matter how gung-ho your employees are, they probably have a different perspective than top management. For important projects, take the time before you launch an idea to carefully consider how your staff may perceive it. Your challenge is to recognize their reality, align it with yours, and then create a common benefit that is your goal. For everyday situations, use a light touch. When my team is slammed with a big workload, I may say, “We’ve got to complete six rounds of documents this month — and when I say we, you do realize that I mean you, right?” They laugh, because although they’ll be doing most of that work, at least they know I’m aware of it.
6. Play devil’s advocate. In any open discussion, there will be doubters. A good way to deal with them is to play devil’s advocate or ask the doubter to do so: “That’s a fair point. Want to play devil’s advocate? We can try to get a handle on potential problems sooner rather than later.” Now the doubter has a specific role in the discussion, and you’re still all on the same side. The same is true if you play devil’s advocate yourself — you’re not disagreeing with the doubter; you’re playing a role in order to root out weaknesses in the plan.
The unity you build with your team at the beginning of a project affects how they will feel about it from that day forward. If you must change course later on, this approach pays double dividends: Everyone had a hand in the original idea, so there is far less finger-pointing when it needs to evolve.
Chris St. Hilaire is the author (with Lynette Padwa) of “27 Powers of Persuasion: Simple Strategies to Seduce Audiences and Win Allies" (Prentice Hall Press). He is an award-winning message strategist who has developed communications programs for some of the nation’s most powerful corporations, legal teams and politicians. He is the founder, president and CEO of both Jury Impact and M4 Strategies consulting firms. Reach him at email@example.com.