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MGTO 630BManaging People Globally for Competitive Advantage
Mergers & AcquisitionsMergers & AcquisitionsSaturday, March 8, 2003Saturday, March 8, 2003
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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
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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
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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
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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
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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!
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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
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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
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Knowledge Transfer and the Role of Alliances / M&As and Culture
National
Firm
Regional
Culture Motivation and
Incentives to form alliances, M&As
Ability to transfer Knowledge through alliances, M&As
Knowledge transferthrough alliances, M&As
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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
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HR practices that tend to be localized Time off Benefits Gender composition Training Executive bonus Participation
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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?
PDI UAI IDV MAS LTOSwitz.
34 (45)
58 (33)
68 (14)
70 (4)
--
USA 40 (38)
46 (43)
91 (1)
62 (15)
29 (17)
Country rank (out of 50 for all except LTO (23)) in brackets
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Figure 6-1 (p. 252). Trends in International Mergers and Acquisitions
Source: Mergers and Acquisitions Almanac, February 2001, p. 37.
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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
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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
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“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.
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Turnover Rate of Executives
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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
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Figure 6-4. The Wheel of Fortune at General Electric
Sou
rce:
R.N
. A
shken
as,
L.J
. D
eM
on
aco, an
d
S.C
. F
ran
cis
, “M
akin
g t
he D
eal
Real:
How
G
E C
ap
ital
Inte
gra
tes
Acq
uis
itio
ns,
” H
arv
ard
Bu
sin
ess
Revi
ew
, Ja
nu
ary
-F
eb
ruary
1998, p
. 167.
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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.
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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
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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.
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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
M & A Takeaways