The latter half of 2008 will forever be associated
with global economic turmoil on an unprecedented scale,
epitomised by dramatic losses suffered by the world’s
major banks. The subsequent impact on the wider business
and ‘real’ economy ensures that business
leaders must now enter the New Year facing a trading
environment vastly different from any they will have
encountered before.
As disturbing as the change itself, is the sheer
speed at which it has ripped through the banking industry.
Once revered institutions have been bankrupted, forced
into mergers or rescued with Government funding. The
global financial landscape has been utterly transformed,
and all in the space of a few months.
What is clear is that many organisations face a future
of extreme uncertainty as they grapple with a shifting
economic, regulatory and political landscape that
will not wait for them to catch up. The business environment
is therefore set to become far harsher in the next
12 months, during which many organisations across
the world will have to respond accordingly.
The next year will give rise to many challenges and
opportunities. On first appearances some of these
will seem familiar, but organisations should have
no doubt; the rules of engagement have changed. Whereas
in normal times a major business event such as a merger,
acquisition or divestment may have been many months
in planning and negotiation, today a business may
find itself needing to respond at high speed. If business
leaders fail to recognise this need for speed, they
are unlikely to survive.
As the global financial crisis continues, and as
a result of the part-nationalisations of banks, a
double-edged political bind is emerging. On one hand,
banks may be pushed to divest certain assets, such
as overseas acquisitions, or to improve their risk
profile and to avoid accusations of profligacy with
public money. Yet on the other hand, they will be
urged to maintain or raise their levels of lending,
particularly to small businesses, as a means of keeping
the wheels of industry turning.
Moreover, the banks will be under pressure to pass
on substantial interest rate cuts to customers, as
public sentiment towards the banking sector grows
more hostile. In addition, the regulatory environment
is set to undergo seismic change because it is difficult
to imagine politicians being content to merely tinker
with the existing rules and procedures.
Whatever the outcome, there is certain to be a considerable
strain on organisations as they struggle to respond
to a situation likely to be far more challenging than
the implementation of Sarbanes-Oxley, Basel II or
indeed MiFID, with all the attendant cost and difficulty
that these initiatives entailed. Dealing with such
changes at the same time as a major integration programme
raises many complex issues, as companies seek to identify
benefits from the host of changes that they are undergoing.
One of the most striking aspects of the current financial
crisis is the sheer number of mergers, acquisitions
and divestments that are taking place simultaneously.
Whereas in a typical quarter, there may be three or
four large scale deals in progress, at the end of
2008 there are many more integration programmes being
launched including HBOS and Lloyds TSB, Barclays and
parts of Lehman Brothers, Santander and Alliance &
Leicester, JP Morgan and Washington Mutual, Bank of
America and Merrill Lynch, Commerzbank and Dresdner
Kleinwort, and a host of others throughout the developed
world. Although the Financial Services industry is
the first to be affected in this way, the chill wind
of change will undoubtedly affect other sectors in
the coming months.
Many executives will not have been through such major
integration in their working lives, few have experience
of this in a shrinking market. In addition, those
executives face pressure from several differing directions
at once as indicated previously, and all at a time
when many economies have entered recession.
The current situation fundamentally differs from
the M&A spree that took place between 2001 and
2007, in that, in many cases it is motivated by survival
rather than confidence. This is against the backdrop
of businesses no longer being able to look forward
with confidence to the upward direction of stock markets
sustaining their growth. As a result, speed of execution
in mergers is crucial to achieving solid results.
Companies may spend years discussing merger and integration
issues, but the deals that have worked best involved
prompt, decisive action. It seems that the longer
a company spends thinking about integration once the
deal has been finalised, the longer it will take to
generate value.
So what can business leaders do to minimise the inherent
risk in merging different cultures, business processes,
technology systems, customer facing staff, product
and services? If this were the only task facing a
senior management team it would be difficult enough.
However, organisations will also be coming to terms
with several simultaneous challenges including having
to reduce debt, the need to shrink costs, the greater
emphasis on managing risk, all while still running
the show.
Certainly, effective planning and rigorous management
of the process surrounding such activity has always
been critical to success. In today’s business
environment this was never truer. That means establishing
a large and complex programme structure to ensure
that all necessary change activities are undertaken
within a comprehensive strategy, where all inter-dependencies
are identified, where issues and risks are understood
and dealt with, and where there is an unremitting
focus on delivering successful results.
The speed of integration in today’s environment
means that organisations may have less time to examine
all the issues, assess the risks and make adequate
preparations for integration. Companies still need
to collect the same amount of information as they
did in calmer times; they just need to complete the
process faster. Equally, there is a need to communicate
to employees and other stakeholders quicker than before.
The first 30 days following a merger are crucial,
where the tone and expectations are set, both within
the company and with a wide variety of stakeholders.
It is critical to break down barriers between the
two existing operating models and the two executive
teams, to establish how the merged control structure
will function and to tie in a reward structure to
motivate key staff.
As an example, in the case of the RBS merger with
NatWest, there was an initial issue of some significance,
because the teams didn’t understand the model
or the need for consistency across the programme.
But as the integration progressed, the company had
to provide the market with a message about what savings
and income gains could be achieved through improved
customer focus.
Jason Knight, PIPC Director and business integration
specialist advises, “Most businesses thrown
into the integration challenge struggle to work out
what to tackle first”. He goes on to list a
10 Point Plan to help organisations respond to the
challenges they face:
Drive the integration programme as aggressively as
possible, addressing the cultural and political issues
head on. This will ultimately minimise the impact
on the core business. The inertia created by failing
to address the political issues of each organisation
will instil deep-rooted behaviours across both organisations
that are difficult to break.
There should be a clear definition of the target
benefits of merging, which is communicated in a style
both organisations can understand - what’s in
this for everyone? Why are we doing this? Often, the
priority and focus is about “making the deal”
happen, leaving the delivery of benefits as an after-thought.
It is essential to build a robust business case for
the integration and cascade this through the organisation
to cement the benefits as expected outcomes from the
programme. In essence, always keep the benefits in
sight – this helps clarify decision-making.
Move to one platform, from either the acquired or
acquiring company – then scale that platform
to ensure it can cope with the volume of both businesses.
Clearly there will be gaps and exceptions that need
to be managed proactively. However, cherry-picking
from each business, often done to accommodate political
agendas, will almost certainly extend the time required
to integrate the businesses and delay the delivery
of the anticipated benefits.
Customers’ expectations will not change, so
avoid the temptation to reduce quality or service.
Ensure that integration effort is carried out “behind
the scenes” and that it is largely invisible
to customers.
Pick the fastest, least complex approach or strategy
to getting to the end-state – this will not
necessarily be the most elegant or the prettiest.
Resist the urge to fix every minor operational issue
as you go.
Senior executives need to demonstrate they are worth
the investment from shareholders and are fully accountable
for integration success.
Transforming or integrating a business is never a
part-time job. Deploy a professional and dedicated
team with solid programme delivery skills to become
the driving force. Don’t underestimate the effort
and resources required. You will still need at least
the same management capability and capacity to continue
to run the business and serve your customers and key
stakeholders.
Ensure that there is a single, robust plan or roadmap,
which encompasses the critical activities that need
to be executed right across the organisation –
there is no room for departmental silos. The executive
team needs to act as one to rapidly resolve issues.
If the integration programme is being driven at pace,
they will be called upon frequently to address the
large number of issues being raised.
Implement a tight governance framework such that
there is no doubt about roles, responsibilities, reporting
lines and decision making. Command and control is
essential to prioritise activity, make the big decisions
and to drive delivery. Retain a dynamic approach to
the project’s evolution, however situations
change and it is therefore essential to be agile enough
to exploit opportunities and address problems as they
arise. While there is merit in ‘not sweating
the small stuff’, the devil is often in the
detail, therefore there will be a need for a regular
meetings cycle, including daily conferences involving
members of the senior management team, to close key
issues.
Work hard to constantly communicate the logic of
the acquisition, the integration plan, and the progress
being made against the plan. Communication needs to
be driven from the top and be seen to have their active
involvement. Ensure that there is a very strong communications
strategy and plan and don’t delegate this.
The logic of the 10-point plan is clear, however the
real challenge comes when trying to successfully execute
all 10 in an environment that is rapidly changing
and unprecedented. Here there is no substitute for
capability, experience and a proven track record of
success.
Faced with so many conflicting challenges, the question
is where to start? There are a small number of key
issues that must be addressed by senior management
and while doing these alone will not guarantee success,
failing to do so will cause significant problems and
possibly undermine the rationale for the strategy.
To begin with, the first 30 days are crucial during
which time the first parts of the master plan are
executed. The new group architecture must be established
and great effort put into initiating employee and
stakeholder communications. The second point is the
creation and implementation of the new business architecture
and a common operating model. Thirdly, the integration
must be managed effectively, within an appropriate
governance and control structure. All the while, the
ability to make timely decisions based on sound information
and knowledge of dependencies, the capacity to deal
with issues as they arise and a total commitment to
effective communication will serve as a solid foundation
for success.
In this rapidly changing environment, where hundred-year-old
institutions disappear overnight, shedding tens of
thousands of jobs, where stock markets tumble by 10
per cent in a matter of hours and governments slash
interest rates, borrow hundreds of billions of dollars
to shore up the banking system and rush in new laws
to patch up a leaking global financial vessel, businesses
involved in mergers, acquisitions or divestments will
need to choose who they partner with carefully.
