So the woes are official. United’s recent announcement of its 2Q 2012 quarterly results confirmed what virtually every customer already knew: the merger of United and Continental is still causing problems. It’s not quite Jeffrey Smisek with his Head on Fire but it’s not good either.
Even the most carefully orchestrated integrations can hit clear air turbulence, particularly when merging entities as complicated as airlines. Let’s look at some of the issues in hopes of finding a little preventive medicine. (Ahem … American, are you out there?)
The UAL announcement noted the following problems:
- Cut-over to a single reservation system has been more complex than anticipated.
- Changes to the frequent flier policies have wrought confusion and pissed off customers, particularly at the most-active flier levels.
- On-time arrival metrics have slumped.
- Flight cancellations have increased.
- Baggage handling mishaps have increased.
- Spare plane inventory was cut back only to have to be rebuilt.
- Reservation transaction times have increased, making them more expensive and more frustrating to customers.
- Changes to the company’s revenue accounting system have led to revenue adjustments.
Poor United Airlines has been receiving a lot of unfavorable press recently, mostly about unhappy premier customers. The Merger Verger has discussed the integration process with United at some length over the last few months and basically believes that they have done a good job at planning for and executing the merger.
So what’s going wrong? And are there lessons for the rest of us in this turbulence?
Much has been written about the “need for speed” in the integration process over the last few years. (Who hasn’t read the Band-Aid metaphor a zillion times?) But does that need apply to all aspects of the integration process or is it better used selectively? Clearly in the case of financial controls and employee (and management) reshuffling, speed counts. But United’s problems seem to center around customer service issues, in particular the combined software systems and the training on those systems. That suggests three possible explanations:
Question: What should you say when there is nothing new or substantive to report?
Professional integration managers know that frequent, open communication is one of the cornerstones of a successful acquisition. But they sometimes get paralyzed in those inevitable periods when the process is moving along according to plan but without crossing any new milestones.
The Merger Verger was talking recently with the CFO of a regional chain of apparel stores that found himself in just such a position. He wanted his team to be communicating with key stakeholders (especially employees in this instance) but he didn’t see anything really pressing to tell them. Things were proceding more or less as hoped, with nothing particularly positive or negative to report.
I asked my contact whether he was pleased with the way the integration was going. “Yes,” said he. I then asked him whether the fact that the integration was proceeding as hoped might be of interest – reassuring, motivating, etc. – to his employees. “Yes,” again.
So that is the news.
It is essential for executives to remember that the turbulence of an acquisition reverberates through lower levels of the employee infrastructure over and over and over. People do not stop talking with each other. And if they have no new information about which to talk they will frequently assume the worst. Saying nothing just because there is no landmark event to report on opens the door to uncertainty and misinformation.
One of the most positively-charged pieces of “non-news” that you can communicate to stakeholders is that the integration process is on track and that you are making steady (if uneventful) progress towards the objectives of your acquisition.
All major projects cycle through periods of high-profile events and followed by others of steady but unremarkable progress. People get that. But don’t underestimate the reassuring value of a simple “we’re moving along just fine” update every now and then. It can be powerfully good news.
Question: What other forms of “non-news” have you found useful to communicate to stakeholders? How does this type of information differ from group to group?
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.
- Understand what the customer cares about and WHEN he or she wants (or is most likely to focus on) the information.
- Use small bites, not trite “sound bites” but digestible packages of thematically consistent and focused information.
- Do not use industry jargon when dealing with consumers; they don’t care and will turn off.
- 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.
“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.
- 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.
The recent acquisition by Meredith Corporation (NYSE: MDP) of Allrecipes.com strikes The Merger Verger as a strategically brilliant deal. It doubles their digital revenues with the top food website in the world and brings them enormous digital media and social networking expertise. The leverage potential is high, with opportunities to create value from Allrecipes to Meredith and vice versa.
But, having made four acquisitions in the last eight months, the company needs to settle down and make these deals work … now.
Meredith is buying two distinct forms of fleet-footed assets: customers and tech expertise. Blow the first few months of integration and the acquisition’s value proposition could deteriorate rapidly due to site visitors or employees taking flight.
Allrecipes.com is a very strong site that has generated a powerful brand. That suggests a degree of customer stickiness that would in turn suggest focusing first on retaining talent within the organization.
Recommendations for Meredith:
- Turn the new-deal tap off (or way, way down). I know that Meredith Chairman & CEO Stephen Lacy sees a host of great media properties available in this post-recession environment but now is the time to “get right” those that he has already done, not get more to do.
- Communication will be a key part of the integration puzzle. With such a strong strategic intent, they should be telling anyone who will listen about the benefits available to both organizations by thoughtfully executing on it (and telling it over and over). Touch the Allrecipes employees, particularly the key IT folks. Get down with them where they are.
- Having purchased a company with a strong social media component, respect that society. However alluring the opportunity might be to start selling their other products to Allrecipes customers, do not rush around stuffing them with offers. Instead, contribute to their social experience, demonstrate the potential of cross fertilization with the other properties and invite them into the expanded world of Meredith. Pull, do not push.
- Incorporate Allrecipes.com thought leaders (at multiple levels) into the larger game planning for Meredith’s digital future. It will send positive signals about the role of “new media” in a historically print-based company and increase the flow of expertise and ideas. Oh, and listen to the ideas from the Allrecipes guys; their input is not just for show.
Nice piece over the weekend in the Milwaukee Journal Sentinel interviewing Steve Wunning, President of the mining division of Caterpillar Inc. (NYSE: CAT) about the integration of Bucyrus, now eight months underway.
Link here: http://www.jsonline.com/business/caterpillar-pleased-with-bucyrus-integration-2u4fq4o-142194715.html
Cat made two important integration decisions:
- Despite a history of the Bucyrus name dating back more than 125 years they chose to get rid of it, and
- They did so immediately.
The Merger Verger has seen this choice backfire on a large company buying a much smaller one to launch a new business line. In that instance, the buyer did not have the goodwill that the seller had in its market place and the name change – together with a pompous “big player” approach to selling – sent customers packing. That has NOT happened in the Cat/Bucyrus merger and the combination sounds like it’s hitting on all cylinders.
The article does not address cost cutting in the integration process but one has to presume there was at least some operational overlap. What is absolutely clear is the extent to which Cat paid attention to the revenue side. Try to imagine the sales lead time for a product like a large piece of mining equipment. Clearly, plans were being drawn up for integrating the selling effort long before the deal closed. A key part of that process for Cat was communicating the benefit of the merger with customers, particularly on the Bucyrus side. The result is that their demand is so strong, they are running short of product.
Sidebar: Readers’ comments on the article are almost entirely from former Bucyrus workers lamenting the loss of the brand. I too tend to mourn the loss of longstanding American brands but in this instance am certain that Cat’s leaders made the right – even if locally unpopular – choice.
Question: Is the reported shortfall of available product for sale a misstep in the integration process? If there was an imbalance of focus on top line (odd, but possible), then yes. If sales are exceeding expectations for the merger, then probably not. That said, there is definitely something that has slipped somewhere if product is running short. Anyone got any insight into Cat or similar situations? We’d all love some color on this.
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.
The Merger Verger thinks that United (NYSE: UAL) has done a great job putting its website to use in the interest of a better customer experience and a smoother integration. That said, we suspect that it will all change in a few days so check it out while you can.
Link here: www.UnitedHub.com
Pretty good piece on the art of listening, an executive skill that is absolutely critical in effective integration.
Link here: The executive’s guide to better listening – McKinsey Quarterly – Governance – Leadership.