14 March 2002, Shanghai Kwan Chee Wei Director Human Capital Group Watson Wyatt Singapore,The Importance of Cultural Integration in Mergers and Acquisitions,2,Agenda,M & A Statistics,A Case Study,WWs Approach to Cultural Integration,What is Culture?,Q & A,3,Agenda,M & A Statistics,A Case Study,WWs Approach to Cultural Integration,What is Culture?,Q & A,4,Cultural & People Issues Often Present the Biggest Challenges,“The hard stuff is easy - its the soft stuff thats so hard to change.” - Frederick Smith CEO, Federal Express,5,Watson Wyatt M & A Survey 1998 (190 CEOs, CFO, Top Executives),75% are clearly disappointing or outright failures,Source: Watson Wyatt Worldwide M&A Survey, November 1998,50% suffer an overall drop-off in productivity in first 4-8 months,47% of acquired company executives leave within the first year; 75% within the first three years,“People problems” are cited as the top integration failure factor by a sample of 45 CFOs from Fortune 500 companies who have recently merged/acquired,Only 23% of all acquisitions earn their cost of capital,On average, management grade the financial performance of their alliances as a “C minus” (on a scale of A to E),6,Corporate culture is identified as one of the most important integration issues,Source: Watson Wyatt Worldwide M&A Survey, November 1998,Activities required for “successful” integration,Downsizing,Redeployment of workers,Recruitment of new staff,Retraining workforce,Alignment of comp & ben prog,Labor relations,Managing resistance,Integration of corporate cultures,Retention of key managers,Retention of key talent,Communication,37%,40%,59%,57%,36%,63%,78%,88%,91%,90%,0,10,20,30,40,50,60,70,80,90,100,36%,7,Cultural incompatibility is the biggest problem, yet results indicate that it is the area least likely researched during due diligence.,46%,47%,54%,56%,72%,72%,82%,86%,0,10,20,30,40,50,60,70,80,Organizational culture and dynamics of change,Workforce potential,HR policy matters,Major shareholders,Management capabilities and willingness to cooperate,Financial aspects of HR function,Market share, distribution,Hard assets,90,100,Technological and business competencies,75%,Percentage of companies citing the type of information gathered during due diligence,Source: Watson Wyatt Worldwide M&A Survey, November 1998,8,Reasons for successful integration,Source: Watson Wyatt Worldwide M&A Survey, November 1998,Percentage of companies citing reason for success,8%,41%,31%,37%,52%,70%,Shared responsibility of costs involved,Early mgt of “What will happen to me?” employee issues,Cultural compatibility,Mutual agreement of road map by partners,Expedient integration,Well planned communication throughout the deal process,Leadership,0,10,20,30,40,50,60,70,80,90,100,35%,9,Additional M & A Statistics,1992 (Coopers & Lybrand) :- In 100 failed or troubled mergers, 85% of executives who were surveyed said the major problem was differences in management style and practices.,1996 (British Institute of Management) :- reported the difficulties involved in merging two cultures to be a major factor in M & A failures.,1997 (A.T Kearney) :- reviewed 155 M & A deals and determined most failures to be people-related.,Hewitt Associates - 69% of respondents in 162 organizations involved in M & A reported the top challenge to be integrating two organizational cultures.,10,How integration is handled will make the difference between success or failure .,Earlier realization of financial “deal” goals (e.g. cost synergy, strategic initiatives) Protect productivity Maintain customer focus Smoother transition Employees are focused on their jobs and not on personal issues,11,Organizational Effectiveness Levers,Career Development,Performance Management,Staffing,Compensation, Benefits & Rewards,Employee Communication,Organization Design & Structure,Business Strategy & Aligned Culture,Leadership Effectiveness,12,Agenda,M & A Statistics,A Case Study,WWs Approach to Cultural Integration,What is Culture?,Q & A,13,What is culture?,Definition of Culture: The attitudes and benefits about something that are shared by a particular group of a people or in a particular organization (Longman) The set of important assumptions that members of a community share in common (e.g Schein),Simply put :,“ Corporate Culture is the way you do things in your organization”,14,Reflects “What is tangible”, e.g. Organisational structure & processes Policies & procedures Physical environment,Reflects the “Way we do things”, e.g. Degrees of collaboration Decision-making patterns Approaches to process improvement,Components of Culture,Values have little meaning unless they bring about specific behaviors .,15,The implementation plan will encompass initiatives to create and support these behaviors.,Core Values,Behaviour,The best way to achieve culture change is to focus on desired behaviors .,16,Agenda,M & A Statistics,A Case Study,WWs Approach