Source of Conflict

CASE STUDY

N ICK CUNNINGHAM HAD BEEN against the Beauchamp acqui- sition from the heginning.

Nick's company, Synergon Capital, was a U.S. financial-services behe- moth, constantly on the lookout for acquisitions. Typically it acquired turnaround candidates - small com- panies with established market posi- tions and poor management. But Beauchamp, Becker & Company-a British financial-services company with a great history, strong profits, and an extraordinarily loyal client base of wealthy individuals-didn't fit that description at all.

Nick told his boss, J.J. d'Amato, exactly what he thought. "We'll

have to pay too much," he said. "And our cultures are completely different. We don't play the same game. They don't care at all about growth."

J.J. scoffed. "Stop being such a wuss. Let's just do it. I'm sure we can find some money they're leaving on the table." J.J. was rising fast in the company. Listening to suhordinates was not among his strengths.

"I'm not so sure," responded Nick. "This isn't a dog that no one wants, run by amateurs. They know more about their customers than we ever will. They're different."

"You worry too much about the soft stuff, Nick," J.J. said. "Relax.

We won't force them to change that much. You'll figure out how to make the numbers."

The Synergon Style Nick had been with Synergon for three years. He'd signed on because of the company's powerhouse per- formance. Synergon's acquisitions style was legendary. It used a crack team of financial auditors and opera- tions professionals in the due dili- gence phase to figure out where it could add value. Every team had a "war room" at corporate headquar- ters with charts, fax machines, com- puters, and phones. It was staffed around the clock until the deal was

28 ARTWORK BY VICTOR JUHASZ

Onpaper, it was a peaceful union. On the ground, it feels like a battlefield.Can

This Merger Be Saved?

done. The team prided itself on iden- tifying every nickel the target busi- ness took in or spent.

After Synergon closed a deal, its integration machinery took over. Within weeks, it would close the ac- quired company's back-office opera- tions and shift work to the nearest Synergon office. Since the acquired company was usually badly man- aged, Synergon would fire most of the management team within 12 months. Internally, they called this tactic "neutron bombing." The peo- ple were gone,- only file drawers and contracts remained.

Synergon relished its rough cul- ture. Due diligence teams were called

by Sarah Cliffe

"commando squads"; its members got r8-inch howie knives with their names and that of the acquired busi- ness engraved on them. Negotiating teams got silver-plated sledgeham- mers if they closed a deal at a price lower than the figure initially quoted to the board. Operating managers who achieved an acquired husiness's earnings and productivity targets in the first year got 12-inch-long models of a piranha.

Synergon's CEO swore t h a t a "take no prisoners" approach was vital to survival. "The marketplace is war," he told new M.B.A. recruits. "That nickel you see at the end of the negotiation table belongs to us.

CASE STUDY

Get it. It's ours. There may he some collateral damage along the way, but it's our damn nickel."

Sometimes Niek found himself at odds with this culture. It's not that he wasn't competitive, but he had a more thoughtful side than many of Ixis colleagues. He was worried that the Synergon style would someday get in its own way when the com- pany was faced with a situation that didn't fit into its game plan. And Beauchamp, it seemed to him, might be that situation.

A Marriage Made in Heaven Still, the acquisition made sense. Beauchamp would give Synergon a foothold in Europe - a key part of the company's strategic p l a n - a s well as access to extremely desirable cus- tomers. And the deal eould make sense from Beauchamp's point of view, too. The company needed to grow, and Synergon had deep pock- ets, plus some areas of expertise that Beauchamp lacked.

But the acquisition made Nick nervous because it would only work under two conditions: first, if Beau- champ's customers remained happy and, second, if Julian Mansfield, Beauchamp's longtime managing director, stayed on board. Mansfield was smart, sophisticated, and pol- ished. Synergon could learn a lot from how Mansfield managed his clients. The problem was, Synergon didn't think in terms of learning.

Nick pointed out this problem one last time before ).].'s acquisition pitch to the board, but to no avail. "Let it go, Nick. We're going to jam this through and they're going to love it."

And ].]. was masterful before the board. "We will leave Beauchamp alone. It's a great cross-selling oppor- tunity for us," he said, looking defer- entially at Synergon's CEO, Norman Waskewich. "And Nick will help get them focused on growth."

J.J. was on a roll. "Synergon's man- agement and Beauchamp's custom- ers. It's a home run. A slam dunk. They will learn what we've always known: You have to grow or die. They will grow."

HARVARD BUSINESS REVIEW fanuary-Febniary 1999

Sarah Cliffe is a senior editor at HBR.

29

CASE STUDY CAN THIS MERGER BE SAVED?

Right after the meeting, J.J. set the rules. Pointing a finger directly at Nick, he said, "You have three tasks. One, Beauchamp doubles its earn- ings in three years. They need a 20% pop in income in year one. Cut some heads and we'll get there. Two, no blowups at Beauchamp. Nada. The press and the analysts are all over us on this deal. Third, I want their big customers so I can pitch our prod- ucts. And I want Mansfield to get me in. If he walks, they walk, and our pitch walks. If Mansfield walks, you walk out right behind him. Got it?"

The Venerable Beauchamp Soon after the deal closed, Nick made a quick trip to London. He met briefiy with Julian Mansfield and the rest of the senior management team. There was a lot of polite talk ahout Beauchamp's wonderful traditions and the "significant synergies" that existed between the two companies, but not much of suhstance occurred.

Nick scheduled a second trip for a month later-he was facing the end of Synergon's fiscal year and couldn't get back any sooner. In spare mo- ments during the ensuing weeks, he studied Beauchamp. The place was impressive, no doubt ahout it. Beau- champ was an unusually stable com- pany. Its management team consisted of 16 people who'd worked together for more than a deeade. The 700 as- sociates routinely shifted from one project team to another to handle a surge in business, solve a customer problem, or get a product to market. The turnover rate was a mere 4%, and managers averaged 21 years of experience with the company. (In contrast, Synergon's turnover rate was 2 1 % , and the average tenure for managers was 6 years.)

Julian Mansfield presided over the whole like an old-fashioned patri- arch. His title was managing direc- tor, but he was Beauchamp. He was the godfather of dozens of associates' children. He was revered within the company for his business sense and character, and he was well known in charity circles for his generosity.

As Nick was pondering his second face-to-face meeting with Mans- field, the Synergon integration team swung into action. First, Synergon's

HR director informed his counterpart at Beauchamp that Beauchamp's As- sociate Bonus Plan, which provided every associate with at least a modest bonus, would be scrapped. Synergon's Big Bang Bonus Plan, which favored senior managers who achieved high earnings growth, would take its place. The change would reduce the bonus for 70% of Beauchamp's associates.

Second, Synergon closed the cafe- teria that for years had provided Beauchamp employees with a free lunch. Employees complained to one another as they ran out at lunchtime for take-out food. Julian was morti- fied that the "caf ladies," who'd been with Beauchamp for years, were let go with only a minimal severance package.

Third, Synergon's finance director informed his counterpart that pur- chasing and travel would now go through Synergon vendors. Agree- ments with vendors in these areas were geared toward big-ticket items, such as executive office furniture or cross-Atlantic airfare. Although Synergon's arrangements kept its own costs down, they were hound to push Beauchamp's up, since the smaller firm used regional carriers w i t h lower local fares. People at Beauchamp were upset that long- standing relationships with local suppliers would be eliminated.

To top it all off, Synergon was now requiring multiple approvals before granting customer credit; the ap- provals would be based on customer industry, contract profitability, cus- tomer location, and the type of asset offered as collateral. Beauchamp salespeople had always made credit decisions with a conversation and a handshake. Under the new regime, Beauchamp received its first cus- tomer complaint in living memory when a valued customer of many years lost a deal while waiting for his loan approval to come through.

Julian and his longtime executive assistant, Olivia Carlton, heard daily complaints, too, about the new re- ports and forms that Beauchamp managers had to fill out for Synergon officials, who never introduced them- selves or explained why the forms were necessary. Synergon was asking for numbers on market share, com-

petitor data, cost reductions, produc- tivity increases, and risk allocation.

When direct communication did take place, it was horrible. The day before Nick's second visit, a Syner- gon financial auditor brought Olivia to tears. "Fax me the F-14 sheet in the next hour or I will be in your face Monday morning and your boss will hear about it. Get me my report."

The Honeymoon's Over When Nick walked into Julian's of- fice on his second visit, the older man rose and shook hands, trying to be cordial, but he was clearly annoyed. After some initial small talk, he said to Nick, "Let me ask you a question. Is Synergon trying to offend me?"

"Goodness, no," said Nick, taken aback. "What do you mean?"

"Well, you can see that I'm not a small man," answered Julian. (In- deed, he was well over six feet tall.) "As you know, I travel a great deal, and I happen to suffer from arthritis. Yet my assistant has just informed me that I'm not to fly business class to Paris. Company policy doesn't allow that without permission from my superior. That would be you, I expect...?"

Nick stuttered out an explanation and assured Julian that the policy would be overridden. Julian gazed out the window for a long moment, then turned back to Nick.

"Look, Mr. Cunningham, we can help you reach these absurdly high target numbers you've set, but not unless you let us do our work."

"What do you mean?" responded Nick, genuinely puzzled.

"I'll show you what I mean," said Julian, opening his desk drawer and pulling out a two-inch pile of faxes. "These are just a few of the vital, ur- gent, ASAP messages we've received from your people. Do you have any idea how time-consuming and idiotic these forms are?"

Nick recognized most of them. Some were administrative: the travel center asking whether the "new em- ployee" would prefer nonsmoking hotel rooms and what kind of air- plane seat, aisle or window.

Some were procedural: HR asking that performance evaluations be completed for all suhordinates in

30 HARVARD BUSINESS REVIEW (anuary-February 1999

CASE STUDY CAN TtfjfS JUBEGER BE SAVED?

SEPR format-which meant Syner- gon Employee Performance Review, hut there was no explanation. And the S-EEO-1, which asked Beau- champ to classify employees by race, gender, and level, something not done in the United Kingdom.

Some were financial: the B-52s, growth projections for the next three years, and the M-16s, cost-reduction sheets for the past 12 months.

All told, several dozen requests from 14 different people at corpo- rate. Nick recognized this as routine work that Synergon managers did at home on Sunday afternoons.

"I'll do my hest," replied Nick. "I can get someone over here to help you out. But this is how we operate."

Mansfield narrowed his eyes and said with harely concealed anger, "I'm sure it is how you operate. But if your operations mean that my company - which was ticking along very nicely, thank y o u - b e c o m e s paralyzed, then we both have a prob- lem. You people have a very odd no- tion of what 'leaving Beauchamp alone'means."

After a brief pause, he went on. "You know, Mr. Cunningham, you seem like a nice fellow. But I've been around too long to have to put up with this much impertinence. To have these boys you call auditors insulting my assistant is, frankly, something I can do w i t h o u t . My wife's been on at me to retire for the last year or two and, I must say, that idea is starting to sound attractive.

"I have a suggestion. Why don't you take the rest of the day off? You can get over your jet lag. There's a Sargent exhihition at the Tate that you might enjoy, and Miss Carlton could probably get you some theater tickets for tonight, if you like. Why don't we meet tomorrow morning, after you've slept on it, to talk about the future of the company."

HBR's cases present common man- agerial dilemmas and offer concrete solutions from experts. As written, they are hypothetical, and the names used are fictitious. We invite you to ViTrite to Case Suggestions, Harvard Business Review, 60 Har- vard Way. Boston, MA 02163, and describe tbe issues you would like to see addressed.

Can the Beauchamp acquisition be salvaged? How should Nick

prepare for tomorrow's meeting with Julian?

Six commentators explain how Nick can bring peace and prosperity to the newly merged companies.

Synergon excels at assimilating new

companies but is terrible at integrating them.

BILL PAUL is a partner in DelTech Consulting, a firm that specializes in acquisi- tions integration. It is based in Avon, Connecticut.

Nick Cunningham's problem is that Synergon excels at assimilating new companies but is terrible at integrat- ing them. Between the two tasks lies a world of difference.

Assimilation works when the goal of the acquisition is to consolidate the two companies. In such cases, the deal itself is the major work. Once the deal has gone through, the objec- tive is simple: make the acquired company just like the purchaser. In some cases, a consolidating acquisi-

tion means isolating a tangible asset, product line, or high-performing unit and forgetting the rest. In any event, the acquired company's orga- nizational culture doesn't matter, because it likely caused the under- performance that led to the acquisi- tion. The same is true for that com- pany's people. Their only choice is to adapt or leave.

Assimilation does not work in the case of a strategic acquisition, joint venture, or merger-integration is required instead. The real work he- gins after the deal. The goal is either to create a wholly new third company or to maintain separate identities while sharing strengths. The acquired company changes some practices, keeps others, and transfers still oth- ers to the purchaser. Organizational culture is critical, and people are p a r a m o u n t - t h e purchaser should retain most of the acquired com- pany's employees.

Acquiring organizations are in- clined to force assimilation on their new companies, regardless of circum- stances. After a deal, many well- intentioned people will inundate the acquired company with requests and changes in an attempt to improve its business performance or its connec- tions with the new parent. The result is an "accumulation effect" in which each request is modest in its own right, but the totality paralyzes the acquisition. Over time, this effect erodes the behaviors that made the company a success. That's exactly

I what is happening in this case. Beau- I continued on page 36

32 PORTRAITS BY CHUCK MORRIS

CASE STUDY CAN T H I S MERGER BE SAVED?

chatnp requires integration, and Nick needs to override Synergon's usual assimilation tactics.

In the short term, Nick should ap- point an on-site integration manager from Synergon. Beauchamp doesn't know who or what is important, so every request appears serious, even the F-14 sheet from the financial au- ditor, who may be a first-year associ- ate trying to impress the bosses. Beauchamp has no idea whether the form needs attention today or next week-or perhaps it can be stored in the circular file? The Synergon inte- gration manager would know.

Niek then needs to drive a strategy that applies the three C's of integra- tion: clarity, confiict resolution, and consensus huilding.

Nick must identify and clarify the "nonnegotiables" of the deal. Those are mainly the financial targets that led Synergon to make the acquisi- tion. They include increasing Beau- champ's net income hy 20% in the first year, doubling it in three years, and reducing the head count. Other

Nick needs to get Mansfield on his side. He needs to express regret about how the transition has gone so far.

nonnegotiables would include ad- hering to Synergon's risk-assess- ment process and introducing Beau- champ's customers to Synergon.

Nick also needs to clarify the dif- ferences between the businesses and why those differences exist. When you tamper with a business without un- derstanding why it is successful, you confuse people in the acquired com- pany and risk destroying its value. When two organizations are of equal size, such misunderstanding results in cultural wars that make it impossi- ble to realize financial goals; consider the deal involving ATikT and NCR. And if the purchaser is much larger, the acquired company's strengths are usually trampled on. That's what happened when Quaker Oats bought Snapple, and that's what's happening in this case.

Niek can still prevent the misun- derstandings from ending in disas- ter. To build consensus, he should bring the key people from both sides together for a couple of days. In- depth discussions will allow the two companies' executives to gain an ap- preciation of their different places in the market and different approaches to doing business. Having done that, the two sides should come to an un- derstanding-hased on available data and customer research - about what the market demands are likely to be over the next couple of years. If Syn- ergon and Beauchamp build a busi- ness model based on the connec- tions between market demands, competitive advantages, and organi- zational processes, they will be able to resolve organizational conflicts.

This group meeting is essential. If Nick fails to bring the two sides to- gether around market demands, peo- ple will try to resolve problems one at a time, the integration process will drag on, and the acquisition will suffer. In another scenario, conflicts

will simply be resolved on the basis of power or poli- tics. In other words, Syner- gon will win every battle but destroy the reason for the deal.

Once a broad consensus has been reached, it will be possible for Julian Mans- field to talk about specific

difficulties. For example, he may contend that Beauchamp will not be able to double its net income in three years and abide by Synergon's risk process. The reason? Competi- tors will poach customers by offer- ing a quick turnaround on financing. Synergon's managers may disagree, but at least the two sides will be able to have a reasonable discussion.

One last note: before any of this can work, Nick needs to get Mans- field on his side. He needs to em- pathize with him and express per- sonal regret about how the transition process has gone so far. In return, he needs a commitment from Mans- field that he will stay on and help Nick with the transition. If these two men can begin to understand each other, they may be able to sal- vage the acquisition.

A well-structured incentive

plan could be all Beauchamp

needs. A t the end of the day,

does it matter how Mansfield

achieves Synergon's targets?

J. BRAD McGEE is a senior vice president at Tyco International, the conglomerate based in Exeter, New Hampshire.

"Our assets wear shoes." I first heard that expression from the CEO of a service-based company while I was in the diligence phase of acquiring her business. She was referring to the people-oriented nature of service companies-their reliance on rela- tionships and the unique skills of individuals. In this case, she was ad- vising me to be cautious about un- raveling the fabric that held her peo- ple together. The same cautionary words apply to Synergon's acquisi- tion of Beauchamp.

Clearly, this acquisition is a depar- ture for Synergon. Its success de- pends not solely on reducing costs but also on increasing revenues. That's difficult for two reasons. First, selling incremental products to the same customers requires that they change their behavior. Second, it's hard to forecast increased revenues accurately; forecasts in this case would be susceptible to exaggera- tion, Nonetheless, this acquisition can be saved.

I've been involved in dozens of ac- quisitions, and in my experience

36 HARVARD BUSINESS REVIEW January-February 1999

CASE STUDY CAN T H I S MERGER BE SAVED?

there's always room for improve- ment-even when a company is well managed. I recommend that Nick do the following:

Make Julian Mansfield part of the solution, nut the problem. Mansfield has already expressed his willing- ness to help Synergon reach its "ab- surdly high" target numbers. At least for the short term, Nick should leave Mansfield clearly in charge of Beauchamp and allow him to create and own the plan to realize Syner- gon's targets. He likely performed his own diligence on Synergon be- fore the merger and understood their financial goals. He also likely gave his hlessing to the merger knowing that he would be under Synergon's management.

Put Mansfield on an attractive P&L-based incentive program. If Mansfield is a good manager, he will use the new tools available to him to drive both revenue gains and cost reductions based on the aggressive P&L targets. Those tools include access to a broader range of products and to Synergon's ideas about stream- lining operations. Large cost-reduc- tion opportunities can exist even in well-managed companies that are acquired. A well-structured incen- tive plan could be all Beauchamp needs. At the end of the day, does it matter how Mansfield achieves the targets?

Put a finance person from Syner- gon into Beauchamp. Make sure that the CFO or corporate controller at

During the meeting, Nick must get Mansfield to agree to include a Synergon financial person on his management team.

Beauchamp is a person who knows Synergon. The importance of this ac- tion cannot he overstated. Having such a person in place offers two ad- vantages: it establishes an insider who can monitor Beauchamp's fi- nancial health, its progress toward meeting goals, and its organizational dynamics; and it gives Mansfield di-

rect access to knowledge ahout how he should be integrating the two firms. Finance people often work well in this role. They are generally viewed as nonthreatening and often have a good understanding of busi- ness operations.

Closely monitor Mansfield's per- formance. Due diligence can be very good at identifying the financial, le- gal, and environmental fitness of an acquisition target. However, it often fails to uncover the interpersonal dynamics that hold service compa- nies together. In this case, it's diffi- cult to assess how critical Mansfield is to Beauchamp's continued suc- cess. Nick should use the first three to six months after the merger as an evaluation period (the finance per- son is critical to this phase). After that, it should be clear whether or not Synergon needs to keep Mans- field on board.

Back off the bureaucracy. Syner- gon's bureaucracy will only burden Beauchamp, and it may prove de- moralizing.

Now to the more immediate con- cern in this case: the upcoming meet- ing between Nick and Julian. Nick should brief J.J. d'Amato on the plan of action detailed above and have d'Amato recommend a financial per- son to bring into Beauchamp. Nick should think through the plan and be able to discuss it clearly and pro- vide supporting arguments for each part of the plan.

During the meeting, he should as- sure Mansfield that he will be in charge of achieving the aggressive targets for Beauchamp and that he will he enriched for meet- ing or exceeding those goals. At the same time, he must inform Mansfield of the ways Synergon can help him, and he must get Mans- field to agree to include a

Synergon financial person on his management team.

The meetings I've had of this type have gone very smoothly. Although people are often reluctant to change, they also realize-whether they say so or not - that being acquired means relinquishing ownership and control of their company.

It's critical that Mansfield

agree to cross-sell Synergon's products.That's not going to

happen unless it's in the

financial interests of Beauchamp's associates.

JILL GREENTHAL is a managing director of Donald- son, Lufkin, and fenrette in New York City. She was the lead invest- ment banker for TCI in its merger with ATe!)T.

The senior management team at Synergon knew that they needed to "leave Beauchamp alone." But somehow that idea was forgotten af- ter the deal went through. Nick's task now is to build a constituency within Synergon to treat the Beau- champ acquisition differently. It won't be easy, because Synergon's leaders have a playhook approach to acquisitions, and they've been very successful with it. This time, though, they've bought a good business, not a broken one, and they need to recog- nize that.

They also need to recognize- through actions, not lip service - that they've bought a company driven hy the personality of its senior man- agers, especially Julian Mansfield. The problem is, Beauchamp's senior people probably made a fair amount of money from the sale, and it's go- ing to be hard for Synergon to enlist the aid and support of people it's just made financially comfortable. Many

38 HARVARD BUSINESS REVIEW January-February 1999

CASE STUDY CAN THIS MERGER BE SAVED?

acquiring companies recognize this problem in the deal structure and pay senior management over two to three years, as goals are met. If Syn- ergon has failed to consider this is- sue, it should move fast and put in place some very large incentives to get Mansfield and members of his senior management team to stay.

Next, Synergon needs to rethink the mechanics of integration. It can't leave Beauchamp completely alone, but neither should it take over every aspect of the business. It has to find a balance. For example, Synergon has a legal responsibility to understand Beauchamp's numbers, its financial reporting, and its credit risks. But other areas, such as purchasing and employee benefits, can be left to Beauchamp's discretion. Matters aren't helped by the condescending attitude drifting across the Atlantic from corporate headquarters. That attitude indicates that Synergon be- lieves it has taken on another broken company and is prepared to demol- ish the old structure and build an en- tirely new one.

So far, Nick hasn't really done his job. There are, however, several steps he can take to avert a meltdown. Es- sentially, Nick must serve as-or ap- point-a referee who will make the integration work by helping the two companies understand each other.

To accomplish that goal, he needs to persuade people on both sides to think in new ways. He must con- vince the people at Synergon head- quarters that the acquisition will fail unless certain rules are hroken- that, for example, not all the com- pany's forms are critical to Beau- champ's future success. And he needs to be Mansfield's advocate at the top levels of the company. He's the only one who can ahsorb Mans- field's concerns and translate them effectively.

In the meantime, he should reas- sure Mansfield at their next meeting that he will work on Beauchamp's behalf to reduce the bureaucratic irri- tations now plaguing the company. Then he should turn to the serious matter of making the numbers. It's a hopeful sign that Mansfield seems to understand the objectives and has even indicated that Beauchamp can

meet Synergon's "absurdly high" target numbers.

It's critical that Mansfield agree to cross-sell Synergon's products. That's not going to happen unless it's in the financial interests of Beau- champ's associates, including Mans- field. Nick and Julian need to map out a sound game plan that includes changes in compensation, cross-sell- ing incentives, and an understanding about how to retain customers and employees. If Beauchamp's employ- ees have not been granted stock in Synergon, that omission should be corrected.

During these conversations, it will be important for Nick to convey

to Mansfield what he needs to do to become part of the corporate team. At the same time, they need to start planning for Mansfield's eventual re- tirement. Should they look to the next layer at Beauchamp? Or should they bring people in from Synergon to learn the business? This issue needs to be addressed sooner rather than later.

If Nick can persuade Synergon's top management not to fix what ain't broke, and if he can hold Mans- field's hand a little while the integra- tion phase moves forward, then Beauchamp's future has a chance to be a happy marriage of growth and tradition. -

Mansfield may want to fly

coach and spend the savings

on another design engineer.

Such trade-offs are his to

make, but he is accountable.

DALE MATSCHULLAT is vice president and general counsel for Newell Company in Freeport, Illinois: he oversees the company's acquisition integrations.

In my experience, it is easier to do a job yourself than to manage others who are trying to do it. The Synergon story suggests that my experience is valid.

If I were meeting with Julian Mansfield, I would start by telling him that I appreciate his signing on

to Synergon's budgetary goals. I would let him know that, although we must agree on budgetary and strategic goals, he will ultimately be in charge of reaching them.

Next, I would ask Mansfield to de- velop a strategic plan for the busi- ness. The plan should be reviewed at least annually and must include: an analysis of the marketplace; an assessment of competitors' strengths and a plan for exploiting their weak- nesses; suggestions for building on Beauchamp's strengths and attack- ing its weaknesses; a discussion of strategic opportunities; and a plan to make cross-selling effective. The strategic plan should contain virtu- ally no numbers,

I would also ask Mansfield to pre- pare a budget for the next operating year-a nuts-and-bolts document that commits the company to figures for sales and profits. It will he negotiated with me and others at Synergon and must he based on a realistic sales forecast. Once the terms have been agreed on, they have to be met.

It is important that Mansfield's team develop these documents. As long as Mansfield can sell his vision to Synergon, he will shape the future of Beauchamp. Synergon has the capital to make his vision real.

Further, I would discuss the huge dissonance between the corporate cultures. I would tell Mansfield that I am going to bring a high-level Syn- ergon manager into Beauchamp-

40 HARVARD BUSINESS REVIEW January-February 1999

CASE STUDY CAN T H I S MERGER BE SAVED?

probably a corporate controller The controller, who will he a member of Beauchamp's senior management team, will handle inside operations and manage costs. Mansfield will be free to manage sales growth and cus- tomer relationships. He and the con- troller will meld the two cultures.

All those ASAP messages from Synergon will go directly to the new controller. If there are problems, I would tell Mansfield this: "Not only will I be your boss, I will be your shield. You are responsible for Beau- champ's success, and as long as you respond successfully, you will he left to run it. It is my joh to see to that."

I would then focus on Mansfield's hints about retirement, Optimally, Mansfield should run Beauchamp. But it is unacceptable for him to manage the integration with his mind on retirement. I would remind him that Synergon paid a premium for Beauchamp, partly because of its respect for his accomplishments. Synergon believes that he has the vi- sion, guts, experience, and stamina to grow the company, However, un- less Mansfield is ioo% behind the endeavor, Synergon will not provide the capital he needs to do it.

Mansfield has to understand that Synergon, in its hrash way, brings important principles to the table. It is very profit oriented and believes in lean, decentralized organizations that are self-driven but accountable.

So if Mansfield wants to fiy busi- ness class around Europe, I will sup- port it. But his strategic plan is going to require substantial growth. Per- haps he would prefer to fiy coach and spend the savings on another design engineer. Such trade-offs are his to make, but he is accountable.

And yes, we can phase in the Syn- ergon bonus plan. But at Synergon, bonuses are an important part of the compensation scheme. They are awarded when the budgeted num- bers have been achieved. They are not given out for any other reason. Mansfield will have to find a way to motivate Beauchamp's midlevel as- sociates without a bonus plan.

If Mansfield agrees to implement the ideas outlined in this meeting, Synergon will have purchased Beau- champ on the cheap.

Nick's supervisor either does

not understand or does not

care about the cultural issues separating the companies

being merged.

DANIEL VASELLA is president of Novartis. the com- pany that resulted from the merger of Ciba Geigy and Sandoz. It is based in Basel, Svidtzerland.

Nick's not in an easy position. He has to manage a merger he doesn't heiieve in. His supervisor either does not understand or does not care about the cultural issues separating the companies being merged. And he's overseeing an acquired company whose managing director has heen highly successful, is close to retire- ment, and has no incentive to change.

Nick has two choices. He can im- pose Synergon's culture - its strategy, business processes, and people-on Beauchamp. Or he can help Julian Mansfield find a way to operate in a reasonable environment. The first choice isn't really viable: Mansfield will leave, Nick will be fired, and the acquisition will fail. So Nick needs to ensure that he and Mansfield come to an understanding.

Nick should go into tomorrow's meeting with a crisis-management mind-set. He must stahilize the situ- ation. He needs to get Mansfield's agreement to corrective actions, as well as his commitment to stay for at least six months, I suggest six

months because I don't believe Mansfield would commit to staying longer at this stage. Once Nick has established that he's acting in good faith, he may he ahle to negotiate a longer-term commitment with Mansfield at a later date.

I propose that he do the following. ; First, he needs to recognize the tremendous past achievements of I Mansfield and Beauchamp and es- tablish a sense of mutual respect. Second, he needs to depict in a com- pelling way Beauchamp's opportu- nity to become Synergon's flagship i European operation. Mansfield has i to buy in to a common future that ; is better in some ways than Beau- champ's past. Third, Nick has to ex- plain Synergon's original motives for the acquisition-not only to get a foothold in Europe but also to intro- duce Synergon's products to Beau- champ's customers. I'm not sure that Mansfield ever understood these things. Fourth, Nick must ac- knowledge the existing problems and his own responsibility for them. He should find out which problems are the most disturbing and require immediate correction, and how Mansfield would go about mending these prohlems. That is, Nick needs to tap Julian's experience and, in so doing, acknowledge his capahilities. It's important that he act quickly.

Further, Nick should talk not just with J.J. d'Amato but also with Syn- ergon's CEO. This is a major acquisi- tion; there's a lot of money at stake. He should request formal approval for corrective actions. For example, there should be a commitment that all requests from the United States be cleared through him. And if Julian has never met Synergon's CEO, Nick should arrange a meeting.

Finally, to tie up the loose ends of the short-term crisis, Nick should propose biweekly progress reviews, to he conducted either by phone or in person. The sum of these steps should prevent the short-term prob- lems from leading to a total deterio- ration of the acquisition.

In the long term, you're left with the question of how you align two companies with totally different cul- tures. For example, I do not think that Beauchamp is well suited to

42 HARVARD BUSINESS REVIEW ranuary-Fcbniary 1999

CASE STUDY CAN T H I S MERGER BE SAVED?

grow Synergon in Europe. I would rather relocate one or two Synergon people and put them under Mans- field; they would be responsible for growing the business externally.

What are the lessons of this case? When you make an acquisition, you must have total agreement on the merger objectives and key strate- gies. You must share a vision of the value added by the merger. You have

to he aware of cultural differences. Eventually, the customer base, the strategy, and the culture of the ac- quired company have to fit. And once you have a common under- standing of the merger objectives and key strategies, you have to gain rapid agreement on responsibilities, accountability, empowerment, and boundaries - and you have to keep the lines of communication open.

It was misleading to say "We'll leave you alone"

and then close the cafeteria.

Beauchamp didn't feel left alone.

ALBERT!. VISCIO is a vice president of Booz-AUen et) Hamilton in San Francisco. He has consulted extensively on postmergei integration.

Synergon has made errors in both the mechanical integration and the strategic value integration of its new acquisition.

The mechanical integration is not being tailored to the situation. Instead, Synergon is using its standard inte- gration process. Someof J.J, d'Amato's guidance has turned out to be just plain wrong. Cutting heads back- fired. And the efficiencies being in- troduced aren't really efficiencies- Beauchamp's spending more on the airlines, for example.

Nobody ever clarified what "leav- ing Beauchamp alone" meant. It was Nick's job to do that. It was mislead-

ing to say "We'll leave you alone" and then close the cafeteria. Beauchamp didn't feel left alone. Synergon has created a very poor foundation for any kind of strategic integration.

This acquisition was about add- ing strategic value to hoth firms; it wasn't ahout cost reductions. But nobody seems to be talking about how strategic value will be added- and it doesn't happen automatically. Nick needs an answer to the ques- tion. What will the Synergon-owned Beauchamp look like? It's apparent that there is potential-Beauchamp needs to grow and Synergon wants wealthy European customers. But those mutual needs don't seem to be a focus of the integration effort. They should he. They're the whole point.

Three elements have heen lacking: vision, architecture, and leadership.

Synergon never developed a vision of what Beauchamp could be. The old model wasn't right: Beauchamp wasn't growing. Pulling it into the Synergon fold isn't working either. Nobody's put forth a new value proposition for cus- tomers. Without that, you don't have a company.

As far as we know, no- body's talked ahout archi- tecture: How does Beau- champ fit into Synergon? How are the companies related? What's the process for cross-selling going to be? Syner- gon's tried-and-true integration mechanisms need to be tailored, prohahly radically.

Finally, Nick has abdicated his leadership responsibilities. He should have been working with Mansfield and the other Beauchamp senior managers on creating a shared vision and common values. But he hasn't

spent much time on the ground with these people. They've been bothered with forms but not graced with his physical presence. Nick should be identifying and building leadership prospects from within Beauchamp's ranks - forming partnerships and building excitement about the com- pany's future.

So Nick has a big problem: a de- railed acquisition. He should go to that show tonight. Then he should find a way to reach common ground on a vision that will excite both Mansfield and Synergon's CEO. He needs to develop a process for get- ting there based on the understand- ing that value is going to be found in the market, not in cost savings.

He needs to find people at Beau- champ who will help lead that change process, and he probably needs to do battle with his own man- agement. It's important that he talk to Mansfield and take responsibility for the many problems that have hurt the acquisition.

Having said all this, I have to point out that when a deal's success is con- tingent on retaining a senior person, it usually fails. We've done some re- search in order to understand why, and the answer is quite straight- forward. When we asked top people why they'd moved on after a merger, they said, very simply, that they had no reason to stay.

Let's face it: when you acquire a company and neutron bomb it, you don't risk much because you don't

Nobody seems to be talking about how strategic value

will be added-and it doesn't happen automatically.

need its people. But if the company's value lies in its customer relation- ships, you have to keep your finger off the hutton and think instead about the harder process of persuad- ing the people you've acquired to work toward the company's goals. ^

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44 HARVARD BUSINESS REVIEW (anuary-Febniary 1999

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