Seamless Integrations - Anand Madhavan

Issue
An FMCG company, X, acquires another smaller FMCG company, Y. Post-acquisition, some employees of the middle and senior management levels of Y are retained. The MD of X takes pains to emphasise that the acquisition was right for both companies. Four months later, the erstwhile employees of Y find that their roles have not yet been defined. Approaching their senior managers does little to allay their apprehensions. There is a lot of uncertainty in the air and the Y people start looking out for jobs. Meanwhile, employees of the Company X feel that for four months the ‘new recruits’ have done nothing while they have been overburdened with work pertaining to both companies. They speak with their seniors about how unhappy they are.

Getting it right
This is a kind of classic scenario that companies with different backgrounds, culture and management styles have to resolve as soon as possible to keep employee satisfaction and motivation levels high post-merger. However, before we tackle the twin issues of how the current impasse has to be managed and who needs to be responsible/ accountable for the change, we need to understand the considerations of why company X bought out company Y. Based on the different scenarios, the management can have different way of approaching the problem. There could be three broad reasons for the takeover:
a) When the products/brands of the smaller company Y complement those of the larger company X. This has been seen in the case of a number of FMCG companies where they don’t have a presence in certain product segments and try to fill those gaps.
b) When the smaller company has a strong regional presence and the larger company wants to increase its footprint over the new areas.
c) The products of the smaller company Y are in direct competition with those of X and the larger company feels that it’s prudent to buy these brands out. Or that company X wants to kill perceived competition. Following this move, X can either weed out these brands or take them under its larger brand umbrella.

During any integration exercise, the top management has, broadly, a few areas that it needs to rectify or address immediately.

Systems integration
This would involve getting the different companies to work on the same IT platform or have the same information flow system in place. This is usually the most painless area and can be completed the fastest with least resistance from any of the concerned parties from the two companies.

Cultural integration
For this, a number of factors play an important role. Does the acquiring company want to retain the culture at the newly acquired company? For eg., if the acquiring company is into retail banking and has taken over a private bank, it cannot and would not like to change the culture at the private bank as that is the unique selling point (USP) of the private bank. But, in other scenarios, the cultural integration is a bit more painful and evolves over a period of time where the identity of the acquired firm might disappear for good.

Management integration
This integration can be the most volatile as a lot of politics and power play is involved. Much depends on the bargaining power of the management of the acquired company. The particular scenario under which the firm was acquired and also how X intends to move ahead with Y will decide the management integration issue. This is also the most critical, and a team is usually constituted to troubleshoot and guide the two companies through the post-merger phase.

When we investigate the issue of bargaining power, what becomes apparent right away is that the management of Y has little say. If seniors are confused about their role, this indicates that they might have little say in the scheme of things. The small size of operations of company Y might be the main cause. It becomes clear that the management of company X wields more power and has to be accountable for the changes that need to be brought about. If the situation were otherwise, the required changes in the new company would have been brought about by a team culled from the ranks of the earlier two companies.

This, then, brings us to the various scenarios under which company Y might have been acquired. These, in turn, would decide the fate of the senior and mid-management levels of company Y.

1. If company X acquired company Y for reasons a or b, the best they can do is to allow the junior and senior managers of company Y to continue in their positions. These key personnel are acquainted with all facets of the products/brands and will be in the best position to oversee them. Company X could have the senior managers of Y report to some of their chosen representative. This would be done to align the functioning of company Y to that of company X. A team constituted by company X can start trying to integrate company Y at the very top level of budgets, revenue and growth expectations. The plans to pilot the day-to-day functioning would be managed by the retained team of Y.
If fresh blood needs to be introduced, company X has to initiate a process where they will hire and induct people at the junior and some of the middle levels but not at the senior levels.

2. In the case where products/brands of company Y are in direct competition with those of company X, the outcome is more interesting.
a) If company X wants to build these brands into a larger umbrella where each brand will be positioned differently: In this scenario, there is a possibility of power play and biases emerging on both sides as there would be a feeling that certain brands are not being handled/treated the way they should be. It might be possible that the senior and middle management of Y might quit, given that they have little say in the affairs as such. This can be best tackled by inducting a third party, neutral, top management people who can be hired from other competitors. Such people would not be biased as they would know the pros and cons of each of the brands of the different companies and initiatives taken by them might be resolved in a speedier manner. The top management would devolve day-to-day responsibilities to the middle and senior management of each of the companies separately and over a period of time could try and swap personnel from and to the acquired company. These would involve both teams in the new brand-building exercise.
b) If company X wants to absorb the brands into existing portfolio or phase out the products of Y: If this scenario is envisaged, the senior management of company Y would need to be told about it. Key personnel could be retained but senior management from company X need to join in parallel or slightly senior positions. They can learn the nuances of handling the brands and products of company Y for the interim period prior to its being absorbed into X’s portfolio as they already have the knowledge of company X’s brands.

After going through these scenarios, it seems that the last scenario is the one that is applicable to company Y and X – the one where products/brands of company X are in direct competition with Y. At the top management of X, the confusion exists as to how to handle the extended portfolio and this might be due to some internal power struggles. But given that the bargaining power of Y is limited, company X has to move fast and create a crack team to resolve the impasse.

What is clear is that company X is in the driver’s seat. If it wants to harness the potential of both companies, it has to initiate the process of setting up a team that will immediately aim at resolving conflicts and confusions. Key personnel of company Y have been retained either because they can be involved in knowledge transfer about the brands/products in the interim or because they can be absorbed in the new hierarchy and move across brands. The top management of X, in league with its HR department, needs to be pro-active in setting up the team for transition. Unless this is done, there would be two problems -attrition of good people, who were retained in the first place because they were good, and low morale of existing company X employees who feel that they are being over-worked and the merger has done little good.