MGTO 630B Managing People Globally for Competitive Advantage Mergers & Acquisitions Saturday, March 8, 2003

2 Summary of Ferodo Turnaround John Tharme arrived as Managing Director of FTL (spent only 2 days with Mr. Worawut, previous MD)  Engineer, 30 years in SAfr. JV, few years as MD  Brought in by T & N management group  Found out that Peter Farrell never visited Thai factory, no strategic planning for Thai JV  Realized that Worawut was caught between being MD of FTL and being Mr. Subhawat’s friend  Had long-term view: JV would need 5 years before being profitable, need time to build up export, domestic markets

3 What Tharme did Provided marketing support for Boonpong – Mr. Subhawat Cleared backlogged shipment to Ferodo, Australia FTL bough back stocks from Boonpong, used stock to fill remaining Australian orders  Boonpong became non-exclusive distributor David Jones brought in from South African JV to become Sales and Marketing Manager for FTL  Could sell in domestic as well as export market

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

5 Characteristics of Knowledge Context specific versus context generalizable Higher level versus lower level Individual versus collective Present versus future focused Tacit versus explicit General versus specific

6 Keys to Successful IJVs Choose right partner  Goals, strategy, reliability Find right local general manager  Local networks, ministries, suppliers, markets, Choose right location Control the IJV Be prepared to be patient!

7 Alliance Takeaways Usually short-lived entities HRM manages interface between alliance companies and people within them Alliances characterized by duality between cooperation and competition, leveraging and developing competencies  Common characteristic of these conflicts is knowledge acquisition and learning – must be approached strategically for these learning objectives to be realized Most important single factor determining IJV success or failure is CHOICE OF PARTNER

8 By the end of the M&A module, you should be able to: Diagnose reasons for the failure and success of M&As Develop strategy for improving success of M&A

9 Knowledge Transfer and the Role of Alliances / M&As and Culture National Firm Regional Culture Motivation and Incentives to form alliances, M&As Ability to transfer Knowledge through alliances, M&As Knowledge transfer through alliances, M&As

10 Which factors influence the integration / differentiation of HRM Practices? Factors contributing to local isomorphism (adapt to local context: internal consistency, integration)  Sector  Market  Embeddedness in local environment  Local environment Factors contributing to differentiation  Organizational origin  Resource flows: capital, information, people  Corporate culture

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

12 AICC case Does national culture and/or organizational culture influence what happened at AICC? What other factors contributed to the problems? What are your recommendations for fixing the problems? PDIUAIIDVMASLTO Switz.34 (45)58 (33)68 (14)70 (4)-- USA40 (38)46 (43)91 (1)62 (15)29 (17) Country rank (out of 50 for all except LTO (23)) in brackets

13 Figure 6-1 (p. 252). Trends in International Mergers and Acquisitions Source: Mergers and Acquisitions Almanac, February 2001, p. 37.

14 Mergers & Acquisitions: A few observations Essential element of company growth strategy Resource dependency and transaction cost theory support M&A activity  increase firm knowledge while minimizing transaction costs

15 Are mergers successful? Measured by actual business results in comparable companies, less than ½ of merged / taken-over companies successful  No direct relationship between market or share value paid for a company and success of the merger  No direct relationship between relative size of the merging businesses and success of the merger  No direct relationship between whether mergers took place in associated or different industries and success of the merger

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

17 Turnover Rate of Executives

18 Summary: Reasons for M & A failures Difference in vision for new entity Loss of talent and capabilities, other intangible assets Lack of understanding of system and processes in acquiring company High transition and coordination costs Lack of cultural fit

19 Figure 6-4. The Wheel of Fortune at General Electric Source: R.N. Ashkenas, L.J. DeMonaco, and S.C. Francis, “Making the Deal Real: How GE Capital Integrates Acquisitions,” Harvard Business Review, January-February 1998, p. 167.

20 Synergon Case Would events have unfolded differently if the M&As had been systematically planned?  Use the GE Pathfinder model in the previous overhead to diagnose what went wrong.  Develop recommendations about how you would fix the problem.

21 Why Mergers are Successful, part I Effective strategic formulation of vision  Clear objectives of merger  Practical planning of phase BEFORE companies merged  Careful integration following merger Source: Booz Allen Hamilton, 1997

22 Why mergers are successful, part II Complete as quickly as possible (change is expected, don’t prolong the change process)  Make decisions quickly, communicate them openly Specified schedule observed without deviation Conflicts between partners to merger discussed openly New company set objectives that are as ambitious as possible Sources: Daniel Vasella (1 st Chairman of Novartis (formerly Sandoz and Ciba Geigy); Jurgen Schrempp (Daimler Chrysler); LSE study.

23 Best predictor of M & A success is previous experience with M & As Vision and strategy for combined organization a must Post-merger integration of culture and people consistently rank among main obstacles HR contributes to M & A success by assessing culture and people practices to ensure retention of key personnel in both organizations 100 day period critical: insight, information, involvement, inspiration M & A Takeaways