Joint Venture Integration and
Ongoing Management
Comprehensive Support for Client X’s Joint Venture by Managing Risks, Building Relationships and Accelerating Value Capture
Discussion Document
December 12, 2001
This document is exclusively intended for selected client employees. Distribution, quotations and duplications – even in the form of extracts – for third parties is only permitted upon prior written consent of . Kearney and Vantage Partners LLC.
Table of contents
Key Messages
Our Understanding of Your Situation (Not included here)
Our Perspective on Joint Venture Integration and Long Term Value Creation
Our Proposed Overall Approach to Helping Client X
Working Together to Create Value for Client X
Appendices:
A – Our Qualifications
B – Joint Venture Exploration and Negotiation Methodologies
C – Integration Management and Sample Tools
D – Relationship Structure Methodologies and Tools
E – Sources of Value Methodologies
F – Integration and Relationship Enablers Methodologies
G – Ongoing Management Processes and Tools
Key Messages
The majority of joint ventures fail to create lasting value, though failure is usually not the result of a flawed strategy. Instead, most failures are the result of poor integration management and/or breakdowns in key working relationships between parent companies, between a parent and the joint venture, or within the joint venture
Poor integration management and breakdowns in key working relationships are often inextricably linked
Poor integration management leads to unnecessary sources of organizational conflict – including unmet expectations, mutual frustration, and misperceptions – all of which strain the relationship between partners
Lack of attention to building and maintaining strong working relationships makes the complex task of integration management less efficient and creates ongoing barriers to effective communication, problem-solving, joint decision-making and implementation
Together, with their deep experience and comprehensive approach to all aspects of joint venture integration, . Kearney and Vantage Partners help partnering companies create lasting value
. Kearney’s Strategy/Merger Integration practice has been extremely successful at creating value for our clients by leveraging our rigorous approach to integration management with deep industry knowledge and functional expertise. . Kearney has deep experience in assisting clients, including companies in Client X’s industry, mitigate risks up-front and overcome possible barriers to success
Vantage Partners, a spin off of the Harvard Negotiation Project, has unparalleled experience in helping clients maximize the long term value of alliances and joint ventures by transforming relationship management into a systematic business process
Our Understanding of Your Situation
Our Perspective on Joint Venture Integration and Long Term Value Creation
Repeated studies find that few business combinations actually create significant shareholder value, as illustrated by . Kearney’s recent findings on mergers
Source: . Kearney analysis 2001, SDC database, Global Worldscope
Note: (1) Shareholder returns from buyer divided by shareholder returns (industry average) after the merger
(1)
Mergers most often fail because of problems in integration management rather than flawed strategy
Source: . Kearney’s Global PMI Survey 1998
Problems Identified in Merger Integration
21%
26%
26%
32%
37%
37%
47%
47%
58%
Under-communication
Financial/Synergy Expectations Unrealistic/Unclear
New Org. Structure With Too Many Compromises
“Master Plan” Missing
Missing Momentum
Missing Top Management Commitment
Unclear Strategic Concept
Missing Pace of Project
IT Issues Addressed Too Late
% of Respondents
Similarly, most alliances fail due to poor execution because partners are unable to work together effectively
30%
6%
64%
Poor or Damaged Relationships Between Firms
Poor Strategy and Business Planning
Foremost Causes of Alliance Failure among Companies
that Have Participated in more than 20 Alliances
Bad Legal and Financial Terms and Conditions
Between two thirds and three quarters of all alliances fail to achieve their objectives
Lack of trust
Inefficient and/or inadequate communication
Widespread negative partisan perceptions
Questioning of one another’s motives
Festering conflicts
Adversarial problem solving
Inability to spot and exploit opportunities for joint gain
Widespread feelings of disrespect/coercion
Characteristics of Poor
Working Relationships
Source: Vantage Partners, various industry studies
Joint ventures combine the integration challenges of mergers and the ongoing relationship management challenges of alliances, making them inherently complex to manage
Integrated
Acquisition
Merger
Joint Venture
Preferred Relationships
Arms-length Customer - Vendor
Relationship
Tactical Alliance
Interdependent
Transactional
Strategic Alliance
Integration and rationalization within the venture; with some need for integration or harmonization with parent companies
Allocation of strategic decision-making responsibility among venture management and parent companies
Balancing success of the venture with satisfaction of each parent companies’ individual objectives
Managing termination and/or disposition
Key Areas of Joint Venture Complexity
Joint Ventures Demonstrate Interdependent and Integrated Characteristics
. Kearney and Vantage Partners have identified best practices related to integration and ongoing management of joint ventures
Instill robust, well-defined processes to ensure objective and timely risk and interdependency tracking
Track risks and interdependencies
Establish a strong central Integration Office and decentralized integration teams with corporatewide perspectives on: results; project status; risk; internal/external communications, conflict resolution and relationship management
Conduct decentralized integration guided forcibly via: clear guiding principles; an overall framework and standard tool set for integration; reporting standards
Create a strong central integration office with decentralized working teams
Manage market expectations carefully. Set conservative dollar targets with a time frame that accommodates unforeseen circumstances
Keep strong, explicit focus on key customer retention and service with teeth (., measurement and tracking)
Manage market expectations and maintain customer focus
Avoid “shadow” or “dual-box” management
Select JV management based on their cooperative skills and capabilities to bridge different organizational cultures
Select one management team early
Set synergy goals to prioritize activities, measured against a clear baseline for performance tracking
Create a sense of urgency, reduce uncertainty through clear event milestones, and move quickly
Maintain open and timely communications with employees to ensure their buy-in and support
Define and communicate strategy, objectives and synergy goals proactively
Best Practices Related to Integration
. Kearney and Vantage Partners have identified best practices related to integration and ongoing management of joint ventures (continued)
Ensure operational alignment around shared objectives for the venture
Anticipate and plan how to address potential obstacles to making the venture successful
Equip new colleagues with common methods for effective collaboration
Jointly launch the relationship
Best Practices Related to Ongoing Management
Clearly define parent-venture governance
Create clearly demarcated roles for Board and executive team
Clarify exit provision in advance. Define alternatives for disposition, set valuation method and structure options
Establish common ground rules for working together
Plan how key decisions remaining/ongoing will be made (strategy, investments)
Identify and exploit opportunities to create additional value by expanding and/or shifting the focus of the venture
Redefine scope or exit venture as necessary; in a timely fashion and in a manner that does not jeopardize other current or future opportunities for collaboration
Continually assess and proactively manage change
Conduct regular audits of business and working relationship
Identify and diagnose simmering conflicts and negative perceptions early - before they impede the ability of employees to work well together
Formally assess the extent to which the venture is achieving its objectives and diagnose any areas of underperformance
Identify ways in which the strategy, structure, or management, systems of the venture are creating unnecessary conflict and require adjustment
Assign a dedicated relationship manager
Manage parent relationship issues
Spot potential conflicts and mediate disputes
Gauge and track the health of the working relationship over time
Our Proposed Overall Approach to Helping Client X
. Kearney and Vantage Partners' flexible Joint Venture Integration and Management Framework supports successful integration and builds the infrastructure for ongoing management
Determine partnering strategy
Evaluate and select partner(s)
Conduct JV valuation and articulate sources of value
Negotiate joint venture
Develop IT integration strategy
Design/harmonize HR policies
Conduct cultural assessment
Develop SOV IT enablers
Implement HR plan
Conduct conflict management training
Develop change management plan
Establish the integration program
Build integration capability
Create communication plan
Create master plan and prioritize
Implement communication plan
Monitor progress and risk
Transition ownership to client organization
Integration Planning
Initial Integration
Full-scale Rollout
Infrastructure for Ongoing Management
Phase 0
Phase I
Phase II
Phase III
Exploration
and
Negotiation
Strategy
Development
Integration and Relationship
Enablers
Sources
of Value
Relationship
Structure
Define shared objectives
Establish venture/parent governance structure
Facilitate resolution of key issues
Conduct joint venture launch
Develop business success & relationship health metrics
Deploy effective problem-solving methods
Develop procedural agreements as new teams are established
Establish commitment mgmt. framework
Assess sources of value
Define organizational structure
Validate sources of value
Implement quick hits
Execute the plan
Realign the organization
Provide facilitation assistance
Implement IT integration plan
Execute change management plan
Integration
Management
Benefits tracking tools
Risk tracking tools
Venture dashboard
Conflict management mechanism
Relationship audit mechanism
Communication and information-sharing protocols
Re-negotiation and exit procedures
Joint problem-solving toolkit
Team procedural agreements
Joint Venture Integration and Management Framework
“Go Live”
Stakeholder
Approval
MOU/LOI
A Steering Committee drives the overall integration through an Integration Office, which coordinates and manages decentralized working teams and facilitates the formation of effective working relationships
Sets overall direction and provides guiding principles
Develops/communicates objectives and targets
Signs off on major issues/decisions/structures
Provides resources and eliminates roadblocks
Steering Committee
Market Facing Team
Value Capture Team
Value Capture Team
Enabler Team
Value Capture Team
Market Facing Team
The number and size of working teams will depend on the size and complexity of the JV
Establishes a strategic governance structure
Establishes roles for, and rules of, engagement
Facilitates alignment around business objectives and metrics
Provides coaching and facilitation assistance to working teams
Provide industry, functional and JV expertise
Suggest alternatives
Review plans
External Advisory Panels
Working teams
Integration Management: Establish the Integration Program
Integration Office
Implements planning, prioritizing integration and reporting – creates and manages the “master plan”
Conducts frequent work task reviews with teams
Maintains a scorecard to track deliverables and benefits
Installs and manages integration risk management system
Program Management Team
Enabler Team
Relationship Structure Team
Within the Integration Office, the Program Management Team builds integration capability by establishing tracking baselines and rolling out core processes and program tools
Data
Repository
Communications
Strategy and Plan
Oversight/
Visibility “War Room”
Financial and Headcount Baselines
Master Calendar
Integration Management: Build Integration Capability
Financial Expense Baseline Framework – Manufacturing Client Example
Depreciation
Headcount
Other Costs
Depreciation
Depreciation
Utilities/Supplies
Maintenance
Property Taxes, Insurance
Leases & Rentals
Headcount
Headcount
Labor/Fringe/Travel
Internal Transfers
Depreciation
Maintenance
Headcount
Other Costs
Depreciation
Utilities/Supplies
Maintenance
Property Taxes, Insurance
Leases & Rentals
Headcount
Labor/Fringe/& Travel
Internal Transfers
Depreciation
Maintenance
Headcount
Other Costs
Depreciation
Utilities/Supplies
Maintenance
Property Taxes, Insurance
Leases & Rentals
Headcount
Labor/Fringe/& Travel
Other Costs
Other Costs
Internal Transfers
Plant/Site
Manufacturing
Support
Non-Manufacturing Functions
-
•
Purchasing
•
IT
•
.
•
Transportation/Logistics
•
Legal, Tax, Insurance
•
Accounting/Finance
•
. & S.
•
R&D, Tech Serv., Sales Serv.
•
Building Related Expenses
-
Non Mfg & Non-Whg Sites
•
Central Engineering
•
Bus Selling & Mktg
•
Bus Admin
•
Bus Operations
•
Non COGS Warehouses
Direct
Manufacturing
•
In addition, we captured at a higher level Raw Materials, Inventory, and Property, Plant & Equipment
The Relationship Structure Team works with the Board and senior management to develop the governance framework and process for the joint venture, and to ensure alignment around the venture’s strategic objectives
Establish Governance Structure
Build decision-making maps and escalation protocols for key issues
Develop business and relationship success metrics
Articulate Joint Venture Evolution and Termination Processes
Financial
Perspective
Continuous
Improvement
Customer Focus
Operational
Excellence
Venture
Success
Relationship
Health
Company A
Company B
Joint Venture Board
CEO
Executive Office
Business Unit
Business Unit
Business Unit
Business Unit
Business Unit
Key Questions and Decision Factors
Action
Restructure the Joint Venture Based on Specific Trigger Points
Pre-negotiate Terms/Conditions in Advance
Anticipate Likely End Game
Relationship Structure: Establish Venture / Parent Governance Structure
As necessary, the Relationship Structure Team also supports various working teams as they confront the need to collaboratively resolve complex issues and make decisions during the integration process
Clarify the Issue
Determine Who Needs to Be Involved
Manage
Commitments and
Communication
Determine the
Decision-Making Method in Advance
Generate Possible
Solutions
Facilitate Decision-
Making
Jointly
Manage Escalation
Joint Issue Resolution and Decision Making Methodology
Key Party #1
Key Party #2
Key Party #3
Potential
Critics
Will be Affected by the Outcome
Has Expertise on Issue
Potential
Critics
Potential
Critics
Impacted External Party (., customer, supplier, etc.)
Key
Constituents
Key
Constituents
Key
Constituents
Has Expertise on Issue
Illustrative “Relationship Map”
Will be Affected by the Outcome
(if necessary)
Relationship Structure: Facilitate Resolution of Key Issues
Functionally-focused Value Capture teams work across all Market Facing teams to ensure maximum synergy realization and coordinated decision-making
G&A / Overhead
Manufacturing and Distribution
Human Resources
Information Technology
Business Unit / Geographic Unit #2
Illustrative
Working teams drawn from line staff with relevant experience in both organizations. External consultants join the teams where there is a need for particular functional and market expertise, where objectivity is required or where there is a transitional need for manpower
Business Unit / Geographic Unit #1
Sales and Marketing
Integration Office
Steering Committee
Market Facing Teams
Value Capture Teams
Enabler Teams
External Advisory Panels
Program Management Team
Relationship Structure Team
Revenue Growth and Salesforce
Effectiveness focus
Sources of Value: Assess Sources of Value
Procurement and Sourcing
By launching the integration effort prior to “Going Live”, the Value Capture and Market Facing teams make significant progress in identifying sources of value while also developing the high-level organization models to capture that value
Analysis
Opportunities
Initial Prioritization
Initial Sequencing
Data Collection/Analyses
Operations/ Asset Consolidation
Diagnostic Pack
PP 1
PP 2
PP 3
PP 4
H
M
L
H
M
L
Init
Q1 Q2 Q3 Q4
PP1
PP2
PP3
PP4
Data Collection/Analyses
Business Unit
(., Services)
Diagnostic Pack
CS 1
CS 2
CS 3
CS 4
H
M
L
H
M
L
Init
Q1 Q2 Q3 Q4
CS1
CS2
CS3
CS4
Hypothesis 1
Hypothesis N
Hypothesis 1
Hypothesis N
Illustrative
Northeast Region
South Region
Midwest Region
West Region
VP Sales
Sales Training
Industry Accounts
Industry Accounts
VP Sales
HR/IT Support
Sources of Value Identification
High-Level Organization Model Creation
Training / Support
Training / Support
Training / Support
Training / Support
Sources of Value: Assess Sources of Value and Define Organizational Structure
As these initial synergy opportunities are identified and sequenced, the Enabler teams must begin to address IT, HR, and other systems that need to be harmonized or integrated to support value capture
Integration and Relationship Enablers: Develop Infrastructure Enablers
18 Months
Policies and
Procedures
Transition Management
Strategic
HR
Planning
Training and Development
Combined IT Cost
IT Savings
Now
Planned Savings
IT Investment
Transaction system implementation
Customer data management
Business integration
Leading edge technologies
IT Savings
Application consolidation
Data center consolidation
Network management
Office environment
Conflicting priorities will impact the IT Integration Strategy
HR planning is key to JV success
Phase II: After “Going Live”, the teams quickly finalize – not identify – sources of value opportunities and gain consensus
Initial Prioritization and Sequencing
Master Plan Sequencing
Full Team Meetings
Disclose and Validate
Modify and Refine
Finalize Sources of Value Opportunities and Prioritization
Identify Interdependencies
H
M
L
H
M
L
Overall Prioritization/
Steering Committee Buy-In
Init
Q1 Q2 Q3 Q4
MD 1
ST 3
SC 6
PP 4
SC6 Workplan
ST3 Workplan
MD 1 Workplan
Step 1
2
3
4
Investment Requirements
Timing of Saves
Master Plan Detail
Init
Q1 Q2 Q3 Q4
PP1
H
M
L
H
M
L
Init
Q1 Q2 Q3 Q4
PP1
H
M
L
H
M
L
Master Plan Detail
Phase II Overview
Integration Planning
Initial Integration
Full-scale Rollout
Infrastructure for Ongoing Management
Phase I
Phase II
Phase III
Shortly after “Going Live”, the team leaders typically present their validated sources of value opportunities and demonstrated commitment to achieving the benefits within the specified timeframe
Unit XXXX
Illustrative
Integration Versus Improvement
All. = Opportunities whose benefits can be achieved through JV creation only
Imp. = Opportunities whose benefits can be achieved on a “Stand Alone” basis
B
Imp.
1
XX
6
EE6: Reduce Office Space Required at Facility X
C
All.
4
XX
6 – 12
DD5: Capacity Balancing Opportunities
A
Imp./All.
1
XX
0 – 3
CC3: Relocate From Data Center A to B Using Space Created by Other Integration Moves
A
All.
2
XX
12 – 18
BB2: Adopt New Manufacturing Strategy, Including Plant Closure
Sources of Value Opportunity
A
Priority
All.
All./Imp.
3
Impl. Ease
XX
Size ($ MM)
3 – 6
Impl. Timing
AA1: Restructure Engineering Organizations
Implementation Ease
1 Low Degree of Difficulty
3 Somewhat Difficult
5 Very Difficult
Priority
A = High Priority
B = Medium Priority
C = Low Priority
Separate charts are created for savings and growth opportunities
Sources of Value: Validate Sources of Value
Next, the teams refine the benefits timing with quarterly projections – initial planning also provides estimates on headcount reductions and capital and expense requirements
Impact of Sources of Value Initiatives
(.$ Millions)
$0
$20
50
$10
$5
Run Rate Growth
Run Rate Saves
Headcount Reduction
Capital Invested
Expense Incurred
Illustrative
Q3
$10
$80
150
$20
$15
Q4
$25
$120
300
$10
$20
Q1
$50
$160
400
$20
$10
Q2
$100
$180
480
$10
$10
Q3
$160
$200
520
$5
$5
Q4
$220
$240
550
$5
$5
Beyond
$220
$240
550
$80
$70
Total
Sources of Value: Validate Sources of Value
All initiatives can go through a categorization and prioritization process to ensure proper allocation of scarce resources and achievement of benefits within the required timeframe
Team Internal
Steering
Committee
Prioritized
“Must Do”
Team Internal
Immediate
Business Need
Not Immediate
Business Need
Urgency of Business Need
Resources Currently Available
Within Teams
Resources Not Currently Available to Teams
Availability of Resources
Illustrative
“Must do” Initiatives
Steering Committee Prioritized
Time to Implement
(Months)
< $1MM
$1MM – $5MM
$5MM – $10MM
>$10MM
Size of Opportunity
Savings/(Capital + Expense) vs. Time to Implement
0
1
2
3
4
5
12
15
6
18
9
Categorizing Initiatives
Prioritizing through various analytical criteria
Integration Management: Create Master Plan and Prioritize
In parallel, the Relationship Structure Team facilitates a series of joint venture launch events to ensure a strong foundation of mutual understanding and operational alignment at all levels of the venture
Conduct Relationship Launch Event(s)
Brief
Participants
on JV
Terms and
History
Explore Cultural
Differences-
Identify
Challenges,
Brainstorm Ways
to Overcome
Challenges, Define
Relationship
Metrics
Communicate
Joint Messages
Develop Joint
Messages
Provide Ongoing
Coaching
and Follow-up
Provide Training
on Relationship
Management
Tools
Refine Strategic
Governance
Structure and
Metrics for
Business Objectives
Design the Agenda
and Materials for
the Launch Event
Relationship Structure: Conduct Joint Venture Launch
The joint launch process ensures that partners have a common vision for their relationship
What would lead Company A to conclude that mutual trust and respect exist:
“We are direct with each other and push back when an answer or decision doesn’t make sense ”
“We have clear guidelines for escalation to the Board.”
“We trust each other to make unilateral decisions, and consult together only when absolutely necessary.”
What would lead Company B to conclude that mutual trust and respect exist:
“They take our word for it when we tell them we can't do something.”
“We never have to escalate disputes to the Board”
“We always consult on key decisions, and take unilateral action only when absolutely necessary.”
very different
These kinds of differences, left unclarified, often lead to relationship breakdowns
Relationship Structure: Conduct Joint Venture Launch
Companies Often Have Similar Definitions of a Good Working Relationship …
Company A’s Definition of a Good Working Relationship with Company B:
“There is mutual trust between us and respect for each others’ strengths.”
Company B’s Definition of a Good Working Relationship with Company A:
“There is mutual trust between us and respect for each others’ strengths.”
same
… Yet Ideas about Behaviors that Indicate a Good Working Relationship Often Differ
Once a common vision has been articulated, driving to operational metrics ensures that the venture’s business objectives and the relationship between partners can be monitored and managed over time
Business and Relationship Metrics
and Tracking
Operational
Customer
Financial
Relationship Dashboard
Operational
Customer
Financial
Venture Dashboard
Health of Relationships
Performance
-
Based
Compensation
Continuous
Performance
Tracking
Development of
MBOs
Stretch Targets
Communication through the Organization
Relationship and Business Performance Dashboard
Continuous
Improvement
Illustrative Relationship Scorecards
Relationship Structure: Establish Business Success and Relationship Health Metrics
The joint launch process also provides an opportunity to train new colleagues on a common set of approaches for collaboration
In your discussions, move up from data to meaning to conclusions. This will help others understand your reasoning path.
In your head, move down from conclusions to meaning to data by actively reflecting on your conclusions and how you reached them.
Relationship Structure: Conduct Joint Venture Launch
The Ladder of Inference(1)
Note: (1) The Ladder of Inference is based on the work of Argyris and Schon “Action Science: Concepts, Methods, and Skills for Research and Intervention”
Phase III: The transition to full-scale rollout and implementation of initiatives in Phase III is supported by a clear tracking and risk management process
MD 1 Workplan
Activity
Task 1
Task 1
Task 1
Task 1
Q1
Q2
Q3
Q4
Top 10 Program Risks as of 06/24
Organization announcement timing still unclear
IT requirements not fully understood
No plans to address cultural misalignment
Success of communication not currently planned to be measured
Illustrative
Program Risk Management
Size = $ Saved
Yellow
Red
Risk
Time to Complete Implementation
6
12
18
Green
Initiative Status Management
Current Quarter
Cum. Qrtly. Breakdown
Jan.
Feb.
Mar.
4Q97
1Q98
2Q98
Cost Savings and Growth Achievement
Initiative
Phase III Overview
Integration Planning
Initial Integration
Full-scale Rollout
Infrastructure for Ongoing Management
Phase I
Phase II
Phase III
Throughout the effort, managing risk is a formalized methodology – adherence facilitates a fair and robust decision making process
Project Risk Prioritization
Risk Identification
Risk Categorization
Project Prioritization — Business Criticality And Size
Business Criticality — how much does it matter if the project does not meet its objective?
A = Incremental benefit but current processes will suffice
B = Supports strategy but manageable impact if project fails/delayed
C = Important to the strategy with significant impact if project fails/delayed
D = Critical impact/must keep up with competitors/cannot continue business
Complexity
High
Low
High
D
C
B
A
A
B
C
D
Business Criticality
Project 2
Project 3
Project 6
Project 1
Project 4
Project 5
Many issues are closed by making assumptions
Risks
Assumptions
Issues
Project Plans
Risk Plans
Issues are open questions
Unstable/sensitive assumptions create risks
Significant risks need to be managed
Issues, Assumptions And Risks Are Inherent In The Project Plans
Risk Reduction
Red
Amber
Green
Risk Profile
Illustrative
Challenges
Decision Making
Planning/
Execution
Reporting
Benefits of Proactive Risk Management
Cross organizational input and dedicated facilitation ensures objective input
Milestone risks associated with decision timing are derived from process-wide initiatives
Risk process highlights resource vulnerabilities. Sense of urgency associated with the process forces discussions and actions
Proactive management and facilitation objectively evaluates all communication risks. Forum offers participants a chance to agree or disagree
Concise updates focused on cross-organizational risks direct attention where it is needed
Clear assignment of risk ownership and action responsibilities eliminate confusion
Yellow
Red
Risk
Time to Complete Implementation
6
12
18
Green
Integration Management: Monitor Progress and Risk
A Framework for Joint Commitment Management (1)
To ensure effective execution, the Relationship Structure Team coaches working teams on effective commitment management behaviors
Relationship Structure: Establish Commitment Management Framework
Request Phase
Treat the process of crafting commitments as one of interest-based joint problem-solving.
Explore the interests behind the specific request
Commitment Phase
Discuss specifically what successful completion will involve and any potential difficulties to achieving such.
Consider what form of commitment makes the most sense.
Note: (1) Adapted from the work of Fernando Flores
Declaration Phase
Jointly review whether both sides are satisfied with the end result
Extract lessons about what worked well and what did not
Perform Phase
Schedule regular updates and agree to be up front about any difficulties or barriers to successful completion.
In the event of difficulty, diagnose what has contributed to the difficulty and brainstorm how best to adjust
After successful implementation, . Kearney and Vantage Partners leave behind a comprehensive set of benefit tracking, risk management and relationship management systems
Run Rate Saves — Integration Program
(US$ MM)
Run Rate Saves — Project DC01
Run Rate Saves — Data Center Integration Team
0
100
200
300
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Monthly Actuals
Original Plan
Revised Forecast
Jul
Aug
Sep
Oct
Nov
Dec
<$1MM
$1MM–$5MM
$5MM–$10MM
>$10MM
Size of Savings
Green
Yellow
Red
Risk Rating
Expected Completion Date
TBD
CS1
CS5
ST1
ST8
ST2
MD2
MD15
MD21
MD19
MD1
MD11
MD26
MD29
MD33
SC1
SC4
SC3
SC5
SC6
SC7
MD32
SC11
RT4a
RT4b
PP2
CS2
05/00
12/99
06/00
12/00
06/01
On Hold
MD31
MD34
ST7
RT5
RT3
Initiative Risk Assessment
EM1
MD18
EM6
PP4
I
I
PP7
EM3
EM4
EM5
EM7
SF11
SF8
ST9
ST10
PP5
CS4
RT6
MD6
MD27
EM2
MD37
AA1
Illustrative
Steering Committee Benefits Report
Initiative Risk Assessment
Integration Planning
Initial Integration
Full-scale Rollout
Infrastructure for Ongoing Management
Phase I
Phase II
Phase III
Infrastructure for Ongoing Management: Benefits Tracking Tools, Risk Tracking Tools
A venture dashboard allows the partners to monitor and manage the success of the venture on an ongoing basis
80%
39%
98%
70%
43%
0%
20%
40%
60%
80%
100%
Quality and
Efficiency of
Communication
Level of Trust
and Perceived
Reliability
Degree of
Mutual
Understanding
Frequency of
Conflict
Quality of
Problem
Solving
Quality and Health of Relationship
96%
82%
41%
77%
95%
0%
20%
40%
60%
80%
100%
Return to
Parent
Companies
Marketplace
Success
Operational
Excellence
Venture
Financial
Success
Competitive
Position
Business Success
Key
Healthy
Needs careful monitoring
Needs to be diagnosed and addressed
Web based reporting tools can be customized to provide real-time reporting and drill down into underlying business data
Infrastructure for Ongoing Management: Venture Dashboard
Illustrative
A simple web based relationship audit tool provides input to the venture dashboard
While the relationship audit tools are left behind following implementation, we are available to help facilitate relationship audits and assist in analyzing the results
Infrastructure for Ongoing Management: Relationship Audit Mechanism
After successful implementation, . Kearney and Vantage Partners also leave behind a comprehensive set of relationship management tools...
Toolkit for Collaboration Challenges
Traps to Watch Out For
Before trying to change someone’s mind, first try to understand them.
Assume that, from their perspective, they believe they are acting reasonably and in good faith.
Analyze the pros and cons, from their perspective, of doing what you are asking.
Don’t simply “handle” objections; acknowledge their concerns as valid.
Treat persuasion as a joint problem solving exercise. Rather than selling them on your solution; invite their help in crafting one.
Infrastructure for Ongoing Management: Joint Problem-Solving Toolkit
…and a series of team procedural agreements that are jointly developed to clarify mutual expectations and define protocols for working together
When communicating within our respective organizations, we will actively consider whether others within the other organization ought to be similarly communicated with, as well.
When having internal meetings, we will consider whether the other side should be included.
We will promptly communicate changes in the organization and subsequent implications to decision-making.
Infrastructure for Ongoing Management: Team Procedural Agreements
Working Together to Create Value for Client X
Prior to getting started, we expect to jointly work with you to establish workplans that make sense for all parties
Phase I
Phases II and III
Joint Venture Integration Timeline
Month 6
Month 5
Month 3
Month 2
Integration Management
Establish the integration
Build integration capability
Relationship Structure
Define shared objectives
Establish governance structure
Facilitate resolution of key issues
Sources of Value
Assess sources of value
Create the blueprint
Design the organization
Validate savings and launch “quick hits”
Integration and Relationship Enablers
Develop HR policy harmonization
Develop IT integration strategy
Define the migration path
Initial Integration and Full-Scale Rollout
Monitor progress and risk
Execute the value capture plan
Realign the organization
Implement IT integration plan
Steering Committee Reviews
Month 4
Month 1
Workstream
Integration Planning
Beyond Month 6
Illustrative
Initial Integration followed
by Full-scale Rollout
Length of project will vary according to the case at hand
Client X should dedicate senior line and functional resources to lead this project, supported by appropriate consulting expertise in Client X’s industry, integration and relationship management, and functional sources of value
Client X / Partner Y
JV CEO
Appropriate JV CXO
Steering Committee
Client X/Parent Y
Sr. Integration Manager
Functional liaisons (Finance, Comm., HR)
Senior . Kearney and Vantage Partner experts:
John Doe (integration)
Jane Roe (top-line growth; salesforce effectiveness)
Bob Bow (procurement, supply chain)
Senior business executives within Client X and Parent Y organizations
Advisory Panel
Parent Companies
Key parent decision makers, if applicable (CEO, line)
ATK / VP
Project Manager
Integration Mgt. resources
Customer Service
Procurement
Logistics
Finance
Manufac-turing & Engineering
Human Resources
Marketing
Sales
Information Technology
Client X functional leadership
1 consultant Manager
Client X functional leadership
1 consultant Manager
1 associate consultant
Client X functional leadership
1 consultant Manager
Client X functional leadership
1 consultant Manager
Value Capture, Market Facing and Enabler Teams
Client X/Parent Y
Sr. Relationship Mgr.
Relationship resources
Relationship Structure Team
ATK / VP
Co-project manager
Relationship Mgt. resources
Illustrative
Integration Office
Program Management Team
We believe that the best value can be realized by working as a joint team across Client X, its Joint Venture Partner and . Kearney / Vantage Partners
+
Operating as a Joint Team to Deliver Success
Knowledge of current and/or previous relevant efforts
Deep functional and industry expertise
Knowledge of internal biases in both organizations
Practical solutions that will work in the new organization
Champions of ensuring that the work is implemented and has practical impact
Client X and Joint Venture Partner Y Team Contributions
Proven merger integration and joint venture expertise honed over 250 deals
Deep relationship and joint venture management expertise
Experienced practitioners committed to driving top-line and bottom-line results
Unparalleled industry expertise
Sound functional capability and established methodology to drive the components of integration
. Kearney / Vantage Partners Team Contributions
Clear focus on priority issues
Value creation by delivering and exceeding planned synergies
Early identification and mitigation of implementation risks
Practical approach to ongoing tracking and management
Development of a favorable organizational climate and strong working relationships
Proven Results
We will adapt to your way of working –– not you to ours
We know how to build consensus
We are able to work at all levels in the organization
We work with the business to maximize benefits
We pride ourselves in our objectivity and telling it as it is
. Kearney / Vantage Partners Working Style
Appendix A — Our Qualifications
Together, . Kearney and Vantage Partners bring unparalleled experience and expertise to joint venture integration and management
A global management consulting firm with a proven track record of successful integration
A consulting spin-off of the Harvard Negotiation Project, specializing in JV and alliance relationship management
A comprehensive approach to all aspects of joint venture integration and management - from value capture and risk management to building the lasting capability required to manage the business and the relationship
. Kearney is a global management consulting firm with 5,000 employees worldwide
Successful Track Record
Management Consulting subsidiary of EDS
Founded in 1926
Backed by the information technology expertise of EDS
Mostly Fortune 500 clientele
Global: 60 offices in 34 countries
Senior, experienced staff
More than 3000 assignments per year
$ billion of fees in 2000
Berlin
Tokyo
San Francisco
Los Angeles
Phoenix
Denver
Atlanta
Chicago
Toronto
New York
Cleveland
Washington, .
Madrid
London
Paris
Düsseldorf
Milan
Amsterdam
Brussels
Munich
Singapore
Prague
Stockholm
Oslo
Copenhagen
Moscow
Hong-Kong
Mexico
Helsinki
Sao Paulo
Dallas
Barcelona
Melbourne
Sydney
Beijing
Caracas
Ottawa
Lisbon
Buenos Aires
Manila
Wellington
Stuttgart
Seoul
San Diego
Houston
Miami
Boston
Kuala Lumpur
Johannesburg
Istanbul
New Delhi
Vantage Partners is a boutique consulting firm of recognized leaders in the field of strategic relationship management
Spin-off of the Harvard Negotiation Project.
Deep expertise in building joint venture and alliance relationship management capability.
Fortune 50 - 500 clients
Extensive Experience.
As a group, the Directors of Vantage Partners bring more than 75 years of experience in the field of relationship management
Recognized thought leaders.
Leaders in academic research and writing on Alliance management
Frequent keynote speakers on Joint venture and alliance relationship management
Co-authors of Getting to YES: Negotiating Agreement Without Giving In
Leaders in international dispute resolution through Conflict Management Group.
Our clients are typically large corporations who recognize our drive to deliver financial results
Sample of Recent Clients
Ameritech
Anglian
BT
Carrefour
Euro Disney
General Motors
Johnson & Johnson
Kellogg
Metro
Monoprix
Nabisco
Nomura
PepsiCo
Promedes
Prudential
Quelle
Sears
Shell
Sprint
Unilever
Representative Annual Results Achieved
Federal Express
>$500 Million
Sears
>$750 Million
Rolls-Royce
$750 million
Marks & Spencer
$250 million
General Motors
>$ Billion
". Kearney has helped enormously to address our key issues… We have planned and implemented cost reduction programmes that will return over half a billion dollars"
Fred Smith, CEO, Federal Express
"…in sharpest contrast… . Kearney consultants helped engineer one of the most stunning corporate turnarounds in recent memory"
Arthur Martinez, CEO, Sears (excerpt, review of Dangerous Company in Fortune, August 18, 1997)
"The Kearney work has made us radically re-think our approach to the business. We wouldn't have done that otherwise"
M&S Supplier
". Kearney is really the father of our global purchasing system." "They are our achievement consultants"
Jack Smith, former CEO, GM
"We wanted consultants who wouldn't just give us advice and walk away"
John Rose, CEO, Rolls-Royce
Combined, . Kearney and Vantage Partners have assisted hundreds of Fortune 500 and Global 1000 clients
CN/Illinois Central
Compaq
Credit Suisse First Boston
CSC Consulting
DBS/POSBank
Deutsche Bank/ Bankers Trust
Deutsche Bank/ ITT Financial
Fiat Geotech/Fiat Trattori
Fort James
Genuity
Henkel/Ecolab
Hewlett-Packard Company
. Heinz/Nadler
H. Krantz/TKT
Hoechst/Schering
IBM Corporation
ING Barings
ABN-AMRO
Air Liquide/BOC
AT&T
Aventis Pharma
Bayer/Hoechst
Biogen
BMC Software
Bombardier
Bristol-Myers Squibb
British Alcan
Broan/NuTone
Buck Consultants
Canadian Imperial Bank of Commerce
Caradon
Carrefour/Comptoirs Modernes
Chase/Chemical
Chevron/Texaco
CIBC/TD Bank
Intel
International Flavors and Fragrances/Bush Boake Allen
. Bean
MasterCard International
Mathworks
Micron/Interland
Microsoft
Monsanto
Krupp MAK/SKL Motorenund System-technik
MAN Gutehoffnungshutte/ Takraf
Molson/Carling Breweries
Monoprix/Prisunic
Nalco Chemical
PacifiCorp
Parke-Davis
QAD
Robert Bosch/ FER Fahrzeugelektronik
Robert Bosch/ Magneti Marelli
Rohm & Haas/ Morton
SG/Paribas
Siemens/Fujitsu
SKW Biosystems/Alex Fries
Staples/Office Depot
Sumitomo Trust Bank
Thyssen/Krupp
TRW
Tyco/AMP/ Kendall
Unilever
VA Technologie/EBG
The Walt Disney Company
Representative Clients
Our organization of industry practices and global service capabilities supports effective building and dissemination of specific know-how
Communications
and
High Technology
Industry Practices
Services
Operations
Strategy and
Organization/
Merger Integration
Strategic IT and
Transformation
Aerospace and
Defense
Automotive
Energy
Financial
Institutions
Healthcare
and
Medical products
Transportation
and
Utilities
Consumer Goods
and Retail
Relationship
Management
Our Joint Venture Integration and Management competency is brought to life through our style which is very suitable for integration activity:
swiftness and analytical rigor matched with sensitivity and buy-in
. Kearney and Vantage Partners Joint Venture Integration and Management Competencies
Merger and Alliance Engagements
Cross-disciplinary JV Approach
Intellectual Capital Development
Consulted to many of the world’s top corporations
An independent strategic view
Advisory role in many of the major mergers, alliances and JVs in the past decade
Merger integration and alliance experience across industries and geographies
Formalized feedback processes within the firm to capture and advance post merger integration best practices
Highly developed project/risk management skills
Unmatched relationship management expertise
Proven ability to expedite change in large organizations
Seasoned
Expertise
Knowledge
of Best
Practices
Tangible
Results
Cross-functional and cross-company team-based approach
Well-structured and flexible work plan
Early and recurrent management buy-in opportunities
Culturally versed and flexible
Tangible results mindset
Cooperative, participatory style
Leverage client knowledge base
Objective, fact-based analysis and practical, feasible recommendations
Local resources/global support
Our Approach To Client Work
Our joint commitment to our clients is guided by three key principles
Relationship Based Accounts
Senior-level relationships and accountability internationally
Joint steering committees and action teams
Involvement of key stakeholders
Personable, collegial client interaction
Mutual Involvement
Two quality evaluations following a project
85% of work exceeds expectations
The only program of its kind to our knowledge
Majority of ATK and VP revenues from repeat clients
Most relationships extend internationally through our one-firm policy
Engagement Quality Review
Unique Quality Program
These principles ensure that we consistently provide not only high-value insights but also practical, tangible results for our clients
Recent integration client testimonials
“We continue to be very pleased with the progress to date in reorganizing and integrating Company B into the new 'One Company A.' We achieved integration savings of nearly $10 million in the second quarter, and as of July 1, 2001, our run rate for such savings exceeded $50 million on an annualized basis”. - Chairman and Chief Executive Officer, July 2001 Press Release
"We have accomplished a great deal so far in 2001. We are extremely pleased with the progress to date on the Company's reorganization and the integration of Company B into the new ‘One Company A’”. - Chairman and Chief Executive Officer, April 2001 Press Release
“…[Client company] achieved roughly $10 million in savings from the [target company] integration in the second quarter. As of July 1, the company’s run rate for such savings exceeded $50 million on an annualized basis”. – Morgan Stanley Dean Witter
“Gross margins should rise to % in 2001 from % in 2000, reflecting savings from the [target company] integration …”. – Morgan Stanley Dean Witter
Global Flavors and Fragrances Company
CIBC has set a target of $3 for [client company’s] stock supported by a “well-defined and achievable cost-rationalization program enabled by the merger” – CIBC World Markets, August 14, 2001
“I am convinced that without . Kearney’s integration process, we would spend the next six months trying to organize our integration program. If I had to do this deal 50 times again, I would hire . Kearney again 50 times” – Chairman and CEO, September 2001 presentation
Leading Web-Hosting Company
Recent integration client testimonials (continued)
“This was the most eventful quarter in [client company’s] history. We have increased our size significantly and greatly expanded our product portfolio. We have seen great progress on integration efforts, even though the new company is less than a month old.” – Chairman and CEO, July 1999 Press Release
“The company is making excellent progress capturing integration-related synergies, and has achieved $200 million lower operating run rate since June 1999….We are well on our way to reaching our $300 million target by the end of this year” - President and COO, May 2000 News Release
“[Client company] announced it attained the $300 million integration cost savings goal set for itself when it acquired [target company] in June 1999, one quarter ahead of schedule.” – October 2000 News Release
Global Specialty Chemicals Company
“To gain market share, we signed fixed price contracts that assumed we could make more product at a lower cost than we’ve ever done before. So, we went to our suppliers. In the old days, we would have beaten them up and threatened not to renew our contracts… Having changed to a partnering mentality, we went in a very different direction. We explained [our problem], and we asked if they had any ideas. Surprise! They said our parts were unnecessarily complicated, and with a few simple changes we would both save more than 25%…” President, August, 2001
Leading Aerospace Company
Appendix B — Joint Venture Exploration and Negotiation Methodologies
The foundation for a successful joint venture that delivers maximum value must be built in Phase 0, prior to signing a Letter of Intent with a prospective partner
Negotiation launch process
Preliminary JV governance structure
Assets and resources provided by each partner
Initial JV evolution and exit strategies
Smooth transition to Integration Planning
Negotiate Joint Venture
Conduct JV Valuation and Articulate Sources of Value
Determine Partnering Strategy
Evaluate and Select Partner(s)
Assess level of relationship management investment
Evaluate alternatives to JV
JV Design Principles
Screening process
Manage collaborative exploratory conversations
Assess partners based on business and relationship criteria
Valuation process
Parameters for ownership structure and negotiations
Validation for integration
Integration Planning
Initial Integration
Full-scale Rollout
Infrastructure for Ongoing Management
Phase I
Exploration
and
Negotiation
Strategy
Development
Phase 0
Phase II
Phase III
Joint Venture Integration and Management Framework
Some or all of these activities may have been completed internally by Client X– if so, the primary focus of Phase 0 is to validate and/or communicate the results in a way that ensures an effective handoff from the deal architects to the implementers
Phase 0 Overview
Evaluation and selection of the joint venture partner(s) is a Phase 0 activity – some aspects of the screening process represent the beginning of negotiations with the targeted partner(s)
Threshold Candidates
Potential JV Candidates
Target JV Partner(s)
Short list
Threshold Criteria
Secondary
Screen
Shortlist
Criteria
Define Screening Criteria
Develop Ideal Partner Profile
Identify Partner Candidates
Approach Target Partner(s)
Collect and Analyze Data
Screen and Rank Candidates
Agree on Target Partner(s)
Joint Venture Partner Evaluation and Selection Process
Examples of Screening Criteria
Strategic Fit
Geographic Scope
Ownership Structure
Product Lines and
Positioning
Financial Health
Quality Performance
Cost Position
Market Position
Image/Brand Equity
Customer Relationships
Size and Growth
Cultural Fit/Values
Willingness to JV
Facilities/Assets
R&D Capabilities
Technology, Licenses and Patents
Manufacturing Capabilities
Logistics Capabilities
Existing Strategic Alliances/JVs
and Key Supplier Relationships
Management Capabilities/Depth
Labor/HR Situation
Environmental Situation
IT Capabilities/Assets
Financial and Operating Risk
Sales/Marketing Capabilities
JV/Alliance Track Record
Multiple Screens
Phase 0: Evaluate and Select Partner(s)
Articulating sources of value and developing a valuation of the joint venture requires eight major tasks
Discounted cash flow approaches
Price-earnings ratios
Market to book value
Structural
Operational
Current plus future growth
Economic
Financial
Strategic
As is
With internal improvements
With other structural options
For JV
Structural Scenarios
Typically, valuation has been completed before launching detailed Integration Planning in Phase I that focuses on validating and further defining specific sources of value opportunities
Compare with Other Valuation Methods
Partner’s data and interviews
External data and interviews
Site visits
Partner’s buy-in
Select Primary Valuation Method
Collect and Analyze Data
Identify Key Value Drivers
Develop Assumptions
Forecast Cash Flow and Assess Sensitivities
Determine Restructured Value
Finalize Valuation
Test for Reasonableness
Operational
Risks
Scenarios
One-Time Transactions
60%
40%
Current Value
of Entities
Cost Synergies
Revenue
Synergies
Leveraging Technology
and Other Capabilities
Across Markets
One-Time
Transition
Costs and Benefits
Expected Value
of Future
Liabilities
Value of
Combined
Entity to Be
Apportioned
Illustrative
Understanding the Sources of Value is a crucial aspect of Valuation
Phase 0: Conduct JV Valuation and Articulate Sources of Value
The Valuation Financial Model is influenced by sources of value and key economic, strategic, financial and operating assumptions
Joint Venture Value
Forecast Period
Cost of Capital
Adjusted Net Operating Profits
New Investment
Rate of Return on Invested Capital
Value of Existing JV Assets
Value of Future JV Growth
Conceptual Valuation Model
Operating Assumptions
Strategic Assumptions
Economic Assumptions
Financial Assumptions
Sources of Value
Phase 0: Conduct JV Valuation and Articulate Sources of Value
Effective negotiations maximize the efficiency of the process and the value of the deal while ensuring a strong relationship foundation is created
Selected Joint Venture Negotiation Activities and Tools
Clarify interests
Invent options for mutual gain
Use standards of legitimacy
Develop Best Alternatives (BATNAs)
Use One Text Tool (as appropriate)
Document the “deal” - and the logic behind it
Extract negotiation lessons learned and best practices
Document contentious issues during negotiation and likely areas of conflict during integration
Implement smooth transfer of knowledge from deal/negotiating team to integration team
Brief integration team on lessons learned about working with partner
Clarify partner commitments
Achieve the Best Deal without Damaging Partner Relationships
Desired Results from Negotiations
Major Elements of Negotiations
Build a Strong Relationship without Sub-optimizing the Deal
Approaching and evaluating target partner(s) is the first step in building a relationship
Early interactions also have a significant impact on the challenges faced during integration
At a minimum these activities should “inform” the Phase 0 and Phase I joint venture integration team and process
The Early Stages of Relationship Building
Structured Transition to Integration Team
Debrief Negotiations
Conduct Negotiations
Phase 0: Negotiate Joint Venture
Prepare
to
Negotiate
Equip both sides with common tools and approaches to effectively prepare
Conduct a joint negotiation launch to set expectations and groundrules for the negotiation process, and equip negotiators with a common vocabulary and collaborative skills
Ideally, both potential partners use the same, structured process to prepare for negotiations
Phase 0: Negotiate Joint Venture
Post negotiations, a standard debrief and transition process is essential to venture success
Phase 0: Negotiate Joint Venture
A structured negotiation launch event ensures an efficient negotiation process with maximum odds of success
Phase 0: Negotiate Joint Venture
Joint training on common vocabulary and collaborative approach to negotiation
Joint planning around negotiation process - timeframe, logistics, milestones
Identification of and planning for barriers to success
Identify potentially contentious issues
Identify external events that could create difficulty
Brainstorm ways to avoid or mitigate challenges
Commit to groundrules for dealing constructively with challenges as they arise
Joint Problem–Solving
If “Yes”
If “No”
Alternatives
Commitment
Interests
Options
Legitimacy
Communication
Relationship
Joint Planning Checklist
Tailored evolution or exit strategies should be developed for each partner – exit provisions should be clarified in advance as part of the negotiating process
Key Questions and Decision Factors
Action
Identify and monitor trigger points based on joint venture performance industry dynamics, or other indicators that will be used to decide when to exit or renegotiate the joint venture
Act to Restructure the Joint Venture Based on Specific Trigger Points
Buyer has full information on potential synergies and has realized much of the benefit already
Other potential buyers not interested because of difficulty of unwinding the joint venture — therefore difficult to orchestrate a bidding process
Partner’s capability to compete on a standalone basis usually increases over time (access to skills, customers, technology)
If Seller, Recognize That Your Bargaining Power Is Likely to Decline Over Time — Therefore, Pre-negotiate Terms/conditions in Advance
Is one parent the “natural buyer” due to technology, skills, market position, or management control of the joint venture?
“Have an exit strategy. You should know who will buy the joint venture. The partner who is buying should call the shots?”
Will the joint venture inevitably broaden toward a merger of the relevant business units of the parents?
Anticipate Likely End Game
At option of either partner
Nonperformance by partners
Failure of joint venture to meet performance targets
“Sunset clause” triggering termination at specific time
Inability to agree on key issues
On change of ownership of either parent
Triggers for Evaluation/ Termination
Acquisition of one partners interest by other partner
Spin-off
Full renegotiations, when joint venture is significantly restructured/ broadened
Separation of interests (rare)
Sale to third party
Alternatives for Disposition
Negotiation, based on offers by one/both partners
Formula, based on predetermined methodology and/or multiples
Arbitration, based on independent assessment by third party
Valuation at Termination
Put/call options held by one or both partners
Right of first refusal
“Shotgun auction” or buy/sell offer
Penalty to partner that triggers dissolution
Both partners share costs of separating their interests in joint venture
Structure Options
Illustrative
Phase 0: Negotiate Joint Venture
Appendix C —
Integration Management and Sample Tools
The Integration Office is the locus of the Integration Management thrust, focusing on tracking milestones, managing risks and interdependencies across the other thrusts, and coordinating the efforts of all working teams
Develop IT integration strategy
Design/harmonize HR policies
Conduct cultural assessment
Develop SOV IT enablers
Implement HR plan
Conduct conflict management training
Develop change mgmt plan
Provide facilitation assistance
Implement IT integration plan
Execute change management plan
Establish integration program
Build integration capability
Create communication plan
Create master plan and prioritize
Implement communication plan
Monitor progress and risk
Transition ownership to client organization
Integration Planning
Initial Integration
Full-scale Rollout
Infrastructure for Ongoing Management
Phase 0
Phase I
Phase II
Phase III
Exploration
and
Negotiation
Strategy
Development
Integration and Relationship
Enablers
Sources
of Value
Relationship
Structure
Define shared objectives
Establish venture/parent governance structure
Facilitate resolution of key issues
Conduct joint venture launch
Develop business success & relationship health metrics
Deploy effective problem-solving methods
Develop procedural agreements as new teams are established
Establish commitment management framework
Assess sources of value
Define organizational structure
Validate sources of value
Implement quick hits
Execute the plan
Realign the organization
Integration
Management
Benefits tracking tools
Risk tracking tools
Venture dashboard
Conflict manage-ment mechanism
Relationship audit mechanism
Communication and information-sharing protocols
Re-negotiation and exit procedures
Joint problem-solving toolkit
Team procedural agreements
Joint Venture Integration and Management Framework
“Go Live”
Stakeholder
Approval
MOU/LOI
Thrusts
Integration Management Overview
A Steering Committee drives the overall integration through the Integration Office, which coordinates and manages decentralized working teams and facilitates the formation of effective working relationships
Program Management Team
Sets overall direction
Implements top-down communication
Develops/communicates objectives and targets
Develops guiding principles
Signs off on major issues/decisions/structures
Provides resources and eliminates roadblocks
Steering Committee
Market Facing Team
Value Capture Team
Value Capture Team
Enabler Team
Value Capture Team
Market Facing Team
The number and size of working teams will depend on the size and complexity
of the JV
Relationship Structure Team
Establishes a strategic governance structure, facilitates creation of decision-making maps at operational teams
Establishes roles for, and rules of engagement among, the parent companies, the JV board and the executive team
Defines escalation paths for strategic issues
Facilitates alignment around business objectives and metrics as well as working relationship metrics
Facilitates negotiations, conflict management, overall change management
Conducts conflict management training
Provides ongoing coaching and facilitation assistance to work teams
Provide industry, functional and JV expertise
Previous experience
Suggest alternatives
Review plans
External Advisory Panels
Establish the Integration Program
Integration Office
Coordinates integration process, scopes activities
Manages communications
Implements planning, integration and reporting — creates and manages the “master plan”
Conducts frequent work task reviews with teams
Maintains a scorecard to track deliverables and benefits
Prioritizes JV-wide issues and makes recommendations
Installs and manages integration risk management system
Enabler Team
Active participation of senior management and dedicated team members from both partners in the Steering Committee and the Integration Office is crucial to ensure the success of the program
Corporate Center Team
Strategic Sourcing Team
Manufacturing & Distribution Team
Human Resources Team
Information Tech/Systems Team
Research & Technology Team
Integration Office
Dedicated client team members from partner and JV organizations
. Kearney team members
Vantage Partner team members
Senior management from Partner organizations
Business Management Team
Business Team prepares and validates Business plan and develops growth synergies
Working Teams focused on JV functional area organization, process design, and synergy value capture
Steering Committee
Illustrative
Market Facing Teams
Value Capture Teams
Enabler Teams
Senior selected . Kearney / Vantage Partner experts
Other senior business executives within Partners and Joint Venture organizations
Advisory Panel
Working teams drawn from line staff with relevant experience in both organizations. External consultants join the teams where there is a need for particular functional and market expertise, where objectivity is required or where there is a transitional need for manpower
The Program Management Team is composed of high-caliber individuals managed by a senior person with line management credibility. External membership is more significant due to the dependence on integration tools and techniques and the need for objectivity
The Relationship Structure Team focuses on the unique relationship structure, governance and relationship management processes inherent in a joint venture
Composed of senior management from both parent organizations. External assistance is focused on JV advisory, management and risk mitigation assistance
Program Management Team
Relationship Structure Team
Establish the Integration Program
The Steering Committee must apply significant early effort to communicate the new company’s strategy, operating philosophy and governance
Issues to Address
Strategy
Post-close market environment
Likely environment
Other competitive developments
Ensuring 1 + 1 = 3
Realistic capacity for development
Areas for investment/growth
Strategic initiatives to freeze, continue or accelerate
Key third party relationship issues
New opportunities arising
Linkage to performance targets
Growth
Cost reduction
Capital efficiency
Operating Philosophy
Cultural alignment of the two partners
Core management style
Holding company
“Strategic architect”
Business controller
Operator
Alignment to core style
Leadership alignment
Line responsibilities
Corporate responsibilities
Support functions
Performance management
Expectations setting
Role of the “plan”/“budget”
Performance reporting and management
Management reward systems
Governance
Organization structure
Decision making
Key accountabilities
Key corporate policies
Change management
Establish the Integration Program
In addition, the Steering Committee should establish a clear set of guiding principles to facilitate decentralized planning and implementation
Joint Venture Integration and Management Program Guiding Principles
1. “This is not the customer’s integration” — Major focus on avoiding customer inconvenience and loss of customers. “Customer service can only change for the better.” Cost savings are important, but second to customer focus
2. Focus analyst expectations on the longer term — Synergy goals defined as “run rate” cost reductions and growth by end of 18 months, eliminating short-term, quarter-by-quarter focus
3. Appearance of tight control through the Integration Office — Integration Office used as a single point of contact for all external communications. External presentations conducted in “war room” to exhibit corporate controls in place
4. Relentless tracking of risk and interdependencies — All synergy and enabler projects required to use risk and interdependency tracking approach. These were integrated by the Integration Office to provide comprehensive perspective on risk. Focus of internal meetings on risks and customer issues, not on successes
5. Systems focus on smooth integration — “Suites” of systems should be selected rather than pursuit of optimal elements from each organization. Extensive use of “bridges and workarounds” to maintain critical controls while expediting the process
6. End-to-end systems and process testing — No system or process should be considered ready for processing until it has been tested in a “dress rehearsal” mode (usually two dress rehearsals)
7. “1 + 1 = 3” volumes — Strong encouragement of market facing BUs and functions to focus on post-integration business volumes
Case Examples
1. Fast and fair — accept that we will make mistakes, but give us credit for being smart enough to be able to recognize them, and not so proud that we can not change
2. Leadership must be evident/inspiring — not holed up in the corner offices/board rooms, but out in evidence with key customers and our employees
3. Harmonization — this has to be a key goal with respect to strategy, key policies, business processes, etc.
4. Minimize ambiguity — be clear in plans, timing, decisions(don’t fuzzify - “don’t know” is ok)
5. Short term bias towards the customer — don’t lose sight of the business whatever we do
6. Overcommunicate — you can never do enough here
7. Integration study team should be advisory and separate from management — let management decide and let advisors advise, don’t mix too closely
8. Seek relationship-building opportunities — informal, formal
9. Emphasis on flexibility/change/fluidity — accept change as a way of life, strategic agility is key, it is management’s first responsibility to take risk (change, growth, wealth creation can only happen by taking risk)
Establish the Integration Program
Steering Committee leadership should select Program Management Team members with demonstrated project management skills
Characteristics of Program Management Team Members
Highly visible and respected within the organization
Knowledge of the organization
Demonstrated leadership characteristics and team leadership ability
Strong desire for integration success
Ability to work well in teams
Results oriented approach
Significant hands-on project management experience
Finance experience
Human Resource experience
Communications and PR experience
Cross-functional team experience
Ability to apply strategic thinking
Strong analytical skills
Strong facilitation skills
Strong presentation skills
Strong interpersonal skills
Ability to work with multiple constituents
Ability to compromise and reach consensus
General Characteristics
Management Skills
Communication Skills
Establish Integration the Program
The role of the Program Management Team will evolve over the course of the integration
Creation of Program Management Team with leadership assigned
Define roles of members
Support development of high-level business line/functional plans
Identify major risk areas
Co-ordinate the senior management review cycle of these plans
Launch the Clean Team process
Assemble the first “Master Plan”
Update Steering Committee
Issue initial communications to stakeholders, as required
Establish risk management process
Develop further project infrastructure
Refine and monitor the “Master Plan”
Finalize key objectives, and establish the “Venture Dashboard”
Work with line management to finalize detailed Work Teams required and their scope, objectives and timelines
Keep focus on ensuring detailed, comprehensive project management
Establish initial prioritisation framework
Refine reporting tools
Assess (preliminary) key risks and interdependencies
Update Steering Committee on plans
Manage stakeholder communications
Update Steering Committee on plans and progress toward targets
Maintain the “Venture Dashboard”
Support development and execution of detailed implementation plans by decentralized Work Teams
Ensure consistency of execution
Run the continuous risk management process
Stabilize or desensitise risks as appropriate
Champion “quick win” projects to reinforce confidence of key stakeholders
Ensure that key milestones are met
Propose resource reallocations as necessary
Manage stakeholder communications
Develop contingency plans as necessary
Integration Planning
Initial Integration
Go Live
Infrastructure for Ongoing Management
Full-scale Rollout
Establish the Integration Program
Functionally-focused Value Capture teams work across all Market Facing teams to ensure maximum synergy realization and coordinated decision-making
G&A / Overhead
Manufacturing and Distribution
Human Resources
Information Technology
Business Unit / Geographic Unit #2
Illustrative
Working teams drawn from line staff with relevant experience in both organizations. External consultants join the teams where there is a need for particular functional and market expertise, where objectivity is required or where there is a transitional need for manpower
Business Unit / Geographic Unit #1
Sales and Marketing
Integration Office
Steering Committee
Market Facing Teams
Value Capture Teams
Enabler Teams
External Advisory Panels
Program Management Team
Relationship Structure Team
Revenue Growth and Salesforce
Effectiveness focus
Procurement and Sourcing
Establish the Integration Program
This approach recognizes that value capture is maximized by rapidly achieving operational synergies while simultaneously building the organizational capability for future growth
Market Facing Teams Build a Foundation for Growth through Seamless Integration of Organizations
Develop and communicate a shared strategic agenda
Define
Organization structures/leadership
Key business processes
Technology platform/architecture
Change integration requirements
Drive top line growth
New value propositions/products
Cross selling/sales pull through
Ensure customer focus/retention
Select leaders and staff positions
Develop metrics and budgets
Integrate day-to-day operations
Ensure sustainable change
Position for growth
Value Capture Teams Achieve Synergy Cost Reduction Target as Quickly as Possible
Achieve $ XX million (annual rate) of synergy savings within 12–18 months
Operations
Procurement
Corporate overlap and duplication
Cost of distribution
Technology/R&D
Others to be identified
Eliminate/minimize sources of risk
Drive the short-term value
Exceed the market’s expectations
Joint Venture Integration Sources of Value
Establish the Integration Program
A consultant-driven Clean Team Process facilitates quantification and planning of sources of value and, as needed, independent assessment of the value of parent asset contributions
Data collection
Organization assessment
Hypotheses development
Preliminary planning
Company A
Company B
Open Joint Client Team Process Meetings
. Kearney / Vantage Partners Clean Team Process
Integration Synergy Hypotheses
Pre-“Go Live” Date
Post-“Go Live” Date
Validated Initiatives
The up-front work of the Clean Team Process enables an accelerated launch of value-creation activities
Clean Team Process
Limited
Joint Client
Team Meetings
Consultant-driven Clean Team Process
Facilitate smooth transition from high-level valuation and negotiation in Phase 0 to the detailed Phase I identification, quantification and planning of individual synergy projects
Act as an third party conduit for proprietary information of both companies (protection should JV be aborted)
Validate and challenge initial assumptions of opportunities made by joint venture partners
Highlight best practices in existing companies and external knowledge and recommend ongoing JV operating practices
Determine risk factors for ongoing risk management during implementation
As an impartial arbiter, independently assess as needed the value of parent asset contributions when questions of relative value arise
Accelerate decision making by providing access to comprehensive databases and detailed analysis
Share and validate findings with joint client teams
Finalize initiatives based on validated hypotheses
Develop implementation plans
Assist in launching initiatives and provide continued implementation, risk and financial tracking support
Support smooth transition to JV organization
Establish the Integration Program
The Clean Team Process concept: . Kearney and Vantage Partners act as an independent third party, allowing more planning work to precede a formal “Going Live” and significantly accelerating implementation and benefits realization
Can Share
Governance and culture
High level organization structure
FTEs by function
Directional strategies and vision
Performance metrics used
Product families
Channels employed
IT architecture
HR policies
Facilities maps
Should Not Share
Growth strategies
Proprietary competitor analysis
Critical success factors
Reorganization plans
Detailed process mapping
Detailed cost structure
Cannot Share
Product/channel pricing information
Material costs/contract information
Specific performance data
Customer lists
Specific employee data
Case Example
Much of the information that can/should not be shared is necessary to develop value capture and integration plans that can be launched on Day 1
Build Integration Capability
As a result of the upfront efforts of the Clean Team Process, sources of value opportunities for each team can be quantified quickly, in advance of the “Go Live” date(1)
Similar templates can be created for incremental revenue opportunities – savings ranges represent full run-rate effect after implementation
Summary of Savings Opportunities
(.$ Millions)
Illustrative
Note: (1) Assumes at least two to three months of “Clean Team” activity
$235
$213
$115
$50
$235
$152
Total
$20
$18
$16
$8
$20
$10
Salesforce
$80
$80
$50
$20
$80
$50
Procurement
$125
$110
$45
$20
$125
$85
Manufacturing / Distribution
$10
> 18
$5
12 – 18
$4
6 – 12
$2
< 6
Annualized Savings Achievement (Months)
$10
High
$7
Low
Range of Savings
Support Staff / Overhead
Value Capture and Market Facing Teams
Build Integration Capability
The teams detail individual sources of value initiatives, including quantification, timing and ease of implementation
Unit XXXX
Illustrative
Integration Versus Improvement
All. = Opportunities whose benefits can be achieved through JV creation only
Imp. = Opportunities whose benefits can be achieved on a “Stand Alone” basis
B
Imp.
1
XX
6
EE6: Reduce Office Space Required at Facility X
C
All.
4
XX
6 – 12
DD5: Capacity Balancing Opportunities
A
Imp./All.
1
XX
0 – 3
CC3: Relocate From Data Center A to B Using Space Created by Other Integration Moves
A
All.
2
XX
12 – 18
BB2: Adopt New Manufacturing Strategy, Including Plant Closure
Sources of Value Opportunity
A
Priority
All.
All./Imp.
3
Impl. Ease
XX
Size ($ MM)
3 – 6
Impl. Timing
AA1: Restructure Engineering Organizations
Implementation Ease
1 Low Degree of Difficulty
3 Somewhat Difficult
5 Very Difficult
Priority
A = High Priority
B = Medium Priority
C = Low Priority
Build Integration Capability
An integrated project plan should be created from the project plans of the integration teams
The Program Management Team creates the technical platform, drives consistency in planning and creates project interdependencies
Developing the Master Integration Plan
Highlight problems by exception reporting
Provides for clear benefit metrics and tracking
Flags key risks for mitigation
Integrated Master Plan
Sales and Marketing
Finance and Accounting
Legal/Regulatory
Human Resources
Day 1 Plan
What needs to happen on Day 1?
Who is responsible?
Illustrative
Build Integration Capability
All teams also develop comprehensive “Day 1” checklists to manage critical activities pre- and post- “Going Live”
Day One Integration Checklist — Governance and Communications Example
Within 30 Days
Within 1 Week
Day 1
Responsibility (Primary/ Secondary)
Governance and Communications — Activities
Timing
“Going Live”
Client X’s Shareholders’ Annual and Special Meeting to approve joint venture
Parent Y’s Shareholders’ Special Meeting to approve joint venture
Announcement and Organization
“Go Live” Announcement Letters (CEO Letter)
Mailing all . employees
Distribution to . employees
Media kit, including press release about acquisition and fact sheet
Communicate highlights of severance and health benefits, savings and pension plans, and compensation issues to acquired company employees
Communication of HR-related information to . employees, including highlights of severance plan, benefits harmonization approach and restructuring process
Pre-communication of senior management appointments to senior management
Communicate senior management appointments to upper-level management
Press release distributed as announcement of senior management appointments to external audiences
Illustrative
Before Day 1
A. Smith
J. Jones
R. Peters
R. Peters
W. Blue
Build Integration Capability
A Communication Plan specific to the integration should be developed jointly by the Program Management Team and Client X’s communications groups
Strategic Goal
Stakeholders recognize the successful integration and have a positive perception of the joint venture company
Core Messages
The combination makes good business sense as it positions us for profitable growth
We will build a new company based on new ideas, new products and serving our customers better than ever
The joint venture company will be a dynamic leader in its industry
Strategic Objectives
Strategic: To position Client X and its partner as a worldwide leading company in Client X’s industry Operational: To maintain dialog with key stakeholders on the progress of integration
Integration Communications Strategy
Implementation Strategies
Stakeholders
Investors/ Analysts
Employees
Customers
Integration Strategies
Capture significance and build awareness of the strength and synergies of both companies that distinguish us in the industry
Build consistent and complementary messages
Promote unity by focusing on the new company
Operating Strategies
Tell the unique story of the integration effort on an on-going basis
Highlight progress
Utilize multiple platforms and vehicles
Recognize that there is a diverse audience mix with different communication needs
Report key success metrics
Community
Government
Media
Illustrative
Create Communication Plan
An effective communication plan should outline key messages, communication vehicles and communication timing for each stakeholder group
Communications Strategy Matrix
Stakeholder
Concerns And Predisposition
Timing/ Frequency
Communication Objective
Message
Action/Medium/Event/
Respon-sibility
Steering Committee
Steering Committee
Employees
Between Integration Teams
Between
Integration Teams
Customers / Suppliers
Comm. Organization
Successful integration
Benefits attainment
How the integration will affect them
Coordination across integration program
Validation of efforts
Service, quality and consistency; on going business relationships
How to communicate to their constituents
Update
Update
Inform
Inform
Inform, Educate and Share
Inform, Persuade and stabilize
Inform and Update
Integration is on track
Benefits are being achieved on schedule
Changes in the organization; Build Awareness of new vision
Use appropriate tools for coordination purposes
Teams are working
The customer comes first; impact of integration on supplier
Consistent message/ communication re. impact of integration on customers, suppliers and others
One Page Status Report
Presentation of Dashboard
Intranet site; Employee Bulletins; Other company-specific communication tools
Workplan and interdependencies tools
Team Review Sessions
Through established channels, . business unit communication organization
Paper or e-mail based communications
Prepared weekly for Fri AM mtgs
Prepared monthly
Pre close; at close and throughout implement.
Weekly
Monthly
Early and frequently and as necessary
As necessary and timed with critical milestones
Integration Office and Teams
Integration Office
Integration Office
Integration Office
Integration Office and Teams
Comm. Organization
Integration Office
Illustrative
Create Communication Plan
A Benefits Tracking System will provide comprehensive monthly reports for the Steering Committee – it tracks benefits, manpower reductions and project status
Dec ’99
Jun ‘99
Dec ‘00
Green
Yellow
Red
Risk
Expected Completion Date
I
II
II
II
Steering Committee Reports
Project Status
Template Requirements
Benefits Tracking
Manpower Reductions
Summaries by Integration Committee
Monthly Achievement and Forecast
Monthly Progress Against Plan and Forecast
Project Risk Assessment
Monitor Progress and Risk
The Benefits Tracking System has been designed to provide standardization of data and reporting flexibility
Plan for Manpower Reductions
Plan for Annualized Run Rate Benefits and Year 2001 Achievements
Project Blueprint
Owner and description
Sources of benefits and related triggers
Capital and expenses required
Assumptions, risks and related contingencies
Key milestones, deliverable and events
One-Time Reporting Templates for Each Project
Update on Project Status Tracking**
Update on Manpower Reductions and Revised Forecasts
Report actual benefits achievement and revised monthly forecast for
Annualized Run Rate Benefits
Year 2001 Achievements
Monthly Reporting Templates for Each Project
Key milestones, deliverables and events provide the basis for on-going Project Status Tracking**
Project MAL01 - Closure of Plant X
Key Milestones
Issues and Barriers to Progress
_______ ________
_______ ________
Benefits Achievement, Progress against Plan and Revised Forecasts
Project Risk Assessment
Steering Committee Monthly Report
Summary of Manpower Reductions and Savings
Benefits Dbase
Manpower Reduction Dbase
Monitor Progress and Risk
The Steering Committee and client team leaders are provided with summaries of progress against plan on a regular basis
Illustrative
Run Rate Saves — Integration Program
(US$ MM)
Run Rate Saves — Project DC01
Run Rate Saves — Data Center Integration Team
Financial Reports
0
100
200
300
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Monthly Actuals
Original Plan
Revised Forecast
Jul
Aug
Sep
Oct
Nov
Dec
Monitor Progress and Risk
A risk tracking system is implemented to track initiative progress and to help anticipate delays, identify barriers to success and highlight areas of concern to leadership
Illustrative
<$1MM
$1MM–$5MM
$5MM–$10MM
>$10MM
Size of Savings
Green
Yellow
Red
Risk Rating
Expected Completion Date
TBD
CS1
CS5
ST1
ST8
ST2
MD2
MD15
MD21
MD19
MD1
MD11
MD26
MD29
MD33
SC1
SC4
SC3
SC5
SC6
SC7
MD32
SC11
RT4a
RT4b
PP2
CS2
05/00
12/99
06/00
12/00
06/01
On Hold
MD31
MD34
ST7
RT5
RT3
Initiative Risk Assessment
EM1
MD18
EM6
PP4
I
I
PP7
EM3
EM4
EM5
EM7
SF11
SF8
ST9
ST10
PP5
CS4
RT6
MD6
MD27
EM2
MD37
AA1
Monitor Progress and Risk
Once risks have been identified, they are then prioritized as “Red”, “Amber” or “Green” (RAG) to reflect their potential impact
Risk Categorization
Red = Showstopper
Legal block to the joint venture
Unable to provide one Funds Transfer System
Lose a major customer
Unquantifiable cost impact
Amber = Serious Problem
Major cost impact (difficult workarounds)
Customer irritation or embarrassment
Green = Minor Problem
Minor cost impact (workarounds identified and acceptable)
Localized impact
Illustrative
Monitor Progress and Risk
Appendix D —
Relationship Structure Methodologies and Tools
The Relationship Structure thrust focuses on the governance of the joint venture, on ensuring alignment around the venture’s objectives, and on facilitating new colleagues through a process of defining how they will work together
Develop IT integration strategy
Design/harmonize HR policies
Conduct cultural assessment
Develop SOV IT enablers
Implement HR plan
Conduct conflict management training
Develop change mgmt plan
Provide facilitation assistance
Implement IT integration plan
Execute change management plan
Establish integration program
Build integration capability
Create communication plan
Create master plan and prioritize
Implement communication plan
Monitor progress and risk
Transition ownership to client organization
Integration Planning
Initial Integration
Full-scale Rollout
Infrastructure for Ongoing Management
Phase 0
Phase I
Phase II
Phase III
Exploration
and
Negotiation
Strategy
Development
Integration and Relationship
Enablers
Sources
of Value
Relationship
Structure
Define shared objectives
Establish venture/parent governance structure
Facilitate resolution of key issues
Conduct joint venture launch
Develop business success & relationship health metrics
Deploy effective problem-solving methods
Develop procedural agreements as new teams are established
Establish commitment management framework
Assess sources of value
Define organizational structure
Validate sources of value
Implement quick hits
Execute the plan
Realign the organization
Integration
Management
Benefits tracking tools
Risk tracking tools
Venture dashboard
Conflict manage-ment mechanism
Relationship audit mechanism
Communication and information-sharing protocols
Re-negotiation and exit procedures
Joint problem-solving toolkit
Team procedural agreements
Joint Venture Integration and Management Framework
“Go Live”
Stakeholder
Approval
MOU/LOI
Thrusts
Relationship Structure Overview
Design principles are a useful framework to ensure partners are fundamentally aligned around key aspects of the joint venture prior to integration
5. How will we transfer and build skills within the joint venture?
4. Which assets will be contributed to the joint venture? What will be the exit penalties for withdrawing them?
3. Do we expect to restructure the joint venture? When?
2. What degree of control (%) is needed?
1. Is the joint venture aligned with the strategic objectives of its parents?
Key Questions
Partners must have mutual respect and trust
Put enough people into the joint venture to ensure learning and systematic skill transfer. Conflict between joint venture and parent needs to be managed
Learning Management
Fold all related business in joint venture. Set high exit penalties
Structural or operational barriers to exit that make it difficult or painful for either partner to walk away and establish an independent business
Barriers to Exit
Expect to restructure on joint venture between years 2 to 5
Joint venture given sufficient scope and size to reach the critical mass to develop a “life of its own” within limits and the ability to self sustain over invest in joint venture preparation by managers who will eventually lead the JV without excessive reliance on the parents
Mechanisms that allow or force the parent firms to adapt the strategy and structure of the joint venture to changes in competitive environment
Bounded Autonomy and Capability to Evolve
50/50 joint venture with best partner vs. control
Structure to include scope, governance and ownership designed to meet the strategic objectives of each partner
Compatible Strategic Objective
Joint venture must be a critical part of the strategy of each parent
Partners develop a common vision for the joint venture, provide the commitment and resources to make the joint venture successful and share in the rewards and benefits of working together
Shared Vision and Mutual Commitment
Implications for JV Success
Definition
Design Principle
Illustrative
Define Shared Objectives
Effective governance requires clear roles for, and rules of engagement among, parent companies, the joint venture board, and the executive office
Company A
Company B
Joint Venture Board
CEO
Executive Office
Business Unit
Business Unit
Business Unit
Business Unit
Business Unit
R
A
Day-to-Day Operating Decisions
R
A
Product Marketing and Pricing Issues
R
A
NEWCO Business Strategy and Business Plan
R
D
A
Transfer Pricing of Goods/Services From Other Parent Controlled Companies
D
Key Operating Management Appointments (., CFO, Plant Manager)
R
A
Compensation of Key Appointees
D
Selection of CEO
R
A
Performance Measures for NEWCO and Management
D
Change in Parent Ownership Stakes
R
A
Major Acquisition or Sale of Assets
R
A
NEWCO Financing and Capital Decisions
Functional Managers
NEWCO
CEO
Majority Vote
Unanimous Vote
NEWCO Board
Decision Responsibility
Establish Governance Structure
Illustrative
As necessary, the Relationship Structure Team also supports various working teams as they confront the need to collaboratively resolve complex issues and make decisions during the integration process
Clarify the Issue
Determine Who Needs to Be Involved
Manage
Commitments and
Communication
Determine the
Decision-Making Method in Advance
Generate Possible
Solutions
Facilitate Decision-
Making
Jointly
Manage Escalation
Joint Issue Resolution and Decision Making Methodology
Key Party #1
Key Party #2
Key Party #3
Potential
Critics
Will be Affected by the Outcome
Has Expertise on Issue
Potential
Critics
Potential
Critics
Impacted External Party (., customer, supplier, etc.)
Key
Constituents
Key
Constituents
Key
Constituents
Has Expertise on Issue
Illustrative “Relationship Map”
Will be Affected by the Outcome
(if necessary)
Facilitate Resolution of Key Issues
As the Relationship Structure Team assists various working teams, they also help shape assumptions about how complex issues that involve multiple stakeholders should be addressed
Common Disempowering Assumptions
The best way to deal with a complex and controversial issue is to act with speed, and perhaps stealth, to avoid counter-productive debate.
I can be most helpful if I first figure out what a good answer is and then try to get others on board with it.
The best way to solve a complex problem is to avoid pointless debate and analysis paralysis and to focus on possible solutions.
Involving multiple parties in problem solving or decision making is a recipe for gridlock.
To get resolution on a complex issue, everyone needs to agree with the solution.
A More Empowering Set of Assumptions
Spending time up front to build alignment will save time later by reducing subsequent conflict and maximizing the odds of successful implementation.
I can be most helpful by facilitating a process that efficiently leverages the involvement of key parties.
Without alignment around the nature of a problem and its causes, people will have a difficult time agreeing on the best solution.
Involving multiple parties in problem solving or decision making is critical. The manner in which they are involved determines the efficiency of the process and the quality of the outcome.
People are often willing and able to support a decision they disagree with if they feel that they have been heard and that their views have been considered.
Facilitate Resolution of Key Issues
A Framework for Joint Commitment Management
Request Phase
Commitment
Phase
Perform Phase
Declaration
Phase
Request Phase
Treat the process of crafting commitments as one of interest-based joint problem-solving.
Explore the interests behind the specific request
Commitment Phase
Discuss specifically what successful completion will involve and any potential difficulties to achieving such.
Consider what form of commitment makes the most sense.
Perform Phase
Schedule regular updates and agree to be up front about any difficulties or barriers to successful completion.
In the event of difficulty, diagnose what has contributed to the difficulty and brainstorm how best to adjust.
Declaration Phase
Jointly review whether both sides are satisfied with the end result
Extract lessons about what worked well and what did not
A Checklist to Keep in Mind While Managing Commitments
©1999 Vantage Partners LLC. All rights reserved.
o
Clarify what is being requested and the interests behind the request.
o
Discuss other ways the interests could be met.
o
Discuss what resources, time, effort, etc. will be required to meet the commitment.
o
Jointly define, and ensure a shared understanding of, the “conditions of fulfillment.”
o
Brainstorm barriers to meeting the commitment and approaches to dealing with
those barriers.
o
Jointly define the circumstances under which it will and will not be acceptable to
reopen the commitment.
o
Jointly conduct contingency planning for what to do if the commitment cannot be met.
o
Jointly develop a simple plan for tracking progress toward fulfilling the commitment.
o
Ensure that there are regular updates.
o
If changed circumstances require a change to the original request, revisit the previous
steps for this new commitment.
o
Review the “conditions of fulfillment” to assess whether the commitment has been met.
o
If the commitment has not been met, jointly discuss why and what actions to take next.
Declaration Phase
Request Phase
Commitment Phase
Perform Phase
To ensure effective execution, the relationship team coaches working teams on effective commitment management behaviors
Adapted from the work
of Fernando Flores
Establish Commitment Management Framework
A standard escalation method should be utilized during integration to ensure consistent and effective handling of inevitable conflict
Determine to whom the issue should be escalated
Particularly on crosscutting or complex issues, think carefully about to whom you should escalate. Consider who will need to be aligned around the decision to ensure that it is implemented.
If at all possible, escalate simultaneously to all the people who need to be involved.
Determine who should escalate the issue
Whenever possible, escalate issues jointly with your counterpart(s). The more escalation is a collective effort, the more constructive and the more efficient it is likely to be.
Prepare what is to be escalated (Use the Escalation Prep Tool)
A good escalation will clearly convey:
A definition of the issue
A delineation of the parties involved: both those who need to reach agreement, as well as others who have been consulted
A summary of the key parties’ interests
A summary of the leading options for solutions
A summary of any agreed-upon/suggested decision-making criteria
A summary of the key parties’ alternatives to reaching agreement and an assessment of how well those alternatives meet each party's interests
A brief description of the deadlock and any diagnoses for it
A definition of what you want from the those to whom you are escalating
Leverage escalations as opportunities for learning
Use escalations as opportunities to get greater clarity on what kinds of issues should be escalated and what issues should not require escalation.
Use escalations as opportunities to solicit coaching that will better enable you and your counterpart to resolve future issue on your own.
When you are asking someone to make a decision, encourage that person to make their reasoning as transparent as possible.
Escalation Guidelines
Establish Commitment Management Framework
The One Text procedure is an efficient means of problem solving and building alignment among multiple parties - often a major challenge during integration
Deploy Effective Problem Solving Methods
Pick someone trusted by all to be the principle drafter. In some situations, a single drafting team with representation from key constituencies may be the best option.
Prepare an even-handed first draft based on your understanding of parties’ interests. Be careful not to derail the process by defending the draft when sharing it - explain why something is in it, but invite people to tell you what is wrong with it.
Encourage the reviewers to provide criticism (reasoning and interests) rather than edits (answers or positions).
Iterate back and forth between drafting and collecting criticism until the draft cannot be improved or the cost of spending more time outweighs the benefit of incremental improvement.
Present a stark choice between accepting the draft as is or accepting the consequences of not achieving an agreement.
2. Explain the Process to Involved Parties
4. Create a Rough Draft
5. Ask for Criticism
6. Revise Draft
1. Choose the Drafter(s)
7. Present Final Text, Ask for Acceptance
3. Elicit Interests
One Text Procedure
The Relationship Structure Team facilitates a series of joint venture launch events to ensure a strong foundation of mutual understanding and operational alignment at all levels of the venture
Conduct Joint Venture Launch
Conduct Relationship Launch Event(s)
Brief
Participants
on JV
Terms and
History
Explore Cultural
Differences-
Identify
Challenges,
Brainstorm Ways
to Overcome
Challenges, Define
Relationship
Metrics
Communicate
Joint Messages
Develop Joint
Messages
Provide Ongoing
Coaching
and Follow-up
Provide Training
on Relationship
Management
Tools
Refine Strategic
Governance
Structure and
Metrics for
Business Objectives
Design the Agenda
and Materials for
the Launch Event
The joint launch process also provides an opportunity to train new colleagues on a common set of approaches for collaboration...
The Ladder of Inference is based on the work of Argyis and Schon. See Argyris, Chris, R. Putnam, and D. Smith. Action Science: Concepts, Methods, and Skills for Research and Intervention
In your head, move down from conclusions to meaning to data by actively reflecting on your conclusions and how you reached them.
In your discussions, move up from data to meaning to conclusions. This will help others understand your reasoning path.
Conduct Joint Venture Launch
…and to shape a new mindset around the value of differences and ways of dealing with conflict
Common Disempowering Assumptions
I see the whole “picture” / I have all the facts I need
They see the same picture I do (though probably no as clearly; they may well be missing some crucial pieces)
There is a right way of interpreting the “facts;” differing interpretations indicate that someone is wrong.
My role, and the way I can best help them, is to get them to acknowledge the validity of my “picture.”
If I describe my “picture” / suggestion well enough and/or forcefully enough, I’ll get them to “see the light” and agree.
Given the above, if they choose to do something other than what I am suggesting, they must be crazy, stupid, or evil.
A More Empowering Set of Assumptions
The brain is a filtering and pattern-recognizing device. Two parties in the same situation will invariably select and focus on different facts/data.
A complex fact pattern can generally be interpreted in several valid ways.
I may have something to learn from them.
People tend to do (a) what is in their best interest, and (b) what seems justified to them.
If they see the situation differently than I do, each of us is likely to be missing something.
In order to get to a good solution, I need to be able to see their “picture.” It pays for me to get into their shoes, and understand their perceptions and what shapes them.
If I can help us each do this, we can jointly (or collectively) come to a more optimal solution.
Conduct Joint Venture Launch
The joint venture launch also allows deal architects and the new management team to explore and clarify the economics of the joint venture and the prospects for value creation
One-Time Transactions
60%
40%
Current Value
of Entities
Cost Synergies
Revenue
Synergies
Leveraging Technology
and Other Capabilities
Across Markets
One-Time
Transition
Costs and Benefits
Expected Value
of Future
Liabilities
Value of
Combined
Entity to Be
Apportioned
Facilities and operations
G&A
Materials and suppliers
Engineering/ systems engineering
Product line consolidation
Market development
Pricing
Services
Launch business
New markets
New products
Technology transfers
Acceleration of product development
Real estate sale
Asset liquidation
Closing
Move
Severance
Recertification
Taxes
Environmental
Conduct Joint Venture Launch
During the joint launch, work is done to enable the avoidance of unnecessary conflict later, while ensuring that inevitable conflict will be effectively managed
Avoiding Unnecessary Conflict
Managing Inevitable Conflict Effectively
Understand partner’s objectives
Perform thorough and accurate tradables analysis, risk assessment
Develop detailed operating plan
Specify performance metrics
Delineate responsibilities and accountabilities
Form and utilize a Steering Committee/joint venture management team
Meet regularly to check progress
Identify areas for corrective action and act quickly
Plan ahead, plan ahead, plan ahead
Have dispute resolution frameworks in place beforehand
Spend time getting at root causes of disagreement
Assign a subteam to address the problem; ensure the perspectives of all those affected are represented
Avoid assigning blame, pushing partner into a corner; remember — joint endeavor, joint problem
If subteam fails to resolve, use Steering Committee, then CEOs
Rely on formal frameworks and processes, as well as a foundation of trust
Where exit is only option, exit rationally and gracefully according to planned procedures
Monitoring and Learning from Conflict
Ensure there is a simple mechanism or procedure to track the frequency and types of conflict that occur
Analyze trends and address root causes early - before conflicts fester and become more difficult to manage
Constructively dig into complex conflicts that may provide opportunities for strategic learning
Conduct Joint Venture Launch
To enable efficient decision-making and avoid unnecessary conflict, maps that define how various categories of decisions (and/or specific decisions) will be made over time are created and committed to during the launch
Types of Decisions
Driver
Negotiate
Consult
Inform
Opportunities
Pursue New Major Initiatives
Alter Current Major Initiatives
Stop Current Major Initiatives
Contract
Recommend Change to Strategy
Recommend Major Contract Adds
Recommend Major Contract Removes
Personnel
Recruit Senior People
Hire Senior People
Replace Senior People
Financial
Conduct Joint Venture Launch
During the launch, appropriate working groups define operational metrics that will be used to evaluate both the business success of the venture and the health of the relationship over time
Assessment of Health and Quality of Working Relationship (Illustrative Sample)
Quality A: Frequency and Type of Conflict
+
Metric:
Track number and type of issue escalated to Joint Steering Committee
+
Metric:
Track frequency of operational conflicts that require (only) line manager involvement
Quality B: Efficiency and Quality of Communication
+
Metric:
Monitor whether Board meetings happen on a quarterly basis, with an annual all-day meeting - informally assess effectiveness as final agenda topic
+
Metric:
Use quarterly management survey to measure and track surprises, unexpected changes
+
Metric:
Use relationship health survey on a quarterly basis to assess behavioral quality of communication: are people balancing advocacy and inquiry, learning from different perspectives. etc.
Quality C: Degree of Innovation
Metric:
Bi-annual management review of venture business processes that are different from either parent’s - and extract lessons for parent innovation
+
Track conflicts that arise from trade-offs that need to be made among the venture’s objectives, versus those caused by managing trade-offs between parent company objectives
+
Metric:
Develop Business Success and Relationship Health Metrics
As new staff are assigned to business units and teams after the JV “goes live”, team procedural agreements are developed to clarify mutual expectations and define protocols for working together
When communicating within our respective organizations, we will actively consider whether others within the other organization ought to be similarly communicated with, as well.
When having internal meetings, we will consider whether the other side should be included.
We will promptly communicate changes in the organization and subsequent implications to decision-making.
Develop Procedural Agreements
Appendix E —
Sources of Value Methodologies
The Sources of Value thrust focuses on achieving the integration synergies and seamlessly integrating the businesses
Develop IT integration strategy
Design/harmonize HR policies
Conduct cultural assessment
Develop SOV IT enablers
Implement HR plan
Conduct conflict management training
Develop change mgmt plan
Provide facilitation assistance
Implement IT integration plan
Execute change management plan
Establish integration program
Build integration capability
Create communication plan
Create master plan and prioritize
Implement communication plan
Monitor progress and risk
Transition ownership to client organization
Integration Planning
Initial Integration
Full-scale Rollout
Infrastructure for Ongoing Management
Phase 0
Phase I
Phase II
Phase III
Exploration
and
Negotiation
Strategy
Development
Integration and Relationship
Enablers
Sources
of Value
Relationship
Structure
Define shared objectives
Establish venture/parent governance structure
Facilitate resolution of key issues
Conduct joint venture launch
Develop business success & relationship health metrics
Deploy effective problem-solving methods
Develop procedural agreements as new teams are established
Establish commitment management framework
Assess sources of value
Define organizational structure
Validate sources of value
Implement quick hits
Execute the plan
Realign the organization
Integration
Management
Benefits tracking tools
Risk tracking tools
Venture dashboard
Conflict manage-ment mechanism
Relationship audit mechanism
Communication and information-sharing protocols
Re-negotiation and exit procedures
Joint problem-solving toolkit
Team procedural agreements
Joint Venture Integration and Management Framework
“Go Live”
Stakeholder
Approval
MOU/LOI
Thrusts
Sources of Value Overview
To achieve their synergies, all teams will leverage a number of . Kearney’s proven methodologies and tools
Ensuring Customer Segment Growth
Streamlining the Organization
Reducing Purchased Costs
Leveraging Assets
Objectives:
Focus Areas:
Methodology and Tools
Align customers and market channels
Manage customer value
Ensure retention of all valuable customers
Customer service
Communications
Marketing
Customer Retention Methodology
Customer Value Proposition Development
Customer Service Approach
Determine management and governance structure
Integrate offices
Integrate sales and marketing
Align HR policies and procedures
Sales
Accounting
Finance
Engineering
Information Technology
Corporate Center Rationalization
Leverage corporate spend
Leverage purchasing volumes
Direct materials
Purchased services
Indirect materials
Capital expenditures
Strategic Sourcing
E-Sourcing (eBreviate)
Market exchange strategy (LSN)
Maximize asset utilization
Data center consolidation
Call center consolidation
Realize network synergies
Fixed assets
Capital expenditures
Inventory
Procurement
Operating Asset Effectiveness
Cost Reduction
Supporting Methodologies and Tools
Increasing Sales Force Effectiveness
Increase revenue productivity of sales force
Increase knowledge and value-added selling capabilities
Explore channel leverage (., Dealer /Reseller network)
Sales force effectiveness
Cross-selling
Sales Force Effectiveness Methodology
Top Line Growth
Streamlining Product Portfolios and Networks
Rationalize product offering and customer base
Evaluate and implement optimal network strategy
Product Offering
Customer requirements
Network cost and capacity
Product Portfolio and Network Rationalization Methodology
Operating Networks Integration
Illustrative
Assess Sources of Value
The sales productivity effort should include Customer Retention Methodology to understand the key risks for customer defection and action plans to address them
Step 1
Step 2
Defection/Loyalty Segmentation
Step 3
Create Targeted Retention Programs
Retention bonus/incentives
Differentiated service levels
Enhanced product applications
Customized communication
Customized product benefits
Early warning
High Value Customers
Contribution
Retention
Value Channel Management
Channel migration pricing
Price rise
Passive customer service
Medium-Term Actions
Overall Process
Customer Retention Methodology
Develop metrics to measure customer retention
Overall company
Specific product branding
Ensure customers are positively impacted by changes in the company
Initiate early communications
Build account plans
Build triggered and tactical response capability
Build defection models
Analyze customer satisfaction level by product
Quantify retention performance and value contribution of key technology segments
Understand customer defection
Pursue additional research on high value segments
Sales force focus
Detect and react to defection behavior
Incentives for retention performance
Empowerment of staff- pricing, fee waivers, etc.
Objectives
Product Management Issues
Retention Sales Programs
Customer Analysis and Retention Plan
Immediate Front-Line Actions
Workstreams
Assess Sources of Value
A key component to customer retention is an effective Customer Service approach that is focused on creating long-term competitive advantage
Customer Service Approach
Implement Customer Service Execution
Align Processes Internally and Across the Company
Define Customer Service Strategy
Objective
Key Activities
Key Deliverables
Link satisfaction strategy to the company's processes and organization
Identify method and measures to improve performance
Analyze rewards/incentives tools
Assess training activities
Analyze cross-enterprise and cross-functional linkages and organization
Recommended organizational changes and key process changes
Define customer value creation opportunities
Conduct workshop with key stakeholders and selected customer interviews
Current and prospective product segmentation
Analysis of service requirements by product group
Quantify client performance requirements
Define customer service strategy, including strategy for monitoring (., remove monitoring)
Identified opportunity for long-term competitive advantage and defined future customer value requirements
Implement excellent service execution
Assessment of company performance on key metrics
Assessment of company performance versus competition and best practice
Conduct workshop and interviews to refine customer service execution
Benchmark of key service requirements
Customer service strategy implemented
Performance metrics
Assess Sources of Value
Our approach to sales productivity includes benchmarks, analysis of overlap and identification of near term growth opportunities
Illustrative
Efficiency
Salesforce Productivity Benchmarks
#
#
Co. A Co. B
$
$
Co. A Co. B
$
$
Co. A Co. B
Number of Reps Serving Accounts
Total Sales Managed by Sales Rep
Sales Dollar Per Sales Rep
Effectiveness
Overlap
Integration Leverage
Opportunities
Near Term Growth Opportunities
Average Training Per Sales Rep
A
B
A
B
A
B
A
B
Marketing
New Products
Network Services
Account Win/Loss Performance
Price
Quality
Service
Capability
Co. A Co. B
Region
Co. A
Co. B
Sales Overlap
Sales
Territory
Coverage Overlap
Co. A Position
Opportunity to Introduce Co. B Products
Strategically Manage Relation-ships
Opportunity to Introduce Co. A Products
Minor
Minor
Major
Major
Co. B Position
Geography
Laptop
Assess Sources of Value
Differences in each company have to be understood, and decisions made on both the operating model of the joint venture going forward – a formal process can help in facilitating this thinking
Identify the Operating Model and Detailed Operating Structure and Characteristics of Each Firm
Determine New Operating Model, and Appropriate Benchmarks
Make the High Level Choices As to How the Company Operates Going Forward
Step 1
Step 3
Step 2
Define and Align Support
Functions
Step 4
Holding
Company
Strategic
Architect
Operator
Functional
Strategy
Financial Control
Capital Allocation
Resource Management
Accountability
Corporate Staff Size
Autonomy
Marketing
Staff Placement
Client X/JV Partner
Support Function Alignment
Holding
Company
Strategic
Architect
Operator
Functional
Finance
•
Accounts Payable
•
P/L accounting
•
Consolidation/ corporate
reporting
•
Tax
•
Treasury
•
Planning/budgeting
Human Resources
•
Benefits/administration
•
Benefits planning
•
Compensation planning
B
B
C
B
B
B
B/O
B/O
B
C
C/B
C
C/B
C
B
C/O
C/O
C/B
C
C
C
C
C
C
C/O
C/O
C
C
C
C
C
C
C/B
C/O
C/O
C
C = Corporate
B = Business Unit
O = Outsourced
Effective, fast rationalization and savings
Best practices “Corporate Center”
BG1
BG2
BG3
Other
Business Group
?
?
?
Stand Alone
Model
Client X
BG1
BG2
BG3
Business Group
•
?
•?
•
?
Model
Create Joint Venture Organization
Corporate Center Rationalization Methodology
JV Partner
BG1
BG2
BG3
Business Group
•
?
•
?
•
?
Model
Assess Sources of Value
. Kearney has a powerful demonstrated sourcing methodology for delivering sustainable value enhancement in an integration environment
7. Continuously Benchmark and Monitor Supplier Improvement
6. Operationally Integrate Supplier(s)
Key Elements
. Kearney
Intellectual Capital Employed
5. Select Competitive
Supplier(s)
4. Select Implementation Path
3. Generate
Supplier Profile
2. Develop Sourcing Strategy
1. Define Sourcing Categories
Embed supplier monitoring processes
Implement market monitoring tools
Periodically re-evaluate supplier competitiveness and performance
Performance measurement tools
Technology-enabled data capture process
Complete implementation templates
Gain buy-in to supplier changes
Coordinate new supply chains
Implement systems to monitor results
Implementation templates
Tailor and issue RFPs
Analyze responses
Develop targeted negotiation strategy
Negotiate a deal
Electronic procurement tools
Internet RFPs
On-line auction tools
Benchmarks
Select supplier development or negotiation path including use of market exchanges
Define initial negotiation strategy
Experience in Client X’s industry
Negotiation training
Review supplier lists and supplier capabilities
Prescreen list to develop short list of suppliers
Existing supplier lists available globally
Assess supply category business impacts
Confirm sourcing strategies
Validate total supply chain perspective
Detailed understanding of supply market
Market competition
Industry economics
Profile spend
Identify specifications
Unbundle as appropriate
Review supply category profile
Assess procurement processes
Review trends
Evaluate total cost and savings targets
Proven database and management tools
Existing supply category profiles
Seven Step Strategic Sourcing Methodology
Assess Sources of Value
Strategic Sourcing is effective in integration environments since it can be started immediately, deliver major savings and contribute to building the new company
Integration-Related Strategic Sourcing
Leveraging scale
Capitalize on combined buying power
Use leverage to restructure supplier offerings
Mitigate supply risks by managing vendor concentration
Generating efficiencies
Spread technology investment over increased purchasing base
Evaluate/select the best existing purchasing systems for use in the new organization
Rapid transfer of best practice
RFI/RFP harmonization
Convergence of procurement practices and guidelines
Integration Savings
Teamwork across the new enterprise:
All categories
All business units
All geographies (domestic and/or global)
Bottom-up initiative driven by the “new” team
Service levels/needs
Demand dynamics
Organizational similarities and differences
Relatively undisruptive (products and services not people)
Helps new management to understand their operation in detail
Opportunity to redesign processes to reflect the new organization, and embed world class procurement as a core competency in the new company
Build the New Company
Assess Sources of Value
Our framework for addressing Operating Asset Effectiveness considers three primary components – Utilization, Throughput and Acceptance
Utilization
Throughput
Acceptance
Actual Hours Run
Total Hours in Period
Average Speed or Throughput Rate During Hours Run
Maximum Speed or Throughput Rate
Net SKU Fit for Use
Total SKUs Produced
Equipment Stabilization
Analyzing work and production process effectiveness
Process Improvements
Analyzing maintenance, reliability and equipment condition
Process Capacity
Analyzing the basic performance of production processes
Operating Asset Effectiveness Framework
Assess Sources of Value
For example, one recent merger integration client inherited a plant, with multiple processing lines, with an overall OAE rating of 60 percent indicating significant production potential to unlock
Utilization
78%
73%
73%
57%
44%
65%
34%
38%
Main
Line 2
Line 3
Line 4
Packaging(3)
Line 5
Line 6
Line 7
Throughput
89%
92%
94%
83%
100%
86%
81%
90%
Acceptance
91%
90%
85%
86%
89%
81%
83%
82%
Total OAE (1)
62%
61%
58%
41%
39%
45%
23%
28%
Total Production (2)
lbs
lbs
lbs
lbs
lbs
lbs
lbs
lbs
Main
Line 2
Line 3
Line 4
Packaging
Line 5
Line 6
Line 7
X
Overall plant OAE: 60 percent
Notes: (1) Bottleneck areas in bold — only bottleneck areas contribute to product/plant throughput and utilization calculations
(2) Pound data represents actual weight processed by each line — most final products flow through multiple lines
(3) Packaging data only for family packaging lines (90%+ of total volume) — throughput assumed to be 100% due to lack of data
OAE Assessment
Illustrative
Assess Sources of Value
. Kearney has a proven methodology to perform product and operating network rationalization
Project Launch and Scope
Customer and Product Assessment
Network Model and Analysis
Network Strategy Design
Implementation Planning
Implementation
Assess current situation
Understand business strategy
Identify project objectives
Identify and prioritize customers
Determine customer requirements
Assess product offerings – profitability, demand, product groups and product production requirements
Rationalize product offering and customer base
Understand network cost components — transportation, distribution, manufacturing, inventory
Understand network capacity — plants, distribution centers
Build network model
Model scenarios
Define strategy alternatives
Evaluate network strategies
Select preferred strategy
Develop business case
Define implementation plan
Develop management presentation
Secure commitment to implementation
Implement strategy
Deliver results
Track brands
Product Portfolio and Network Rationalization Methodology
Assess Sources of Value
Rapid benefit delivery is feasible through integrating the operating network
Manufacturing Capabilities
What can be produced
Where
Which are the best/most efficient machines/lines
What are the capacity requirements
Network Configuration
Which are the most important network constraints
Which is the most cost efficient network configuration
(Economies vs. diseconomies of scale/scope)
Manufacturing Capabilities
Network Configuration
Several Iterations
Local Market Requirements
What are the market requirements
What is the current/future competitive positioning
What are market constraints
How much proliferation is required/profitable
Market Requirements
1
. Kearney 6/Document#/.
Sample Preliminary
Scenario
SKU tree
1
SKU 2
SKU 3
Proliferation
Level
A
B
C
D
E
E
F
G
H
I
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
6
12
18
24
6
12
18
24
6
12
18
24
6
12
18
24
6
12
18
24
6
12
18
24
6
12
18
24
Resealable
Classic
Blue
GBH
Classic
Resealable
Compact
Blue
GBH
Compact
Resealable
Classic
White
EBH
Classic
Resealable
Classic
White
Mechanical
Resealable
Compact
White
EBH
Compact
Resealable
Compact
White
Mechanical
Resealable
Classic
White
GBH
Classic
Menthol/Euca
1
1
1
28
4
1
2
2
3
2
1
1
3
Number
of
Variants
Portfolio
Which SKUs
Which specific product characteristics
Which emerging technologies/competitive offerings
SKU Tree
36
Current Sites: 4
Future Sites: 3
Current Sites: 8
Future Sites: 5
Current Sites: 2
Future Sites: 1
Current Sites: 1
Future Sites: 1
Current Sites: 3
Future Sites: 2
Current Sites: 2
Future Sites: 1
Current Sites: 2
Future Sites: 1
Current Sites: 1
Future Sites: 1
SKU 1
Key Assessments for Integrating Operating Networks
Assess Sources of Value
Appendix F —
Integration and Relationship Enablers Methodologies
The Enablers thrust ensures the Sources of Value teams have the systems, policies and procedures they need to be successful – and that appropriate infrastructure is put in place to enable long term success of the venture
Develop IT integration strategy
Design/harmonize HR policies
Conduct cultural assessment
Develop SOV IT enablers
Implement HR plan
Conduct conflict management training
Develop change mgmt plan
Provide facilitation assistance
Implement IT integration plan
Execute change management plan
Establish integration program
Build integration capability
Create communication plan
Create master plan and prioritize
Implement communication plan
Monitor progress and risk
Transition ownership to client organization
Integration Planning
Initial Integration
Full-scale Rollout
Infrastructure for Ongoing Management
Phase 0
Phase I
Phase II
Phase III
Exploration
and
Negotiation
Strategy
Development
Integration and Relationship
Enablers
Sources
of Value
Relationship
Structure
Define shared objectives
Establish venture/parent governance structure
Facilitate resolution of key issues
Conduct joint venture launch
Develop business success & relationship health metrics
Deploy effective problem-solving methods
Develop procedural agreements as new teams are established
Establish commitment management framework
Assess sources of value
Define organizational structure
Validate sources of value
Implement quick hits
Execute the plan
Realign the organization
Integration
Management
Benefits tracking tools
Risk tracking tools
Venture dashboard
Conflict manage-ment mechanism
Relationship audit mechanism
Communication and information-sharing protocols
Re-negotiation and exit procedures
Joint problem-solving toolkit
Team procedural agreements
Joint Venture Integration and Management Framework
“Go Live”
Stakeholder
Approval
MOU/LOI
Thrusts
Integration and Relationship Enablers Overview
During Integration Planning, it is important to conduct a cultural assessment to identify important differences between the partners and diagnose resulting challenges and implications
Cultural Assessment
Company A
Company B
Potential Relationship Issues
Flexibility
Training
Team Focused
Aggressiveness
Conflict Management
Democratic
Authority
Open to Change
Hierarchical
Decision Making
Customer Focus
Accountability
0
20
40
60
80
100
Pay for Performing
Diversity
Educate employees on the new cultural realities
Align organizational systems to support business and cultural objectives
Define/renew culture for the new group
Manage potential mismatches in cultural elements
Identify cultural commonalties/ differences
Conduct Cultural Assessment
The Three Layer Model provides a systematic framework for understanding a partner company’s organization and enables anticipation of and planning for conflict that results from organizational differences
Actions
and
Behaviors
Systems
and
Structures
Underlying
Assumptions
and Values
Understand behavior by working down the model
What they do and say; their concrete observable behaviors
Their (and their organization’s) core beliefs, values, assumptions
The systems, procedures and processes that govern the way things are done in their organization
Predict Behavior by working up the model
Manage Organizational Differences
Using the Three-Layer Model
Use an understanding of your partner’s organization to anticipate counterparts’ actions and reactions in any given situation
Modify your own behavior in order to minimize the occurrence of unnecessary conflict
Use the model as framework to discuss organizational differences explicitly with your counterparts
To enable effective management of inevitable conflict during integration, new employees are trained on a common set of tools and approaches for joint problem solving and conflict management
Conduct Conflict Management Training
IT integration activities concentrate on enabling the value capture teams, aligning the IT organization to the new business model, and also defining and attaining cost synergies
Define IT Strategy and Organization Alignment
4.
Establish IT Architecture
3.
Capture IT Cost Synergies
Develop Baseline and Implement Day 1 IT Plan
IT organization and governance model
Develop IT organization model
Develop IT strategy and business alignment model
Align the IT organization to the business model
IT implications to capture business line and functional synergies
Application integration strategy
Confirm IT architecture strategy
Refine and accelerate implementation plans
Design market facing data and information requirements
Define application architecture to support business process
IT cost savings opportunities
Recommendations for effective operation of IT infrastructure
Day 1 integration plans
Business and financial reporting requirements
Current Business IT architecture
Benchmark existing cost structure
Determine infrastructure consolidation opportunities
Prioritize, plan and implement opportunities
Document both companies’ current IT organization and architectures
Define requirements for day 1 transition
Implement near term IT requirements to facilitate seamless data/ information flow
Determine IT cost synergies and prioritize action to realize value
Facilitate effective communication and management information
Objective
Key Activities
Key Deliverables
Integration Planning
Initial Integration
Full-Scale Rollout
Illustrative
Within an integration environment, the timing could not be better to identify and act upon IT opportunities
Develop IT Integration Strategy
Information Technology should be viewed as an enabling mechanism for achieving integration goals
Technology Focus in an Integration Product/Market Focus Context
Source: . Kearney Merger Integration
Complementary or New
Overlapping
In-Market
Integration
Out-Market
Integration
Product Focus
Market Focus
Cost Reduction
Cost/Revenue blend
Revenue Enhancement
Anticipated Benefits
Market Overlap
In high-overlap integrations, the emphasis is on cost reduction. Market analysts expect to see tangible actions being taken early in the integration program
For synergistic integrations, timescales to achieve benefits may be longer, and . integration can operate within a longer planning horizon to support revenue enhancement
The common factor with all of these alliance forms is the need for a smooth integration process that eliminates the risk of customer or employee defection
Product
Lines
Product Expansion
Synergistic Integration
High Overlap
Geographic Expansion
Channel rationalization
Systems enhancements to support new products
Major systems revisions to support cross-selling and geographic/channel expansion
Review of global data centers and core systems
Eliminating duplication between systems
Rationalizing service agreements
Reducing license fees
Reducing support costs
Pursue data center rationalization
Standardization on common systems
Standardization on common products
Illustrative
Develop Sources of Value IT Enablers
IT must quickly deliver tangible business driven results in a timely fashion and not necessarily the “best” possible solution to achieve value creation commitment
Cost imperatives
Rapid integration to capture synergies as committed to the street
Product rationalization
Product and plant integration
Business synergies
E-business opportunities
New product/ new market opportunities
Cross selling
Leverage existing products to new geographies
Act on future acquisition opportunities
Business continuity
Statutory and performance reporting
Integrated strategic measurement
M&A or alliance integration progress
Percent of Initiatives Defined Over Time
Business Initiatives Defined
Supporting IT Initiatives Defined
Time
80%
Deployment/ Integration of IT Initiatives
10%
IT’s challenge is to stay in tune with business initiatives to understand the scope of effort, develop the IT response, and to integrate with the corporate IT direction
Representative IT Support Requirements
Illustrative
Develop Sources of Value IT Enablers
Early in the process, Human Resources Integration should focus on establishing policies and procedures and managing the transition of management and staff to new roles in the new organization
Policies
and
Procedures
Transition Management
Training and Development
JV compensation philosophy
Recruitment
Benefits
Evaluation
Diversity training
Future requirements
Retention packages for “At Risk” employees
Relocation packages
Retirement plans and 401Ks
Support
Outplacement
Severance
Audience targeting
Awareness building
Skill enhancement
Strategic
HR
Planning
Design/Harmonize HR Policies
Appendix G —
Ongoing Management Processes and Tools
After successful implementation of all thrusts at every phase, your organization will have the tools and methods for ensuring ongoing value creation
Develop IT integration strategy
Design/harmonize HR policies
Conduct cultural assessment
Develop SOV IT enablers
Implement HR plan
Conduct conflict management training
Develop change mgmt plan
Provide facilitation assistance
Implement IT integration plan
Execute change management plan
Establish integration program
Build integration capability
Create communication plan
Create master plan and prioritize
Implement communication plan
Monitor progress and risk
Transition ownership to client organization
Integration Planning
Initial Integration
Full-scale Rollout
Infrastructure for Ongoing Management
Phase 0
Phase I
Phase II
Phase III
Exploration
and
Negotiation
Strategy
Development
Integration and Relationship
Enablers
Sources
of Value
Relationship
Structure
Define shared objectives
Establish venture/parent governance structure
Facilitate resolution of key issues
Conduct joint venture launch
Develop business success & relationship health metrics
Deploy effective problem-solving methods
Develop procedural agreements as new teams are established
Establish commitment management framework
Assess sources of value
Define organizational structure
Validate sources of value
Implement quick hits
Execute the plan
Realign the organization
Integration
Management
Benefits tracking tools
Risk tracking tools
Venture dashboard
Conflict manage-ment mechanism
Relationship audit mechanism
Communication and information-sharing protocols
Re-negotiation and exit procedures
Joint problem-solving toolkit
Team procedural agreement
Joint Venture Integration and Management Framework
“Go Live”
Stakeholder
Approval
MOU/LOI
Thrusts
Infrastructure for Ongoing Management Overview
A venture dashboard allows the partners to monitor and manage the success of the venture on an ongoing basis
80%
39%
98%
70%
43%
0%
20%
40%
60%
80%
100%
Quality and
Efficiency of
Communication
Level of Trust
and Perceived
Reliability
Degree of
Mutual
Understanding
Frequency of
Conflict
Quality of
Problem
Solving
Quality and Health of Relationship
96%
82%
41%
77%
95%
0%
20%
40%
60%
80%
100%
Return to
Parent
Companies
Marketplace
Success
Operational
Excellence
Venture
Financial
Success
Competitive
Position
Business Success
Key
Healthy
Needs careful monitoring
Needs to be diagnosed and addressed
Web based reporting tools can be customized to provide real-time reporting and drill down into underlying business data.
Venture Dashboard
A standard conflict management mechanism enables efficient and collaborative resolution of conflict throughout the life of the venture, and enables conflict to be leveraged as an asset for learning
Limited escalation
over roles
Limited escalation over
how best to
resolve trade-offs
Limited escalation
over process
or criteria
Monitor type and frequency
of conflicts and
extract strategic and
operational lessons
Make Decision
Generate Many Possible Solutions
Explore and Clarify the Issue, Problem, or Decision
Identify who needs to be involved and determine from the outset the role each party should play
Decide on a Decision Making Process and Criteria
Track and Manage Commitments
A conflict management mechanism can be implemented through a few simple paper based templates and checklists (enabled through behavioural skills training). Or through a simple web-based implementation which enables virtual collaboration and automated tracking and reporting of conflicts and their resolution.
Conflict Management Mechanism
Using the business and relationship metrics developed in Initial Integration, the Relationship Audit mechanism allows partners to regularly monitor success of both the business and the relationship over time…
Relationship Audit Mechanism
…and subsequently evaluate and proactively tackle emerging problems
Relationship Audit Mechanism
Communication and information-sharing protocols are necessary to manage status reporting and information sharing between parent companies and the joint venture throughout its life
Expected Types of
Change
Who from IBM will
contact whom from
the Customer
Who from the
customer will
contact whom from
IBM
Process by which the
information will be
shared between the
partners*
Process by which
this change be
jointly managed,
communicated along
the interface**
Significant change in
business strategy
Significant change in
IT strategy
Significant change in
key personnel
Major wins that may
affect this
partnership
Major losses that may
affect this
partnership
Entering into new IT
partnerships with
competitors
* Processes may include consultation first, inform before announced, inform as announced, via e-mail or voice-mail, a call, a meeting; one-on-one, through a group conference call, in a group meeting
** Examples of processes include a joint planning meeting between, and memo from, the Relationship Managers; a planning meeting among, and a memo from, a specific Committee; a joint meeting between the Relationship Managers followed by a meeting with specific affected parties; a briefing of and joint meeting between senior executives from both partner organizations; etc.
Who from Newco will contact whom from customer
Who from the customer will contact whom from Newco
Communication Protocols
Re-negotiation and exit procedures are supported with tools and best practices for managing this difficult process effectively
Re-negotiation and Exit Procedures
After successful implementation, . Kearney and Vantage Partners also leave behind a comprehensive set of tools for effective collaboration and joint problem solving
Joint Problem-Solving Toolkit
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Notes
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