November 28, 2010

When consultants and client clash: Problem Essay

Statlers have failed to get their clients to acknowledge the differences in thinking about the
merger. The rationale behind every merger is that the sum is greater than the parts. Typically,
clients identify synergies for the merger and from then on consultants suggest the decisions
necessary for attaining them. The synergy cited in this case, economies of scale, is only
possible if the two firms worked together as a single unit. Susan Barlow’s lack of experience in
conducting with clients and failure to understand the need for merger coupled with Kellogg’s
ineptness in handling sticky situations has led to the current state.

Susan, in her initial briefing with Mr. Kellogg, started off on a wrong note. First, she patronized
the entrepreneur-turned-CEO, accepted his list of interviewees and even agreed to his
deadlines. If she was any experienced, she would have been more pro-active, played the role
of a devil’s advocate to explore other views about merger and understand its need. More
importantly, as John Rau suggests, she would have done independent fact finding which would
give her an idea about who to talk to. Another important task she missed out was talking to Mr.
Carpenter and exploring his views about the merger. If she had any knowledge about mergers
she would have replied to Mr. Kellogg’s remarks on mergers and explained to him that
acquisitions have far higher success rates than ‘mergers of equals’. All these point to her lack
of expertise in mergers and inexperience with conducting with clients.

Royce Kellogg acknowledges how he always relied on Mort Meyer to deal with people
problems. Further, his naïve view of the merger, which is so far only an agreement between
two heads, reinforces his skewed understanding of the problem. In response to numerous calls
from employees, who had already been given heads-up, Kellogg was quick in drawing
conclusion that consultants are stirring up trouble rather than understand the underlying
causes. Mr. Kellogg’s belief that derivatives are harder than the assignment Susan is currently
dealing with shows how little interest he has in organizational issues and understanding their
importance.

With only Mort’s death triggering the merger, it was pretty thin to start with. For two firms with
almost equal share operating on similar lines of business, the only value that could be derived
out of merger is to cut the costs through staff reductions and higher scale of operations. To
realize this, one of the firms needed to be an underdog and everybody, including the
consultants missed this entirely. Kellogg spoke about mergers of equals without realizing how
dangerous it was. This evidence strongly suggests the desperate need for mergers and
acquisitions expert.

Hence, any corrective measure should start with bringing in an expert on mergers into the
team. Statler should start with a fresh slate by bringing in a new team to work on the project
and let go of the costs for the initial two weeks. This will also greatly alleviate Kellogg’s anger
and frustration with the consultants. The new policies that should govern the Kellogg
Champion should be centered on cutting costs and achieving a merit-based organization
structure rather than keeping a set of policies and disregarding the other.

Submitted by: kv