Communication, relationship building nurture mergers

Mergers and acquisitions are never simple. Still, they can be made easier—and achieve greater long-term success—if participants engage in open, honest communication and build new relationships with the same diligence devoted to financial matters. Too often mergers seem to be bottom-line driven, inspired by a bigger-must-be-better mindset, or simply intended to stifle competition.

By Jim Montague, News Editor September 1, 2000

Mergers and acquisitions are never simple. Still, they can be made easier—and achieve greater long-term success—if participants engage in open, honest communication and build new relationships with the same diligence devoted to financial matters.

Too often mergers seem to be bottom-line driven, inspired by a bigger-must-be-better mindset, or simply intended to stifle competition. Many organizers don’t appear to give much thought to how their newly merged colleagues will be able to cooperate and succeed in the future.

In fact, 97.6% of 246 respondents to Control Engineering ‘s North American Reader Profile Study, June 2000, reported they or their companies have been through a major merger or acquisition in the past three years. A slight majority (54%) felt their merger was handled well, while less than half (44.5%) believe adequate thought was given to finding the best way to integrate people, jobs, work teams, and cultures affected by the merger. More than 64% agree their merger or acquisition was primarily financially motivated. [For more results, see last month’s cover story, "Earning More…Enjoying It Less," Control Engineering, August 2000, p. 52]

To gain acceptance for their mergers, some organizers maintain constant communications to introduce, educate, and update new colleagues; dedicate high-level personnel to serve as liaisons between merged divisions; stress the importance of acquired groups and include them in major decisions; and use all avenues to forge a common post-merger mission.

Exchanging strengths

In one of the biggest recent mergers, Allied Signal (Morristown, N.J.) bought Honeywell (formerly Minneapolis, Minn.) in December 1999 and retained Honeywell’s name. Most employees seemed to agree it was a pretty good fit without much overlap, according to Bob Rasmussen, divisional technology manager of the Honeywell Technology Center (also Minneapolis), a corporate R&D organization that supports all of the new Honeywell International.

Mr. Rasmussen already had served 2.5 years as liaison between R&D and Honeywell Industrial Automation and Control (IAC, Phoenix, Ariz), but the merger required him to quickly familiarize himself with other parts of a new company, such as Allied’s specialty chemical and polymer businesses. "I had to get out and meet engineers; get up to speed on their primary technical issues and needs; and understand what their customers wanted from them," says Mr. Rasmussen.

In the first six months of the merger, Mr. Rasmussen says there was a huge knowledge gap to be overcome. The learning curve has flattened and become more manageable in the past year. "It takes a lot of time and energy just to capture the information you need about a new organization’s business and culture," he says.

To help this process, Allied and Honeywell set up 20 "integration teams," of 10-12 people, in September 1999, three months before the merger closed. These teams were asked to educate and communicate with all staffers, so people in each company wouldn’t feel like the other side was trying to suppress its culture.

Integration teams documented existing ways each company accomplished many of its tasks—such as how R&D investments were made, how priorities were set, and how effectiveness was measured—and then selected the best methods or combined attributes of each. The teams then formed sets of recommendations, which were sent to the new Honeywell’s executive management. "A lot of learning happened during this process, and that created a lot of empathy between organizations," explains Mr. Rasmussen.

One of the main differences the two companies had to resolve was that Allied’s R&D functions were decentralized, while Honeywell had a centralized R&D department. Allied’s businesses operated on an individual basis, without going out of the way to leverage each other’s capabilities.

"We learned that Allied’s people were very process oriented. They’d been doing Six Sigma for six years. They really had a continuous improvement mindset, and a lot of Honeywell people began to embrace it once they understood the benefits," says Mr. Rasmussen. "We’d been using an improvement process called Honeywell Quality Value, which took a broader view of the organization. Allied improvement process was a lot more bottoms up, which appealed to many people. We even have some Six Sigma-type green and black belts now."

Mr. Rasmussen adds that Honeywell gave Allied a better understanding of long-term customer relationships, understanding overall markets, and how to listen more effectively to what customers truly need. He says these methods are already being used by Allied’s businesses.

Though the new company closed Honeywell’s former Minneapolis headquarters, it did retain its technology center and about 80% of the 500 employees there. Less than a year after the merger, Mr. Rasmussen says attrition at the new Honeywell has already dropped back to normal levels.

Building new relationships

National Instruments (NI, Austin, Tex.) acquired Datalog (Monchengladbach, Germany) in Sept. ’98 and GFS (Aachen, Germany) in September ’99. The German firms manufacture software products that NI felt were infringing on its LabView patents, and so, after considering numerous options, NI decided to buy both.

"This presented some interesting challenges because we were buying a former competitor, and the start of our relationship was a looming lawsuit," says Ash Razdan, NI’s director of applications engineering, who served as NI’s business liaison with Datalog and GFS. "However, we found that we had some very complementary aspects with each company, and both had very good personnel."

Mr. Razdan says very few people were involved in NI and GFS’ initial merger talks. Once both parties agreed on the acquisition, GFS’ managing director made an announcement to its 85-person staff prior to a public announcement at a late-1999 trade show. NI’s leadership also made a presentation about NI to all of GFS’ personnel during the show, and ended up going out to local beer halls and singing songs with them.

"We presented that NI wasn’t just a big company, but that we were made up of individuals they could work with," says Mr. Razdan. "From the moment the acquisition was announced, we tried to begin building our relationship. There was some feeling that the big fish was eating the little fish, but so far we’ve had almost no one leave as a result of the acquisition."

Integrating GFS into NI began with six or seven key GFS employees visiting Austin. Mr. Razdan flew to Aachen every two weeks to make sure GFS was at ease with the acquisition. NI offered GFS’ employees the same stock option plan it offers to new hires, as well as an 18-month bonus. NI also bought GFS into its company intranet, and allowed GFS to go ahead with existing plans to move into a larger space.

"We just emphasized their importance to NI, and invited GFS to present its strategy to us," adds Mr. Razdan. "We also tried to include them in key decision-making events, such as our two-day engineering strategy sessions, where different groups present new strategies and ideas. And, rather than us telling GFS to stop doing something, we stressed areas where we could complement each other and coordinate future products, which would lessen duplication over time, while still helping GFS’ customers succeed."

Mr. Razdan adds the most challenging transition was helping GFS move from how an 85-person firm operates to how a 2,000-employee company functions. "Now, they had to consider a different, standardized product development channel. After 20 years in business, overnight they had to think differently. It just requires keeping in mind how you’re going to keep your customers and employees successful. We don’t want them to lose their ability to create wonderful products. They have a lot of bright developers."

One year after the acquisition, Mr. Razdan says NI is still taking it slow and continuing to educate its GFS colleagues without making any drastic moves, so they can broaden sales channels in the future. A 12-person NI team also visited GFS recently to follow up on previous issues, such as how NI hardware can support GFS software. Several of NI’s German-speaking employees are also working on short-term assignments at both GFS and Datalog and living there with their families.

"We’re meeting monthly to keep up with relevant issues, and just trying to build our relationship tighter," says Mr. Razdan. "When you get on different sides of the ocean, you can fall into old routines. So, we’re simply trying to keep up the momentum. I think we’ll feel successful when we get our product development process fully aligned."

Author Information
Jim Montague, news editor,

Tips for healthy mergers

Enhanced research —Of course, start by determining whether a merger candidate’s finances, facilities, market presence, products, and technological capabilities make a good strategic fit with your organization. But don’t stop there. Also seek to learn about the candidate’s culture, people, history, internal procedures, and any other slightly less tangible assets. Use this added information to help judge if the proposed merger is likely to be beneficial.

Own the relationship —Assign one or several people to "own the relationship" between the two merging companies. Business liaisons can help both parties learn about each other as quickly as possible, coordinate integration efforts, and help form the unified mission the new organization will need to succeed in the future.

Involve everybody —Get as many people involved as early as possible following a merger so they educate each other, generate buy-in, and form ownership in the new organization. Distributing knowledge quickly will prevent biases later.

Integration teams —Groups of volunteers can help document both organizations’existing procedures, and recommend by consensus those that should be used in the future. This process helps members of each organization learn about and empathize with their counterparts.

Getting to know you , then REALLY getting to know you—After newly merged workers have been introduced, many reflexively snap back to traditional operating procedures. For a long time after a merger, the new organization’s leaders need to continually reinforce new relationships and slowly build new teams. Social gatherings and casual time are especially useful.

Show some faith —One crucial way newly merged organizations can integrate successfully is to practice demonstrating mutual trust. This can include maintaining as much of an organization’s existing plans and leadership as possible; educating each other on product development and sales processes; and involving new colleagues in strategic planning.

Customer concentration —Throughout the merger process, try to have people never lose sight of their internal and external customers. This can be common ground for new colleagues and unifying force for the new company.

Maintain momentum —Remind yourself and your organization that a successful merger takes more time to accomplish than completing the financial details. Continual education, updates, and reassurances will be needed to make two organizations and their staffs begin to think as one.

Merging meanings

Newly merged coworkers at Honeywell International (Morristown, N.J.), formed when Allied Signal bought Honeywell in December 1999, struggled for awhile with something as deceptively simple as vocabulary. For example, to former Allied Signal staffers, the term "asset management" meant "all forms of financial assets allocated for health, safety, and reliability." Yet, to Honeywell IAC staffers, "asset management" meant "how an organization manages its physical aspects to run as efficiently as possible."

"We stumbled on several definitions like this until one of the integration teams developed a glossary," says Bob Rasmussen, divisional technology manager, Honeywell Technology Center (Minneapolis, Minn.). "They asked a lot of people for definitions. There were also some misunderstandings due to Six Sigma terminology, and some of those are still going on."