MGTO 630B Managing People Globally for Competitive Advantage

1. MGTO 630BManaging People Globally for Competitive Advantage Mergers & Acquisitions Saturday, March 8, 2003

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

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

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

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

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

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

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

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

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

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

12. AICC case • Does national culture and/or organizational culture influence what happened at AICC? What other factors contributed to the problems? • What are your recommendations for fixing the problems? Country rank (out of 50 for all except LTO (23)) in brackets

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

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

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

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

17. Turnover Rate of Executives

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

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

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

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

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

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