DECLARATION

I hereby declare that the project entitled “CHANGE MANAGEMENT

POST MERGERS” submitted as a part of the study of POST GRADUATE

DIPLOMA IN MANAGEMENT Degree is my original work and the Project has

not formed the basis for the award of any other degree, associateship, fellowship or

any other similar titles.

Place:

Date:

Signature of the Student

(DINESH SUTHAR)

2
 CERTIFICATE

This is to certify that the project entitled “CHANGE MANAGEMENT

POST MERGERS” is the bonafied work carried out by DINESH TULSARAM

SUTHAR student of POST GRADUATE DIPLOMA IN MANAGEMENT

Atharva Institute of Management Studies, during the year 2018-2020 in the partial

fulfillment of the requirements for the Degree of Master of Management Studies

and that the project has not formed the basis for the award of any other degree,

associateship, fellowship or any other similar titles.

Place:

Date:

Signature of the Guide Signature of Director

(HIRAL MAKWANA) (DR. SUJATA PANDEY)

3
 INDEX

SR. PARTICULARS PAGE

NO. NO.

1 Executive Summery 5

2 Formulation of Research 6

3 Research Methodology 10

4 Literature Review 11

5 Introduction 22

6 Data Analysis 23

7 Critical Analysis 25

8 Recommendation and Conclusion 43

9 Bibliography 46

4
 EXECUTIVE SUMMARY

One of the greatest challenges faced in the industry today is to oppose the forces of institutional
entropy that seemingly inevitable undermine organizational vitality. There is a pronounced
pressure on companies to continuously renew and change themselves in order to remain
competitive and innovative. Even under best circumstances, innovation at companies is
associated with uncertain endeavors.

I propose a conceptual framework that decomposes the overall acquisition integration process
into four sequential and co-evolving processes:
(i) Formulating the integration logic and performance goals,
(ii) Establishing the integration planning approach,
(iii) Executing operational integration, and
(iv) Executing strategic integration.

Managing the strategic dynamics of acquisition integration in fast changing competitive

environments requires attention to all four processes and the feedback loops between them.
Analysis of the HP-Compaq merger however, suggests that creating a strong feedback loop
between the operational integration process and the process of formulating the integration logic
and performance goals is difficult, yet is needed to timely revise the initial assumptions in light
of changing market realities and responses of key customers to the new corporate strategy. It also
suggests that establishing a strong feedback loop between the strategic integration process and
the process of formulating the integration logic and performance goals is difficult, yet is needed
to maintain sustained top management attention to the multi-year strategic activities necessary to
meet the dynamic competitive challenges.

Analysis, furthermore, suggests that top management should be cautious at the outset in stating
long-term goals for the new company, not declare victory too soon, and reduce the opportunity
costs of acquisition integration by augmenting its own bandwidth for managing large-scale
strategic change.

5
 FORMULATION OF RESEARCH

Successful integration leads to effective change management. I propose a conceptual

framework that decomposes the overall merger integration process, which leads to
successful change management into four sequential and co-evolving processes:

1. Formulating the integration logic and performance goals,

2. Establishing the integration planning approach,
3. Executing operational integration, and
4. Executing strategic integration.

Rationale behind the Objective

The first process – “formulating the integration logic and performance goals” – involves the
boards of directors, top managements, and consultants of the two companies, who convince
themselves that the merger makes strategic sense and make high-level decisions about the new
top leadership, major strategic goals and the overall organization. It is important to distinguish
two aspects of this process. First, top management of the acquiring company formulates the new
corporate strategy, which explains how combining the two companies will improve the product
market position of the new company, how it will strengthen its distinctive competencies, and
how it will use the strengthened competencies to defend and leverage its improved strategic
position.
Second, the top management of the acquiring company makes assumptions about the future state
of the competitive and economic environments and uses these to formulate short and long-term
strategic and financial goals for the merger and for creating shareholder value.

The second process- “creating the integration plan” - involves, in first instance, deciding on
the new executive team and the basic organization structure of the combined companies prior to
the merger’s announcement. Specific goals are set for each of the major stakeholders:
shareholders, customers, employees, and partners. An integration planning team is formed and
the blueprint of the integration process is created. Pre-deal clearance planning activities such as
identifying short term goals for synergies, workforce reduction, procurement rationalization,
phasing out redundant products, and getting the new organization up and running are established
to prepare for the process of executing operational integration. Planning activities related to
multi-year strategic initiatives needed to develop a new culture, effectively cope with the
competitive dynamics, and meet long-term goals are also started to prepare for the process of
executing strategic integration. At this point, the distinction between strategy and execution is
still meaningful: The vast majority of managers and employees of both companies only have to
think about delivering current business results and the integration team only has to think about

6
planning and creating the blueprint for executing the operational and strategic integration
processes.

The third process - “executing operational integration” - starts the day the deal closes and the
execution of the integration is launched. This process is very hard for everyone involved: There
are often a large number of layoffs, the remaining levels of management are selected, people find
out whether they have a job and what it is, new organization structures are activated, new sales
teams call on worried customers, and on it goes. This process, which generally lasts between 6
and 12 months, involves time-consuming, often unexciting and frustrating working through the
details of the integration at the frontline. The primary goals are short-term: To hold on to
customers and achieve market share goals, achieve quarterly financial results, eliminate targeted
product redundancies, get procurement synergies, select the right people and get the organization
to work. At this point, the distinction between strategy and execution becomes blurred, and the
effectiveness of strategic leadership is crucial and brutally obvious in the face of the challenges
and the short-term results obtained.

Executing operational integration tests the continued relevance of the new corporate strategy
with key customers as well as the initial assumptions about the economic and competitive
conditions. This learning, in principle, should trigger a feedback loop to allow the process of
formulating the integration logic and performance goals to co-evolve. There is little time to think
about strategy during the operational integration process, however, as management of the
combined companies must now manage very complex integration issues and deliver short-term
performance in line with the set goals. The cost of failing to execute well here is felt to be so
high (a feeling not necessarily made explicit) that the strategy is, somewhat appropriately,
viewed as secondary. At the same time, while the integration logic may remain valid, it may
nevertheless be necessary to adjust the initial assumptions on which the performance goals are
based in light of deteriorating economic and competitive conditions. This too is difficult because
these changes are often not immediately and unequivocally clear, but also because the revisions
they would require impose further difficult and potentially unsettling short term actions – e.g.,
significantly increasing the number of layoffs – on the part of an already stretched top and senior
management.

The fourth process - “executing strategic integration” - depends on some of the activities
performed in the operational integration process and runs somewhat in parallel with it. It is,
however, primarily driven by the multi-year strategic initiatives necessary to get ahead of the
competitive dynamics envisioned. While these strategic initiatives are prepared for during the
integration planning process, they may need to be subsequently adjusted in light of the feedback
loop triggered by the execution of strategic integration. This feedback loop helps test and revise
the key assumptions of the integration logic that pertain to how well and how fast key

7
competitors were expected to be able to improve their strategic position and competencies. In
other words, the process of executing strategic integration must effectively cope with where key
competitors will be several years down the road from the start of the strategic integration
process, rather than where they are at the start. Strategic integration is the primary responsibility
of top management and assigned staff, who continue to scan the rapidly evolving competitive
environment. Effective strategic leadership of strategic integration requires being able to clearly
define what “winning” means and forcefully executing the multi-year strategic initiatives that
will make wining - achieving the longer-term performance goals set for the combined companies
- possible. This in turn involves generating extraordinary energy that continues to radiate
throughout the organization, and the ability to pick executives at the senior ranks with superior
skills in getting their organizations to follow through on the strategic initiatives in the face of
ambiguity and uncertainty. At the same time, everyone must continue to execute the remaining
operational integration issues and deliver business results.

The aim here would also be to study the human side of a merger. A merger brings a lot of change
in the culture and the employee morale. Thus the concept of change management comes into
play. Objective here is also to find the change management post mergers and acquisitions
referring to human side of change.

8
STRATEGIC DYNAMICS FOR ACQUISITION INTEGRATION- COEVOLVING
DYNAMICS OF CHANGE MANAGEMENT

PROCESS 1
FORMULATING THE
INTEGRATION LOGIC &
PERFORMANCE GOALS

PROCESS 2
CREATING INTEGRATION
PLAN

PROCESS 3
EXECUTING OPERATIONAL SHORT TERM
INTEGRATION GOALS

PROCESS 4
EXECUTING STRATEGIC LONG TERM
INTEGRATION GOALS

TIME

9
 RESEARCH METHODOLGY

The research is primarily descriptive in nature. Descriptive research, also known as statistical
research, describes data and characteristics about the population or phenomenon being studied.
Descriptive research answers the questions who, what, where, when and how.

Primary Data is the original information gathered for a specific purpose. Sources for Primary
data collection were:

Secondary Data is the data already collected by others and is reused by the researcher. Sources
of secondary data were

1) Magazine
2) Journals
3) Research studies
4) Online interviews of the company officials.
5) Newspapers
6) Company reports and Presentations

Sample

Sample consisted of officials within the company. Method adopted was Judgment Sampling.
Judgment sampling is a common non probability method. The researcher selected the sample
based on judgment that the sample will give accurate information on change management. This
is usually and extension of convenience sampling.
Limitations of the Study

• Secondary Data cannot be verified.

• Only top management officials of the company can give an accurate picture of the change
management process. However, the top management officials were unavailable to comment.

• The HP-Compaq merger took place in US. Thus its implications in Indian context were not
known.

10
 LITERATURE REVIEW

MERGERS & ACQUISITIONS

OVERALL PICTURE OF M & A’S

Mergers, acquisitions and joint ventures are common ways for companies to meet their growth,
globalization and development needs today. The words describing these different types of
contracts between companies have definitions. In particular the concepts of merger and
acquisition are used purposefully to give an impression about a situation in a certain perspective.
In many situations executives prefer to use concept merger instead of acquisition to offer a view
of co-operation instead of a hostile take-over.

Merger is defined as 'in general a situation in which two or more enterprises cease to be
distinct enterprises'.

Acquisition is defined as 'by one company of sufficient shares in another company to give the
purchaser control of that company'. (Both definitions are from Macmillan Dictionary of
Accounting).

Hubbard (1999) adds that acquisitions can be either friendly or hostile. Acquisitions are take-
overs in which the bidder negotiates directly with the target company’s board of directors.

Proxy contest is in question when there is an attempt to gain control of the target company's
board of directors via a shareholder vote (Hubbard 2001).

Leveraged buyout is the purchase of shareholder equity by a group usually including incumbent
management and it is financed by debt, capital or both (Hubbard 2001).

Joint venture is defined as 'establishing a complete and separate formal organization with its
own structure, governance, workforce, procedures, policies and culture - while the predecessor
companies still exist' (Marks & Mirvis 1998).

I intend use the terms 'mergers and acquisitions' or 'acquisition' as synonyms or simultaneously
not differing them from case to case. Sometimes the word merger is a nicer word for the situation
for the executives. Hostile take-over has not been included. I don't have a separate focus on
hostile situations. According to the cases I have studied, there are enough problems to be solved

11
in friendly mergers and acquisitions to be more successful or less painful to the people involved.
I shorten ‘merger and acquisition’ as MA.

According to company experts and economists there is no alternative to globalization.

Competition forces companies to go where labor and raw material are the cheapest, capital
favorable and the markets the biggest. The globalization started in the end of the 1980s when the
GNP (gross national product) and world trade grew faster than ever. Firms and countries have
been able to specialize and develop their core competencies (Helsingin Sanomat HS 18.9.2000).

The American thinking about the importance of shareholder value has become common also in
countries earlier with in-effective capital.

According to Helsingin Sanomat arguments for globalization are:

• World GNP grows faster than ever

• Trade over borders is increasing
• Firms and people are able to focus on what they best can
• Firms are able to grow and become more profitable
• Firms are able to get labour, raw material and financing cheaper than before
• Competition and owners force the firms to be more profitable
• Fighting is more expensive
• Corruption decreases
• Oppressed minorities get their voice heard better than inside a country
• By international enactment it is possible to improve the position of labour, women and
environment
• Availability of culture is improving, for example TV-series

Arguments against globalization are:

• Income differences among countries will increase

• The protected, weak, subnormal and slow areas will remain retarded in terms of
development
• National states are tool less in world competition (market forces)
• Democracy (democracy losing its power when the market power takes over)
• Free capital, new technology and speculative investors bring instability in world economy
with them
• Growing differences between poor and rich countries increase tension in world politics
• Immigrant problems increase
• Cultural clashes take place in multinational corporations
• Supranational monopolies decrease competition

12
 • Tax competition will wreck social security systems
• Cultural convergence because of exposure to shared media experiences

Globalization has become the most common thing to describe the business activities in the world
today. Three reasons (Cartwright and Cooper 1992):

• To be present for the customers all over the world (customers).

• To use the favors of infrastructures of different countries remembering that countries, not
only companies want to be and must be competitive. Companies work hard to locate their
production and services in the best possible locations using all the competence and
financial benefits, which are available in different countries (country competitiveness).
• Talent search (talent search and recruiting). Nations compete for companies; nations want
to be competitive to get the best companies and favors coming with that (Porter 1992).

Governments work hard to attract business by offering special benefits, part of which is offered
by the society: education systems, safe environment, well organized contacts between different
stakeholders, taxation benefits, and technology power. Many of the major corporations with
Indian origin have kept their headquarters in India, both because of taxation and human capital
availability reasons. Even if, it has meant a few expatriates to India, a lot of traveling in top
management.

TYPES OF MERGERS

➢ Horizontal Mergers
➢ Vertical Mergers
➢ Conglomerate Mergers

Horizontal Mergers

This type of merger involves two firms that operate and compete in a similar kind of business.
The merger is based on the assumption that it will provide economies of scale from the larger
combined unit. Example: Glaxo Wellcome Plc. and Smith Kline Beecham Plc. mega merger

'The two British pharmaceutical heavyweights Glaxo Wellcome PLC and SmithKline
Beecham PLC early this year announced plans to merge resulting in the largest drug
manufacturing company globally. The merger created a company valued at $182.4 billion and
with a 7.3 percent share of the global pharmaceutical market. The merged company expected
$1.6 b i l l i o n in pretax cost savings alter three years. The two companies have complementary
drug portfolios, and a merger would let them pool their research and development funds and
would give the merged company a bigger sales and marketing force.

13
Vertical Mergers

Vertical mergers lake place between firms in different stages of production/operation, either
as forward or backward integration.

The basic reason is to eliminate costs of searching for prices, contracting, payment
collection and advertising and may also reduce the cost of communicating and coordinating
production. Both production and inventory can be improved on account of efficient
information flow within the organization. Unlike horizontal mergers, which have no specific
timing, vertical mergers take place when both firms plan to integrate the production process
and capitalize on the demand for the product. Forward integration take place when a raw
material supplier finds a regular procurer of i t s products while backward integration takes
place when a manufacturer finds a cheap source of raw material supplier.

Example: Merger of Usha Martin and Usha Beltron.

Usha Martin and Usha Beltron merged their businesses to enhance shareholder value
through business synergies. The merger will also enable both the companies to pool
resources and streamline business and finance with operational efficiencies and cost
reduction and also help in development of new products that require synergies.

Conglomerate Mergers

It is an amalgamation of the companies in two different industries, (Eg: DCM and Modi
Industries.)
Conglomerate mergers are affected among firms that are in different or unrelated
business activity. Firms that plan to increase their product lines carry out these types of
mergers. Firms opting for conglomerate merger control a range of activities in various
industries that require different skills in the specific managerial functions of research,
applied engineering, production, marketing and so on. This type of diversification can he
achieved mainly by external acquisition and mergers and is not generally possible through
internal development. These types of mergers are also called concentric mergers. Firms
operating in different geographic locations also proceed wi t h these types of mergers.
Conglomerate mergers have been sub-divided into:

• Financial Conglomerates
• Managerial Conglomerates
• Concentric Companies

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Financial Conglomerates

These conglomerates provide a flow of funds to every segment of their operations,

exercise control and are the ultimate financial risk takers. They not only assume financial
responsibility and control but also play a chief role in operating decisions. They also:

• Improve risk-return ratio

• Reduce risk
• Improve the quality of general and functional managerial performance
• Provide effective competitive process
• Provide distinction between performance based on underlying potentials in the
product market area and results related to managerial performance.

Managerial Conglomerates
Managerial conglomerates provide managerial counsel and interaction on decisions thereby,
increasing potential for improving performance. When two firms of unequal managerial
competence combine, the performance of the combined firm will be greater than the sum of
equal parts that provide large economic benefits.
Concentric Companies

The primary difference between managerial conglomerate and concentric company is its
distinction between respective general and specific management functions. The merger is termed
as concentric when there is a carry-over of specific management functions or any
complementarities in relative strengths between management functions.

TYPES OF ACQUISITIONS

• Share purchases - in a share purchase the buyer buys the shares of the target company
from the shareholders of the target company. The buyer will take on the company with all
its assets and liabilities.

• Asset purchases - in an asset purchase the buyer buys the assets of the target company
from the target company. In simplest form this leaves the target company as an empty
shell, and the cash it receives from the acquisition is then paid back to its shareholders by
dividend or through liquidation. However, one of the advantages of an asset purchase for
the buyer is that it can "cherry-pick" the assets that it wants and leave the assets - and
liabilities - that it does not. This leaves the target in a different position after the purchase,
but liquidation is nevertheless usually the end result.

15
An acquisition is only slightly different from a merger. In fact, it may be different in name only.
Like mergers, acquisitions are actions through which companies seek economies of scale,
efficiencies, and enhanced market visibility. Unlike all mergers, all acquisitions involve one firm
purchasing another--there is no exchanging of stock or consolidating as a new company.
Acquisitions are often congenial, with all parties feeling satisfied with the deal. Other times,
acquisitions are more hostile.

In an acquisition, a company can buy another company with cash, with stock, or a combination
of the two. Another possibility, which is common in smaller deals, is for one company to acquire
all the assets of another company. Company X buys all of Company Y's assets for cash, which
means that Company Y will have only cash (and debt, if they had debt before). Of course,
Company Y becomes merely a shell and will eventually liquidate or enter another area of
business.

Another type of acquisition is a reverse merger, a deal that enables a private company to get
publicly listed in a relatively short time period. A reverse merger occurs when a private company
that has strong prospects and is eager to raise financing buys a publicly-listed shell company,
usually one with no business and limited assets. The private company reverse merges into the
public company, and together they become an entirely new public corporation with tradable
shares.

Regardless of their category or structure, all mergers and acquisitions have one common goal:
they are all meant to create synergy that makes the value of the combined companies greater than
the sum of the two parts. The success of a merger or acquisition depends on how well this
synergy is achieved.

So, the term acquisition means an attempt by one firm, called the acquiring firm, to gain a
majority interest in another firm, called target firm.

The effort in control may be a prelude:

• To a subsequent merger or
• To establish a parent-subsidiary relationship or
• To break-up the target firm, and dispose off its assets or
• To take the target firm private by a small group of investors.

There are broadly two kinds of strategies that can be employed in corporate acquisitions.
These include:

16
Friendly Takeover
The acquiring firm makes a financial proposal to the target firm's management and board.
This proposal might involve- the merger of the two firms, the consolidation of two firms- or the
creation of parent/subsidiary relationship.

Hostile Takeover
A hostile takeover may not follow a preliminary attempt at a friendly takeover. For
example, it is not uncommon for an acquiring firm to embrace the target firm's
management.

CHANGE MANAGEMENT THROUGH EFFECTIVE INTEGRATION

CHANGE MANAGEMENT

Change is a fact of life. On the positive side, change may be seen as akin to opportunity,
rejuvenation, progress, innovation, and growth. But just as legitimately, change can also be seen
as instability, upheaval, unpredictability, a threat, and disorientation.
The concept of change management describes “a structured approach to transitions in
individuals, teams, organizations and societies that moves the target from a current state to a
desired state”.
Stated simply, change management is a process for managing the people-side of change. The
most recent research points to a combination of organizational change management tools and
individual change management models for effective change to take place.
To integrate companies following a merger, arguably the most important challenges involve
the top of the organization—appointing the right top team, structuring it appropriately, defining
its agenda, and building the trust that enables its members to work well together. Executives who
fail to overcome these challenges are responsible for the ego clashes and politics that are often
the root cause of spectacular failed mergers.
Unfortunately, recent thinking about change management no longer emphasizes the pivotal role
of the top team. The consensus on how to manage change has shifted to a dispersed approach
because too many initiatives designed to cascade down the hierarchy have delivered
disappointing results. The usual interpretation is that top-down change fails because at every step
messages get diluted, so that each succeeding one seems less compelling and less authentic.
While this may be true in certain circumstances, a merger requires direction from the top because
that is the only way to initiate change throughout an organization. The change required to
integrate companies cannot be driven from an entrepreneurial business unit, an innovative
functional unit, or the front line. Too much coordinated, programmatic change must be achieved
in too short a time for such approaches to succeed. The spirit of the project is determined at the
top, where the conditions are set for the whole integration effort.

17
But the top team must do more than just talk about the new company, adopt its language and
trappings, and act according to its norms. The team must become the new company in the full
sense. Its messages, processes, and targets must deeply incorporate the aspirations of the new
company in a way that is visible to managers, employees, and even outside observers. As the top
team goes on to integrate the company down the line, it in effect re-creates itself. The company
is not just rolling out messages, processes, and a set of targets; it is rolling out itself.
In the best cases, members of the top team signal the kind of company they are creating and their
commitment to that new company. In other cases, the team visibly lacks the requisite quality, and
its weaknesses inevitably spread throughout the merging companies. The power of the signals
emanating from the top team reflects the fact that they are not just signals: they create concrete
realities.
The important signals fall into three categories:

(1) Senior appointments

(2) The top team's alignment, and
(3) Clarity about roles.

Senior Appointments
One of the most memorable things during an integration effort is the way managers, employees,
and even other stakeholders closely watch to see who ends up on the top team. This attentiveness
represents much more than a voyeuristic interest in the human drama taking place. The
appointments provide strong clues about the new company's direction and, more subtly, about
the degree of its commitment to its proclaimed course. Managers and employees will, of course,
also interpret appointments to the top team as signals about their own future.
Timing is crucial: in general, the earlier the decision-making process begins and ends, the better.
In one study of 161 mergers, the early appointment of a top team was a strong predictor of the
long-term performance of the combined organization.
Understanding the impact of these signals on each side of the boundary between the merging
companies is critical because the signals may depart from expectations in very different ways.
Creating a new company at the top is particularly problematic in a merger of equals because
managers are sorely tempted to maintain the identities of the predecessor organizations. To be
sure, the proclaimed strategy usually calls for their full integration.
Yet compromises on people issues may fatally obstruct this effort and ultimately undermine the
merged company's pursuit of value. The resulting mess will often be attributed to "incompatible
cultures," as if the failure of integration was the inevitable result of trying to mix oil and water.
Another source of failure at the top is an unwillingness to face the prospect of job losses among
close colleagues who have performed well for years—even though many more job losses are
likely among people further down the line.

18
Alignment of the top team
Although appointment decisions can be difficult, at least in the end it is clear to all what has been
decided. Top-team alignment, by contrast, is a rather nebulous outcome of many diverse
activities. People know when a company really has it, but at various stages along the way they
ask, "Are we aligned yet?"
In a merger, the top team must fashion its own identity vis-à-vis the external world of business
partners, competitors, customers, and regulators to reach this level of agreement. Research shows
that when top teams turn their attention to the external environment, they often experience a
catalytic effect, which carries them past the usual internal frictions much more quickly.
Compared with the pressing need to thrive in the marketplace, these frictions simply do not
matter very much. This effect is particularly striking when an external crisis suddenly emerges.
Getting to that level of agreement without a crisis is mostly a matter of discipline. A carefully
limited dose of team-building exercises can also help, but with two important caveats. First,
managers on both sides may have very different perspectives on what constitutes a constructive,
business-like exercise. If one side perceives an activity to be a touchy-feely distraction, it is not
worth doing and could be counter-productive. Second, senior managers the world over have very
limited patience for time spent on anything other than "real work." This is all the more true under
the intense pressure of integration. It is best to focus on outputs whose value is clear even if they
are intangible (for example, a set of behavioral norms for the new company).

Role clarity
The members of the top team share responsibility for the merging companies' future as a whole,
but they also have distinct individual responsibilities. They must work together in a
complementary way not only to help the companies integrate successfully but also to lead the
combined one through its other concurrent and future challenges. To do so, the team must define
roles very clearly and quickly—particularly roles directly involved in the integration effort.
From the perspective of a company's long-term corporate health, the future needs of the business
are an equally strong factor in defining roles. Creating the top echelon of the new company is as
important for its long-term performance as for the near-term success of the integration effort.

Establishing the top team poses a critical and immediate challenge for merging companies. The
new company's leaders must appoint the best possible top team for achieving its goals, and the
top team's members must be aligned around them. To collaborate effectively, its members must
be clear about their individual roles. All this is sensible enough and easy to say, but in practice
that degree of leadership can be hard to achieve during the hectic period leading up to a merger
or even in its immediate aftermat.

19
LEWIN’S THEORY OF CHANGE

Kurt Lewin (1951) introduced the three-step change model. This social scientist views
behavior as a dynamic balance of forces working in opposing directions. Driving forces facilitate
change because they push employees in the desired direction. Restraining forces hinder change
because they push employees in the opposite direction. Therefore, these forces must be analyzed
and Lewin’s three-step model can help shift the balance in the direction of the planned change.

• According to Lewin, the first step in the process of changing behavior is to unfreeze the
existing situation or status quo. The status quo is considered the equilibrium state.
Unfreezing is necessary to overcome the strains of individual resistance and group
conformity. Unfreezing can be achieved by the use of three methods. First, increase the
driving forces that direct behavior away from the existing situation or status quo. Second,
decrease the restraining forces that negatively affect the movement from the existing
equilibrium. Third, find a combination of the two methods listed above. Some activities
that can assist in the unfreezing step include: motivate participants by preparing them for
change, build trust and recognition for the need to change, and actively participate in
recognizing problems and brainstorming solutions within a group.
• Lewin’s second step in the process of changing behavior is movement. In this step, it is
necessary to move the target system to a new level of equilibrium. Three actions that can
assist in the movement step include: persuading employees to agree that the status quo is
not beneficial to them and encouraging them to view the problem from a fresh
perspective, work together on a quest for new, relevant information, and connect the
views of the group to well-respected, powerful leaders that also support the change.
• The third step of Lewin’s three-step change model is refreezing. This step needs to take
place after the change has been implemented in order for it to be sustained or “stick” over
time. It is high likely that the change will be short lived and the employees will revert to
their old equilibrium (behaviors) if this step is not taken. It is the actual integration of the
new values into the community values and traditions. The purpose of refreezing is to
stabilize the new equilibrium resulting from the change by balancing both the driving and
restraining forces. One action that can be used to implement Lewin’s third step is to
reinforce new patterns and institutionalize them through formal and informal mechanisms
including policies and procedures

Therefore, Lewin’s model illustrates the effects of forces that either promote or inhibit change.
Specifically, driving forces promote change while restraining forces oppose change. Hence,
change will occur when the combined strength of one force is greater than the combined strength
of the opposing set of forces.

20
INTEGRATION AND CHANGE MANAGEMENT

The main goal of companies is to create value. If well managed, mergers help companies to
achieve higher efficiency, productivity, and profit by creating opportunities for growth.
According to a research conducted with the participation of 115 companies around the world,
58% of mergers result in failures. Mergers involve two critical phases that affect the outcome.
Based on researches, 30% of the outcome is affected by activities during the pre combination
phase, while 70% depends on activities during the post merger period.
All merger interventions are complex change initiatives, and post merger integration
activities are key elements for the success of the change.
As in all change management interventions, the challenging dynamics of post merger period
requires a well structured planning. Management should have a clear understanding about the
change, and be prepared for the outcomes.
Companies often ignore the importance of developing a merger integration plan, assuming that
the employees will adapt to change with no preparation. However, employees are directly
affected by the change. Therefore, successful integration requires extensive planning.
The effectiveness of human resources strategies and practices are highly important for the
success of post merger integration phase. The main tasks of human resources strategies are to
communicate change openly, and in a timely manner with all levels of the organization, and to
motivate the members of the organization to support and adopt to change.
Cultural integration activities are also crucial for the success of merger interventions. These
activities mainly involve the assessment of companies’ cultures through questionnaires and
interviews and identify the key areas that will accelerate the integration process.
Creating a trusting environment for employees and customers is another critical factor.
Constructing an environment in which employees and customers feel safe and satisfied help
companies to sustain change and make it part of the corporate structure. During this process, it is
necessary to:

• Manage expectations.
• Communicate decisions with right channels in a timely manner.
• Give consistent messages about strategies to all stakeholders.
• Assign management as change agents.

Post merger integration projects involve three major phases:

1. Identifying organizational strategies,

2. Establishing integration plan, and
3. Implementing plan.

21
MANAGING CHANGE- HP COMPAQ MERGER

The analysis of the HP Compaq is on the basis of four objectives explained above

(i) Formulating the integration logic and performance goals,

(ii) Establishing the integration planning approach,
(iii) Executing operational integration, and
(iv) Executing strategic integration

Introduction

Seldom is the inevitability of the strategic logic of large-scale corporate change immediately
clear to internal and external constituencies and observers. Even more rarely is such strategic
logic turned into effective execution, especially if the change involves the integration of two
large, high technology companies operating in rapidly changing competitive environments. Add
to this that a relatively new outsider is in charge of orchestrating the execution of the acquisition
integration and that she has to overcome active resistance of the major shareholding families of
the founders of the acquiring company. The a priori odds of success seem daunting. HP’s CEO
Carleton S. “Carly” Fiorina faced this situation when she proposed to acquire rival computing
company Compaq in September 2001.

Following the consummation of the merger in May 2002, after a prolonged proxy fight, the
organizational integration of HP and Compaq was initially considered a success, even by
many skeptics, as the company was initially exceeding its goals. By the end of 2004, however,
it had become clear that HP was missing the merger’s longer-term revenue and profit
goals. It was unclear whether this was due to the details of the organizational and cultural
integration taking much longer to be worked out than initially expected, or to the original
strategic assumptions being wrong, or to some combination of both.

In early 2005 the competitive effectiveness of HP’s new corporate strategy was still subject of
debate among analysts and outside observers. The company continued to struggle with some key
strategic issues, especially the development of a world-class direct distribution system to
compete with Dell and the capacity to manage and provide business solutions to global enterprise
accounts to compete with IBM. In February of 2005, concerns on the part of HP’s board of
directors about Fiorina’s leadership style and her ability to get the organization to execute the
new corporate strategy led to her ouster as CEO.

22
Why Did This Happen?

Analysis reveals that effectively managing the strategic integration process was extremely
difficult and suggests several reasons.
• First, the highly urgent short-term goals naturally focused the executive team and the
integration planning team’s attention on the operational integration at the expense of the
strategic integration. It was difficult to shift managers’ attention focused on cost cutting
and value capture to attention to strategic issues, because there was a fear that launching
the strategic integration work would lead people to lose focus on the short-term goals,
which were viewed as absolutely critical given the publicity of the $2.5 billion cost
cutting target.
• Second, the battle fatigue that unavoidably accompanied working through the operational
integration process made simultaneous strategic learning exceedingly difficult. Top and
senior managers executing the operational integration had to manage both the very
challenging integration tasks and had to deliver the expected quarterly financial results
while keeping customers, employees, and other key stakeholders satisfied.
• Third, in part due to a major focus on potential integration risks during the proxy fight,
there was a natural desire on the part of top management to get customers, business
partners, and financial analysts to stop focusing so exclusively on how the merger
integration was going. When the operational integration goals were met, top management
declared victory to the outside world. One unintended consequence of this was a reduced
sense of urgency and focus during the strategic integration process.

As a result, it was hard to get the top team to focus on scanning the changing economic and
competitive environment and to focus on the longer-term strategic initiatives necessary to
achieve the potential of the new company. The resulting less forceful execution of the multi-year
initiatives lead to a weaker feedback loop from strategic integration back to the integration logic

23
and its assumptions about competitive dynamics, which created a vicious circle. In some ways,
these strong forces may have led top management to equate the integration execution challenge
primarily with operational integration. Successful operational integration, however, was
necessary but not sufficient for the company to achieve the new levels of success that were now
expected as a result of the process of formulating the integration logic and the performance
goals. Not fully following through on the difference between operational and strategic
integration led to declaring victory too soon. The vicious circle caused by not executing the
strategic integration process with the required focus and urgency, and thereby lacking an
effective feedback loop to measure progress against the assumptions underlying the integration
logic, caused top management to fail to achieve the full promise of the merger and to miss
projected growth and profit goals. This led to disappointment of external and disillusionment of
internal constituencies.

CHANGE MANAGEMENT AT HP-COMPAQ MERGER

Merger Overview from HR Perspective

• Merger created a $70 billion global technology leader with the industry's most complete set of
IT products and services for both businesses and consumers.

• New HP is the #1 global player in servers, imaging & printing, and access devices (PCs &
hand-held), as well as Top 3 player in IT services, storage and management software.

• Combination furthers each company's commitment to open, market-unifying systems and

architectures and aggressive direct and channel distribution models.

• Combined company is creating substantial shareowner value through significant cost structure
improvements and access to new growth opportunities.

• New HP had operations in more than 160 countries and over 140,000 employees.

HP’s Challenge

• Largest merger in technology history

• Skeptical market.
• Heated proxy battle.
• Weak IT market

24
HP Commitments to its People

• To help HP people share in the company's success, which they make possible.
• To provide job security based on performance.
• To recognize their individual achievements.
• To help them gain a sense of satisfaction and accomplishment from their work.
• Relationships within the company depend upon a spirit of cooperation among both
individuals and groups, and an attitude of trust and understanding on the part of the
managers towards their people. These relationships will be good only if employees have
faith in the motives and integrity of their peers, supervisors and the company itself.
• Job security is an important HP objective ... the company has achieved a steady growth
in employment by consistently developing good new products, and by avoiding the type
of contract business that requires hiring many people, then terminating them when the
contract expires.
• To foster initiative and creativity by allowing the individual great freedom of action in
attaining well-defined objectives.
• Insofar as possible, each individual at each level in the organization should make his or
her own plans to achieve company objectives and goals. After receiving supervisory
approval, each individual should be given a wide degree of freedom to work within the
limitations imposed by these plans, and by our corporate policies.

CRITICAL FACTORS CONSIDERED IMPORTANT FOR CHANGE MANAGEMENT

AT HP

CRITICAL SUCCESS FACTORS SAMPLE ELEMENTS

Well Defined Acquisition Strategy ▪ Reasons for Merger Explained

▪ Degree of Integration Defined
▪ Criticisms Addressed

Clear Product Road Map ▪ Communication of Offerings to

Market Place
▪ Re-alignment of Internal Efforts
▪ Branding Strategy

Unyielding Focus on Customers ▪ Clear Points of Contacts

25
 ▪ Uninterrupted/Attention Support
▪ Maintained Relationships with
Partners/Support.

Synergies and path to realization ▪ Both cost and synergies included

specifically identified
▪ Plans, Accountability and clear
metrics and/ targets assigned to
project level.
▪ Strong Program Management
processes to track/drive results.

Clearly Defined New Corporate Governance ▪ Boards/Executives Agreed to

▪ Organization Structure Defined
▪ Line Management Roles
Determined

Effective Communication to Stakeholders ▪ Communication early and often

▪ Reaches all stake holders
(employees, shareholders, analysts,
customers, partners, et al
▪ Clear consistent message.

26
Step 1: Building the Integration Team

Recognition of Cultural Differences ▪ Nature of Cultural Differences

Identified
▪ Proactive Steps Taken to identify
Gaps
▪ “Rules of The Road Interaction
Defined”

Speed/Decisiveness ▪ Minimize Periods of Uncertainty

▪ Complete Planning prior to close
▪ Attack synergies from Day one

• Post-merger integration (PMI) leadership and group management named at time of

announcement on September 4, 2001.

• Additional “new HP” senior leaders announced October 12, 2001.

• Dedicated, full-time PMI leads from both HP and Compaq directing planning for businesses,
functions and horizontal processes since September.
− Linked to “new HP” senior management team.

• World-class advisors engaged.

27
 Central PMO
Post Nerve Center
Integration
Team PMI Team Fast Track Center

PMO PMO PMO PMO PMO PMO PMO

Program
Teams

Project PT PT PT PT PT PT PT
Teams

HP and Compaq set up an ‘Integration Office’ (IO) of 600 people from both companies to
oversee the merger process. Teams within the IO deal with IT systems, finance and human
resources as well as ‘fuzzier’ issues, such as the integration of the two companies’ knowledge
management systems. At each stage, the teams evaluated which company’s systems worked best
and these were then adopted for the merged entity. The IO has also spent a lot of time dealing
with the cultural integration of the new company, with more than 150 executives and 35 focus
groups of employees being involved in trying to thrash out a joint culture from two cultures that
were quite distinct (Holland, 2002; The Economist, 2002).

There were certainly some major cultural integration issues to be overcome. In contrast to the
more paternalistic, ‘family’ culture of HP, Compaq’s culture was more difficult to pin down,
being described by employees in the early 1990s as ‘fast moving’, ‘entrepreneurial’, ‘sales
oriented’, ‘aggressive’, ‘pragmatic’, and ‘quick’, but, by the end of that decade as ‘moribund’
and ‘extinct’.

28
During this time, the company had also experienced several rounds of downsizing under Michael
Capellas, and staff morale was low (Sakar, 2002). The key to a successful merger would be to
integrate the faster-moving, aggressive sales focus of Compaq’s culture, with HP’s integrity,
innovative capabilities and experience, as well as aligning internal systems, HR policies and
operational procedures. Consequently, this was one of the most exhaustively planned mergers in
corporate history. This desire to get this right was driven in large measure by Mike Capella’s
bitter memories of the problems Compaq had when it took over DEC in the early 1990s, and
according to one commentator at the time, ‘the employees in the two companies really don’t like
each other that much’ (Gottliebsen, 2002).

An anonymous Compaq employee commented that, ‘It will be two years of guerilla
warfare’.

The merger led immediately to the loss of some 20,000 jobs worldwide and about 600 in
Australia (Hayes, 2002 b & c). A new Australian operation was formed out of HP and Compaq
employees into a new team selected by Fiorina and the new boss of HP-South Pacific, Paul
Bradling (Hayes, 2002a).

During 2002, it was reported that morale was at HP was at ‘an all time low’ (Lashinsky, 2002:
17). Fiorina’s personal standing also plummeted to the point where some HP employees in the
USA began referring to her as, ‘The Armani Witch’, who never mixed with or dined with her
employees in the staff canteen as her predecessors often did (Dalton, 2002). In fact, Fiorina’s
leadership style, and her tetchy relationships with the families of HP’s founders, was a major
issue throughout her tenure as CEO. On the positive side, she was seen as an excellent formal
communicator, determined, confident, decisive, strategic and charismatic. She also clearly
understood the need to somehow transform HP’s stagnant culture; an incredibly difficult exercise
given the strong emotional and psychological commitment that so many employees and the
Hewlett/Packard families had to a culture that had served the company so well for such a long
period of time. On the negative side, she was regarded by many people as remote, aloof and
autocratic (Mehta, 2003).
Negative sentiments about Fiorina and the company among both employees and financial
commentators were compounded when Capellas announced his resignation from HP in
November 2002 to take over at the helm of the disgraced telecommunications’ company,
Worldcom. At the time, this company was mired in the biggest bankruptcy in American
corporate history and had laid off 17000 employees. While HP tried to put a positive spin on his
departure, the company’s share price immediately plunged 10% to $US14.99. Cynicism in the
company reached new heights when it was revealed that Capellas was to receive a $US14.4
million ‘bonus payment’. He would not have been ineligible for this had he quit HP more than a
year after the merger (Bergstein, 2003).

29
CULTURAL INTEGRATIONAL TOOL- LAUNCH AND LEARN

There were significant cultural differences between HP and Compaq and the integration required
a strong, multi year focus on establishing the new culture. Susan D. Bowick, HP’s executive vice
president of Human Resources and Workforce Development, and a 25-year veteran of HP
pointed said that to complement the Adopt-and-Go approach the Clean Teams also developed a
‘Launch-and-Learn’ mentality. This was a way of taking action that was fast and good enough.
None of this was easy, and the so-called “soft” social issues that had to be handled in order to
create a new culture would take a long time to get right, or at least good enough, which is why
Bowick was fond of saying, “The soft stuff is the hard stuff.

Step 2: New HP Vision and Merger Integration Team Purpose

NEW HP VISION

We create a great new company that is a leader in our chosen fields

and is positioned to be the leading overall IT solutions provider

Merger Integration Team Purpose

• Provide effective overall leadership for the planning and execution of the integration of HP and
Compaq
• Assure effective linkages with the business line managers, functions, regions, the integration
steering committee and HP’s Executive Council.
• Assure that the value captured is maximized and exceeds public expectations
• Assure the new HP is set up to achieve long-term growth objectives

Guidelines for the Merger Integration Team

• Start with the customer experience; retain the highest level of customer satisfaction.
• Name executive leaders early and link tightly into planning.
• Ensure that structure follows strategy
• Make decisions quick and make them stick
• Cultural Integrational Tool- “Adopt and go”
• Clarify roles and ensure shared accountability
• Create dedicated integration teams

30
• Address cultural similarities and differences
• Rigorously measure, manage and communicate integration progress, wins, issues and
opportunities

SHARPLY FOCUS ON VALUE CREATION PRE MERGER INTEGRATION TEAM

STRUCTURE
Central Program Management Office (cPMO)

Imaging & Personal Enterprise Services

Printing Systems Group Systems Group
Systems Group

Supply Chain
Customer To Cash Team
Information Technology
Finance
Human Resources (Including Organizational Design & Structure)
Brand Architecture
Communications-Organization
HP Labs
CTO
e-inclusion & Community Engagement
.com/e-commerce
Government Affairs
Culture
Closing/Anti-trust
Global Functions Infrastructure
Communications- Merger Communication & Messaging
Shared go to Market
Value Capture
TABLE 3- INTEGRATION PLANNING FRAMEWORK

31
 Strategy
▪ Strategy Priorities
▪ Go To Market Strategy
▪ Portfolio
▪ Channel strategy

Measures Structure &

• Customer Process
Satisfaction ▪ Organization
Structure
• Financial
▪ Systems &
• Employee
Processes
Satisfaction
▪ Information
• Operational Flows &
Excellence Decision
• Recognitions & Making
Reward Process
Systems ▪ Financial &
People & Culture
Information
• One Common Culture Systems
• Retention of Top Talent Architecture
• New Competencies For our
People
• Roles & Responsibilities

32
CULTURAL INTEGRATION GOALS

To build a strong, new culture that:

• Is clearly defined and broadly understood
• Reflects the business strategy and brand
• Supports best-in-class performance with customers, partners, shareowners and employees
• Produces alignment, commitment and excitement
• Establishes a competitive advantage
• Is reflected in the communications and actions of core leaders

Activities
– Formal work-stream status
– Culture due diligence (CDD) investigation planned and communicated
– CDD process included interviews, focus groups and survey
– Culture integration team met with combined Executive Council
– Reviewed approach to culture integration
– Identified culture cornerstones
– Explored archival material
– Engaged broader employee coalition
– Connected with brand and communication work
– Fast Start workshops initiated

Anatomy of Cultural Due Diligence

• Coverage: 22 countries
• Timeframe: October ― December 2001
• 127 in-depth executive interviews
• 138 focus groups with managers and individual contributors, spanning 1,500 employees
• Focus of inquiry
– HP on HP
– Compaq on Compaq
– Views of other company
• Computer-assisted content analysis of interview data
• Report to executive team: Christmas week

33
 SAMPLE INPUT:

• New Co-Executive Culture Session

• HP Historical
• CPQ Historical
• New HP Brand
• Competitive Environment

STRATEGY STRUCTURE
&
PROCESSES

CORPORATE OBJECTIVES

VALUES

METRIC &
BEHAVIOR REWARDS

POLICIES &
PRACTICES

SAMPLE OUTPUT
• Vision & Governance of the Company
• Balance Scorecard & Pay Metrics
• Leadership Selection
• Formation & Start Up of New Teams
• Customer(Quality Initiatives)
• Fast Track Program

34
Day 1 Preparation

• Focus solely on launch day

• Gain agreement on day 1 requirements across functions/activities
• Make adopt-and-go decisions
• Develop conceptual/ physical models
• Prepare
• Test
• Review readiness
• Establish command centers

Measuring Success at Launch-“We Were Ready”

• 170 client business managers, 25 partner business managers and 30 retail account managers
trained and announced.
• 800 senior managers named, including region and country leads
• Product roadmaps and transition plans available
• Customer and partner outreach and training programs initiated
• 1100 customers contacted to date
• 23 top US/EMEA retail accounts contacted on day 1
• All partners given access to on-line sales training
• Sales readiness training website received 40,000 hits in the first hour of launch and 100,000
hits by end of day.
• 20,000 presales and sales call center agents and 8000 consumer support users’ trained and
ready day 1.
• Channel strategy in place and communicated
• Work force restructuring initiated.

Launch Report-Infrastructure Delivers

• hp.com (online store) open for business

• @hp employee portal accessible to all employees
• Company networks connected at key strategic locations
• Active directory and enterprise directory synchronized
• E-mail systems interconnected
• All external call centers with HP greeting on day 1
• Employee names with hp.com suffix for external email (both in-bound and out-bound)
• Day 1 infrastructure management environment
– Monitoring and reporting process
– Escalation and incident management process

35
– Command center for 30 days

Remain Sharply Focused on Value Creation-Post Close Merger Integration Structure

STEERING COMMITEE

CENTRAL MERGER
INTEGRATION OFFICE

GROUPS REGIONS WORLDWIDE CORPORATE

(PMI) /COUNTRIES OPERATIONS FUNCTIONS
(PMI) (PMI) (PMI)

Integration Plan of Record

• Managing integration progress through a rigorous process.

• Tracking all projects and their milestones to ensure we meet synergy goals on schedule
• Ensuring tie off with value capture, restructuring and financial planning targets
• Determining accountability owner for each project
• Driving results through merger integration office focus on cross-organizational dependencies,
pan-HP view.

Meeting with the Steering Committee

While the Clean Team operated in metaphorically clean rooms apart from the day-to-day
distractions of operating a company, they were closely linked to the Steering Committee. Fiorina
had limited the Steering Committee to a small group of senior executives who could rapidly
make decisions and have those decisions be completely unquestioned during execution. The

36
 committee consisted of Carly Fiorina, Webb McKinney, Jeff Clarke, Susan Bowick, Bob
Wayman, and Bob Napier, the chief information officer.
Clarke described how each Monday the teams would go through a very rigorous process with the
merger integration program office, (reporting to McKinney and Clark). They would track the
status of each project by using the color codes red, green, yellow, just like a stoplight. Items on
track were marked with yellow, items that were finished or well ahead of plan were marked
green, and items that were falling behind or otherwise failing were marked red. Since they had to
track over 10,000 Adopt-and- Go decisions, the simplicity and rigor of that red, green, yellow
tracking process was critical. On Tuesdays, teams prepared for an all-day Wednesday integration
meeting (chaired by Clark and McKinney). During these meetings, teams made
recommendations about integration decisions. Clark and McKinney would consider the
recommendations and often sent them back to the teams for more work. Members of the teams
would sometimes debate and come to a consensus recommendation, or a consensus position of
agreeing to disagree. McKinney and Clark then made the Adopt-and-Go decision. On Thursdays,
Carly held her half-day Steering Committee meeting. Clark and McKinney were on the agendas
for these meetings. They would present or bring others in to present and make recommendations
about important status items of the merger and different decisions, such as the merger product
roadmaps, management decisions, restructuring plans, consolidation plans, etc.

TABLE 6 - Value Capturing Planning Framework

Integration Planning Implementation-Post Closing

Value capture team Corporate planning

• Drive overall top-down corporate – Monitors and tracks revenue, cost

planning process to achieve full and synergy capture over time
value of the merger by 2004 Groups
– Provides top-down baseline, – Responsible for revenue, owned
forecasts, synergy targets cost and synergy targets
– Consolidates integration team – Execute on synergy capture for
submissions day-to-day operations

Integration teams Functions

– Verify and refine top-down – Execute on synergy capture on
baseline, forecasts and synergy owned costs for day-to-day
targets with bottom-up data. operations

Management compensation tied to

achieving value capture goals

INTEGRATION STARTS
KICK OF GROUP & FUNCTIONAL TEAMS
\
TIME

DEAL
CLOSE 37
HP’s PEOPLE STRATEGY AFTER THE MERGER-MANAGING CULTURAL
CHANGE

1. Need for Change Management Strategy

Change is an opportunity that you can influence, and when managed correctly it will
energize an organization.

a) Why manage Change

• Significant workplace change can defocus an organization

Consistently practiced change management techniques will:
• anticipate the phases of emotions
• address the issues
• maintain strong communication efforts
• provide the catalyst to move people through change without losing focus and
productivity

b) Challenge for HR

Develop a strategy to maintain and surpass the pre-merger standards of both companies
while managing massive cultural change.

5 STAGES OF CHANGE MANAGEMENT

Stage 1-Awareness

The HP People Strategy is aligned to their corporate objectives and values and designed to keep
employee commitment, especially in this time of change.

HP’s People Strategy enabled HR to:

• Speed and smooth the process of change.

• Move through the initial change period
• Set a culture of high performance right from the start.

38
Stage 2-Encourage face-to-face interaction
– Fast Start sessions

Fast Start and Fast Value

To help speed the cultural integration of the two companies, HP included a Cultural Integration
Team (CIT) within the overall Clean Team. The CIT launched “Fast Start,” a program of merger
integration workshops led by facilitators and held at the level of individual employee teams,
designed to help employees get to know each other, understand and align themselves with the
company’s strategy and identify and deal with “hot spots”—likely sources of contention that
employees would face as HP got down to the job of integrating Compaq and HP together. Every
HP employee was required to attend a Fast Start workshop. One product of the Fast Start effort
was the “Fast Value” program, one-to two-day focused sessions designed to help employees
learn to work horizontally across the post-merger HP.

Stage 3-Be pragmatic

– “Adopt and go” methodology

Adopt-and-Go
The Clean Team would do the research necessary to make recommendations about which
products to keep and which to eliminate. These were determined in a “Product Roadmap,” a
master plan of which overlapping product lines from HP or Compaq would be kept and which
would be dropped. It was a huge task, but one they were expected to perform expeditiously.
According to Jeff Clark, instead of trying to develop “best practices” by combining the best
aspects offered by the respective assets of both companies, the Clean Team chose the better of
what was currently used by HP and Compaq, made that the winner as fast as possible, and
moved on to the next decision. The people whose jobs were eliminated when their products were
dropped knew that they could look for other jobs in the company. Adopt-and-Go improved the
focus of 99 percent of the combined HP-Compaq employees who worked outside of the Clean
Teams. They knew that there would be no debate over the clean room decisions. Their job was to
execute the clean room decisions. And that allowed the new company to get enormous speed in
the first six months, which obviously led to good financial performance. The Adopt-and-Go
process stopped the politicking, it allowed for speed of execution and that was the pivotal part of
the new company’s ability to accelerate the savings.

39
Stage 4- Mobilize: What Is High Performance

The high performance culture accelerates future growth by:

• Maximizing organizational/individual productivity and capability
• Aligning individual performance with company and business objectives
• Using rewards as the motivator
• Developing people through effective coaching, performance feedback and development
planning.

40
BALANCE SCORECARD, HP VALUES ANDSUPPORTING BEHAVIORS

4 1

3
2

41
Stage 5: Reinforce and Arrive

Ensuring the Best Environment

1. Re-evaluated personal conduct policies and practices
2. Objectively examined behaviors and actions within HP
3. Created a new set of standards that define what we stand for today, owned by all HP
employees.
4. Not an HR program—a broad-based, company-wide initiative
5. Long-term solution
6. Personal accountability and ownership

42
IMPLICATIONS AND CONCLUSION - HP COMPAQ

Analysis of the strategic dynamics of the HP-Compaq acquisition integration in terms of four key
processes and feedback loops between them presents a mixed story of significant progress but
also of key unresolved issues. It was found that the process of formulating the integration logic
and performance goals was generally well carried out.

The pre-clearance process of establishing the integration planning approach and the integration
tools developed for that purpose were first rate and recognized as such by many observers. The
operational integration process similarly was executed quite well and beat the short-term goals
set for the merger.

With the benefit of hindsight, however, it was found that the feedback loop between the
operational integration process and the process of formulating the performance goals could have
been stronger. While understandable in light of the heavy demands on everybody involved
during the operational integration process, a weak feedback loop prevented top management
from timely revisiting the initial assumptions on which the – perhaps too explicitly stated –
longer-term performance goals were based, and from testing the new corporate strategy with key
customers.

Because the strategic integration process was not clearly recognized as a distinct one by top
management, we found an even weaker feedback loop back to the longer-term performance
goals, as well as a failure to pay sustained attention to executing the multi-year strategic
activities necessary to meet the longer-term goals.

Victory was claimed too soon, and the opportunity costs of the acquisition integration not fully
appreciated. Viewing the execution of the acquisition integration process primarily in terms of
the operational integration process prevented top management from clearly seeing the need to
augment its own bandwidth. Yet, while the exact nature of the integration team changes as the
integration process progresses and the heavy team structures of the integration planning and
operational integration were perhaps not necessary for the strategic integration process, the
opportunity to increase top management’s bandwidth resided in the capabilities for large-scale
change developed by the integration planning team. These should have been kept in place for the
time necessary to execute the strategic integration process.

By splitting part of the integration team and focusing it on starting to execute the key multi-year
initiatives the feedback loop necessary to keep the acquisition integration ahead of environmental
change would have been much stronger, raising top management’s continued alertness to the
rapidly evolving competitive challenges. This, in turn, might also have prevented top

43
management from underestimating the time and effort required during the strategic integration
process to execute on the strategic initiatives necessary to compete effectively and
simultaneously on multiple fronts against world-class competitors with fundamentally different
strategies and capabilities.

Highlighting the importance of the four processes involved in acquisition integration, the role of
feed-back loops in managing the strategic dynamics of acquisition integration and the role of the
integration planning team, as well as providing insight in why intelligent and hard driving top
managers may fail to pay enough attention long enough to the strategic integration process offers
potentially useful guidance for the top managements and boards of directors of other companies
contemplating major acquisitions and the management of their strategic dynamics.

EVALUATION OF THE CHANGE MANAGEMENT AT HP COMPAQ

Merging two workforces, cultures and product lines, spanning printers and storage devices to
notebook, handheld and desktop PCs, is never easy, but the global scale of the HP/Compaq
merger made it a mammoth task. HP had 88,000 employees and Compaq 65,000, all spread
across the globe. According to Mike Taylor, HR director for HP UK & Ireland states, “All
organisations know that the success of a merger is down to the people-you have to get your
people focused in the right way. HR’s role remains pivotal for the success of the merger, not
much could have happened without the intervention of HR.”

A huge amount of core HR work was planned and executed. For this, Clean Room was
developed. Here, a virtual team was assembled from both companies to plan for the merger. The
team adopted an HR strategy and an HR plan that tackled these issues one by one. This included
harmonizing terms and conditions and implementing new job architecture and a new
performance-management system right across the organization. The need to focus employees
meant it was vital to have the necessary communication and information channels in place.
Traditional media such as posters and leaflets and regular briefings from senior executives did
their part. But the most effective delivery mechanism was its intranet employee portal, @HP.
The self-service HR portal, which was originally rolled out in 2000 and has around 141,000
users, received two million hits on day one of the merger. It enabled HP to disseminate a mass of
information during the run-up to the merger which included the rationale behind the move and
the role employees could play within the new organization. It included training materials
which enabled sales people to go out and represent the company to customers in an appropriate
way.

The portal was a 24/7 tool which helped prepare for the merger, but the company put a raft of
other initiatives in place; the most significant of these from a people perspective was its Fast
Start seminars. At the planning phase, the Clean Room team constructed training modules that
managers could use to get their newly appointed team up to speed on the company.

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The Fast Start sessions were further followed up with a Fast Forward programme to have a
smooth transition into the final phases. It also strengthened the culture. These programmes were
developed within HR to help organization meet its business objectives. It was ensured that HP
can take advantage of the technology to move up the value chain and HR was developed as
genuine business partners. After the merger, HP employees also wanted to know about the
decision making process and the components of product lines and how they would be supported.
The seminars worked at a strategic level but were also tactical to get people thinking about how
they were going to operate.

One of the major challenges was to ensure the best of both side’s processes and practices were
adopted, with speed and agility among the new company’s core values, HP used an “Adopt and
Go” approach when it came to deciding on processes which meant that instead of saying ‘those
processes could be improved let’s design a new one’, it would have been time consuming so they
took the best from whichever world and went with it.

Now HP is a complete mix of pre-merger HP and pre-merger Compaq built in and integrated
across the organization.

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BIBLIOGRAPHY

• https://www.crn.com/news/mobility/231601009/the-hp-compaq-merger-partners-reflect-
10-years-later.htm
• https://en.wikipedia.org/wiki/Compaq
• https://en.wikipedia.org/wiki/Hewlett-Packard
• https://ezinearticles.com/?Mergers-and-Acquisition---A-Case-Study-and-Analysis-of-HP-
Compaq-Merger&id=4472125
• https://timesofindia.indiatimes.com/business/india-business/MAIT-dicounts-impact-of-
HP-Compaq-merger/articleshow/4173677.cm

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