Chronicles ING’s combination of two internal banking units. This “merger” was an uncommon one - it was the merger of two internal units that had similar operations and shared many cultural traits.
However, the familiarity actually hindered the merger at first, as integration processes were being taken for granted. “Decisions that in more conventional mergers would be assessed objectively were at risk of being made on the basis of ‘gut feel’.”
Once they realized this, they began to apply a structured process, and used many of the concepts we learned in class (7-steps, GlobalTech).
- Mathew Lee
Case study of ING’s merger of two internal business units. This was an unusual merger, as the internal units had similar operations and organizational cultures.
However, the familiarity actually hindered the merger at first, and crucial integration aspects were taken for granted. ”Decisions that in more conventional mergers would be assessed objectively were at risk of being made on the basis of ‘gut feel’.”
After ING realized this, they begin to apply a structured process, and used many of the concepts we learned in class (such as, 7-steps for GlobalTech).
- Mathew Lee
McKinsey article explores how we can develop/become better change leaders. Gives three examples of how leaders successfully adopted a more empathetic, honest, and open approach to complement their strong technical knowledge. Also proposes that companies do the following to maximize change leader development:
1) Tie training to business goals, so that leaders can immediately apply learnings.
2) Choose situations & leaders (“positive deviants”) that have some overlap, and build on strengths.
3) Ensure senior executive sponsorship.
4) Create network of change leaders
- Mathew Lee
When the well-known British chef and television reality show host Jamie Oliver arrived in Huntington, W.Va., in early 2009, he had a daunting goal in mind: to alter eating habits. Just a year before, Huntington had been dubbed the unhealthiest city in the United States by the U.S. Centers for Disease Control and Prevention.
Oliver came to Huntington with confidence that the rightness of his goals, along with his charisma and the town’s opportunity for TV exposure, would be enough to carry the day. Almost immediately, however, he ran into opposition.
After several months in Huntington, Jamie Oliver managed to catalyze change among many groups of people and had encountered three types of influencers, all of whom are important to any organizational culture change:
1. Culture carriers: visible figures, who maintain the fabric of the community’s common beliefs and values.
2. Authority figures: those who are officially responsible for articulating the desired goals and the specific behaviors that will be needed to reach them.
3. Pride builders: people who are respected as peers and are part of the groups where change is targeted. They embrace new behaviors as early adopters, and influence others in turn.
It is clear that organizational change happens from all angles and that being cognizant of all stakeholders is instrumental to effective change.
- Sarah Shen
An example of a company unveiling a clearly articulated 100-day post-merger integration plan detailing organizational restructuring, direct communication about layoffs, and management changes.
LONDON—Glencore Xstrata PLC on Friday unveiled an integration plan that puts Glencore executives firmly in control of the newly combined company and which aims to generate at least $800 million in synergies, in part from aggressive cost cuts.
The mining-and-commodities-trading company put together a 100-day integration plan after weeks of executives crisscrossing the world, visiting assets and talking to mine managers in order to develop a plan that could be quickly executed once the merger closed. It also comes at a time when mining companies are seeking to reduce their costs amid lackluster commodity prices.
The company said it plans to aggressively cut costs through a corporate restructuring that will remove job duplication and centralize operations on its Baar, Switzerland, headquarters with shared regional offices in locations such as Sydney, Singapore, Toronto, Johannesburg and Stamford, U.K.
The restructuring is set to result in a “large amount” of job losses, said Glencore Xstrata Chief Executive Ivan Glasenberg during a call with analysts Friday. “We don’t have the so called business units” of Xstrata, he said. “We [would] rather prefer the assets be run at the asset level and report to the head office” in Baar than through the business units, he said.
Glencore Xstrata has created a senior management team composed of 14 executives, 12 of whom come from Glencore and only two from Xstrata. At least six senior Xstrata managers resigned upon the deal closure Thursday, Mr. Glasenberg told The Wall Street Journal. Still, all of Xstrata’s mine managers are staying and without retention packages, he said.
At the senior-management level, the only two Xstrata executives are Peter Freyberg as head of the combined company’s industrial-coal assets and Mark Eames as head of its industrial-iron-ore assets.
Santiago Zaldumbide, the former head of Xstrata Zinc, will remain as a senior adviser.
Mr. Glasenberg said that he felt “comfortable” the company would be able to achieve at least $300 million in cost savings that Xstrata’s management said could be extracted from the tie-up. The company plans to deliver $500 million in additional earnings before interest, taxes, depreciation and amortization synergies annually by marketing all of Xstrata’s commodities through Glencore’s marketing arm. Mr. Glasenberg declined to provide a total synergies estimate, saying more work needs to be done.
He said the company remains committed to a heavy expenditure program of $13 billion in 2013 and $9 billion in 2014, but those amounts could fall should the company succeed in selling its $5.2 billion Peruvian Las Bambas copper project. The company plans to spend $3 billion on the Las Bambas project this year and next but has promised Chinese regulators it would sell the asset in coming months—part of a deal it agreed to with them to get regulatory approval for the merger.
In an interview Thursday, Mr. Glasenberg said “I’m not a lover of greenfield” projects and would reassess their value depending on how much it would cost to keep them in the project portfolio. “I don’t want to spend a lot of money to maintain them…If it costs too much to maintain, we may have to sell them,” he said.
The company has set itself return-on-equity performance benchmarks at its marketing and industrial divisions. On the marketing side, the target is a return on equity of 40% to 65%, with 80% of its activities funded by debt. On the industrial side, the target is a return on equity of 20% to 25% with 30% to 40% of its activities funded by debt.
The company plans to use its return-on-equity targets as a “primary tool to allocate capital efficiently.” It remains committed to a strong triple-B/Baa investment-grade rating with a minimum liquidity headroom of $3 billion.
Glencore Xstrata said it would only invest if the return on equity is sufficiently attractive. Otherwise it will return cash to shareholders, most likely in the form of dividends or special returns.
The company is due to provide an update on its integration process in the third quarter of this year.
In their first day of London trading, Glencore Xstrata’s shares rose 3.9% to 343.95 pence ($5.34) a share, reflecting a similar rise among other large diversified miners following a commodity-price rally due to better-than-expected U.S. economic data and lower euro-zone interest rates.
Decisions during change (Bain Insight)-Jimmy Ren Zhao
Good piece about focusing on timeline for key decisions as the roadmap for change. Enabling managers and employees to make difficult decisions (instead of putting them off) is critical to successful change initiatives.
Under normal circumstances, making and implementing decisions can feel like juggling several balls at once. During a change effort, as someone once put it, decision making can feel like juggling chainsaws—while blindfolded and balancing on a large ball. Too many decisions fall by the wayside. Too many turn out wrong.
Why is change so difficult? We see three main reasons:
One is that every transformation involves so many key decisions. Just to launch an initiative, corporate leaders must identify the facts that indicate a need for change choose the best course of action, validate the business case, determine the highest risks, select the right leaders, and so on. The list of critical decisions only expands once the initiative gets underway. In the meantime, of course, someone has to make and execute the decisions required to run the business.
Another reason lies in the mood swings that can affect an organization undergoing change. The initial phase of a transformation usually provokes fear and skepticism. Once the possibilities begin to materialize, and people feel optimistic, even exhilarated. Later, as new obstacles appear, they become anxious and pessimistic again. Various cognitive biases intensify these moods and impede people’s ability to make good decisions. In the first phase, for instance, the bias known as anchoring, or relying on familiar reference points, locks people into conventional thought patterns and clouds their judgment about alternatives.
A third reason: The stakes are high. Every major change is highly visible to employees and peers, to shareholders and board members, and also to customers. The company has invested a lot of resources. A decision maker’s credibility is at stake. The cost of failure is steep. In many cases, decisions made during a transformation effort can define an executive’s career.
Companies that master these decision-making difficulties typically follow a few common practices:
They establish a “decision drumbeat”
Most companies organize change efforts around deliverables. We find it’s more fruitful to organize the work around key decisions, creating a kind of “decision drumbeat” that governs the process and ensures adherence to a timetable.
When one major brewer acquired another brewer, for instance, team members set an aggressive timeline for integration and stretch targets for synergies and results. To deliver, they mapped out the major decisions required to consolidate manufacturing facilities, distribution channels and advertising contracts. The team specified all the smaller decisions that had to happen before the major decisions could be made, and the team laid those out on a detailed calendar. So right from the start this decision drumbeat kept the integration marching forward— everyone knew what decisions needed to be made next, what information they would need and the time they would need it by. A decision drumbeat isn’t relevant only for acquisitions. It’s useful for any change process that involves linked decision making, such as strategy development or the launch of a new product.
They track leading indicators
It also helps to track leading indicators of the change process, not just indicators of what has happened so far. One such critical indicator is what we call a “risk predictor.” Many risks, such as poor sponsorship and change overload, can threaten to disrupt change efforts. These risks tend to occur in predictable patterns over the life cycle of a change effort, but only a handful will determine success or failure at each stage. A risk predictor can help a company understand the unique risk profile of an initiative. It can help identify the four or five risks that pose the biggest threat, the sequence in which they will arise, and the tools that will be most effective for containing and managing each one. When a decision gets stuck, it’s often because decision makers have been blindsided by some unexpected development. Tracking leading indicators can arm them with the information they need to make better choices if and when the risks materialize.
They find the right decision-making style
During times of change, leaders often find they need to modify their accustomed style of decision making in order to handle the volume and difficulty of decisions they must make. Companies that rely on consensus decision making, for example, often discover that consensus doesn’t work during a transformation effort: People are too emotional and reaching a consensus is takes too much time. Yet a directive style—decisions made by one person with little or no input from anybody else—may undercut change by reducing buy-in. Most of our clients find that a participative style with clear decision roles works best, but even then decision makers may seek out less input than usual. What’s most important is that leaders spell out the decision style they intend to use, so that everyone knows what to expect.
Ultimately, the success of any change effort depends on the behavior of people—those on the front line and elsewhere—who must execute all those decisions. What they do reflects how well the company communicates its decisions. Studies have shown that in times of stress, people can take in only a small fraction of the information they would usually be able to process. Communication has to be brief, positive and delivered face-to-face by trusted messengers, preferably by an individual’s direct supervisor. It also has to be timely, so that it can influence people’s perceptions before they become solidified into beliefs. Without this kind of communication, too many decisions will languish unimplemented, and the change effort is likely to stall.
Change leaders, like our fictional Andrea, have a tough job because the results they hope to achieve depend on many different decisions made by many different people. Good strategies for making and executing those decisions won’t guarantee the success of a transformation effort. But poor decision making and execution are sure to undermine even the most carefully planned change.
Patrick Litre is a partner in Bain & Company’s Atlanta office. Paul Rogers is the managing partner of Bain’s London office and leads Bain’s Global Organization practice.
Managing leadership change at PIMCO, the world’s largest bond investor.
Pacific Investment Management Co. is becoming less dependent on Bill Gross, its 69-year-old co-founder, as it prepares for an eventual future without him. Gross, who started the firm in 1971 with two others, has become almost synonymous with Pimco over the past four decades, earning the nickname “The Bond King.” The $2 trillion firm is grooming younger managers and venturing into equities as investors move beyond traditional U.S. bond funds to capture higher returns. “Pimco has tried to downplay Gross and build an institutional brand,” says Burton Greenwald, an industry consultant in Philadelphia. “If your appeal is based on a single personality, your assets are at risk.”
Any change can be risky for a company that relies on a single manager. When fund manager TCW Group fired Jeffrey Gundlach as investment chief in December 2009, clients yanked about $25 billion, almost a fourth of the firm’s assets. Twenty months later, his old TCW Total Return Bond Fund (TGLMX) had shrunk by more than half. He is now head of money manager DoubleLine Capital.
Pimco, owned by German insurer Allianz (AZSEY), has been working to reduce that risk, hiring Mohamed El-Erian in 2008 to become chief executive officer and share the chief investment officer role with Gross. El-Erian, who writes investment commentaries and often appears on television, has expanded Pimco’s offerings, adding exchange-traded funds as well as equity, multiasset, and alternative-asset funds. The company has introduced 108 funds worldwide since 2010. “Bill’s focus and energy continue to drive our firm today,” El-Erian said in an e-mail.
Gross fueled Pimco’s growth in the 2000s. He posted average returns of 7.7 percent a year for the decade, beating the performance of 97 percent of similar funds. In 2009, Pimco Total Return pulled in a record $50 billion from investors and overtook Growth Fund of America to become the world’s largest mutual fund. Gross kept his fund “at the top of its category, making investors a lot of money,” Morningstar wrote in January 2010 when it named him manager of the decade.
As the company expands, Gross is overseeing a smaller share of Pimco’s mutual fund assets and pulling in less of its cash. Total Return got 19 percent of Pimco’s new mutual fund deposits in the two years ended March 31, down from 42 percent in the prior period and 79 percent in the period before that, Morningstar estimates. The portion of mutual fund assets run by Gross fell to 63 percent as of March 31, from 84 percent a decade ago. The shift may be inevitable, says Russel Kinnel, director of mutual fund research at Morningstar. With $289 billion in assets, Total Return accounts for more than 25 percent of all the money in U.S. intermediate-term bond mutual funds, he says, and “there aren’t many people left to buy it.”
Other Pimco managers are winning attention for their performance. Daniel Ivascyn of Pimco Income, with $26.4 billion in assets, was the top U.S. bond manager based on his returns over the past one, three, and five years, according to Bloomberg Markets. Mark Kiesel, who oversees about $130 billion in funds and managed accounts at Pimco, was cited in January as Morningstar’s top fixed-income manager for 2012.
Gross’s reputation still draws investors to the firm, says Nancy Koehn, a professor at Harvard Business School who focuses on business leaders. “But the fact that they are willing to let other people at Pimco handle their money means they trust those other managers can deliver the way Gross does,” she says.
Recently, Gross has become more reflective in his monthly online commentaries. In the April outlook, called “A Man in the Mirror,” he suggested that the careers of the great investors of the past three or four decades were fueled by an expansion of credit that may be coming to an end, and that investing may become more difficult in the years ahead. He wrote that “old guys” including himself, Warren Buffett, and George Soros, “have cut our teeth during perhaps a most advantageous period of time, the most attractive epoch, that an investor could experience. Perhaps it was the epoch that made the man.” Gross isn’t thinking about retirement. “Sixty-nine years old is the new fifty-nine!” he wrote in an e-mail.
“There probably will never be another Bill Gross,” says Steven Rogé, a portfolio manager at R.W. Rogé, whose $200 million in assets includes $17 million in Pimco Total Return. Still, high-profile exits aren’t always disastrous, he says. When legendary stock picker Michael Price stepped down as portfolio manager at Mutual Global Discovery in 1998, Rogé sold his stake. Two years later, “a not-so-well-known guy named David Winters took over, and he turned out to be a phenomenal investor,” Rogé says. “We made a mistake.”
The bottom line: Pimco is becoming less dependent on co-founder Gross, who helped the company grow into a $2 trillion asset manager.
In case you missed JCPenney’s new commercial, the retailer is really, really, really sorry for its admitted “mistakes” and is begging customers to come back. But the apology tour isn’t limited to the airwaves. This week JCPenney has unrolled a massive social media initiative to try to win loyalists back.
Berkshire Hathaway, the conglomerate run by Warren Buffett since the mid-60’s, is preparing for a time after he’s gone. Succession was the biggest topic at this weekend’s shareholder meeting, similar to previous years. Once Buffett is replaced (he says by splitting his role into a CEO and an investment manager), Berkshire will undergo significant change, which Buffett is now trying to manage ahead of time.
The merged Glencore/Xstrata executives say potential cuts on its administrative staffs and underperforming divisions as a way to pursue cost synergies.
“Unveiling a management team packed with veteran Glencore executives, the group promised to “cut bureaucracy and duplication,” vowing it would reduce administrative staff, and cut divisional offices and underperforming projects to ensure success, even at a time of cooling commodity prices.”
This is one of traditional approaches to secure synergy on expense, cutting redundant divisions and functions.
“If we can cut costs enough, get rid of these corporate head offices, we can cut a lot of fat out of the system. These synergies and overhead reductions – that figure can ensure this merger is a success,”
- Kysoo Lee
This is an interesting analysis on how the executives of buyout firms can integrate the transition process and what is important during the period. The article maintain that the past levers such as financial engineering and operational improvement may not be the most important factor in the process, and the cultural fit and people skill of execs may be more crucial for a successful turnaround.
The article also exemplfies Johnson at JCPenny as one of failure stories due to his failure to adapt to the culture.
“KPS Capital Partners LP, winner of the Buyouts Turnaround Of The Year And Deal Of The Year awards for 2013, brought in an executive from outside the beer industry to run North American Breweries Inc. because he was a team-builder who could work with the union and develop the company’s potential.”
- Kysoo Lee
JCP launched a Social Media campaign on Wednesday to get ideas of what core principles it should bring back in the revitalization effort.
In terms of our class, it is using the consultative approach because:
- Ullman doesn’t know what’s happening with the customers
- With so much change, the problem definition is not clear
- Customer’s buy-in is essential to the success
- Ullman thinks the time invested is worth it
- Tim Bernal