Despite all that's been written about mergers and acquisitions, even the experts know surprisingly little about them. The author recently headed up a year-long study sponsored by Harvard Business School on the subject of M&A activity. In-depth findings will emerge over the next few years, but the research has already revealed some interesting results. Most intriguing is the notion that, although academics, consultants, and businesspeople lump M&As together, they represent very different strategic activities. Acquisitions occur for the following reasons: to deal with overcapacity through consolidation in mature industries; to roll up competitors in geographically fragmented industries; to extend into new products and markets; as a substitute for R&D; and to exploit eroding industry boundaries by inventing an industry. The author explores each type of M&A--its strategic intent and the integration challenges created by that intent. He underscores the importance of the acquiring company's assessment of the acquired group's culture. Depending on the type of M&A, approaches to the culture in place must vary, as will the level to which culture interferes with integration. He draws from the experiences of such companies as Cisco, Viacom, and BancOne to exemplify the different kinds of M&As.
Most companies do a poor job of capitalizing on the wealth of expertise scattered across their organizations. That's because they tend to rely on centralized knowledge-management systems and technologies. But such systems are really only good at distributing explicit knowledge, the kind that can be captured and codified for general use. They're not very good at transferring implicit knowledge, the kind needed to generate new insights and creative ways of tackling business problems or opportunities. The authors suggest another approach, something they call T-shaped management, which requires executives to share knowledge freely across their organization (the horizontal part of the "T"), while remaining fiercely committed to their individual business unit's performance (the vertical part). A few companies are starting to use this approach, and one--BP Amoco--has been especially successful. From BP's experience, the authors have gleaned five ways that T-shaped managers help companies capitalize on their inherent knowledge. They increase efficiency by transferring best practices. They improve the quality of decision making companywide. They grow revenues through shared expertise. They develop new business opportunities through the cross-pollination of ideas. And they make bold strategic moves possible by delivering well-coordinated implementation.
There is a growing awareness among corporations that the quality of the customer experience they provide directly affects their bottom line. Many are turning to high-flying software maker Siebel Systems for help in managing those relationships. The young company holds a leadership position in an explosive market--enterprise application software. But customer satisfaction, not dot-com chic, is foremost on the mind of Siebel Systems' founder, chairman, and CEO, Tom Siebel. The buttoned-down Siebel rejects the freewheeling management style and culture that characterize many Silicon Valley companies. As the former CEO of Gain Technology and a former executive at Oracle, Siebel believes in putting customers ahead of technology, discipline ahead of inspiration. In this interview, conducted at the company's San Mateo, California, headquarters, Siebel describes how this obsessive focus on customer satisfaction has been the driving force behind the company's success. He talks about how the organization remains true to its core values: a deep commitment to providing customer satisfaction; responsible fiscal practices that have created a cash-positive business amid today's cash-negative dot-coms; and general professionalism. Siebel Systems rejects the concept of going to war with rivals; instead, the CEO says, the company has forged an ecosystem of partnerships that allows it to support and integrate its own systems with other companies' software products and ultimately ease the customer's software installations. Indeed, Siebel says, the CEO's most important job is to understand what customers need and deliver that.
The authors' research into more than 50 multinationals suggests that encouraging innovation in foreign subsidiaries requires a change in attitude. Companies should start to think of foreign subsidiaries as peninsulas rather than as islands--as extensions of the company's strategic domain rather than as isolated outposts. If they do, innovative ideas will flow more freely from the periphery to the corporate center. Basing their arguments on a rich array of examples, the authors say that encouraging such "innovation at the edges" also requires a new set of practices, with two aims: to improve the formal and informal channels of communication between headquarters and subsidiaries and to give foreign subsidiaries more authority to see their ideas through. The challenge for executives of multinationals is to find ways to liberalize, not tighten, internal systems and to delegate more authority to local subsidiaries. It isn't enough to ask subsidiary managers to be innovative; corporate managers need to give them incentives and support systems to facilitate their efforts. The authors suggest four approaches: give seed money to subsidiaries; use formal requests for proposals as a way of increasing the demand for seed money; encourage subsidiaries to be incubators for fledgling businesses; and build international networks. As part of the last approach, multinationals also need to create roles for idea brokers who can link entrepreneurs in foreign subsidiaries with other parts of the company.
Ninety percent of large U.S. companies are already recruiting via the Internet. By simply logging on to the Web, company recruiters can locate vast numbers of qualified candidates for jobs at every level, screen them in minutes, and contact the most promising ones immediately. The payoffs can be enormous: it costs substantially less to hire someone on-line, and the time saved is equally great. In this article, Peter Cappelli examines some of the emerging service providers and technologies--matchmakers, job boards, hiring management systems software, and applicant-screening mechanisms that test skills and record interests. He also looks at some of the strategies companies are adopting as they enter on-line labor markets. Integrating recruiting efforts with overall marketing campaigns, especially through coordination and identification with the company's brand, is the most important thing companies can do to ensure success in on-line hiring. Along the way, Cappelli sounds two cautionary notes. First, a human touch, not electronic contact, is vital in the last steps of a successful hiring process. Second, companies must make sure that on-line testing and hiring criteria do not discriminate against women, disabled people, workers over 40, or members of minority groups. When competition for talent is fierce, companies that master the art and science of on-line recruiting will be the ones that attract and keep the best people.
Lots of companies say they use brainstorming, hot teams, and other techniques to foster innovation. But for IDEO, the successful design firm in Silicon Valley, that work is its bread and butter. In The Art of Innovation, IDEO general manager Tom Kelley explains how the firm works. Reviewer Michael Schrage, research associate at MIT's Media Lab, extols the book for its engaging style and comprehensive coverage. But he warns readers that what really drives the company is not fancy methodologies but an underlying "cult" of innovation. As a result, IDEO has come up with many great new products, but it's had much less success in teaching client companies to be innovative themselves. The book may suffer a similar fate. This cult of innovation is what allows IDEO to get beyond the political gamesmanship that stifles many traditional companies. The firm's employees believe passionately in innovation, a focus that enables individuals from diverse backgrounds to argue about alternatives but still unite in generating an effective design. And the company's emphasis on prototyping gives people concrete things to play with, so they don't get bogged down in mere talk. The back-and-forth within these hot teams--and ideally with clients--helps the firm settle on creations that are likely to succeed in the marketplace. IDEO's culture allows it to be very innovative about the process of innovation itself. But the overwhelming majority of organizations can't afford to make faith in innovation the cornerstone of their cultures. IDEO is as much a cultural outlier as Virgin or Southwest, says Schrage. Ignore at your peril, but imitate at your own risk.
"Please don't tell me that I need to have a baby to have this time off." Those words were still ringing in the ears of Jessica Gonon an hour after a tense meeting with Jana Rowe, one of her key account managers. Jessica, the vice president of sales and customer support at ClarityBase, considered Jana's request for a four-day workweek, for which she was willing to take a corresponding 20% cut in pay. Although the facts seemed simple, the situation was anything but. Just last week, Davis Bennett, another account manager, had made a similar request. Both Jana and Davis were well aware that Megan Flood, another account manager, had been working a reduced schedule for nearly two years in order to spend more time with her children. The eight account managers were in charge of helping the company's largest clients install and maintain database applications, which often required hand-holding and coddling. Because Megan had an abbreviated schedule, the other account managers were assigned the more difficult clients. But if Jessica agreed to a shorter workweek for Jana and Davis, who would take on the toughest customers? And what would happen if the other account managers started asking for similar deals? How can Jessica maintain the productivity of her department and meet her staff's needs for flexible work schedules while striking an equitable solution for both parents and nonparents? In R0103A and R0103Z, Michele S. Darlin, Chris Dineen, Elinor Burkett, and Stewart D. Friedman advise Jessica on her next move on this fictional case study.
"Please don't tell me that I need to have a baby to have this time off." Those words were still ringing in the ears of Jessica Gonon an hour after a tense meeting with Jana Rowe, one of her key account managers. Jessica, the vice president of sales and customer support at ClarityBase, considered Jana's request for a four-day workweek, for which she was willing to take a corresponding 20% cut in pay. Although the facts seemed simple, the situation was anything but. Just last week, Davis Bennett, another account manager, had made a similar request. Both Jana and Davis were well aware that Megan Flood, another account manager, had been working a reduced schedule for nearly two years in order to spend more time with her children. The eight account managers were in charge of helping the company's largest clients install and maintain database applications, which often required hand-holding and coddling. Because Megan had an abbreviated schedule, the other account managers were assigned the more difficult clients. But if Jessica agreed to a shorter workweek for Jana and Davis, who would take on the toughest customers? And what would happen if the other account managers started asking for similar deals? How can Jessica maintain the productivity of her department and meet her staff's needs for flexible work schedules while striking an equitable solution for both parents and nonparents? In R0103A and R0103Z, Michele S. Darlin, Chris Dineen, Elinor Burkett, and Stewart D. Friedman advise Jessica on her next move on this fictional case study.
The mass killings at Columbine High School in suburban Denver, in April 1999, inspired deep soul-searching across the United States. The search for lessons to be learned from the tragedy has extended, as well, to the law enforcement and emergency response communities. This case provides a dramatic account of the details of police, fire, and emergency medical response to the reports of carnage at Columbine. It is designed to raise the central questions relevant for any such emergency: why did the response take the form it did and could matters have been handled better? In the process, the case illuminates the manner in which the decentralized United States law enforcement system functions under conditions of extreme pressure and minimal information.
Nokia Corp. is a global telecommunications company that, in eight years, went from a near-bankrupt conglomerate to a global leader in mobile telephony, delivering almost 30% annual compound growth in revenues during 1992-2000, while shedding businesses that had accounted for almost 90% of its 1998 shares. By spring 2000, Nokia had the highest margins in the mobile phone industry, a negative debt-equity ratio, the most valuable non-U.S. brand in the world, Europe's highest market capitalization, a presence in 140 countries, and unique corporate structures, processes, and culture that gave it the feel of "a small company soul in a big corporate body." Along with growth in size and diversity, however, came growth in complexity. Nokia had to develop multiple businesses and technologies (while dealing with the great technological uncertainties that were inherent in the convergence of mobile telephony and the Internet). It also had to manage a growing network of alliances and a number of acquisitions, mostly in the United States. This case provides the background to the issues Nokia faces as it considers how to meet these challenges while maintaining its unique company values and way of working that made it possible to execute efficiently while continuing to innovate.
Dell Computer describes the Dell business model and its adaptation to the Web in detail. This second case provides an update through March 2001 and contains a summary of some of the company's more important events since the first case was written.
In December 2000, the shareholders of General Mills were presented with a merger prospectus and proxy statement that outlined the terms by which General Mills would acquire Pillsbury from Diageo plc. Payment was composed of shares of General Mills stock, assumption of Pillsbury debt, and an unusual contingent payment. The task for the student is to assess and value the contingent payment in an effort to judge the attractiveness of the proposal and to recommend how shareholders should vote on the proposal. The contingent payment resembles a contingent value right (CVR), which provides downside protection to the sellers in an acquisition. CVRs can be modeled as two options: (1) a long put struck at a low stock price and (2) a short call struck at a higher stock price. The combination of a CVR with the underlying stock of the buyer transforms the payment to the seller from floating stock to a fixed collar. Student analysis can decompose the contingent payment into its two basic options and value the whole instrument. The teaching objectives of this case are: (1) to exercise student skills at identifying and valuing options, (2) to illustrate how the use of contingent payments can bridge differing views about the value of a target firm, and (3) to suggest the important role of synergy expectations in the evaluation of payment terms.
eLance.com allowed buyers to find sellers for time-sensitive project work without limiting bids to sellers within the vicinity of the buyer's physical office. It was just finishing the beta test of its site which had facilitated over 30,000 transactions in the past year. eLance was in the midst of closing its second round of venture financing which would allow it to execute its plan to become the premier online global services marketplace. To do this, it needed to prevent disintermediation - instances when eLance buyers and sellers, after being introduced on the eLance site, decide to conduct future project-related transactions offline. This would prevent eLance from mediating these transactions and gaining revenue from them. eLance had already implemented several customer-focused onsite and offline features to deter disintermediation. The co-founder and vice-president of business development had to determine what incentives were needed to keep customers dealing with each other through the site rather than offline.
United Grain Growers Ltd. (UGG), a Canadian grain distributor, audited its exposure to a number of key risks, especially the impact of weather on grain volumes and operating income. Understanding these risks was crucial because the company was in the midst of a major modernization and diversification program. But although UGG already managed traditional risks through a variety of control processes, it was still faced with the problem of how to deal with the biggest risk; the weather.
Given explosive growth in technologies for drug discovery, how does Merck remain competitive in an industry that is fragmented and continues to consolidate?
The account manager at the Confederation Bank was contemplating a loan request from Peak Roofing, a wholesale and retail distributor of roofing supplies. The funds would be used to add a new branch to its existing three Montreal sites. This was an opportunity to steal Peak Roofing's business from a competitor, but he knew he had to put together a careful analysis of the risks and opportunities to get the deal approved. To do so, he needed to size-up the business, create projected financial statements and structure a deal for both a term and operating loan.
eLance.com allowed buyers to find sellers for time-sensitive project work without limiting bids to sellers within the vicinity of the buyer's physical office. It was just finishing the beta test of its site which had facilitated over 30,000 transactions in the past year. eLance was in the midst of closing its second round of venture financing which would allow it to execute its plan to become the premier online global services marketplace. To do this, it needed to prevent disintermediation - instances when eLance buyers and sellers, after being introduced on the eLance site, decide to conduct future project-related transactions offline. This would prevent eLance from mediating these transactions and gaining revenue from them. eLance had already implemented several customer-focused onsite and offline features to deter disintermediation. The co-founder and vice-president of business development had to determine what incentives were needed to keep customers dealing with each other through the site rather than offline.
The Taiyuan Project involved the construction of a pipeline to supply water from the Yellow River to Taiyuan, the capital city of Shanxi Province, China. The main contractor for the project intended to appoint Taiyang Company, a six partner joint venture, as the supplier of the 82 kilometres of prestressed concrete cylinder pipe (PCCP) needed for the project. The general manager for Taiyang Company had to decide what the company's involvement should be. The company was the only supplier of PCCP in China, however, due to a slow start, it had no cash. A new factory and new equipment would be required to meet the requirements of this project. He would have to work out a capital budget for a cash-constrained situation while considering whether to find a joint venture partner and what the most advantageous way to structure the company would be from a tax perspective.
Before taking competitive action, managers must anticipate the actions of their competitors. This can only be accomplished by performing thorough competitor analysis.