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Experienced executives often say of M&As: “The dealmakers have it easy. It’s the poor guy who has to manage the post-transaction execution that has it hard.”
The job of managing post-transaction integration is difficult for any executive. As soon as the ink is dry, he or she must select and energise the management and employees, set priorities, communicate with HQ, and so on. The to-do lists seem never-ending. For many managers, this is too much – in one of the merger situations we studied, the manager in charge lasted for less than a month.
But it does not have to be like this. We have also found executives in post-transaction M&A situations who have their priorities right – even in complex settings. How did they avoid getting lost in the wide range of issues they were constantly facing?
We find that successful executives in the post-transaction execution phase have a systematic communication and meeting structure for managing down, managing up and managing external customers. They create what we refer to as the “get-it-done” system, a robust system for bringing order to decision-making, both at strategic and operational levels. Such a system helps the executives manage the flow of information and helps them to focus on value creation. Further, they are able to form realistic snapshots of the situation, so can often provide support before a crisis occurs.
In this article, we will illustrate an effective “get-it-done” system, using the case of Sunrise, a telecoms operator in Switzerland. In late 2000, the former Danish telephone monopoly TDC AS (TDC) took a majority stake in the Swiss company. At the time, this was the biggest-ever foreign takeover by a Danish company. Looking at the methods of the CEO Kim Frimer sheds light on how to create and maintain an effective system to get-it-done and overcome major obstacles.
Integrating M&A: One of the most difficult transactions
Managers in charge of integration know that they have to deal with strategic, organisational and execution challenges. They must capture quickly the value of the transactions and maximise the financial results. But soon the question is: how to survive?
Pressure comes from many sources, and the complexity of a deal is often greater than initially anticipated. One experienced M&A executive told us: “Buyers tend to overestimate the advantages/pluses of a deal, and underestimate the cost of doing things.”
Inside the merged companies, employees are likely to be worried about their future and they want guidance. What will the organization look like? Will the strategy change?
HQ expects to reap the synergies and cost savings from the new operation to justify the price it paid for a business. After all, acquirers pay price premiums of between 30 and 50 per cent on average. Financial markets will want to see top and bottom line improvements quickly after the transaction. Hence, there are strong incentives to show progress.
If this were not enough, big deals often bring with them high visibility both inside and outside the company. Thus, the integration executives will be in the spotlight constantly. At the same time, while the merged operation has to work through many internal challenges, the commercial side cannot be ignored – competitors continue with business as usual without any disruption caused by the integration.
Sunrise: A struggling Swiss telecoms provider
Sunrise began as a Swiss telecoms operator for fixed line and internet services. In late 2000, it merged with diAx, another Swiss company operating with a mobile/wireless license. The new company kept the Sunrise name, but the ownership changed. TDC, the former Danish telephone monopoly which already held a minority share in the original Sunrise, increased its stake from 19.5 per cent to 78.5 per cent of the new company.
The new company faced a tough situation: the mobile division – normally the most profitable and promising part of the business – was losing 9 per cent of its customers per month. Financially, Sunrise was a disaster. The scale of these losses was even felt at HQ in Denmark. Although TDC reported an impressive earnings growth of 14 per cent for 2000, the share price dropped by up to 17 per cent on the day of the announcement. Financial markets were concerned about future losses in Switzerland – where the local press had forecast a loss of up to 30 per cent of sales for 2001 – and even put TDC’s corporate management under pressure. Moreover, critics said that TDC had overpaid for this poorly performing company.
In December 2000, Mr Frimer was asked to jump in as president and CEO of Sunrise. With over 15 years of experience as a manager in various positions at TDC, he had the trust of TDC’s board to instil the necessary discipline into the new Swiss acquisition.
Three years later: Sunrise beats industry benchmarks
By 2003, Sunrise was a revived company. Mr Frimer and his team decided to drop the diAx brand, and the company had positioned itself as “the most human telecoms provider”: easy, friendly, and offering smart solutions at reasonable prices. This was quite different from the competition, which differentiated themselves on factors such as network power and tradition.
It worked. Between 2000 and 2003, Sunrise nearly doubled its subscriber base for mobile phones, enabling it to regain the number two position in the market, and it launched various product innovations for fixed line and internet users. By contrast, the growth of the incumbent Swisscom, still around 27 per cent in 2000, almost ground to a halt.
Finally, Sunrise had returned to profitability – a year earlier than expected – with a net income of 8.8 per cent of sales.
How did sunrise achieve such impressive results?
First, Mr Frimer got the attention of his management board with an unusual kick-off meeting held over two days in a chalet in the mountains. The priority was to get the business right from the start because he believed, “If you do not get the business right, you cannot get any of the other things right.” Mr Frimer began by stating the two key issues for the board: increasing revenue and cutting costs. Following the meeting, long lists were drawn up showing how this could be achieved.
The next big step of Mr Frimer’s post-transaction execution was to embed a structure that focused all members of Sunrise – from front-line employees to the top management – on the its key value drivers. He put in place a system of meetings, boards and taskforces designed to capture and disseminate information that was critical to making decisions at all levels.
Finally, he kept this system working efficiently through constant attention to detail.
Embedding a “get-it-done” system
Mr Frimer was clear that “if you delegate, you have to make sure you control” the process. Thus, he gave a lot of autonomy and trust but he made it clear that his employees understood the rules – not to betray him.
Mr Frimer developed a tightly executed set of interactions with the 11 members of his management board as part of his managing down policy based on the following rules.
■ Weekly management board meeting This was the major decision-making body within Sunrise, at which all major challenges and choices were examined and decisions were made. All board members were expected to be present, and if they were unable to attend, there was a clear understanding that they had to respect the decisions taken by their colleagues.
■ Project board When Mr Frimer and the new management team arrived in Switzerland, they soon discovered that there was a lot of cash outflow, leading to real “cash burn”. For example, equipment was being purchased without any prior internal discussion. This changed. Now, every purchase over SFr400,000 had to be discussed at the weekly forum. Managers had to present their planned purchases together with a net present value analysis. Although the project board initially met with a lot of resistance, it soon became a forum for “selling ideas”.
■ One-on-one These biweekly meetings, lasting up to an hour, were forums for exchange between Mr Frimer and individual members of the board. There was no prearranged agenda; board members decided the issues to be discussed as necessary. Typical issues included brainstorming, operational issues or “things you do not need to discuss in a big group”.
One board member commented: “I have to tell him what I need, how it is running and where I expect help from him.” If neither the board member nor the CEO had anything to discuss, then the meeting could be cancelled.
Mr Frimer outlined his style in meetings: “My approach is to ask questions and then we will develop the conclusions together, rather than me saying, ‘You should do this.’ But sometimes you still have to say, ‘This is not good enough.’
People are different. As a manager, you have to react to their differences. Some want to be left alone, others like to have a sparring partner. As a manager, you have to figure out how to deal with your subordinates.”
■ Taskforces Once a problem was identified, board members were expected to fix it. If this did not happen, they would receive a warning. If the problem was not solved within the three to four months, Mr Frimer would send in a taskforce. This team would report directly to the CEO until the problem was resolved.
With all of this systematic focus on performance, some members of the management board were concerned not only about being overworked but also about the general pressure for results. But Mr Frimer commented: “Keep the pressure up and never be satisfied with the current situation!”
Meanwhile, as part of his managing up policy, Mr Frimer also implemented a monthly review meeting with HQ in Copenhagen. In so doing, his superiors understood what was going on in Switzerland and could provide input on how they would tackle the issues.
Enrolling the front-line employees
In addition to his methods for focusing the top management team, Mr Frimer had a system to ensure that the 2,500 front-line employees knew exactly what to do to support the Sunrise strategy. For example, to overcome the barriers created by the divisional structure (mobiles, internet, fixed line) and to reach out to its customers, the company set up two marketing boards. One was for corporate customers, and one was for private customers. In these marketing boards, employees from various divisions had to work together to tailor their product offerings for various customer segments.
Also, Mr Frimer had frequent direct contact with front-line staff via “power breakfast” meetings held every six weeks. The meetings all followed the same format and anyone could apply to attend. The invited employees represented a wide pool of experience and were first asked to introduce themselves before Mr Frimer posed his question: “If you were CEO of Sunrise for a week, what would you do?” This served as a platform for making improvements and it was not uncommon for employees to later receive a personal letter from Mr Frimer highlighting important issues.
Since the number of places for the power breakfasts was limited, the top management team also visited the various offices. All employees were invited to the “EMT (executive management team) on tour” event, which took place twice a year at each location. There, the CEO would explain Sunrise’s overall strategy. Then, two other board members – different ones each time – described recent developments in their field. The meetings were set up so that employees had enough time to ask questions, which were treated seriously.
In addition to these meetings, employees were strongly encouraged to voice their opinions in non-formal ways. They regularly received an online employee survey aimed at measuring feelings among employees. As Mr Frimer explained: “The frustration was huge initially, but it then improved a lot. I use this survey widely. When it is very negative, you normally have a management problem.”
Maintaining discipline in the organisation
Mr Frimer also set up important meetings that included both managers and front-line employees. For example, he had business unit strategy review meetings. These were informal meetings between Mr Frimer and key divisional managers (not only board members). Although informal, the impact should not be underestimated because this is where strategy discussions took place.
Depending on the size of the division, these meetings would take place between one and three times per year, depending on the size of the unit. The meetings, which started at noon, were open-ended. In the course of the afternoon, the responsible board members and their top managers would explain “what they were doing, what challenges and issues they were facing”.
The keys to success
What explains Sunrise’s success? Of course, Mr Frimer’s experience in this industry was critical. But it was his management capacity that helped him to cope with the tremendous pressures. We have identified three key qualities: first, his business skill, including the ability to see where the money is; second, his “get-it-done” system; and third, his ability to get individual employees to focus on key tasks.
■ See where the money is Often, the biggest challenge for executives is to react promptly and correctly to the increasing rate of change. Clearly, Sunrise carefully scanned the competitive environment and tried to understand how companies competed. How did they differentiate their product offering? Where was money to be made?
In a second step, Sunrise came up with new ways to compete. The company’s positioning as “the most human telecoms provider” was distinct from its rivals. Moreover, Sunrise identified the mobile phone sector as its growth market.
■ The “get-it-done” system Within Sunrise, there was a clear focus on the value drivers, and through various events Mr Frimer made sure that all employees got the message. He implemented a rigorous and systematic method of managing down, managing up and managing external customers.
The combination of these various meetings, together with Mr Frimer’s tendency to ask questions, kept employees at every level on their toes, and nurtured a transparent and accountable culture within the organisation.
This “get-it-done” system provided Mr Frimer with guidance in a complex industry and had various advantages. Mr Frimer monitored and advised on various levels. He could give support before a crisis occurred. Taskforces were a very effective tool for keeping management board members on the ball. No board member wanted to have their subordinates reporting directly to the CEO.
Mr Frimer kept Sunrise focused on the big issues of customer challenges and opportunities, revenues and cost. This brought the company back to profitability with increasing market share.
Ability to get employees focused on the key tasks Getting commitment from individual employees was high on Mr Frimer’s priority list, which entailed the following:
■ Employees had to understand the demands. This was achieved across all levels, from the board (for example, through the chalet meeting) down to the lowest employees (through “EMT on tour”). Mr Frimer simplified and adapted the business situation so everyone could understand it.
■ Mr Frimer’s personal style of adapting to various personalities helped him to get buy-in. And if bad news had to be communicated, he would do it in person.
■ Mr Frimer strengthened the optimistic beliefs of employees by publicly announcing that they would beat their main competitor for mobiles. He had the credibility to do so.
■ He provided a continuing sense of progress: achieving goals, such as becoming the number two provider for mobiles, was a cause for company-wide celebration.
In short, Mr Frimer had a system for diagnosis, influence, delegation and control, and he embedded a set of methods that got results.
George Rädler is research associate at IMD.
Preston Bottger is professor of leadership and management development at IMD and director of the school’s Mobilizing People (MP) programme, a two-week programme for executives who want to enhance their capacities for leadership. He is editor of the forthcoming book The CXO Leadership Challenge ( Cambridge University Press, forthcoming).