New Priorities in Fusing Talents of Merging Firms

The most thoughtful acquirers are increasingly leveraging the skills of their human resources professionals to make deals work. HR people are brought into the process at the earliest time to assure that cultures, talents, and other critical people issues fit with the strategies and objectives of the transaction. Five top-line HR pros discuss the evolution of their roles in M&aA. McKay: The people part of mergers and acquisitions often has been cited as a major source of deal problems, and there is no clear definition of what is meant by the term “people.” How would you define it, given that many involved in a deal are not people experts? Cook: From our perspective, the people part plays across every aspect of the deal, starting very early in terms of how you identify and approach the target all the way through due diligence, negotiations, and so on. It starts with the relationship you establish with the leadership team on the other side and their perceptions of how you will treat employees. It continues with the relationships you establish with employees once the deal is announced and through the post-closing integration period. Hemsen: I would add that one component of the people issue is the employees who are in the corporation, specifically in situations where the acquired company will be included as part of the new business portfolio. It is important to figure out what will happen to our own people as well as to the people who are being acquired. The human resources component starts at the very beginning of the process. It entails not only the installation of people but also how you treat them afterward. If you do something in one deal, it is immediately known in the marketplace. Otieno: I agree, and would add the issue of actually determining the people cost in addition to the cultural fit overall, as well as the fit of individuals currently in the company with the individuals being acquired. I would echo that the actual people cost includes the initial aspects of the transaction along with everything after that. Lammel: When we think about the people aspects of a merger or acquisition, we organize our thoughts along four lines: talent management, compensation and benefits, culture, and communication. Included in talent management is the organization of the new entity and how it fits in your organization, including all the job moves that are going to occur, how you are going to handle redundancies, how you will identify key people, and how you transfer knowledge. The compensation and benefits part is self-evident – understanding the compensation and benefits philosophies of the acquired company then determining how to bring them into the Alcoa structure. Culture is an aspect that we focus on. We define culture as how you do work and how we do work. Assessing the culture and understanding the differences and whether they will impact our ability to obtain our business goals are part of what we look at. And because this is really a big change in management initiative, communication is key. It includes identifying your key stakeholders and getting the right messages to them. Constable: The people aspect involves all people at both the acquirer and the target and involves all aspects of things pertaining to both sets of employees. You should never forget the impact on your own employees. That is very, very critical. McKay: What are the top people issues in regard to the three basic elements of a deal – strategic fit confirmation, the transaction itself, and integration? Hemsen: The most complicated is integration planning and execution. The preliminary pieces – the strategic fit and up-front analysis – are very heavily financially and business strategy-driven. The transaction component includes analysis of the human elements such as the behaviors and processes that are resident in the target company. Once the deal closes, you focus on getting the people in and getting them through the integration stage. That includes purely tactical integration, such as the administrative aspects as well as education of people so they can figure out what the nature of the programs in their new company is. Beyond that, you need to accelerate the change from what the employees were to what they will be, to embrace them so they shift from referring to themselves as former Lotus or Tivoli employees, for example, to calling themselves IBM employees. They shouldn’t think of themselves as a hyphenated employee. We want them to transition to IBMers. Otieno: I would change the order, if not the issues. I think that in the strategic set the issues of integration are very important and the issues of people need to be identified as you are looking at the strategic fit. The people issues need to be part and parcel of the strategic fit just as much as the financial and the product assessment. It actually makes it easier to do the integration downstream if that has been identified up front. Similarly, in the transaction stage, the people cost has to be incorporated as part of due diligence. Because that also fits in with strategic fit, it needs to be determined both during the transaction phase and prior to the transaction phase. That makes it easier to handle in integration once you have that understanding. At Hewlett-Packard, we are not as good as we would like to be on the last stage. We are very good at strategic fit. Historically, we have not been good at integration. However, with the Compaq merger, we have greatly improved our integration capabilities. Maybe other companies do it better and have better track records. Historically, we tended to have individuals doing integration as a pet project. Now, we have dedicated resources to ensure successful integration after the close of the deal. Constable: On the transaction side, the broad category of information flow internally and externally is very, very important. It can be problematic if there isn’t an information flow back and forth among all of the parties involved, including the consultants. The flow will allow you to get at something that I think is important – unrecognized liabilities, or things that you didn’t know about when you were doing the strategy stage. They can change the valuation of the company you are trying to buy. And they can have an effect on the strategy that you want to take forward. Lammel: At Alcoa, HR’s involvement in the m&a area at one time just focused on integration, and HR sometimes came in very late in the process. So we have been working with our HR communities to help them understand that they need to be involved in the process as early as possible. They need to understand what it is we are buying and why we are buying it. That will help them to prioritize the work that they have to do and to establish metrics to measure the work and make sure what they are doing is supporting the business drivers. Cook: I agree that a critical factor here is establishing a partnership between the business development organization and HR – where HR is, in essence, part of the business development deal team. Our experience suggests that the business development team is looking for HR to focus on solutions, help assess synergy opportunities realistically, and take responsibility for due diligence on what I call the “HR balance sheet and operating statement” items. Finally, the business development team wants us in our role as HR professionals to be advocates for the people issues from the very beginning and straight through the deal process. Hemsen: We sit physically in the business development organization apart from HR. Dave Johnson, VP of Corporate Development, the head of m&a at IBM, is clear, and inclined to reiterate, that we are part of his extended team. We work with them hand in glove right from the very beginning. I didn’t mean to minimize the two preliminary stages. I just thought that what we were finding is that we are probably better at having the mechanics down for steps one and steps two as opposed to step three. I think that even though we have done some reasonable work on it, there is still a lot of room for improvement in that aspect of acquisitions. McKay: What role should the HR function play in a deal? When should they be involved and what skills do they need to have to be involved in it? Cook: We look at HR’s role as being global. We may be located in the U.S. but we have to play this role across all the countries involved in a deal in five key areas: synergy, due diligence, contracts, staffing, and integration. Synergy is working with the deal team to understand the business integration objectives. How are we going to operate this business going forward? What are the synergies? Is it to- line growth? Is it cost reductions? Part of this effort is understanding the steps required to achieve the targeted financial returns and assessing the people implications within the acquired and the existing businesses. What are the restructuring costs? The benefits of it? The timing? Who is impacted, where, and how? In essence, are the financial returns that the deal is premised on realistic from a people perspective? Another aspect is due diligence, which we look at in terms of the balance sheet and operating statement from an HR risk perspective. What are the HR-related liabilities in terms of unfunded programs, change-in-control provisions, or employment agreements and do they involve unions or work councils and those sorts of things? In what way would we change pay and benefit programs going forward? Then we must make sure all of this information is reflected in the pro forma financial statements to evaluate how this deal will pay off from an ROI point of view. Still another aspect is the contract itself. We feel that we own the “HR Provisions” within the purchase agreement and take full responsibility for that. Assessing the organization and staffing requirements is another critical area. We try to appoint an integration leader early in the deal process – someone who can work through and own it – not just in due diligence, but through integration. We also assess the leadership team, their fit, and whether we need retention strategies. The point that everyone has made is that integration is the hardest part. But we need to develop a full global integration plan that gets beyond headquarters, beyond the home country – across the entire organization. You make sure you are covering all aspects of the company and all disciplines, whether they be cultural values, labor relations, compensation programs, employee benefits, employment practices, and so on. Constable: It is very important for HR to gain the confidence and the acceptance of both the deal champion and the deal team so that they are happy and really want you at the table. The more that you can be at the table, the more you can have input and get the information flow that you need, and, hence, deal with all of the issues. In all of the organizations represented here, the deal team accepts HR. But there are organizations where that doesn’t happen. HR people should really work to make sure that does happen for them. Hemsen: We need to be there from the very beginning, which IBM HR is. We do use an executive sponsor who is responsible for the transaction through the integration phase. Part of that involves metrics for the human elements of the company once it has come on board. We continue to track and make sure that they are meeting financial objectives and that we don’t have a large attrition from the organization that we just recently acquired. The care and feeding of these people after closing is very important. Otieno: At Hewlett-Packard, HR is also at the table with the deal team. In fact, there are aspects of the deal that HR is actually responsible for in the negotiation process, particularly with respect to contracts and labor issues, particularly in Europe, dealing with the workers and negotiating through those. The HR skill sets needed at the table are a little bit different than what most of us tend to think of as traditional HR types of skills. HR individuals that are actually doing deals tend to be much more differentiated in the sense that they have a very strong financial background and very strong business acumen. They understand product life cycles and they understand the dynamics of running a business from manufacturing through the sales side of the house. They are expected to sit with the general manager at the table, work through all of those issues, and make a contribution. The skills are in addition to the obvious addressing of people-related issues and being an advocate for the people-related issues. The reason we are at the table is that we can understand the business aspect of it and actually determine whether this is, from a holistic point of view, a good deal or a bad deal. We have input in shaping what the deal should be or whether we should pursue it at all from a HR standpoint. McKay: As a consultant working in this industry, I see that the HR people who can’t do it well are those who have not been able to get the confidence of the deal team or the business developers. The reason they haven’t got the confidence of those people is because of a lack of financial skills and the inability to understand where the business is going so that they know how to make a contribution in terms of what is important for a particular deal and what is not. M&A: Have any of you ever been in a position where you have had influence and perhaps persuaded people not to go through with a deal based on your perspective? Otieno: IBM went through with the PWC Consulting acquisition, which we considered. It was all about people. In fact, the deal itself from our perspective was about HR because at the end of the day you are dealing with partners. At the end of the day what drove our decision regarding the PWC deal was indeed the HR-related aspects of it. That basically was a deal breaker. Obviously, it would translate into price at the end, but for the most part, we influenced the decision of whether to proceed. Cook: We sometimes look at it as there being three elements to a deal. There’s the strategy in terms of whether this business fits, the people aspects, and the financials. The people aspects weigh in at a full third. In many cases, one of our goals is to influence and shape deals so they can be done even when we, on an initial basis, see some issues ahead. That is part of the business development/HR partnership that I talked about earlier. It also relates to the skills needed in this HR role – the point that James made earlier about having business acumen, a financial background, and a thorough understanding of the HR disciplines and issues – and then bringing those three areas together as you perform your role in a particular transaction. Constable: The discovery and inability to get a handle on the size of unfunded liabilities can have a dramatic effect on the deal. That is especially the case when you are working with elements overseas. Because the information flow isn’t there, there is a language barrier, and a distance barrier, maybe you just can’t get a handle on it. Take Germany, for example. You know there is going to be an unfunded liability because they typically don’t fund. If you can’t get a handle on that, it could mean that you are taking on the world and not knowing about it, and that can dramatically affect the economics of the deal immediately. Because most of the deal team tends to be finance people, they are very open to listening to that immediately. McKay: In due diligence and contract negotiations, what people elements should be investigated as they are reflected in the financial statements? Lammel: We basically focus on the fact that we have to identify the significant risks and liabilities, and those are often related to retirement plans, OPEB kinds of issues in the U.S., litigation risks, and evidence of employee relations problems. Then you have issues that I call the “springing liabilities,” or liabilities that are not on the balance sheet currently but that are going to occur as a result of the transaction. Those could be golden parachutes, funding of rabbi trusts, retention transaction bonuses, very significant supplemental executive retirement plans, and those kinds of things. So we focus on all those sorts of financials as well as on basic information that is important to the integration. Even as you are doing your diligence you are beginning to plan your integration. All of the demographic information, what the total compensation programs look like, what the union contracts look like, and what the organization looks like represent good information that will help you to plan your integration. Hemsen: One of the things that you have to be aware of is that you don’t always get as much good information internationally as you can domestically. I just attended a conference and heard about a company that acquired a plant in China and later discovered that they wound up owning half the town. There are a lot of unrecorded items that could pop up in other countries because their methodologies of recording and reporting things are not nearly as rigorous as what we require domestically. A lot may be done through relationships as opposed to contracts and documentation. McKay: If you were to state the top three problem countries, what would they be? Otieno: From my experience, we tend to have great difficulty in France, the U.K., and The Netherlands. In all of the other countries, for the most part, we are able to work things through, even in China. Constable: I think that Germany is a tremendous problem. Large, unfunded liabilities make it very hard to get a handle on them. I once dealt with another American company to try to get a handle on a plant we were buying. The bankers refused to acknowledge that an FAS 87 report might be needed, even though it was against the law not to have one because it was an American company. That is just an example about Germany. I think France is also a problem. I think that some of the emerging Asian countries are less of a problem because they tend to be a lot smaller. What you are buying tends to be a lot smaller. In Pakistan you might be getting 20 employees with proportionately high liabilities but it makes no impact on your deal cost if you are picking some of those up. Spain is a problem, too, because you can get some acquired rights issues. Your local staff might know about them but if your deal team isn’t experienced enough, they may just forget to even inquire about these issues, which include lay-off costs. In some countries, they amount to three months pay. If you have 500 employees, that really adds up quickly. Cook: I don’t see that any particular country itself is a problem. But I think we are all faced with what I call the “home country disadvantage.” Regardless of where the HR professionals are located, they are familiar with their home country. For us, it is the U.S. But if the deal is done in Europe, you may have a person who is familiar with their country and one or two others. But many deals we work on cut across 10, 15, even 25 countries or more. Second, I think you have to assess post-employment liabilities in whatever form that they take, whether they are funded or unfunded pension plans or other liabilities that arise out of employment termination. You may approach a target company that is accounting for these obligations based on local accounting practices that fall far short of the GAAP accounting required under the FAS 87 or FAS 106 standards. A third area would be in restructuring. You just can’t do it as quickly and at the same cost in some countries that you might do it in the United States. You have to be realistic about what it’s going to take to get there. That doesn’t mean that you don’t do the deal, although it can be a problematic issue. It is just that you have to assess it realistically in the context of the actions you intend to take in that country, the costs involved, and so on. McKay: We constantly have to tell clients that the U.S. model and the speed that U.S. companies expect to capture synergies through work force reductions doesn’t apply in Europe. That is where understanding the timing process and cost is so valuable because those figures have been put in the expected synergies, and companies are then faced with a challenge of “let’s achieve these synergies no matter what.” That puts tremendous pressure on the local business unit, which then starts complaining about these things. So that is a difference on the valuation models. The second thing to place this in context is that when European multinationals buy into the States there are two things that they invariably don’t understand. One is the magnitude of the executive change-in-control figures. Second is the cost of medical care for companies that you are buying. That relates to a kind of home country mentality. They are not used to those things in their home countries so they really struggle with them when they come to the U.S. environment. Constable: I would add something on the valuation models. Typically, the more junior members of your deal teams are not going to be that familiar with pension accounting, and that can be a problem. They are fully versed in NPV and the rest of it. But when it gets down to the pension stuff, they’ll ask, “What is PBO?” I have had that question. I am sure we have all had that question. So I would add that there can be another financial modeling problem. Hemsen: I think the European Union has some generic issues, which were already mentioned. What we found with the Pricewaterhouse deal is that it was functioning in 52 different countries throughout the world and we didn’t have any real presence in a number of nations in Eastern Europe and Africa. So that was difficult because it became a point of education. I think the most difficult countries to get into are probably the ones that are just coming on-line, and we may find more dealings in Eastern Europe and in Africa and in the Asia-Pacific area. We mentioned the obvious ones: France, U.K., and Germany because those are the ones we are accustomed to dealing with a lot. But I think that as time goes on we will find more of us marching to Asia-Pacific and encountering issues that we are not currently experiencing. McKay: What role do you play in contributing to the acquisition agreement? Cook: We would say that we own it. That means working with the deal attorneys and the business development team to craft the reps and warranties and address the employee matters section that will describe the commitments you are making to provide comparable pay and benefits, layoff parity, etc. Whatever the HR terms coming to the party on a particular deal, we own them. Frequently, we are working with the HR team on the other side to resolve these issues and reach common ground. Hemsen: We own it. We are at the table. We do the negotiations on the employee matters component. Otieno: Yes, we own it. One added comment regarding the previous discussion on the financial statement covers an aspect that is often overlooked. In addition to doing the diligence on the financial statements in a deal that spans the globe, it is critical that the negotiating posture change with each particular country. Oftentimes, particularly in Europe, it is the posture and the approach of the negotiation, as opposed to the actual hard-core elements, that will drive whether terms are accepted. That has been, for us, a learning experience. We also find that is true in Asia-Pacific countries, particularly some of the up-and-coming Asia-Pacific countries. It is a little bit different in Hong Kong and Singapore, which tend to reflect U.S.-type behavior. But in some of the other Asia-Pacific countries, the actual process is much more important than the underlying financials. McKay: That’s a good point. We do a lot of work in China and one of the things that U.S. companies and lawyers really struggle with is the actual contract. In the States, the contract is seen as legal and binding and definitive. To the Chinese, the contract is just seen as a basis for further discussion and does not carry the same weight as it would in the U.S. That really frustrates both the legal side and the business unit. But that is the way that they view a contract. It is the rule of man over the rule of law. Lammel: Obviously we have to take care of the HR aspects of the document but we also pay attention to the need for a transition services agreement and getting some of that language in the sales agreement. It is really difficult after closing to negotiate something on that front. McKay: On integration, we hear a lot about culture clash as a cause of deal failure. Do you agree or disagree? How do you define culture and what steps do you take to prevent cultural differences from killing productivity or progress? Lammel: We define culture as how we do work. It is how we make decisions, how we delegate work, how flat our organization is, how we communicate. These are examples of cultural attributes. Some of the steps that we take to address cultural differences come in the diligence stage and before the sales agreement has been finalized, as you have the opportunity to interact with employees from the company that you are looking to acquire. We have a sort of informal list of questions and we try to get a number of us on the deal team to ask those questions of a number of people on the other side to informally take the pulse of the culture. Once the deal has closed, we try to make sure that the acquired entity has some level of Alcoa personnel in that initial organization. Oftentimes at the top of the organization there will be many people from the acquired location. So we have started a process of providing them with a counterpart inside of Alcoa. You could call it a mentor or buddy system or something like that. The idea is to give them somebody that they can bounce things off. In an acquisition that we closed in December we acquired the Fairchild fastener business from Fairchild Corp., which was number one in the fastener business. We also own Huck, which we had acquired in 2000 and was number two or three in that market. So it was sort of the little guy swallowing the big guy. We hadn’t fully integrated Huck. They are in all of our benefits and our HR processes but they are not fully integrated. We have three cultures: Alcoa, Huck, and Fairchild. So we signed a contract with a cultural assessment firm, ThinkShed, which has a tool called Team-Fit TM. We are in the process of doing a cultural assessment to identify the differences among these three cultures. After we identify the differences we are going to ask: Given what we are trying to achieve, do these differences matter? If we decide that they do matter, we will work on what we need to do to address them. Hemsen: We follow along on the same issue. We attempt to do all the due diligence up front and to integrate things as quickly as possible. The faster you assimilate the people, the better. They get focused on the future instead of reflecting on the past. That may be staggered throughout the world, depending on local laws. We also do a cultural fit assessment. We try to find where there are gaps in various categories that reflect the core values of the organization to define where there are issues that need attention. The purpose of this tool is to ensure that we have a baseline for continued assessment and to make sure that we have been making progress on the cultural assimilation of the new employees. Otieno: I absolutely agree that the definition of culture is the behaviors and ways of doing work. However, the purely HR professional or management team definition of culture is often different than what the rank-and-file employee believes culture is. Most people think of culture as being practice – whatever practices they had that were fallible in the various companies that are either being acquired or merged. So I believe there is often a disconnect between our definition of culture and what people believe culture is. It is important to make sure that you do a cultural fit and figure out what the hot points are. We have found that hot points are not necessarily big-ticket items. Some people might think of an item as cultural, and if it goes away, they believe that you are taking it away. Say a company provided $100 to every employee toward the purchase of a PC. As you integrate and merge you may take that away. The level of noise regarding that $100 benefit tends to be much higher in some cases than the level of noise regarding some changes in compensation and benefits. We certainly don’t have the right answer and we just continue to work at it. But there is a clear distinction between how we define culture and how most people view it. Hemsen: I think that culture is always changing, too. We are finding with the acquisition of Pricewaterhouse that the infusion of 30,000 plus people alone made a profound cultural change in the consulting piece of our business. Cook: I would agree that culture is about values, behaviors, and how decisions are made in the organization, and that rank-and-file employees may have a different view about what culture is. Employees may attach higher emotional value to some things that we see as very minor. That’s something that is really hard to get at. The other thing we sometimes see is that it is much easier to integrate smaller organizations than larger ones. When you are doing a deal with a large organization with 5,000 employees or more, for example, you have to do cultural integration at multiple levels. You have to make sure that you don’t stop with the headquarters organization but also address satellite manufacturing and other field locations, not just in the U.S. but across all of their locations around the world. In addition, you have to be alert to recent acquisitions that may not have been fully integrated. You may, in fact, be dealing with two, three, or four cultures. Constable: I would define culture as “the way we do things around here” at every level in the organization. That doesn’t have to be consistent. There can be sub-cultures. I think you can look for clues by looking at how the compensation and benefits are structured within a company. If there is a very steep incline on the midpoints of compensation as you go up the organization, that tells you something. If it is very shallow, that tells you something, too. If an organization is all on commission, is it an “eat-what-you-kill” environment? Those sorts of things give you clues. McKay: A recent study by the University of Chicago claimed that executive and management attrition continued to be higher in companies that made acquisitions compared with companies that did not acquire for a period of up to nine years. That affected both the buying and selling of companies alike. What are your thoughts on this? Hemsen: We target the management team, key technical skills, and the thought leaders with a retention program to ensure a period of time during which they will have a monetary reason to help facilitate the transition and to remain with IBM. We believe that once they are affiliated with IBM for a couple of years they will have recognized that it is a good place to work, both personally and professionally. We track the entire population of the acquired company. We need to understand the nature of the attrition because a lot of times we quickly infuse acquired employees into other parts of the organization. They may no longer be with a brand such as Rational, which we recently acquired, but they may very well be imbedded somewhere within IBM. The unwanted attrition is what you have to watch out for. McKay: Who exactly identifies the key players – HR, the business unit, or a combination? Otieno: It is a combination. That is an interesting question. Assuming that the acquiring company has a reasonably good relationship with management of the company it is acquiring, the first step is to talk to them and find out who some of the key players are. In a lot of cases you get decent information. But in some cases, you get individuals who happen to be management’s favorites though they are not necessarily the key players that you need with respect to the strategy on why you are acquiring the company to begin with. So usually my advice to the deal team is to identify people as being key players early on in the due diligence stage. It probably doesn’t make a whole lot of sense until we have the strategy outlined. Later on we can make sure that we have identified the appropriate individuals. The business team should have a chance to work through its own set of assessments as opposed to just relying one side’s view of who the key players are. Using that approach, we tend to have a reasonably good track record of retaining individuals. If you hit the appropriate individuals, they will usually have a wait-and-see attitude as to how this goes because if they truly are that good, they can always move on and find something elsewhere. So they are willing to wait a little bit and see what the deal is, what the strategy looks like going forward, and whether they will have a critical role. Lammel: This is one of the key areas where HR can add value, but the process of identifying the key talent and retaining that talent is shared by a much broader group than the HR folks involved in the deal. In the large acquisition that we did in 2000, Reynolds Metals, there were about 12,000 active employees. We employed a third party who first interviewed our executives to determine what attributes were needed to be successful at Alcoa. Then we interviewed the top 40 or 50 people at Reynolds Metals to supplement the information that Reynolds had already given us and to add to our own observations about the people that we were interacting with. So in some cases we have used a third party. Hemsen: We try to find the key players at the very senior level right away so we can start the “active recruitment” early on. Once you find that you have the hearts and minds of the key individuals, there is normally some Pied Piper effect. Others are more inclined to have a positive opinion of the transaction because they believe that this person makes valued and substantive decisions. So we first try to find the key people to recruit. As the deal evolves, it becomes a collaborative process with the acquired company and IBM’s management team to figure out who you need to have in a retention program for the second- and third-tier populations. McKay: Do you ever have problems with your incumbent people because you provide retention incentives, maybe atop change-in-control rewards, to acquired employees? Lammel: At Alcoa this is a very delicate issue. We don’t generally make retention payments over and above the change-in-control payments. But it certainly makes everyone a little bit uneasy about whether they are going to be able to retain their job. We try to reassure Alcoa employees. If we have two great people who would be great HR people for a business unit, we tend to go with the person we know, which is the Alcoa person. But if the acquired company HR person is a great person, we would ask him or her, “We really think highly of you. Would you consider a job at one of our other locations?” Sometimes we keep people on in a consulting capacity for a while because we are so impressed with them and want to make sure we retain them until we find the right positions for them. McKay: Do you use any other methods post-closing? Hemsen: We try to have repeated interventions to ensure that progress continues to be made. We have a tool called a pulse survey, which can be directed at a target group or area to get a general response on how things are progressing. But, basically we want to survey these people through focus groups or other kind of contacts, no longer than six months after the deal closed, to ensure that progress is being made. Going back to the Pricewaterhouse integration, the volume of programs and communications IBM delivers through notes and e-mail is wildly different from what PWC employees had experienced. When we found out that they were unaccustomed to the amount of information coming through on a daily basis, it became an action item. So it is a matter of continuing to keep track as you go forward. You need to remain focused on the financials and the employee relations aspects. Lammel: From an HR perspective, we try to measure things like whether we obtained our cost goals. If there were transitions around shutting down a headquarters did we do that inside of the time frame and the budget that we had originally established? And clearly, retention of key talent is something that we need to look at. From a broader base, corporate development measures the outcomes of the deal with respect to the business plan that had been put in place. But we generally also try to do what we call post-mortems about one year after the deal has closed. We bring in people who worked on the deal, Alcoa employees from the business unit acquiring the location, and people from the acquired company. We try to interview as many people as possible and share the outcomes of that and try to capture what is it that we did well, what is it that we didn’t do very well, and what we need to do better the next time. Cook: We follow a similar process at two levels, first looking at the overall deal and the financials and then tracking them. Then, within our HR area, having milestones in place for integration planning, and tracking to make sure that we execute to the business plan. In essence, the HR milestones become part of the overall critical elements we focus on to deliver the financial ROI that was part of the original, targeted deal synergies. Otieno: I echo the same sentiment with respect to the process but we have something that is, in fact, very new. We are putting together something called the “Deal Scorecard.” It basically touches on the financials, the actual integration of the deal itself in terms of the scorecard dimensions, the employee portion, which covers how well we have done the people aspect, and the cultural aspect. Then there is a customer measurement, with respect to whether we actually have kept the customer on balance and that this deal has not impacted the customer negatively. The plan is to use the scorecard on large deals, but it can certainly be used on some of our smaller deals. Copyright 2003 Thomson Media Inc. All Rights Reserved. http://www.thomsonmedia.com