Conference Board Handbook For M&A

Research Report
1241-99-RR
The Conference Board
Post-Merger
Organization
Handbook
Interviews with senior executives and an examination
of leading research on post-merger integration reveal
that successful organizational integration requires:
n execution of design fundamentals;
n senior corporate executive leadership;
n a framework of guiding principles;
n a formal merger management structure;
n a careful merger management process; and
n well-planned long-range activities.
Serving Business and Society Since 1916

About The Conference Board About the Author
Founded in 1916, The Conference Board’s twofold Robert J. Kramer, Ph.D., a principal researcher at The Conference
purpose is to improve the business enterprise system Board, is the author of a series of eight reports that address major
and to enhance the contribution of business to society. organization formats. Based on the core question of how multina-
tionals organize to conduct their worldwide operations, each
To accomplish this, The Conference Board strives report describes the strengths and challenges associated with each
to be the leading global business membership design, and what to expect in the future. Each report also includes
organization that enables senior executives from all numerous company examples.
industries to explore and exchange ideas of impact on
business policy and practices. To support this activity, Before joining the Board in 1990, Dr. Kramer’s research experi-
The Conference Board provides a variety of forums ence included 13 years at Business International Corporation,
and a professionally managed research program where he produced reports on a wide range of international man-
that identifies and reports objectively on key areas of agement subjects. His work has also appeared in publications
changing management concern, opportunity and action. such as Harvard Business Review, The Journal of Business
Strategy, and M&A Europe. His corporate background includes
human resource positions at RCA, International Paper Company,
and American Express Company. He has served for several years
as an adjunct professor of business management at Pace
University and Marymount Manhattan College.
The Conference Board, Inc.

845 Third Avenue Acknowledgments
New York, NY 10022-6679
Telephone (212) 759-0900 The author thanks the executives who supported this project
Fax (212) 980-7014 through interviews. He gratefully acknowledges the professional
www.conference-board.org contributions of Kristina Lucenko and Andrew Ashwell of The
The Conference Board Europe Conference Board’s publishing department, and Jasmine
Chaussée de La Hulpe 130, bte 11 Medrano of the Board’s research support unit.
B-1000 Brussels, Belgium
Telephone (32) 2-675-5405
Fax (32) 2-675-0395
www.conference-board.org/europe.htm
The Conference Board of Canada
255 Smyth Road
Ottawa, Ontario K1H-8M7 Canada
Telephone (613) 526-3280
Fax (613) 526-4857
www.conferenceboard.ca
Copyright © 1999 by The Conference Board, Inc.

All rights reserved.
Printed in the U.S.A.
ISBN No. 0-8237-0690-7
The Conference Board and the torch logo are On the Cover:
registered trademarks of The Conference Board, Inc.
Illustration by Dave Cutler. Copyright © Dave Cutler c/o

This document is printed
on recycled paper.
theispotTM.
Post-Merger Organization Handbook
by Robert J. Kramer
Contents
6 Designing a New Organization
6 Foundations of Merger-Driven, Corporate-Wide Organization Design
7 Tasks That Drive Integration
12 Managing the Integration of Two Large Organizations:

A Framework and Company Examples
12 Senior Corporate Executive Leadership
13 Guiding Principles
13 Merger Management Structure
14 Merger Management Process
15 Continuing Post-Merger Integration Activities
16 Merger Profiles
16 Baxter International, Inc.
22 The Chase Manhattan Corporation
28 Kraft Foods, Inc.
31 SmithKline Beecham
Post-Merger Organization Handbook The Conference Board 3

Post-Merger Organization Handbook
T
he merger of two large business organizations is a complex endeavor
fraught with the possibility of failure. Data indicate that less than half
of all mergers are successful and that faulty integration management—
due to the lack of a systematic, strategic approach—is an important cause of
the problems that may arise.1 The procedures for planning organizational
integration during the due diligence phase often fail to create a proper design
or to emplace the management systems and processes required to operate the
new corporation.2 Moreover, companies pay insufficient attention to the
critical success factors associated with integration, such as pace of activity,
methods of oversight and control, human resources considerations, the linkage
of operating events with financial metrics, communications, and obtaining
user acceptance of the entire merger integration process. As the authors of a
seminal article on this subject have observed, “Improving the…integration
process…may be one of the most urgent and compelling challenges facing
business today.”3
A systematic guide to designing a new organization, this handbook discusses

crucial elements of successful integration and offers methods for delineating the
corporation’s superstructure and shaping the details of its operating activities.
This report also describes four company experiences in terms of five inter-
related integration elements, as well as draws upon post-merger integration
literature, in order to focus on how to create the structure, processes, and
systems of a new organization from a merger of “equals.”4 This handbook
does not cover human resources or corporate culture.5 These issues will be
addressed in subsequent Conference Board reports which, taken together, will
compose a body of information on this subject.
The four mergers discussed, which represent a spectrum of merger management

outcomes, are: Baxter International, Inc. (merger of Baxter Travenol and
American Hospital Supply); The Chase Manhattan Corporation (merger of
Chase Manhattan Corporation and Chemical Banking Corporation); Kraft Foods,
Inc. (merger of Kraft, Inc. and General Foods Corporation); and SmithKline
Beecham (merger of SmithKline Beckman and the Beecham Group).

Figure 1
A General Model of Merger Management
I. UNDERSTAND II. ENVISION IV. ASSESS

the strategic goals of the new the desired design of the the implementation
corporation new organization
the design and operating
characteristics of each merger and
partner’s present organization
key partner characteristics III. MANAGE MAKE

third-party stakeholders the transition from I to II necessary adjustments
Sources: David Nadler, “Concepts for the Management of Organization Change,” in Michael L. Tushman, Charles O’Reilly, and David A. Nadler, The Management
of Organizations: Strategies, Tactics, Analyses (Cambridge, MA: Ballinger Publishing Co., 1989), pp. 493-–494. David Mitchell and Garrick Holmes, Making
Acquisitions Work: Learning From Companies’ Successes and Failures (London: The Economist Intelligence Unit, 1996), pp. VII, VIII.
Designing a New Organization
Four fundamental components compose merger management (see Figure 1).

These components should be administered so as to achieve three deceptively
evident, yet critical, goals:
1. Each organization is moved from its current separate state to

the desired merged state.
2. The new organization functions as planned.
3. The transition is accomplished without undue cost to either the

new corporation or to its individual managers and employees.6
Foundations of Merger-Driven, Corporate-Wide Organization Design
Three factors—the firm’s distinctive attributes, its economics, and the CEO’s
preferences—are instrumental in creating a framework for the design of a new
enterprise organization.
1. The corporation’s basic identity, core values, and business strategy

flow from management’s answer to a few fundamental questions:
What is the business? Who are its customers? What constitutes value
to the customer? What adjustments will help meet the future needs
of the business?7 The firm’s identity, derived from the answers to
these questions and supported by its core values and business strategy,
helps to create a common understanding and commitment among all
employees.
2. The company’s underlying economic model affects critical enterprise-

wide decisions regarding the allocation of the company’s resources, the
6 Post-Merger Organization Handbook The Conference Board

organization of and emphasis on its discrete value chain activities, and
the extent of integration among its units and activities. There are three
key components to a firm’s economic model:
l Stockowner preference for either value appreciation or dividend

income.
l Whether a firm is managed as an operating company that

oversees and conducts its various business operations, or as
a holding company where headquarters confines its activities
to investment interests in its businesses. As a general rule,
corporations that employ an operating company model are
characterized by a higher degree of centralization and greater
corporate added value, while those managed as holding
companies are decentralized and their headquarters add little
value to businesses in the portfolio.
l Business and industry considerations, such as the firm’s

position in the supply chain of its industry (whether it operates
as an upstream or a downstream company), the nature of its
process technology for producing products or services, and the
characteristics of the markets it serves.
3. The management philosophy and style of the CEO—including whether

he or she behaves as an autocrat or a team player, favors centralized
control or decentralized empowerment, what he or she emphasizes
or ignores, and what results he or she values—all influence the
organization of headquarters and the enterprise as a whole. This is
particularly the case in North American–based corporations where
the CEO is vested with great power.
Tasks That Drive Integration
There are two distinct tasks in designing a new corporate organization:

delineating the enterprise’s general superstructure and shaping the details
of its operating framework.8
1. Delineating the Enterprise Design
The corporate organization exists to support the company’s key business

performance requirements and to provide a framework for attaining
major strategic objectives. This task requires a clear understanding
of the businesses of the new company and their segmentation into
manageable units. There are five consecutive steps in the enterprise
design process:
Identify critical business dimensions. The critical dimensions of

the corporation’s business activities should include key products
or services, markets, customers, geographical locations, functions,
and technologies.

Rank the dimensions in order of decreasing importance. This step
Strategic Drivers of will help develop a focus for the segmentation of the corporation into
Corporate Structure units. Note that in some instances, one or more dimensions will be
considered to be of equal importance.
Product or service structure
Examine the basic corporate structural alternatives. These include
Product or service focus
product or service; geography; function; and market, customer, or
Multiple products/services for
industry. Each should be studied in the context of the business
separate customers
dimensions ranked above, and also in terms of the corporation’s
Short product development strategy. The key strategies best executed by the various structures
and life cycle
are noted in the box “Strategic Drivers of Corporate Structure.”
Minimum efficient scale for
functions or outsourcing
Analyze the strengths and weaknesses of each basic structural
alternative individually and in various combinations. Although the
Geographical structure major intent of this step is to compare and contrast each alternative
Low value-to-transport cost ratio design, another purpose is to study any modifications and
compromises as part of the overall evaluation process. Some
Service delivery on-site
questions for judging structural alternatives include the following:
Closeness to customer for
delivery or support l How do alternatives facilitate management control?
Perception of the organization
as local l How do they provide interaction among operating units
Geographical market segments and also among functional activities?
needed
l Do they provide sufficient management attention to those areas
Functional structure critical to the overall success of the business?
Small-size, single-product line
l Are they efficient and cost-effective?
Undifferentiated market
Scale or expertise within the l Are they likely to develop future corporate leaders?
function
Long product development and It may also be helpful to examine each structural alternative in terms
life cycles of the factors and competencies that will achieve the firm’s strategic
Common standards objectives. Identify the management decisions that are crucial to the
success of the enterprise at different levels. Also, consider how the
Market/customer/industry major competitors of the newly merged company are organized.
Final structural alternatives should be compared in terms of cost
Important market segments
estimates.
Product or service unique to
segment
Select the best design. The final choice may be homogenous, such as
Buyer strength a straightforward arrangement of product or service business units
Customer knowledge advantage reporting to the CEO. Alternatively—and more likely—the design
Rapid customer service and
may constitute a mix of structures, such as several single-product
product cycles businesses, one or more geographical units, and a few global func-
tional activities. The overall design may also be a matrix compris-
Minimum efficient scale in
functions or outsourcing ing product, geographic, and/or functional dimensions.
It is possible that more than one structural alternative may be

Source: Jay R. Galbraith, Designing
Organizations: An Executive Briefing on identified as desirable. In this event, it may be helpful to gather
Strategy, Structure, and Process (San additional information and to reconsider which model—or synthesis
Francisco: Jossey-Bass, 1995), pp. 37–38. of alternatives—best captures the implication of the corporation’s

long-term performance needs as well as its strategic objectives.
Remember, there is no “perfect” design—each has its advantages
and disadvantages. Thus the selection process is an exercise in
judgment, rather than a search for an ideal.
2. Detailing the Operating Design
The purpose of this second step is to identify the corporation’s major

operational tasks and to assign them to the unit segments previously
defined in the enterprise’s basic structure. Some criteria to help guide
the analyses include:
Key operational tasks and work flows
What are the corporation’s most important operational tasks?
To what extent is interdependence or integration required among the

critical tasks?
Do any critical work flows involve external stakeholders such as

alliance partners, suppliers, and distributors?
Line operations
Which assets and resources should be contained in which units?
To what extent should operating units manage their own dedicated

line and staff activities?
Should similar operating units be grouped together and report to a

common group executive? To what extent should functions be
duplicated or shared among these units?
What degree of strategic and operating autonomy should each

operating unit have? How will senior managers of these units be held
accountable?
What linkages exist among operating units? For example, should

joint operations and mechanisms be established for coordinating,
sharing, and transferring information/knowledge?
To what extent should country subsidiaries and their functions be

autonomous? Is there a need for regional headquarters?
If certain resources, such as plants and distribution facilities, are

shared by more than one operating unit, to which should they report?
How should they be managed?
If certain key customers operate globally, and the worldwide

resources of several operating units serve their needs, how should
their relationship with the corporation be handled organizationally?

Staff operations
What will be the role of the new corporate headquarters, and

how should it be organized to execute that role?
Which activities will be performed at corporate headquarters?

Performed elsewhere in the corporation? Contracted to external
providers? Eliminated?
Which activities can be delivered across the enterprise’s portfolio

of businesses and divisions? Which are unique to the special
requirements of a business, geographic area, or unit?
Should certain activities be clustered in one or more shared services

operations?
Management systems and procedures
How and when will information systems of the two companies

be merged?
Which functions, such as finance, human resources, and performance

management, require priority attention?
How will management communicate to key stakeholders?
Human resources
How will each firm’s key senior executives fit into the new
organization? What organizational adjustments need to be made to
accommodate the skills and interests of these senior executives?
Which appointments should be made quickly and which can be

delayed?
How will staffing decisions in managerial, supervisory, and

professional positions be made? What is the timetable?
How will redundancies and reductions of employees be handled?

Have severance terms and conditions been prepared? Have
procedures for notifying external stakeholders, such as customers,
local government, and news media, been established?
Which individuals should be located in corporate headquarters?
What are the most important training needs and how will they
be addressed?
What is the relationship between employee skill sets and

competencies already in place and organizational task require-
ments? If a shortfall exists, can it be corrected by training or are
new hires required?

General Design Guidelines
Do not overemphasize the search for It may not be appropriate to A merger provides a unique
a single optimal solution. There is no organize every business or division opportunity to redefine the
one best way to organize. Most com- in the same way. Each respective scope and content of principal
panies have a “mixed” organizational organization should reflect its unique positions at many levels so
set-up that combines two or more circumstances and goals. employees can contribute more
formats. and find their work more rewarding
than their predecessors.
When working on an organization The CEO and the top executive
design, do not be tempted by committee should be actively
complex solutions. Try the simple ones involved in the design and
first. If, for example, certain organiza- implementation of the new Care must taken to set
tional aspects of the merger should be organization. Proactive and visible demanding—yet adequate—
implemented in stages, limit the number leadership is a critical component of project deadlines. Organization
of stages to keep the progression clear all merger-related activities. design is a labor intensive, time-
and to minimize work disruption through consuming task. Management
careful communications. must gather data, perform analysis,
The new organizational structure and review the alternatives.
Nothing is permanent. Build some should set clear targets and reward Nonetheless, it is in the interest
flexibility into the design to individual managers and teams of all stakeholders to get the job
accommodate change. accordingly. done as quickly as possible.
Organization culture
What are the attributes of the desired culture of the new company?
Is it consistent with the business strategy? Will it strengthen
employee motivation? Which norms, values, and informal
communication patterns are most desirable?
How will the new culture be defined, shaped, and championed?
How will it be implemented and how will behaviors be changed?

Managing the Integration of Two Large Organizations:
A Framework and Company Examples
The heart of managing the integration of large organizations comprises
five interrelated elements (see Figure 2). These are:
Senior Corporate Executive Leadership
In most cases, the CEOs of both merger partners—sometimes joined by two

or three other senior officers (e.g., COOs, vice chairmen, heads of corporate
strategy)—form a steering committee that provides guidelines, obtains
recommendations, and reviews and approves all major integration activities.
The CEO may take on additional roles if he or she feels it will bring about
a successful integration. For example, the chairman and CEO of Chase
Manhattan Bank sought to focus employees on a vision of the new company
and to promote a spirit of collaboration, so he delegated supervision of the
bank’s merger management structure to a senior vice chairman. On the
other hand, the CEO of SmithKline Beecham chose to oversee most of the
major integration activities, such as project-team work plans, internal and
external communications, and recommendations made by the merger
management structure.
Figure 2
The Five Elements of Integrating Two Organizations
Guiding
Principles
Continuing
Senior Corporate Merger
Post-Merger
Executive Management
Integration
Leadership Structure
Activities
Merger
Management
Process

Guiding Principles
Each of the four company merger profiles contains a set of general principles
and values intended to serve as a framework to merger integration activities
and decisions. Some examples of guiding principles are:
l The merger will comprise equals, including shareowners,

board members, management, and businesses.
l The need to do it right will be balanced with the need to do

it expeditiously.
l As much control as possible will be delegated to each business unit.
l The integration will involve as many individuals as possible.

Managers understand the challenges and opportunities of their
operations much better than a small group of headquarters executives.
l In the midst of merger activities, customer handling and

communications must remain a high priority.
l It is important to keep employees informed about what is happening,

what will happen next, and what the company expects of them.
l The best people will be retained regardless of prior company affiliation.
Merger Management Structure
The Merger Management Structure, or MMS, is a project group formed

to manage the integration of the two organizations. The core of the group
consists of fewer than six individuals from both merger partners. It reports
directly to the corporate steering committee. Led by an executive who is
vested with the authority and power to manage the operation, the MMS:
l sets overall objectives, policies, and cost parameters;
l establishes planning, budgeting, coordination, tracking, and

reporting mechanisms;
l identifies, reviews the status of, and evaluates the completion

of all planned events;
l acts as the focal point for decision-making, dispute resolution,

and senior corporate steering committee reviews;
l assures the provision of staff support and approves the use of

consultants; and
l functions as a center for communicating the merger’s status to

stakeholders at all times.

Within the MMS framework, various planning teams, task forces, and pro-
ject teams develop and execute specific integration activities. Unlike the core
members of the MMS, who are assigned to work on the merger full-time, the
individuals who compose these teams remain only as long as their project
assignment. Some of their activities address line-related matters dealing with
business units, technologies, products, markets, etc. Others undertake staff
assignments in areas such as human resources, finance, or information tech-
nology. Some projects relate to management structures and systems, while
others deal with operating practices and administrative processes. As the
SmithKline Beecham experience reveals, no assumptions can be made about
the capability of these teams to work in an effective manner. Hence, team
members should be given training in team-based skills.
Merger Management Process

Processes—sequences of activities or methods that bring about merger
integration—are the key action element in the model presented in Figure 2
on page 12. They differ according to company experiences and require-
ments. For example, Baxter International implemented its merger with
American Hospital Supply in a sequence of four steps: defining the strate-
gic mission of the new company, designing its organization, staffing the
key positions, and implementing the entire merger.
Six Common Errors of Integration Project Management

1. Lack of a clearly defined project 4. Skimping on investing in the lagging far behind …. Design
leader. Assigning individual integration effort. Companies an aggressive communications
accountability and responsibility is often invest heavily in due dili- plan to get people the informa-
the best way to get a strong action gence, then get stingy in terms tion they need. Move at top
orientation …. Individuals from both of their willingness to spend on speed to give them closure
organizations should be present on the integration effort. This helps on the “me issues.”
the team, but only one person explain why so many good deals
should be in charge. go bad …. The economics argue 6. Leaving too much on the
strongly in favor of allocating table. Too many integration
2. Failure to execute against the sufficient resources—money and efforts are far too superficial.
plan. The role of the merger team people—to support a sophisticated For example … has each task
is to ensure that the plan is man- integration process. force team taken a good, hard
ageable and that the task force look at the combined organiza-
teams are not sidetracked. 5. Presuming that all people are tion to find every possible
at the same point. Senior benefit? Has it sought out
3. Declaring victory on the 20-yard management … has had access every possible synergy? Has
line. Avoid the temptation to to information, time to wrestle it continued to look for cost-
claim that the merger is over just with the issues, and has exam- cutting and revenue growth
because some important, top-level ined how they will be affected beyond what the deal makers
issues have been settled. by the deal. Other folks will be originally identified?
Source: Price Pritchett, with Donald Robinson and Russell Clarkson, After the Merger: The Authoritative Guide for Integration Success (New York: McGraw-Hill,
1997), pp. 124–125.

Chase Manhattan Bank’s use of financial management metrics and tools in
order to create explicit linkages between integration events and financial out-
comes is another example. In order to control and calibrate restructuring
charges and savings targets, the bank’s Merger Office worked closely with
each line of business. The businesses developed detailed master plans that
displayed the source of savings and restructuring charges on a merger
event-by-event basis. The Merger Office approved each plan and then
tracked outcomes. In addition, the various line-of-business plans were con-
solidated on a master chart so that progress against corporate goals, which
had been announced at the outset of the merger, could be followed.
Continuing Post-Merger Integration Activities

The integration of two large organizations is not accomplished overnight.
When SmithKline Beckman merged with the Beecham Group, the plan to
create a new company covered a six-year period with an ongoing capability
for change. The structural integration piece of this plan lasted about 18
months and was regarded as the first step in a long-term project.
Events in the Chase Manhattan–Chemical Banking merger were sequenced

over a four-year period, with a high concentration of events occurring dur-
ing the first year. This type of schedule characterizes many other merger
experiences as well, in that the most important activities occur early on.
Additionally, it is the best time for major change to come about. As a
SmithKline Beecham executive explained, “The companies involved
expect change; they’re looking for something to happen.”
Still, even after the initial goals have been met, important long-term
activities should be planned and carried out. For the integration is not
complete—and may yet founder—unless these matters receive attention.
They range in scope and importance from ongoing adjustments and struc-
tural alterations; through development of common practices and processes,
team building, and changes in performance management methods; to
cultural transformation.

Merger Profiles
Baxter International, Inc.
B
axter International, Inc. (Baxter) operates in a single industry segment.
Focus: A merger integration that It is a global medical products and services leader of technologies
proved difficult from the outset
related to the blood and circulatory system. It has positions in four
and was further hampered by
business: biotechnology, which develops therapies and products in transfusion
inadequate organization design
medicine; cardiovascular medicine, which develops products and provides
work and conflicts of culture and
management style. services to treat late-stage cardiovascular disease; renal therapy, which
develops products and services to improve therapies to fight kidney disease;
and intravenous systems/international distribution, which develops
technologies and systems to improve intravenous medication delivery
and distributes medical products.
In 1997, the company’s revenues totaled $6.1 billion, more than half of which
was generated outside the United States, and it employed 37,000 individuals.
Baxter is headquarted in Deerfield, Illinois.
In 1985, Baxter acquired American Hospital Supply (AHS), which had been a
Baxter distributor from 1932 to 1962. The merger made Baxter the world’s
largest hospital supply company, offering more than 120,000 products and an
electronic order-entry system that connected customers with approximately
1,500 vendors. The post-merger integration was fraught with difficulty due to a
hostile takeover and a history of the two companies as rivals. This had ramifica-
tions for some individual employees. In the words of one executive, “Some
senior sales representatives asked me, ‘How in the world am I supposed to work
with somebody who may have slashed my tires in a parking lot twenty years
ago?’” The executive concluded that perhaps the hostility of the two companies
affected the way the merger was handled. The operating philosophies of the two
companies differed as well: Historically, Baxter was managed in a centralized
manner with strong vertical functional ties, and a technology-manufacturing-
innovation orientation, whereas AHS decentralized authority to its self-con-
tained divisions and was customer-driven and people-oriented.
Guiding Principles9
l The organization will be based on doing what is best for the business.
l The best people will be retained regardless of company affiliation.
l The merger will proceed in an orderly fashion, but it must achieve

early and visible benefits.

l We will seek decentralization to the extent that it serves our
customers.
l The need to do it right will be balanced with the need to do it

expeditiously.
l The integration will include broad participation from executives

of both companies at every step.
l Management intends to conduct the merger integration in an

unprecedented, model way.
l Employees of both companies will be treated in an open and

honest fashion, and will be kept informed about the progress
of the integration through constant communications.
A Merger Steering Committee, comprised of CEOs and presidents of both

Baxter and AHS, reviewed and approved all integration activities.
A full-time Transition Management Team was formed to directly oversee the

merger integration process. All task forces involved with the merger integration
reported to this team, whose membership was drawn from both companies.
According to one executive, the team was effective for these reasons:
l Team members were strong and confident, and were respected by

others in the organization.
l Team size was small.
l Planning was solid.
l The team focused on critical points and paths.
l Top management was supportive.
l The team coordinated and controlled work done by others.10
A Top Management Organization Structure Task Force of human resources

and planning vice presidents designed the new corporate line and staff struc-
ture and selected the top 20 officers.
A Corporate Staff Integration Task Force, comprised of individuals from both

firms, designed each staff function with help from functional area task teams.
They also worked with the 20 new officers to select the new corporate staff
from a pool of more than 3,000 internal candidates.

Management agreed to implement a four-step process: define the strategic

mission of the new company; design its organization; staff the key positions;
and implement the entire merger.
In determining the corporate structure, the Top Management Organization

Structure Task Force sought to profile the divisions, then to identify groupings
of operating units, and finally to determine the number of operating groups and
corporate staff functions. Ultimately the task force decided on a framework of
10 operating groups and 10 staff activities. Four were overseen by each of the
two COOs/executive vice presidents, and two reported to the chairman. It was
decided that the structure would be rationalized after further study by combin-
ing operating units based on synergies.
A key early objective, however, was to merge the two corporate staffs. A formal
design process to accomplish consolidation comprised the following actions:
prepare mission statements; identify the various functions and subfunctions;
designate the programs and systems required for support; evaluate a centralized
versus a decentralized approach to managing each function; determine the
resources needed to accomplish each function’s mission; create an organization
structure; select the best people to staff each position regardless of company
affiliation; and implement the new organization.
According to a Baxter executive, the company’s approach to organizational

consolidation offered the following “pluses”:
l The top four executives focused closely on organization issues.
l The timing and phasing of organization development were appropriate.
l The level of detail of the initial design allowed operating executives

to put their imprint on their organization.
l Confining organization deliberations to a small group was essential in

order to get work done quickly.
On the other hand, some “minuses” were:
l too much early emphasis on staff functions;
l not enough “thrashing out” of fundamental philosophies and values

that underlie organization design; and
l the basic issue of redefining business units in relation to specific

markets and customer groups as well as their interrelationships
should have been addressed earlier. Without question this is the key
to a successful strategic merger.11
The staffing process used a “candidate slate” approach. The process, which
began two months before the merger officially closed, gave the Top

Baxter’s Merger Action Plans: First and Second Phases
First-Phase Project Action Plans

(Critical activities, pre-merger effective date)
Legal requirements Corporate strategic vision Physical distribution
Antitrust compliance Top management organization structure Communications
Divestitures Consolidate corporate staffs Merger planning and control
Merger financing Personnel policies Preliminary business/operating analysis
Second-Phase Project Action Plans

(Necessary activities, post-merger effective date)
Planning and monitoring Strategic goals and plans for hospital Selected group organization plan
company and scientific products Alternate site
Operational budgets with synergies—
International
$ and headcount Hospital sales force(s)—role and
Canada
structure
Cash management
Management processes and procedures
Physical distribution consolidation
Five-year strategic planning
Management development and
Portfolio analysis Manufacturing process audit and
team building
Financial targets with consolidation plans
synergies Facilities planning for northern Illinois
RA/QA policies, procedures, and
Travenol hospital partnership program organization plan
Source: Thomas G. Cody, Strategy of a Megamerger: An Insider’s Account of the Baxter Travenol—American Hospital Supply Combination (Westport, CT:
Praeger, 1992), pp. 138–139.
Management Organization Structure Task Force the chance to review candi-

dates for the top 20 corporate officers, while the Office of the Chief Executive
made the final selections. The same approach cascaded through the organization
over four months. Thus each of the 20 officers were given 30 days to select
their direct reports. Then function by function, managers selected all other
exempt positions with the approval of their respective vice presidents. Salaried
as well as hourly employees were subsequently chosen by managers who used
job posting/slating and interviews as methods of selection. Each manager’s
direct supervisor had to approve these appointments.
For an overview of all important pre- and post-merger activities, see the box
“Baxter’s Merger Action Plans: First and Second Phases.”
On July 15, 1985, the boards of Baxter and AHS agreed to terms, and on
November 25 the merger became official. Within that four-month period,
management had designed a new organization, chosen the top 20 officers, and

selected and notified the new corporate staff. But the merger was far from com-
plete. Some of the issues management felt still needed to be addressed were:
l finding the appropriate balance between centralization and

decentralization;
l merging the two cultures;
l realizing organizational synergies (e.g., sales force consolidation);
l retaining key executives; and
l improving the balance sheet.
In October 1986, the original 10 operating groups were reduced to 5, and

a corporate-wide downsizing of more than 6,000 management positions
was announced. The restructure focused on synergies and the emerging
strategic business direction.
In August 1987, the five operating groups were reorganized to capitalize on

different markets and technologies. Four months later, the five operating
groups were reduced to four as domestic businesses were clustered according
to buying influences.
In June 1988, the four operating groups were again reduced to two in order to
improve customer interface and global product profitability and technology.
In April 1990, the company announced it would close, consolidate, or sell 21

manufacturing plants; divest marginal businesses; and cut about 10 percent of
the company’s worldwide workforce (6,400 individuals). This retrenchment
focused largely on Baxter’s hospital supply business.
Two years later, the firm eliminated its alternative site healthcare business.
The end came on September 30, 1996, when Baxter spun off its multibillion
dollar cost management and hospital supply business as an independent
company, Allegiance Corporation.
Key Learnings: Requirements for Merger Success
According to author Thomas Cody’s study of the Baxter merger:
It may be a mistake, at least in this type of merger, to place too much emphasis
on staff, overhead, and “headcount” synergies as opposed to sales, distribution,
and product-line synergies ….
Getting from strategy to structure is clearly the most difficult step in the mega-
merger ….We need to learn a lot more about designing organizations to withstand
the stresses and strains of a major merger…one specific kind of stress during the
early, critical days of the merger combination and then a different kind as the new
organization goes forward from there.

The key to successful organization in a strategic merger is to “sculpt” the indi-
vidual business units differently and then to change their internal relationships.
If this is not done, then the business units tend to resist the strategic direction
coming from the top.
Measuring actual synergies proves to be extraordinarily difficult. How should

headcount savings be calculated? Against the merger baseline? Adjusted for
growth? In terms of productivity or other ratios? Then there are accounting
adjustments from one period to the next.12
Conflicts of culture and management style must be considered when making

organization decisions and taking human resources actions. Yet in Baxter’s
case, “top management never really bought into the idea that there were
potentially serious adverse consequences of miscalculations about culture ….
In reality, top management at that time retreated from the culture issues
because acknowledging them might appear to call into question the strategic
logic that drove the merger …. In the longer term, failure to ‘wire up’ a
clearer and stronger organization and employee culture cost the new company
important time in moving back up the earnings and return-on-assets curve.”13

The Chase Manhattan Corporation
T
he Chase Manhattan Corporation (Chase) was formed on March 31, 1996,
Focus: An exceptionally well-planned when the former Chase Manhattan Corporation merged with Chemical
and controlled operation. Executives
Banking Corporation (Chemical). Headquartered in New York City,
overseeing the merger drew on the
Chase has more than 70,000 employees and offices in 39 states and 49
company’s previous experience of
countries. With $366 billion in assets, it is one of the largest bank holding
organizational integration.
companies in the United States. The company’s operations are organized into
three major business franchises: the Global Bank, National Consumer Services,
and Chase Technology Solutions (which includes Global Services).
In 1991, Chemical merged with Manufacturers Hanover Trust Corporation.

Many of the guidelines and management activities described in the following
merger profile were developed and tested in that previous merger experience.
These were further refined for and expressly tailored to the Chase–Chemical
consolidation.
Guiding Principles
l Management believes that strong corporate oversight and control

is critically important to a successful merger. If key line and staff
executives implement their own approaches to integration under an
umbrella of overly general guidelines, overall corporate-wide
coordination can be lost and the risk of dysfunctional activities is
increased. Moreover, in a global bank with the scale of Chase’s
operations, the assurance of adequate controls cannot be
overemphasized.
l A specific merger transition structure, or Merger Office, is a

necessary vehicle to carry out the merger.
l Line management is given the necessary authority and responsibility

to implement their merger under the procedures and specific
performance requirements set forth by the Merger Office. The
merger of two large corporations cannot be managed in detail by
a central office.
l Project management methods of operation and disciplines are used

extensively.
l In the midst of the intensive activities and concerns of the merger,

client handling and communications must remain a high priority.
(As one Chase merger catchphrase stated: “Never forget, it’s our
merger, not our customers’.”)

l A significant amount of attention is to be paid to human resources
considerations from the very outset.
l In the tradeoff between precision and speed, management chooses

to move quickly. (“Important business issues and personal career
interests are at stake in a merger, so people want to overanalyze
everything. But you can’t get bogged down; the world keeps
moving,” said one executive.)
l To make the merger more manageable, an effort must be made to

address critical decisions early in the process. (“It’s a form of triage.
You try to pick a few important things that will assure the success of
the merger.”)
l Employee-related change management objectives include: providing

timely, accurate information; ensuring employees understand the
merger and its time frames; creating forums for employees to express
their views and to hear from top management; providing broad access
to merger-related resources; and adhering to policies.
l Since the merger creates a new business institution, there is an

ongoing requirement to look beyond merger integration and to
consider the strategy and defining characteristics of the new entity.
Executive oversight was exercised by a Transition Committee, whose mem-

bers also composed the Office of the Chairman (see Figure 3). They included
the chairman and CEO, the president and COO, the senior vice chairman, a vice
chairman responsible for technology and systems, the CFO, Chemical Bank’s
head of the local banking business, and Chase’s head of the capital markets
Figure 3
Chase’s Merger Management Structure
Executive Oversight
Transition Committee
(Office of the Chairman)
Business Area
Coordinators
Functional Area
Merger Office
Coordinators
Business Unit
Liaisons
Merger Planning,
Integration, and
Reporting

business. The Transition Committee met on a frequent formal or informal basis
and was involved in the most critical merger decisions. The senior vice chairman
was the committee member designated to oversee the merger on a full-time
basis, and an executive vice president acted as his deputy as head of the Merger
Office. In retrospect, the chairman and CEO played the important role of focus-
ing people on the vision of the new Chase. As one executive explained, “His
mindset was to ensure that the transition addressed the things that needed to hap-
pen to get us to the new institution.” He also fostered a spirit of collaboration
throughout the enterprise—as opposed to competition—as the best way to
achieve a successful integration.
The charter of the Merger Office was made up of the following goals: to
develop and implement an overall management integration framework; create
its procedures; conduct activity reviews; establish planning coordination,
tracking, and reporting mechanisms; handle dispute resolution; and undertake
control and risk management activities. In addition, the Merger Office created a
common integration language, and was the corporate nerve center for communi-
cating the merger’s status to stakeholders. A core group of executives in the
Merger Office met for a month prior to the merger announcement to prepare
the merger process and protocols for presentation to the Transition Committee
at its first meeting.
Business Area Coordinators, which represented the company’s most senior

line-of-business executives, oversaw integration activities across their respec-
tive businesses. They supplied a critical link between the Merger Office and
business units.
The international activities in the Global Bank were integrated in accordance

with the same Merger Office rules and protocols as domestic operations. The
country managers and regional executives worked in a matrix with the lines of
business to achieve their integration targets.
Business Unit Liaisons had merger management administration responsibility

within local business units. They acted as a focal point for channeling corporate
merger requirements, rules, and resources to their business units. They were
also a focal point for identifying and managing interdependencies across
functional and business unit merger transition teams. The latter responsibility
is particularly important in a financial institution that relies upon numerous
interdependent activities to serve a customer relationship.
The Chase merger plan included 2,000 interdependent integration events in

which representatives of various activities had to agree on plans, deliverables,
and time schedules for each event. The Merger Office coordinated the execution
of the events so that a comprehensive integration could take place.
Functional Area Coordinators represented six corporate staff groups in the

Merger Office: audit and control, communications, facilities, finance, human
resources, and technology and operations. Their task was to map and evaluate
existing practices and, working with their respective functional executives,
establish new common corporate policies. In addition, they managed the
integration of their own staff groups in the context of Chase’s emerging
business models.

Figure 4 The foundation for the entire Chase merger integration process rested on three
elements: a Merger Overview Model, a Technology Integration Model, and
Integration Management Financial Management Metrics and Tools (see Figure 4).
Merger The Merger Overview Model (MOM) provided a comprehensive blueprint of

Overview the integration, including major events. Specifically, the model’s purpose was
Model
to: understand critical success factors, track major milestones, monitor interde-
pendent management activities, identify high-risk points, provide a central cor-
porate repository for merger plans and their current status, and leverage
information for stakeholder communications.
The MOM planning framework defined 12 standard milestone groups to easily

identify integration activities by type of action. For example, some of the mile-
stone groups included: organizational decisions, business unit strategy, systems
integrations, sales and distribution, risk management policies and procedures,
Risk
Management and legal and regulatory. Subsets of each group were identified to understand
drivers of significant expense savings, critical facilitating events, and high-
Technology Financial risk/high-profile events. Each business unit was required to plan for all of the
Integration Management milestone groups and their subsets, as well specify when each activity was to
Model Metrics and Tools occur. Chase used a project management software tool to organize and manage
this task. At the corporate level, management tracked 3,308 major milestones,
13,000 tasks, 2,000 interdependent events, 3,820 discrete events, and 306 criti-
cal systems and operations conversions. Meanwhile, each business unit planned
and tracked its own specific milestones, tasks, and events.
Management announced at the outset that the new company would take a $1.9
billion restructuring charge, and would save $1.75 billion as a result of the
merger. Hence, Financial Management Metrics and Tools were created to
forge explicit linkages between integration events and financial outcomes. The
Merger Office worked with each line of business to calibrate its restructuring
charges and savings targets. The businesses were asked to develop a detailed
master plan that showed the source of savings (e.g., systems and technology,
facilities closure) and restructuring charges (e.g., reductions in workforce) on an
event-by-event basis. The Merger Office approved the plans and ensured that
the savings and reserve commitments were tracked.
According to one executive, “Developing the restructuring charges and savings

targets according to each merger event for each business and having them come
out to the announced corporate totals was a demanding exercise. Every merger
has bankroll limits but not every company makes the effort to plan for its
administration at the front end. The allocation of restructuring reserve funds
requires particular attention. Accordingly, the Merger Office worked closely
with the businesses to advise them of steps they could take to meet—and even
come in lower than—their restructuring charge targets. These activities, how-
ever difficult to accomplish, nonetheless allowed Chase to manage the financial
risks associated with the merger.”
The MOM also included a Technology Integration Model (TIM) since,

as noted earlier, systems and operations integration is the heart of a bank’s

Exhibit 1
Leveraging Technology Systems

Sept. ’95 Oct. ’95 Nov. ’95 Dec. ’95 Jan. ’96 Feb. ’96 Mar. ’96
Application Suite Definition

l Systems inventory Information Gathering
l Review teams
l Features and functions
l Operational characteristics
l Risk management issues
l Application-specific details
l Economics
Selection Process
l Business and CIO
review and sign-off Conversion Planning
and Implementation
operating environment. The Merger Office built the TIM according to the
events captured in the MOM for risk management and successful execution.
Thus, when it was prepared, the TIM provided the road map for systems and
operations integration.
In merging the technology systems, a decision was made at the outset to incor-
porate the best application suite already in use by either merger partner. Thus, in
the case of the mortgage business, an application suite from Chemical Bank was
used to provide systems support for the entire flow of business processes from
mortgage origination at the front end to mortgage servicing at the back end.
This approach, which worked very well for the Merger Office in terms of
saving time, resources, and money, is further outlined in Exhibit 1.
It should be noted that a key enabler of the entire merger integration exercise
was the human resources plan and its execution. In fact, a senior executive
stated that human resources and leveraging technology systems were the two
most important pieces in the merger process. Human resources–related aspects
of mergers will be addressed in a forthcoming Conference Board report.
According to the plan, merger events were sequenced mainly over a three-year
period. A high concentration of events—72 percent—took place in the first
year, while 15 percent, 12 percent, and 1 percent were scheduled in the follow-
ing years. Some of these were quite important to the success of the new Chase.
For example, a number of complex systems and operations events took place
in the second and third years under the direction of a vice chairman.

Senior Chase management states that the key requirements for successfully
merging two large and complex organizations are:
l formulation of a complementary set of merger tools and techniques;
l linkage of operating events and financial metrics;
l use of an integrated framework for tracking and reporting activities

over the full course of the merger (four years);
l communication to ensure broad employee understanding of integra-

tion goals and events;
l implementation of control and risk management disciplines; and
l user acceptance of the protocols, requirements, and tools employed

in managing the merger.

Kraft Foods, Inc.
K
raft Foods, Inc. (Kraft) is the largest processor and marketer of retail
Focus: A cautious, slow-moving packaged food in the United States. Its businesses include: frozen pizza,
merger in which streamlining
meals, beverages, ready-to-eat cereals, desserts and snacks, cheese,
business operations, eliminating
packaged meats, coffees, and enhancers (e.g., salad dressings and mayonnaise).
duplicate functions, and increasing
Its subsidiary, Kraft Foods International, Inc., markets coffee, confectionery,
overall effectiveness of the business
took more than six years. and grocery products in Europe and the Asia-Pacific region. Headquartered in
Northfield, Illinois, Kraft’s revenues for 1997 totaled $27.7 billion.
Kraft is a wholly-owned subsidiary of Philip Morris Companies, Inc. (Philip

Morris), which is the world’s largest manufacturer and marketer of consumer
packaged goods. Focusing on three industries, Philip Morris is the largest inter-
national tobacco company, the second-largest food company, and the third-
largest brewing company in the world. In 1997, the corporation’s operating
revenue was $72.1 billion, and it employed 152,000 individuals.
In November 1985, Philip Morris acquired General Foods Corporation (GF) for
$5.75 billion. GF sold products under such brand names as Bird’s Eye, Crystal
Light, Entenmanns, Jell-O, Kool-Aid, Maxwell House, and Oscar Mayer, and
had revenues of $9 billion in 1985.
Three years later, on December 7, 1988, Philip Morris acquired Kraft, Inc., the
United States’s largest independent food company, for $12.9 billion. At the
time, it was the second-largest takeover in history. Kraft’s product lines
included Velveeta cheese spread, Parkay margarine, Miracle Whip salad dress-
ing, Breyers’ ice cream, and Philadelphia Brand cream cheese. Kraft’s chairman
and CEO was promptly named Chairman and CEO of Kraft and General Foods,
as well as vice chairman of Philip Morris. Another Kraft executive was named
president and COO of the two companies. These executives were given the task
of overseeing the integration of Kraft and General Foods.
Guiding Principles
l A single food company will be created because it will:
“permit a focused strategic vision for Philip Morris’s entire

food operation;
facilitate coordinating the domestic and international businesses,

particularly ensuring brand consistency and technology sharing;
maintain retail and commercial linkages and permit common

sourcing and usage of materials and trademarks; and
allow a single policy for dealing with retailers and other con-
stituencies on issues such as slotting allowances, trade terms,
and food regulations.”14

l The company will be named Kraft General Foods (KGF). Its
headquarters will be located in Glenview, Illinois.
l Until the management team of the new company is assembled, KGF

will continue to operate as separate firms under present management
and business systems.
l In due course, similar KGF businesses will be combined under a

common management.
l As much control as possible will be delegated to each business unit.
l Integration activities should move quickly in order to fully capture

the benefits of the merger.
l Both operating and integration activities will be separated during the

transition so that control may be maintained over operations.
l The best person from either company will be placed in each job.
l KGF will seek to retain quality personnel by providing strong

incentives.
The new chairman and CEO of KGF formed a Merger Committee to recom-
mend how the integration should proceed. In addition to himself and the presi-
dent and COO, the committee members included the Kraft CFO, as well as the
vice presidents of strategy from both companies. Note there was no member
from Philip Morris.
The committee first addressed corporate organization. It recommended an

interim structure of seven operating units—a format in which two-thirds of
previous operations remained unchanged. The only new units encompassed
groups of foods having similar distribution.
The chairman and CEO and the president and COO—in consultation with the
head of Philip Morris—then appointed the heads of the operating divisions as
well as corporate staff functions. The seven divisional heads and staff officers
formed an Operating Committee that focused on interdivisional matters.
The Merger Committee identified four areas where synergies between the two
firms could be achieved: purchasing, international operations, manufacturing
and distribution, and research and technology. These were examined and imple-
mented by Functional Councils and monitored through an accounting system
that tracked synergies.
The Functional Councils explored and implemented synergies across divisions.

Each had explicit objectives that were tracked by performance. The councils
and their focus of attention were: Operations Councils (manufacturing and

distribution); Purchasing Councils (joint materials purchases); Marketing
Council (consumer promotions); Sales Council (customer information sharing
and policy standardization); and Technology Council (reduction of fat content
and artificial flavor technologies).
The committee also commissioned the following four task forces, which, with
the assistance of external consultants, were to explore certain integration
matters that had not yet been resolved.
Human Resources: to develop consistent policies for the new company.
Sales: to probe options for reconfiguring the domestic sales force.
Corporate Staff: to examine which functions should be performed

centrally.
Technology: to consolidate fundamental research and retain product

development in each division.
In early 1990, KGF created a functional-product matrix format—7 operating

unit heads were matrixed with 10 functional vice presidents. P&L responsibili-
ties remained with the seven operating heads, as well as with the senior vice
presidents of sales and technology.
From 1993 to 1995, certain domestic sales operations were integrated. In

addition, the elimination of some 100 management positions removed a layer
of management from the organization.
Finally, in January 1995, Philip Morris announced it would merge KGF into
Kraft Foods, Inc. The organization, made up of 12 divisions, sought to further
streamline operations, eliminate duplicate functions, and increase the overall
effectiveness of the business. Headquarters were relocated to Northfield,
Illinois.
The president and COO felt that the integration should have proceeded more
rapidly, stating: “We picked the lower fruit first and left the higher fruit for last.
The only question is: Could we have picked the higher fruit earlier if we had
been more aggressive?”15

SmithKline Beecham 16
S
mithKline Beecham (SB) is one of the largest healthcare companies in
Focus: A well-managed integration the world. SB develops, manufactures, and markets pharmaceuticals,
characterized by strong CEO vaccines, over-the-counter medicines, and health-related consumer
involvement and change manage- products. It also provides healthcare services, including disease management,
ment initiatives that sought to
clinical laboratory testing, and pharmaceutical benefit management. With
transform two separate companies
headquarters in London, SB has manufacturing facilities in 31 countries and
into a new corporation with a
singular strategic vision.
sells its products worldwide. The firm’s 1997 revenues were $12.8 billion,
and it employed 55,400 individuals.
SB is the product of a merger on July 26, 1989, between SmithKline

Beckman, a U.S.-based pharmaceuticals company, and the Beecham Group,
a health-related consumer goods firm located in the United Kingdom. The
merger marked an early event in what became a worldwide trend of pharma-
ceutical company mergers. In addition to its size, the new company had a
strong market position in each major product line and a geographical balance
in Europe and North America. SB was formed with the goal to become an
integrated healthcare company covering prevention, diagnosis, treatment,
cure, and disease management.
It should be noted in this context that senior management considered the

merger process to be a transformation of two separate companies into a new
corporation that would pursue a newly defined strategic direction. Thus, the
emphasis was on the management of change over a six-year period, and also
development of further change capabilities. The structural integration compo-
nent lasted about 18 months and was regarded as the first step in building the
future of the company.
Guiding Principles
l The merger will be one of equals, including shareowners, board

members, management, and businesses. This also will allow the
company to become global without taking on a huge debt commitment.
l Before the merger is finalized, management will plan how the

companies will come together and identify the business expectations
for the new firm.
l The merger integration will be accomplished as quickly as possible to

capitalize on the energy and expectations of employees and before
new ways of operating set in.
l The integration will involve as many individuals as possible. Managers

understand the challenges and opportunities of their operations much
better than a small group of headquarters executives. Hence, they will

participate in the hundreds of project teams that will design the new
company. Guidelines and standardized procedures will give them a
sense of what the new company is trying to become.
l No appointments beyond the members of the Executive Management

Committee will be made until the new company’s organization
structure has been defined. Then the best individuals from either
firm will be selected to fill key slots. In the meantime, present
members of senior management will observe leading candidates
as they perform their current responsibilities and either lead or work
in merger task forces.
l It is important to keep employees informed about what is happening,

what will happen next, and what the company expects of them.
l Businesses that do not fit the strategic concept of the new company
will be sold.
Approximately 20 teams (with members from each merger partner) representing

manufacturing, marketing, R&D, human resources, finance, and general man-
agement worked for nine months preceding the merger on projects such as
delineating the new organization structure; clearing technical, financial, and
legal problems; and developing a joint business plan.
The day after the merger was formalized, a seven-member Merger Management
Committee (MMC) was announced. Chaired by the CEO, representation on the
MMC was spilt between executives of the two former companies. Its role was
to provide guidance, philosophy, and strategy; obtain recommendations; and
make decisions—“but not to do it all.”17 The MMC was a subset of the
Executive Management Committee (EMC), whose membership comprised the
chairman, CEO, CFO, head of planning, head of human resources, corporate
secretary, head of pharmaceuticals, head of consumer brands, the regional head
of Europe, and the regional head of the United States. Again, representation on
the EMC was split evenly between the two merger partners.
McKinsey & Company, a management consulting firm, was engaged for six
months to provide best-practice advice, analytical and problem-solving skills,
and relevant industry data.
The MMC created eight Planning Teams to explore areas critical to realizing
business opportunities and cost savings. The teams fell into four categories:
self-contained, such as sector management; global resource, such as manufac-
turing; business support, such as information systems; and potential areas for
shared resources.
Task Forces, with memberships from the two prior companies, developed spe-
cific guidelines for how the two organizations would integrate. They prepared
criteria for retaining or closing locations, approaches to identifying leaders for
the new company, and policies covering separations.

Area and Functional Project Teams headed by various internal experts were
created to plan and undertake respective components of the merger integra-
tion. Within three months, some 300 Project Teams, involving more than
2,500 managers in over 60 countries, were hard at work. The MMC sketched
the initial charter of each team, including the general purpose, objectives, and
specific targets. The teams then developed work plans, while Project Task
Forces handled sub-components of the plans. For example, the Project Team
for information systems proposed the creation of four Project Task Forces
covering office systems, telecommunications, finance, and information
technology. Project Team work plans were due to the MMC in two months,
while all final recommendations were due four months after that. Corporate
implementation of most structural recommendations was to be completed
within 18 months of approval.
To help manage the implementation process, the MMC created a Merger

Integration Team (MIT), which sought to coordinate and monitor the activities
of the Planning and Project Teams. The MIT attempted to: make sure all neces-
sary tasks for integration were identified; collect all tasks and organize them
into a master checklist; set priorities and determine the order in which work
would be reviewed by the MMC; monitor major implementation steps; and
evaluate progress against the work plans. The MIT was composed primarily of
members of the strategic planning department. These four members were unable
to adequately handle the volume of information they received, nor were they
able to obtain sufficient information systems support. They did their best under
difficult circumstances.
When the MMC reviewed the formal plans prepared by the Project Teams and
Task Forces, four points were considered: implementation activities would not
simply combine two former units but would lead to the creation of a new and
better company; the guidelines had been observed; coordination between teams
had taken place; and the financial targets would be met or exceeded.
Human Resources Systems were created to address issues like payroll, a

common compensation system, bonus plans, programs to keep talented
employees, etc.
A fourfold approach to Internal Communications included a telephone

hotline installed in the United States and the United Kingdom to provide
instant news; a monthly publication, Merger News, distributed to all offices
worldwide; a global system that announced reorganizations, office and site
closings, and new appointments and resignations; and the CEO and the chair-
man undertook a worldwide “roadshow” to describe the merger and answer
employee questions.
The MMC created a vision statement that explained the purpose of the merger,
the goal of the new company, and its long-term aspirations. SB’s chairman took
on the preparation of an initial draft of the document. Subsequently, the MMC
created guidelines listing how the new company would deliver against the

principles contained in the vision statement. For example, guidelines on
structure included topics such as layering, bureaucracy, and number of direct
management reports.
The MMC decided on the following three key aspects of the new company:
Structure. Each of four business sectors would be divided into major geographi-
cal regions. Each regional headquarters and country operation would have its
own dedicated line and staff units. As the structure required delegation of
authority to the lowest possible level, the country would be the primary profit
center. No more than six layers of management would separate the CEO from
each employee. Certain functions would have global responsibilities, such as
R&D, IT, and a few components of manufacturing. Organization complexity in
the form of matrix management and committees would be eliminated to the
greatest extent possible.
Staff resources. These would focus on adding value. They would not review
line management activities or have sign-off authorities. The concept was to
minimize the costs of a corporate bureaucracy, as well as to eliminate exces-
sive reviews, meetings, and paperwork.
Organizational style. The purpose was to create a new company culture

featuring a climate of action, flexibility, innovation, and productivity. There
would be an effort to identify and use both strategic and specialized core
skills, while maintaining local independence and responsiveness.
The MMC decided to complete all integration plans in six months, and then
to achieve the integration within one year of shareowner approval. These
aggressive milestones would create a sense of urgency and also maintain the
momentum for change.
The CEO allocated most of his time to managing the merger integration.
He approved the work plans of every Area and Functional Project Team.
He reviewed every MMC recommendation. He also oversaw all internal and
external communications.
When most of the planning and Project Team recommendations were

approved, the sector executives appointed their senior managers. Many of
these had headed Area and Functional Project Teams. Those who had devel-
oped integration plans were given the responsibility to implement them. The
MIT monitored the implementation of the Team work plans and reported
accordingly to the EMC.
The next major process issue dealt with the new company culture. A consultant,
Dr. Warner Burke, was hired to address culture, individual needs, values, lead-
ership, etc. The EMC agreed on five core company values: performance, inno-
vation, customer-orientation, retaining excellent employees, and integrity.
Working with Dr. Burke, they developed a plan to operationalize these values
through the creation of a set of leadership practices. Rules for corporate and for
each business sector were devised to change the organizational culture.
Corporate was to provide support through human resources, performance man-
agement systems, communications, and recognition programs. The role of each
sector was to introduce the cultural initiative, devise ways to make it opera-

tional, determine who would be involved and how, and consider how to mea-
sure the extent of implementation. The roll-out stumbled, however, because
insufficient training was provided to managers regarding methods of imple-
menting cultural change.
A final post-merger milestone dealt with the creation and implementation of a

set of management systems and processes intended to better organize the new
company’s work. These methods and tools would also help realize the firm’s
business values and point it toward performance excellence. Specifically, the
milestone’s components were: customer-driven processes, continuous improve-
ment, the elimination of waste, the use of data, employee training and commu-
nications, and teamwork. While the planning and initial implementation of these
activities took place quickly, it was recognized that their full behavioral impact
would not be realized for many years.
Implementation of merger integration must occur quickly. One senior executive

stated, “The companies involved expect change; they’re looking for something
to happen. If you do not capitalize on that energy and those expectations imme-
diately, you will lose the real effectiveness of that merger. Once the new organi-
zation ‘sets’ itself, it becomes hard to change.”
The lack of an integrated information system meant that as the businesses were
merged, there was no way to keep track of important operating data. Thus,
senior management did not know how the businesses were performing nor were
they able to learn at any specific point in time the status of the merger imple-
mentation. “Bringing the two information systems together should have been
given higher priority in the integration planning process.”18
Individuals involved in the Project Teams were selected on the basis of their
expertise in an area or function rather than their ability to manage—or even
work as part of—a team. Since these teams were important to the success of the
integration process, members should have been trained in team skills.
And finally, certain external stakeholders, particularly the financial and stock
analyst community, were not given adequate information regarding the goals
or ongoing status of the merger integration. Therefore, errors were made in
evaluating the new company’s progress in its early stages.

Notes
1 Price Pritchett, with Donald Robinson and Russell Clarkson, After the Merger:
The Authoritative Guide for Integration Success (New York: McGraw-Hill, 1997),
pp. 5, 7. The consulting firm of Towers Perrin indicates that between 33 and 50
percent of all mergers have ended in divestiture.
2 Kenneth W. Smith and Susan E. Hershman, “Making Mergers Work For Profitable
Growth: The Importance of Pre-Deal Planning About Post-Deal Management,”
Mercer Management Consulting, June 1997, p. 7.
3 Ronald N. Ashkenas, Lawrence J. DeMonaco, and Suzanne C. Francis, “Making

the Deal Real: How GE Capital Integrates Acquisitions,” Harvard Business
Review, January–February 1998, p. 166.
4 There are many degrees of integration, ranging from little or none when an
acquisition is left to operate as a stand-alone unit, to a full integration when two
companies merge to create a new entity. The latter, the most demanding form of
merger, is the subject of this handbook. Nonetheless, principles discussed herein
may be applied in many instances of partial integration.
5 See “HR Challenges in Mergers and Acquisitions,” HR Executive Review, The

Conference Board, Volume 5, Number 2, 1997.
6 David Nadler, “Concepts for the Management of Organization Change,” in

Michael L. Tushman, Charles O’Reilly, and David A. Nadler, The Management
of Organizations: Strategies, Tactics, Analyses (Cambridge, MA: Ballinger
Publishing Co., 1989), p. 494.
7 Peter F. Drucker, Management: Tasks, Responsibilities, Practices (New York:

Harper & Row, 1974), Chapters 6 and 7.
8 The initial work in these two phases focuses on defining an ideal structure. In its
early stages, the design does not account for influences such as personalities,
established relationships, tradition, etc.
9 The first four principles are discussed in Thomas G. Cody, Strategy of a

Megamerger: An Insider’s Account of the Baxter Travenol—American Hospital
Supply Combination (Westport, CT: Praeger, 1992), p. 167.
10 Strategy of a Megamerger, p. 136
11 Strategy of a Megamerger, pp. 171–172
12 Strategy of a Megamerger, pp. 210–211.
13 Strategy of a Megamerger, pp. 182, 183, 185.
14 “Kraft General Foods: The Merger (A),” Harvard Business School,

Case 9-391-139, revised May 31, 1995, p. 6.
15 “Kraft General Foods: The Merger (A),” p. 15.

16 Elements in this merger profile are derived from Robert P. Bauman, Peter Jackson,
and Joanne T. Lawrence, From Promise to Performance: A Journey of
Transformation At SmithKline Beecham (Cambridge, MA: Harvard Business
School Press, 1997). Mr. Bauman was the CEO, Mr. Jackson was the director of
human resources, and Ms. Lawrence was the vice president of corporate
communications and investor relations at SB during the merger.
17 From Promise to Performance, p. 91.
18 From Promise to Performance, p. 135.

Conference Board Handbook For M&A

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Conference Board Handbook For M&A

Uploaded by

Copyright:

Available Formats

Research Report

n execution of design fundamentals;

n senior corporate executive leadership;

n a framework of guiding principles;

n a formal merger management structure;

n a careful merger management process; and

n well-planned long-range activities.

Serving Business and Society Since 1916

The Conference Board, Inc.

Copyright © 1999 by The Conference Board, Inc.

Illustration by Dave Cutler. Copyright © Dave Cutler c/o

12 Managing the Integration of Two Large Organizations:

Post-Merger Organization Handbook The Conference Board 3

A systematic guide to designing a new organization, this handbook discusses

The four mergers discussed, which represent a spectrum of merger management

Post-Merger Organization Handbook The Conference Board 5

A General Model of Merger Management

I. UNDERSTAND II. ENVISION IV. ASSESS

key partner characteristics III. MANAGE MAKE

Designing a New Organization

Four fundamental components compose merger management (see Figure 1).

1. Each organization is moved from its current separate state to

2. The new organization functions as planned.

3. The transition is accomplished without undue cost to either the

Foundations of Merger-Driven, Corporate-Wide Organization Design

1. The corporation’s basic identity, core values, and business strategy

2. The company’s underlying economic model affects critical enterprise-

6 Post-Merger Organization Handbook The Conference Board

l Stockowner preference for either value appreciation or dividend

l Whether a firm is managed as an operating company that

l Business and industry considerations, such as the firm’s

3. The management philosophy and style of the CEO—including whether

Tasks That Drive Integration

There are two distinct tasks in designing a new corporate organization:

1. Delineating the Enterprise Design

The corporate organization exists to support the company’s key business

Identify critical business dimensions. The critical dimensions of

Post-Merger Organization Handbook The Conference Board 7

It is possible that more than one structural alternative may be

8 Post-Merger Organization Handbook The Conference Board

2. Detailing the Operating Design

The purpose of this second step is to identify the corporation’s major

Key operational tasks and work flows

What are the corporation’s most important operational tasks?

To what extent is interdependence or integration required among the

Do any critical work flows involve external stakeholders such as

Which assets and resources should be contained in which units?

To what extent should operating units manage their own dedicated

Should similar operating units be grouped together and report to a

What degree of strategic and operating autonomy should each

What linkages exist among operating units? For example, should

To what extent should country subsidiaries and their functions be

If certain resources, such as plants and distribution facilities, are

If certain key customers operate globally, and the worldwide

Post-Merger Organization Handbook The Conference Board 9

What will be the role of the new corporate headquarters, and

Which activities will be performed at corporate headquarters?

Which activities can be delivered across the enterprise’s portfolio

Should certain activities be clustered in one or more shared services

Management systems and procedures

How and when will information systems of the two companies

Which functions, such as finance, human resources, and performance

How will management communicate to key stakeholders?