Still Untied: Revisiting United+Contintental

The news from United Continental Holdings Inc. (UAL) is not good. Amid the bad weather that hampered all US airlines and competitive issues affecting all US-Asia carriers, one unique difficulty emerges:

“parallel processes” left over from the 2010 merger.

Merger Verger Translation:

We still haven’t been able to realize the intended benefits of the merger, here, nearly four years later.United-Logo new (untied)

Are you getting that? It is hard to make mergers succeed. And United worked tirelessly at it, hired smart advisors and focused legions of people exclusively on the integration. It still didn’t pan out as planned.

GOD IS IN THE DETAILS, folks. Continue reading

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Too Many Balls (and Too Few Planes) in the Air

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.

Continue reading

The “Lesser Whole Theory” Bites United

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:

  Continue reading

Uniting with Customers Online

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.

Bain: How to Keep Customers

Friday’s Wall Street Journal offered up an interesting piece authored by two partners from consulting firm Bain & Company on ways to keep customers following a merger.  You can find the article here: After the Merger, How Not to Lose Customers. (link may require registration or subscription)

As with most newspaper articles, this one was short but authors Laura Miles and Ted Rouse did have some sweet points that were both specific and actionable.  Integration professional will want to pack them somewhere neatly in their bag of tricks. 

The Merger Verger highlights:

  • At the very moment when many merged companies have their noses buried in books and numbers or focused on technology issues or cost cutting, customers are looking for clues as to how they will (or won’t) be served in the newly merged enterprise.  Mistiming those clues can be, well, just watch out for Mr. Chairman with a lead pipe in the boardroom.
  • Specifically, the authors state that, “Customers watch carefully after a merger to see if service falls off.  That means that early signals of improved service carry a lot of weight.”  I would go even a step further by saying “early signals of any kind of change in service – good or bad – carry a lot of weight.”
  • Miles and Rouse also suggest the bundling of good news and bad news in communications, citing an example of what sounds a lot like the United/Continental merger.  Their comment about using this technique both to keep people informed and to ease the dissemination of bad news is applicable to suppliers and investors as well as to customers.
  • Their final point was almost frustratingly underplayed, that of the need to authorize customer-facing employees to take swift and free action to ensure consumer satisfaction through a transition.  Their example came from the airline industry but the message is the same for B2B: a merger is no time to be a control freak when it comes to empowering employees to make customers happy.  Just do it.

I caught an interesting undercurrent in the Journal piece: there are inherent – sometimes invisible – conflicts in the management of mergers.  Practitioners would be wise to make them visible in their process.  One example is the conflict between the pressure to cut costs in a merger and the simultaneous pressure to focus on revenues.  Too many dealmakers turn their attention immediately to costs, largely (methinks) because they are crisp and quantifiable.  How do you measure the avoidance of loss of a customer?

Recommendation: If you can’t be in two places at once, focus first on customer retention and then on cost reduction. 

Why?  Because costs will be there to reduce once the customers have been recommitted to the new enterprise.  But the converse will not always be true: customers may not be there to retain once you’re done attending to costs. 

I would posit the following corollary to Poor Richard (with apologies):

A penny not lost is as good as a penny earned.

There are other conflicts here that we should perhaps look at another time: as Miles and Rouse imply, between the empowerment of local employees and the need for central controls in a complex, often disorderly process or between speed and thoughtfulness (an integration classic). 

Question: What are the other inherent conflicts that companies experience in the integration process and how have you dealt with them?

If I am right in sensing that the authors are talking about United and Continental when they allude to “the recent merger of two major airlines,” they should be congratulated for their role.  My reading is that the marriage of UA and CO has been extraordinarily smooth when compared to other highly complex mergers and that shareholders have done (and will continue to do) well by the deal.  Kudos (assuming…).

Earlier postings on the United merger can be found by clicking the blue “United Airlines” link in the “Tagged” section, below.

United … Today

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 

Complexity Squared: Merging United and Continental

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).
 
 
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.