Category Archives: Best Practices

Comments on techniques to improve the way we do things

Uniting with Customers Online

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The Merger Verger recently had a very interesting discussion with the folks at the new United Airlines about the use of their website as a tool for connecting with customers during a merger.  While most of our focus here at The Merger Verger  is on companies much smaller than United, there were some very interesting take-aways from their experience.

  • Following the legal merger in late 2010, the company created three new websites, one for all customers (who might have questions about how the merger would affect them, their travel plans, their frequent flier status and a host of other issues and questions), a second for members of the old United frequent flier program, and a third for members of the old Continental frequent flier program.
  • UnitedHub.com, the broad site, included many elements aimed at smoothing the integration turbulence for the consumer: overview of the company and operational changes, an explanation of the impact on customer loyalty programs, a timeline of the integration, FAQs, videos explaining everything from the CEO’s vision of the new company, to how to navigate the new United website to what to expect from the new fleet of 787 aircraft.  Customers could post questions or comments, traverse an integration timeline and make connections with other customers via social media links.  It is a VERY through tool for making sure that the turbulent process of merging incredibly complicated companies was both transparent and comforting to its customers. (Clicking on the illustration will open a much larger, more readable version.)
  • Hub was set up explicitly to enable customers to ask questions and get answers about the merger.  All of the usual corporate-site stuff – from online reservations options to investor relations information – is absent from the Hub site.  It is just for customers and just about the merger.

Now, smaller companies may not need this level of standalone online communications with their customers but the concepts of individual attention to the worries of the customer – particularly in a consumer-facing company – are very instructive indeed.

  • According to my contact at United, an essential element of the communication strategy was to “give information to customers at the point when they are most clearly paying attention.”  Doing so maximizes the information’s impact and reduces the likelihood that frequent, expensive or frustrating repetition will be required.
  • “Customers pay attention at different times.” The key has been to analyze and understand when they are most likely to pay attention and target information delivery around that timing and through the channels that they are most likely to consume.

IMPORTANT NOTE: YOU CANNOT SATISFY ALL OF THE PEOPLE ALL OF THE TIME. 

On any given TwitterDay you can find complaints about the new United website and the new United reservations system.  Ditto for specialty social media like Flyer Talk and Mile Point.  United told me that they monitor these sites for customer insights and trends.  But they accept – as we all need to – that there will be some degree of dissatisfaction with the changes … always.  The point is to minimize the dissatisfaction, not aspire to eliminate it.

  • Lessons:
    1. Understand what the customer cares about and WHEN he or she wants (or is most likely to focus on) the information.
    2. Use small bites, not trite “sound bites” but digestible packages of thematically consistent and focused information.
    3. Do not use industry jargon when dealing with consumers; they don’t care and will turn off.
    4. Create opportunities for information flows TO you.  This requires what your mother called “listening.”  Bonus: not only does listening provide you with potentially useful information but it makes the customer feel respected and engaged.  Listening is a two-fer.  (Click here for previous posting on the art of listening, from McKinsey & Co.)

I welcome others’ comments on how they have used their websites to affect a smoother integration process.  Thanks.

Thank Heaven for Shiny Objects

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“Tell it and tell it fast” is a recipe for dealing with bad news and PR disasters espoused by Robert Dilenschneider.  He should know; he is the former head of global PR firm Hill & Knowlton.  “If you do that,” he goes on to say, “[the problem] goes away in a day.  The attention span of the public is very short.”

Acquisitions will almost always include something that you would rather not have to publicize.  Dilenschneider would have us believe that we needn’t fret so much about it.  The Merger Verger agrees.

Thoughts:

  • Bad news will always “out.” Your choice is (1) deal with it or (2) deal with it plus the all the questions about why you weren’t forthright in the first place.  Few unpleasant choices are so easy.
  • We are in the age of information overload.  No sooner is your nightmare public than some bigger disaster or bigger outrage grabs the limelight.  Thanks be to the Shiny Object syndrome: your news will command attention only until the next shiny object leaps into view.
  • So: seize the high ground proactively and quickly. This will put you – not the Tweetybirds – in charge of the conversation.
  • Present the story in the most humdrum, ordinary-course-of-business way possible. Telling legitimately bad news in a way that is both forthright and boring can be tricky but it is worth the effort.  Why?  Because it makes your object less shiny.
  • Show sensitivity, not angst.  Sensitivity suggests careful thinking; angst suggests indecisiveness (at best) or guilt (at worst).  Either way, the predators will smell it and your object will become shinier.

Anyone got any interesting stories about dealing with bad news?  Share them.

Won’t Somebody Please Organize Due Diligence?

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I have come to believe that one of the industries that is most in need of consolidation is the Due Diligence Checklist industry.  It makes me want to scream.
 
Listen, if you are creating a due diligence list for publication or broad consumption, unless your list covers the entire equatorial spectrum of possible topics in relatively equal depth, do not imply completeness.  Do not label your document something stupid like “Due Diligence Checklist.”   It’s a lie.  It suggests a level of breadth and thoroughness that is not there.  That is dangerous to people legitimately trying to practice the trade of deal making and acquisition integration.  Grrrr.  You are definitely pissing The Merger Verger off.
 
I recently read an article discussing due diligence for high technology companies, written by a Silicon Valley attorney.  The piece was 18 pages long, of which five were a “due diligence checklist” organized into six categories.

 

Now get this: the section entitled “Financial Condition” had four items listed (I didn’t even have to count them; they were numbered). That’s sure been my experience: round up four or so items of financial data and that part of your due diligence is …

FINISHED!

Beer anyone?

Were that not bad enough, there was nothing – zero – on HR, nothing on corporate practices or culture, nothing on the sweeping Alpine vistas of corporate complexity.

Now, I have no problem whatsoever with a due diligence list that is focused on this aspect of a deal or that aspect. In fact, I think that’s the way it should be.  Just don’t call them more than what they are. It’s a small point; I get that.  But the implications are large.

We – deal makers, all of us, regardless of our specialties – need to be honest with ourselves.  No one of us is capable of producing an All Points due diligence checklist.  And no one should purport to do it.  This is too important a topic not to have our acts together.

Suggested Best Practice:

  1. Create the full sweep of legal, financial, operational, HR, and strategic due diligence procedures (including checklists) founded on specialized expertise from each area.
  2. Keep those procedures and lists organized separately to better enable dedicated teams to focus on the areas of their purview.
  3. When assembling a due diligence list focus on the specific area of your professional expertise and label it simply and honestly, e.g., “Due Diligence Checklist: Human Relations,” or “Legal and Organizational Due Diligence Checklist.”   To do otherwise is a prescription for confusion and incomplete analysis.
  4. In your company’s Integration Handbook, keep distinct due diligence checklists organized by specialty area.  Ensure that all areas are covered by separate lists.  Update those lists during and at the end of each transaction to codify new learning for the future.

I welcome other suggestions on how to manage the process of due diligence.  The effective obtaining and using of thorough corporate information in an acquisition is the absolute cornerstone on which a successful deal is built.  The stronger that cornerstone, the stronger the prospects for your deal’s success.

It is …

just

that

simple.

The Empowerment of Mistakes – 1

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Mistakes in the business place are all too often shoved under the carpet or patched and passed on.  Here at The Merger Verger we think that is the wrong strategy altogether.

A company was holding its quarterly divisional managers’ conference call and asked me to participate.  The CEO did his thing and then all the division guys reported on the quarter just ended. 

After the call was over the Chairman/owner asked me what I’d thought.  I told him that I was highly skeptical of the whole thing.  Ten divisions each reporting on three months of activity and not one thing had gone wrong?  That’s the equivalent of one business functioning for two and half years without a single problem.  No.  No!  That’s not what happened; that’s just what got reported.

When a manager reveals a problem or a misjudgment, he is opening the door to his colleagues and saying, “I don’t want you to experience the same problem I did; learn from my situation before it happens to you.”

This practice of encouraging error-sharing enters the realm of acquisition integration at two levels:

Building an Open Culture

  • The revealing of mistakes, unforeseen problems and dropped balls takes courage.  It has one and only one upside: learning potential. If you want to maximize that potential you must build a culture that supports it.  People fundamentally want to be honest but although in the wrong environment their self-protective instincts will quickly override.  An error-sharing culture may take seed by itself but it must be fed and nourished continually from the top in order to multiply.  
  • If you already have that culture in your organization, remember that it will face doubters in an acquisition target.  You must vocalize the policy and its importance frequently to your new employees.  More importantly, you must spotlight examples that model the behavior whenever they occur. 
  • If the target brings to you an environment of openness and error sharing that you do not already have, put it high on your list of things to back-build into your own company… or at least take concerted steps to see that any close-to-the-vest attitudes at home do not squash the constructive example coming in from outside.

Stopping the Dominoes

  • From the angle of a mistake as a learning opportunity, you should think of them as tools, as assets.  Like any tool, the more it sits on the bench or in the warehouse, the lower your return on it.  Put the tool to use.
  • This is particularly true for companies that are consolidating industries, say, through a roll-up or geographically diverse bolt-ons.  The problems or missteps experienced in one unit have a high likelihood of emerging in other units if you don’t empower your managers to share those errors and the lessons learned from them.  It may be that no distinct lesson has been learned other than to watch out; that alone is a useful observation.  If you don’t share operational miscues, you are setting yourself up like dominoes to have the problem befall you again and again and again down the line.

Do I need to add here that the integration team should also be learning from its mistakes?  This is particularly true for companies where the acquisition activity is not constant or where the integration team may be run by a different leader the next time.  All kinds of studies show that the companies that learn from both the ups and the downs of their previous acquisitions and codify that learning in a written Integration Handbook are more successful at making deals work.

Is Big Riskier than Many?

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The Wall Street Journal is reporting today that the flow of mega-mergers – deals over $1 billion – is at its lowest level in four years.  In board rooms across the country CEOs are shedding their bravado and doing smaller deals and bolt-ons and other things that can be more easily brought into the fold.  Risk is out.

But what really makes an acquisition risky?  Seems to me that from a practical perspective deals have two kinds of risk:

  • Investment risk → Assuming all goes according to plan, am I paying the right amount of money for this company?
  • Execution risk → Having paid the right amount, am I responding in a way that will enable me to achieve the intended objectives (and thus the returns)?

It is axiomatic that by reducing the amount of capital put at risk one reduces the overall investment risk.  (Even The Merger Verger can figure that out.)  But I can also figure out that smaller deal size generally means smaller upside potential. 

Continue reading →

United … Today

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Tonight at midnight, United Continental Holdings, Inc. (NYSE: UAL) completes what amounts to the third phase of the merger of airlines United and Continental, the phase that from a customer’s perspective means the real deal.  Phase 1 (my term, not theirs) was the legal combination, closed on October 1, 2010.  Phase 2 was the regulatory combination, effected more than a year later, on November 30, 2011, when the Federal Aviation Administration granted the Single Operating Certificate, enabling the companies to function as one airline.  Phase 3 begins today with the conversion to a single passenger service system, allowing the company to function as a seamless whole in the eyes of its customers: one airline, one set of routes and planes, one system of booking, one of flight tracking, one website, one loyalty program.  One United, united.

It has been exactly a year and a half since the legal merger took place.  I suspect that the integration team at UAL (and it’s a huge one, trust me) is heaving an enormous sigh of relief.  But is the integration process over?  Certainly not. 

So The Merger Verger is prompted to ask, “When should a company begin to dim the stage lights on a successful integration effort and bring up the lights on growing the newly enlarged entity?”  Some of this process happens naturally as the work effort thins and people are pulled off to other projects.  And it’s almost always a judgment call. But are there landmarks, signals, subtexts that can be monitored to suggest that an integration is complete?

 

Question: What are those signals and how do you use them?  How do they differ from deal to deal?  Are they different, say, between a consumer-oriented business and an industrial one?

Fun Flashback: http://www.youtube.com/watch?v=AeXrMRf25U8

Future Post: The Merger Verger has spoken at length with the United people about their use of the United website as a tool for communications with stakeholders about the merger.  Watch for a future post on the subject in the next week or so.  

See a previous Merger Verger post on the United situation HERE 

Chuck the Checklist? Check!

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Being a lifelong Forgetful Guy, I have constructed little organizational systems to protect myself from myself.  One of those systems is checklists.  So I believe in them.  To a point.

When doing acquisitions, checklists are absolutely critical because there is so much information from so many different dimensions to manage.  So we have due diligence checklists (legal and financial, about which there are 487 things to say … another time) and integration process (strategic) checklists.

All successful acquirers build a “book” of know-how, constructed in part from lessons learned on previous deals.  Out of that process comes a thorough integration checklist, cataloging hundreds, sometimes thousands of items requiring attention.

In that setting – amidst thousands of boxes to check – how is it possible to keep your eye on the ball (by which I mean the larger strategic intent of the deal)?  Focused on rows and rows of line items, how can you possibly perceive “trajectory creep” or the surprise rocketing in from some unseen nebula somewhere?

The danger of checklists – and the more “thorough” they are the greater the danger – is that they become substitutes for thinking.

As an integration leader, I insist that my teams pause occasionally to chuck their check lists.  In those pauses I ask them questions designed to pull them from their pages to the big picture:

  • What are we missing here?  What are we not thinking of?
  • What could be different here from any of the other integrations we’ve done in the past?
  • How would or could we respond if [fill in all kinds of blanks here]?
  • What isn’t working so well?
  • What expected problem has not materialized (yet)?

and probably the most important of all:

  • Why did we do this deal in the first place and what else should we be doing or thinking about to make sure we accomplish that end?

Every now and again, chuck the checklist and think for yourself.

Check.

Complexity Squared: Merging United and Continental

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There was a very interesting article in a recent edition of Bloomberg Businessweek on the integration of United and Continental.  Makes me glad I’m not in the airline industry (although the deal is a “must follow” for anyone interested in acquisition integration).
 
Link here: http://www.businessweek.com/magazine/united-continental-making-the-worlds-largest-airline-fly-02022012.html
 
The article doesn’t offer a ton of technical or integration know-how but several interesting points emerge:
 

Top business leaders are beginning to understand that integrating acquisitions can take enormous amounts of time.  Jeff Smisek, President and CEO of the new United is quoted as saying the integration will take “several years.”  How many name brand CEOs have that vision on the complexities and subtleties of an integration process?  Bravo, Jeff.

I wonder is the CO/UA situation made even more difficult by two companies that are endeavoring to create a truly merged entity rather than the usual whale/Jonah strategy.  Does a merger of equals require more tact? (That would seem obvious.) More time? (To be done right, I would say, “yes.”)  Different angles or solutions?  (Now there’s an interesting question indeed.  Any thoughts out there?)

The author of the article makes a very salient point about culture but unfortunately buries it deep in the body of the article:

“Before the new United can feel like one entity to consumers, it has to feel like one entity to its employees.  Ultimately, that’s the most difficult part of a merger – combining cultures.”

Smisek himself reinforces that concern on the company’s website:

“The biggest challenge is making sure that we develop the right culture of the combined companies.”

For fun and profit, I offer a few of the issues that the two companies grappled with in their integration process (all serious but some more amusing than others):

  • Differing labor contracts (duh)
  • Differing premium service classes
  • Onboard coffee service (this was apparently a gigantic issues)
  • Inconsistent flight tracking software algorithms
  • Differing customer loyalty systems
  • Plane boarding procedures
  • Staff uniforms

“God is in the details,” said architect Ludwig Mies van der Rohe.

The final solution for the New United’s logo is almost too simple, too obvious. But it does imply the practical, uncomplicated (?) union of two companies … at least to the outside observer!

The other interesting element of the article was the highlighting of the 2005 merger between America West and US Airways as the airline merger nightmare of all time.  I am impressed that someone at CO or UA seems to have read the playbook from that deal and smartly done the opposite.

Historical note: the perhaps colossus of all merger screw-ups was also a transportation deal: the 1968 merger of the Pennsylvania and New York Central railroads.  Is there something about transportation deals that we should be looking at?

Question: What other industries are prone to this kind of high complexity in merging?  Is it the high technology component? The extraordinary requirement for exactitude and safety? The intense demands of highly stressed consumers?  Something else?  Experiences please ….

In a future posting we will take a look at United’s web site and how it is dealing with the integration process.  Stay tuned.