Highlights of a GAO Forum: Mergers and Transformation: Lessons	 
Learned for a Department of Homeland Security and Other Federal  
Agencies (14-NOV-02, GAO-03-293SP).				 
                                                                 
The early years of the 21st century are proving to be a period of
profound transition for our world, our country, and our 	 
government. The federal government needs to engage in a 	 
comprehensive review, reassessment, reprioritization, and as	 
appropriate, re-engineering of what the government does, how it  
does business, and in some cases, who does the government's	 
business. Leading public and private organizations in the United 
States and abroad have found that for organizations to		 
successfully transform themselves they must often fundamentally  
change their culture. On September 24, 2001, GAO convened a forum
to identify and discuss useful practices and lessons learned from
major private and public sector organizational mergers, 	 
acquisitions, and transformations that federal agencies could	 
implement to successfully transform their cultures and a new	 
Department of Homeland Security could use to merge its various	 
originating components into a unified department. The invited	 
participants have experience managing or studying large-scale	 
organizational mergers, acquisitions, and transformations.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-293SP					        
    ACCNO:   A05534						        
  TITLE:     Highlights of a GAO Forum: Mergers and Transformation:   
Lessons Learned for a Department of Homeland Security and Other  
Federal Agencies						 
     DATE:   11/14/2002 
  SUBJECT:   Agency missions					 
	     Federal agencies					 
	     National preparedness				 
	     Best practices					 

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GAO-03-293SP

                                       A

By the Comptroller General of the United States

November 2002 HIGHLIGHTS OF A GAO FORUM Mergers and Transformation:
Lessons Learned for a Department of Homeland Security and Other Federal
Agencies

GAO- 03- 293SP

a

GAO United States General Accounting Office

There are a number of key practices that have consistently been found at
the center of successful mergers, acquisitions, and transformations and
can serve as a basis for subsequent consideration as federal agencies seek
to transform their cultures in response to governance challenges. These
practices include the following.

1. Ensure top leadership drives the transformation. Leadership must set
the direction, pace, and tone and provide a clear, consistent rationale
that brings everyone together behind a single mission.

2. Establish a coherent mission and integrated strategic goals to guide
the transformation. Together the mission and goals define the culture and
serve as a vehicle for employees to unite and rally around.

3. Focus on a key set of principles and priorities at the outset of the
transformation. A clear set of principles and priorities serve as a
framework to help the organization create a new culture and drive employee
behaviors.

4. Set implementation goals and a timeline to build momentum and show
progress from day one. Goals and a timeline are essential because the
transformation could take years to complete.

5. Dedicate an implementation team to manage the transformation process. A
strong and stable team is important to ensure that the transformation
receives the needed attention to be sustained and successful.

6. Use the performance management system to define responsibility and
assure accountability for change. A *line of sight* shows how team, unit,
and individual performance can contribute to overall organizational
results.

7. Establish a communication strategy to create shared expectations and
report related progress. The strategy must reach out to employees,
customers, and stakeholders and engage them in a two- way exchange.

8. Involve employees to obtain their ideas and gain their ownership for
the transformation. Employee involvement strengthens the process and
allows them to share their experiences and shape policies.

9. Build a world- class organization. Building on a vision of improved
performance, the organization adopts the most efficient, effective, and
economical personnel, system, and process changes and continually seeks to
implement best practices.

HIGHLIGHTS OF A GAO FORUM

Mergers and Transformation: Lessons Learned for a Department of Homeland
Security and Other Federal Agencies

www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 293SP. To view the full report,
including the scope and methodology, click on the link above. For more
information, contact J. Christopher Mihm at (202) 512- 6806 or mihmj@ gao.
gov. Highlights of GAO- 03- 293SP

November 2002

The early years of the 21 st century are proving to be a period of
profound transition for our world, our country, and our government. The
federal government needs to engage in a comprehensive review,
reassessment, reprioritization, and as appropriate, re- engineering of
what the government does, how it does business, and in some cases, who
does the government*s business. Leading public and private organizations
in the United States and abroad have found that for organizations to
successfully transform themselves they must often fundamentally change
their culture.

On September 24, 2002, GAO convened a forum to identify and discuss useful
practices and lessons learned from major private and public sector
organizational mergers, acquisitions, and transformations that federal
agencies could implement to successfully transform their cultures and a
new Department of Homeland Security could use to merge its various
originating components into a unified department. The invited participants
have experience managing or studying large- scale organizational mergers,
acquisitions, and transformations.

GAO- 03- 293SP Mergers and Transformation Forum

United States General Accounting Office Washington, DC 20548

Comptroller General of the United States

November 14, 2002 Subject: Highlights of a GAO Forum on Mergers and
Transformation: Lessons

Learned for a Department of Homeland Security and Other Federal Agencies

The early years of the 21 st century are proving to be a period of
profound transition for our world, our country, and our government. This
transition is being driven by a number of key trends, including global
interdependence; diverse, diffuse, and asymmetrical security threats;
changes in the nature of the economy; rapidly evolving science and
technologies; dramatic shifts in the age and composition of our
population; important quality of life issues; and evolving government
structures and concepts. Given the challenges these trends present, the
federal government needs to engage in a comprehensive review,
reassessment, reprioritization, and as appropriate, re- engineering of
what the government does, how it does business, and in some cases, who
does the government*s business. Leading public and private organizations
in the United States and abroad have found that for organizations to
successfully transform themselves, they must often fundamentally change
their cultures so they are more results oriented, customer focused, and
collaborative in nature.

The nation*s response to the September 11 th terrorist attacks and the
continuing consideration of how best to structure a new Department of
Homeland Security (DHS) are manifestations of the transition and
transformation under way in the federal government. The creation of DHS
will represent an enormous management challenge. Over 170,000 federal
employees from over 20 originating agencies or their components with
differing missions, cultures, systems, and procedures will need to be
efficiently and effectively integrated into a single department. While the
events and issues surrounding the creation of DHS represent a major
transformation challenge for the U. S. government, there are many other
such challenges that also need to be addressed.

On September 24, 2002, GAO convened a forum to identify and discuss useful
practices and lessons learned from major private and public sector
organizational mergers, acquisitions, and transformations that federal
agencies could implement to successfully transform their cultures and a
DHS could use to merge its various originating components into a unified
department. The invited participants were a cross section of leaders in
the public and private sectors who have had experience managing large-
scale organizational mergers, acquisitions, and transformations, as well
as leading academics and others who have studied these efforts. As agreed
with the participants, the purpose of the discussion was not to reach a
consensus, but rather to engage in an open,

Page 2 GAO- 03- 293SP Mergers and Transformation Forum nonattribution-
based dialogue. Therefore, appendix I of this letter summarizes the

collective discussion and does not necessarily represent the views of any
individual participant, including GAO.

Many major mergers and acquisitions in the private sector do not live up
to their expectations or potential. In the short term, the experience of
major private sector mergers and acquisitions is that productivity and
effectiveness actually decline in the period immediately following a
merger and acquisition. This happens for a number of reasons. For example,
attention is concentrated on critical and immediate integration issues and
diverted from longer- term mission issues. In addition, employees and
managers inevitably worry about their place in the new organization. The
key is to adopt practices that minimize the duration and the significance
of the reduced productivity and effectiveness and ultimately create a new
organization that is more than the *sum of its parts.*

The research suggests that the failure to adequately address* and often
even consider* a wide variety of people and cultural issues is at the
heart of unsuccessful mergers, acquisitions, and transformations. But this
does not have to be the case. While there is no one right way to manage a
successful merger, acquisition, or transformation, the experiences of both
successful and unsuccessful efforts suggest that there are practices that
are key to their success. These key practices, detailed in appendix I, can
serve as a basis for subsequent consideration as federal agencies seek to
transform their cultures in response to governance challenges. These
practices include the following.

1. Ensure top leadership drives the transformation. 2. Establish a
coherent mission and integrated strategic goals to guide the

transformation. 3. Focus on a key set of principles and priorities at the
outset of the transformation. 4. Set implementation goals and a timeline
to build momentum and show progress

from day one. 5. Dedicate an implementation team to manage the
transformation process. 6. Use the performance management system to define
responsibility and assure

accountability for change. 7. Establish a communication strategy to create
shared expectations and report

related progress. 8. Involve employees to obtain their ideas and gain
their ownership for the

transformation. 9. Build a world- class organization.

A successful merger and acquisition in the private sector can be very
difficult. In fact, successful merger and transformation efforts can be
much more difficult to achieve in the public sector than in the private
sector. Public sector efforts must contend with more stakeholders and
power centers, less management flexibility, and greater transparency than
in the private sector. Moreover, creating a successful DHS may be
especially difficult because of the size, complexity, and importance of
the effort.

Page 3 GAO- 03- 293SP Mergers and Transformation Forum The continuing
discussion about how best to structure DHS has raised questions

regarding how the Congress can best meet its oversight, authorizing, and
appropriation responsibilities for the new department. As currently
envisioned, DHS will be comprised of over 20 federal agencies or their
components with numerous congressional committees of jurisdiction. Given
this significant reorganization of the executive branch, the Congress
should explore ways to facilitate conducting its responsibilities in a
more consolidated and integrated manner. Whether or not the Congress does
so could serve to have an impact on the effective implementation and
oversight of DHS.

Moving forward, GAO will continue to play a professional, objective, and
constructive role in assisting the Congress and the executive branch as
agencies implement transformation initiatives and DHS is created and
becomes operational. For example, working with a wide range of interested
parties, we will seek to identify specific implementation steps along with
illustrative private and public sector examples for the key practices
raised at the forum.

Appendix I provides highlights of the discussion organized around the key
practices forum participants identified, as well as subsequent comments we
received from the participants on a draft summary of the forum discussion.
Appendix II provides a list of the participants and observers.

For additional information on our work on federal agency transformation
efforts and strategic human capital management, please contact J.
Christopher Mihm, Director, Strategic Issues, on (202) 512- 6806 or at
mihmj@ gao. gov.

I wish to thank each of the participants in the forum for taking the time
to share their knowledge and to provide their insights and perspectives on
the important matters this document discusses. I look forward to working
with them on other important issues of mutual interest and concern in the
future.

David M. Walker Comptroller General of the United States

Appendix I Page 4 GAO- 03- 293SP Mergers and Transformation Forum

Mergers and Transformation Forum: Lessons Learned for a Department of
Homeland Security and Other Federal Agencies

Highlights of Forum Discussion

The forum*s overall purpose was to identify and discuss useful practices
and lessons learned from major private and public sector organizational
mergers, acquisitions, and transformations that federal agencies could
implement to successfully transform their cultures and a Department of
Homeland Security (DHS) could use to merge its various originating
components into a unified department. The forum neither sought nor
achieved consensus on all of the issues identified through the discussion.
In fact, no two merger, acquisition, or transformation efforts are exactly
alike and the *best* approach for any given effort therefore depends upon
a variety of factors specific to each context. Nevertheless, there was
general agreement on a number of key practices that have consistently been
found at the center of successful mergers, acquisitions, and
transformations. These key practices can serve as a basis for subsequent
consideration as agencies transform their cultures to be prepared to
address governance challenges. These practices include the following.

1. Ensure top leadership drives the transformation

There was widespread agreement that strong, inspirational leadership is
indispensable to successful transformations. Leadership must set the
direction, pace, and tone for the transformation and is essential to
provide a clear, consistent rationale that brings together the originating
components behind a single mission to guide the transformation. By its
very nature, the transformation process entails fundamental change. Top
leadership that is clearly and personally leading the change presents
stability and provides an identifiable source for employees to rally
around during tumultuous times. Consistent leadership helps the process
stay the course and can help bridge the differences in leadership and
management styles among the originating components. This view is
consistent with the views of participants at a recent GAO- sponsored
roundtable where they agreed that it was important to elevate, integrate,
and institutionalize responsibility for transformation and management
issues in agencies across the federal government. 1

While the indispensable role of top leadership was cited (in the federal
context, the agency Secretary, Deputy Secretary, and other high- level
political appointees), it was also noted that it is important to have a
cadre of champions (such as political and career executives) from within
the organization to work with top leadership to ensure changes are
thoroughly implemented and sustained over time. For example, one
participant mentioned a senior executive council that was particularly
useful in developing leadership*s direction and communicating its
position.

1 U. S. General Accounting Office, Highlights of a GAO Roundtable: The
Chief Operating Officer Concept: A Potential Strategy To Address Federal
Governance Challenges, GAO- 03- 192SP (Washington, D. C.: Oct. 4, 2002).

Appendix I Page 5 GAO- 03- 293SP Mergers and Transformation Forum The
participants also stressed that while fundamental change in organizations
can take

years, it is important to move quickly to both *make a statement* about
the importance of change and top leadership*s conviction to making it, as
well as provide early successes. Thus, participants agreed that speed is
critically important and decisions about matters such as the basic
processes and systems to adopt for the new organization need to be made
quickly. For example, an *80/ 20 approach* was mentioned as a general
guide in quickly making decisions. That is, it is more important to take
prudent, managed risks and make decisions quickly with the expectation
that 80 percent of them will prove to have been the right decision over
time, rather than delay decisions in order to get 100 percent of them
right. Thus, while making decisions naturally entails risk to the
organization, the benefits of acting quickly outweigh those of waiting for
the *perfect

solution.* The participants also noted that top leadership needs to set
clear priorities and spend the bulk of its time addressing the most
critical issues. Too often, it was noted, top leadership tends to expend
unnecessary time and effort on easy and mundane aspects of the integration
rather than directly tackle the difficult cultural issues that will
ultimately determine if the integration is successful.

On the other hand, a successful merger, acquisition, and transformation
process will take years and the pace cannot be forced. (Prior GAO work has
noted that the experiences of successful major change management
initiatives in large private and public sector organizations suggest it
can often take at least 5 to 7 years until such initiatives are fully
implemented and the related cultures are transformed in a sustainable
manner.) One participant noted that the speed of the transformation
process is an important difference between the public and private sectors.
The private sector is typically thought to be able to implement change
more quickly because there are fewer issues with public policy
implications that arise during the merger, acquisition, or transformation;
fewer legal and political constraints to be addressed; and less
transparency to outside parties. Nevertheless, the public sector needs to
find ways to act quickly and better manage risk.

2. Establish a coherent mission and integrated strategic goals to guide
the transformation

The participants agreed that the mission and strategic goals of a
transformed organization must become the focus of the transformation,
define the culture, and serve as a vehicle for employees to unite and
rally around. Mission clarity is especially essential to define the
purpose of the transformation to employees, customers, and stakeholders.
In addition, the strategic goals must align with and support the mission
and serve as the continuing, visible guideposts for decisionmaking.

The mission and strategic goals must be clear to employees, customers, and
stakeholders and be seen as the driving force of the changes that are
being made. A well- defined mission and strategic goals also are essential
to helping the new organization and its customers and stakeholders make
intelligent trade- offs among short- and long- term wants, needs, and
affordability and to ensuring that program and resource commitments made
early in the transformation process are sustainable over the long run. The
mission and strategic goals are also important because affected
organizations and employees may not at first see a direct personal
connection to the transformation or may have other

Appendix I Page 6 GAO- 03- 293SP Mergers and Transformation Forum
responsibilities separate from the purpose of the transformation. In
successful

transformation efforts, developing, communicating, and constantly
reinforcing the mission and strategic goals give employees a sense of what
the organization intends to accomplish, as well as help employees figure
out how their positions fit in with the new organization and what they
need to do differently to help the new organization be successful.

Participants noted that in the public sector, the potential of the mission
and strategic goals to unite and motivate the workforce is extraordinary.
Patriotism can be an especially powerful unifying theme for public sector
employees. In particular, new DHS employees can be shown the direct
connection between their work and protecting the security of the American
people, making a difference in people*s lives, and being a part of
history.

3. Focus on a key set of principles and priorities at the outset of the
transformation

In bringing together the originating components, the new organization must
have a clear set of principles and priorities that serve as a framework to
help the organization create a new culture and drive employee behaviors.
Leadership identifies these principles and priorities at the outset of the
transformation. These principles and priorities range from the core values
that are fundamental to the organization to the color of any uniforms.

Principles are the core values of the new organization and they define the
attributes that are intrinsically important to what the new organization
does and how it will do it. They represent institutional beliefs and
boundaries. A set of core values becomes embedded in every aspect of the
organization and, like the mission and strategic goals, can serve as an
anchor that remains valid and enduring while organizations, personnel,
programs, and processes may change. For example, a participant cited
*success of our customers* as a core value in a recent merger and
acquisition and this value was reflected in the employees* work and the
culture of the new organization.

In developing priorities, leadership should engage employees to learn
about what is important to them and what should be included in the new
organization. For example, leadership should learn about the symbols that
are important to employees. One participant mentioned that employees might
want to retain a style or color of a uniform that is based on long-
standing tradition, but would be willing to accept the new organization*s
badge for all employees to wear.

4. Set implementation goals and a timeline to build momentum and show
progress from day one

The participants stressed that the merger, acquisition, and transformation
process is a substantial commitment that could take years before it is
completed and must be carefully and closely managed. As a result, it is
essential to establish over the long term action- oriented implementation
goals and a timeline with milestone dates to track the organization*s
progress towards its intermediate and long- term transformation goals. By

Appendix I Page 7 GAO- 03- 293SP Mergers and Transformation Forum
demonstrating progress towards these transformation goals, the
organization builds

momentum and demonstrates that real progress is being made. In addition,
having implementation goals and milestone dates helps pinpoint performance
shortfalls and gaps and suggests midcourse corrections, including any
needed adjustments to the organization*s future goals and milestones.

The participants also agreed that as part of developing the implementation
goals and the timeline, it was helpful to think in terms of multiple *Day
Ones* for the entire transformation process. The point of thinking in
terms of multiple Day Ones is to determine* and focus attention squarely
on* critical phases and the essential activities that need to be completed
by and on any given date. This is especially true for every major,
publicly evident milestone. For example, on the first day of operation*
the most prominent public milestone* such activities include determining
who will speak for the organization, what information will be provided,
and how questions will be addressed. One participant noted that in the
private sector, leadership does not begin a merger and acquisition until
they know clearly how to launch it and have set a timeline for what they
want to accomplish and by when. For private sector mergers and
acquisitions, the first Day One is in the early due diligence stage and
subsequent Day Ones include the public announcement of a planned merger
and acquisition, the ratification of a formal agreement and its effective
date, as well as dates that map the key implementation milestones. At a
minimum, successful mergers and acquisitions have careful and thorough
30-, 60-, and 90- day plans in place well before the effective
implementation date.

Thinking in terms of multiple Day Ones may prove a challenge for the
federal government, where Day One is usually defined as the effective date
of the new organization as specified in statute. While participants
offered different perspectives on what is needed to be accomplished by
that Day One* ranging from establishing the leadership and infrastructure
for the organization to installing uniform telephone, E- mail, and
computer systems* there was consensus that the first step is defining the
mission of the transformed organization to communicate a common sense of
purpose.

5. Dedicate an implementation team to manage the transformation process

There was widespread acknowledgment among participants that dedicating a
strong and stable implementation team that will be responsible for the
transformation*s day- to- day management is important to ensuring that it
receives the focused, full- time attention needed to be sustained and
successful. A key responsibility of the team is to be able to answer
questions from employees and other stakeholders on the transformation
process. The implementation team is also important to ensuring that
various change initiatives are sequenced and implemented in a coherent and
integrated way. Because a transformation process is a massive undertaking,
the team must have direct access and be accountable to top leadership. In
turn, top leadership must vest the team with the necessary authority and
resources to set priorities, make timely decisions, and move quickly to
implement top leadership*s decisions regarding the transformation. The
team leader is a full- time job and should be dedicated for the duration
of the transformation process.

Appendix I Page 8 GAO- 03- 293SP Mergers and Transformation Forum The size
of the implementation team needs to be scaled to the size of the merger,

acquisition, or transformation effort. For example, a participant from the
private sector noted that a small merger might require only 20 to 30 team
members to implement whereas a merger of two major corporations might
require over 2,000 individuals to be involved at various points. The
composition of the implementation team is also important because of the
visual sign it communicates regarding which components are dominant and
subordinate or whether the new organization is a *merger of equals.* In
this latter case, the team should consist of a balance of employees from
the various components, rather than just one. This is important to help
employees see that they are being represented and that their views are
being considered in the decision- making process. An implementation team
that has a disproportionate number of members from one of the originating
components could convey the unintended impression that that component is
dominating the process. The implementation team is also a visible sign
that top leadership considers team building in itself to be important and
values this approach to carrying out the transformation process and to
conducting future business.

In the private sector, an implementation team in some form is ideally
already in place and fully operating well before a merger and acquisition
is publicly announced. This team has a key role in overseeing the due
diligence that is part of a successful merger and acquisition. The due
diligence should include not only the key financial matters that are
central to any transaction, but also important organizational and cultural
matters that indicate the forthcoming integration challenges and
opportunities.

6. Use the performance management system to define responsibility and
assure accountability for change

Participants agreed that the new organization*s performance management
system must create a *line of sight* showing how team, unit, and
individual performance can contribute to overall organizational results.
The performance management system can help manage and direct the
transformation process. The system serves as the basis for setting
expectations for employees* roles in the transformation process. It also
evaluates individual performance and contributions to the success of the
transformation process and ultimately, organizational results.

To be successful, transformation efforts must have leaders, managers, and
employees who have the individual competencies to integrate and create
synergy among the multiple organizations involved in the transformation
effort. These successful efforts measure individual performance and
contributions on competencies such as change management, cultural
sensitivity, teamwork and collaboration, and information sharing. Leaders,
managers, and employees who demonstrate these competencies are rewarded
for their success in contributing to the achievement of the transformation
process.

In this regard, GAO has reported that agencies in other countries use
performance agreements that articulate specific competencies as a tool to
link employees* roles and responsibilities to specific organizational
initiatives and desired outcomes and then

Appendix I Page 9 GAO- 03- 293SP Mergers and Transformation Forum evaluate
employee contributions to those initiatives. 2 For example, in the United

Kingdom, executives in the Senior Civil Service are evaluated on and
rewarded for their demonstration of competencies such as *adopting a
leadership style to suit different people, cultures, and situations.* In
the Province of Ontario, Canada, senior executives and some managers link
commitments contained in their individual performance plans to key
provincial priorities such as fostering a culture of innovation.

In the United States, GAO has found that there are significant
opportunities to use the performance management system to explicitly link
senior executive expectations for performance to results- oriented
organizational goals. 3 There is a need to hold senior executives
accountable for demonstrating competencies in leading and facilitating
change and fostering collaboration both within and across organizational
boundaries to achieve results. Expectations such as these will be critical
to achieving transformation changes.

7. Establish a communication strategy to create shared expectations and
report related progress

There was consensus that having an effective and ongoing internal and
external communication strategy is essential to making transformation
happen. In fact, given the importance of an effective communication
effort, one participant observed that a successful communication effort
will require twice the time and effort that was at first planned* no
matter how ambitious the original plan was. Communication is most
effective when done early, clearly, often, and is downward, upward, and
lateral. Participants noted that the organization must develop a
comprehensive communication strategy that reaches out to employees,
customers, and stakeholders and seeks to genuinely engage them in the
transformation process. Communication is not about just

*pushing the message out,* but it should facilitate a two- way honest
exchange with and allow for feedback from the employees, customers, and
stakeholders. This communication is central to forming the effective
internal and external partnerships that are vital to the success of any
organization.

Communicating with employees must include topics such as the new
organization*s strategic goals, customer service, and in particular,
employee concerns. It is important to help employees understand how the
changes from the transformation process will affect them and to address
the immediate and natural question: *What*s in it for me?* Employees will
be concerned about whether their jobs will be affected, what their rights
and protections will be, or how their responsibilities might change with
the new organization. According to one participant, private sector
experience with mergers and acquisitions suggests that over 40 percent of
executives in acquired companies leave within the first year and 75
percent within the first 3 years. While some turnover is to be expected
and is appropriate, the new organization must *re- recruit* its key talent
to limit

2 U. S. General Accounting Office, Results- Oriented Cultures: Insights
for U. S. Agencies from Other Countries* Performance Management
Initiatives, GAO- 02- 862 (Washington, D. C.: Aug. 2, 2002). 3 U. S.
General Accounting Office, Results- Oriented Cultures: Using Balanced
Expectations to Manage

Senior Executive Performance, GAO- 02- 966 (Washington, D. C.: Sept. 27,
2002).

Appendix I Page 10 GAO- 03- 293SP Mergers and Transformation Forum the
loss of needed individuals who leave because they do not see their place
in the new

organization. Communicating with customers and stakeholders should also be
a top priority and is central to forming the partnerships that are needed
to develop and implement the organization*s strategies. Participants
suggested ways to keep customers and stakeholders informed and engaged in
the transformation process through satellite broadcasts, town hall
meetings, Internet sites, and newsletters sent out via E- mail to explain
the reasons behind the changes occurring with the transformation.
Importantly, if the organization makes the commitment to communicate with
employees, customers, and stakeholders from the beginning, it must
continue to do so or risk losing internal and external credibility.

A communication strategy is especially crucial in the public sector where
policymaking and program management demands transparency and a full range
of stakeholders and interested parties are concerned not only with what
results are to be achieved, but also which processes are to be used to
achieve those results. This demand for transparency is a fact that needs
to be accepted in any public sector transformation.

Leadership can lead by example by creating transparency and engaging in
open and twoway communication. One federal participant said that during
the transformation he was leading, he fostered open communication by
widely disseminating information on his plans when still in draft form.
This openness gave employees and other stakeholders an opportunity to
provide early input and shape transformation efforts. In addition,
employee anxiety about what changes were occurring and why was reduced.
Finally, this openness helped top leadership provide a context for its
plans rather than having that context be framed by rumors and partial
information.

8. Involve employees to obtain their ideas and gain their ownership for
the transformation

There was a general consensus among the participants that the new
organization must involve employees in the merger, acquisition, or
transformation process from the beginning to achieve their ownership for
the changes that are occurring in the organization. Moreover, employee
involvement strengthens the transformation process by including frontline
perspectives and experiences. By participating in transformation task
teams, employees have additional opportunities to share their experiences
and shape policies and procedures as they are being developed. While it is
an important investment to involve employees in the transformation
process, there are cautions. Dayto- day operations, service quality, and
mission accomplishment must continue to take first priority. Organizations
and their employees must guard against being so involved in implementing
their transformation initiatives that they lose sight of the fundamental
reason for the transformation* improved results.

In addition, there tends to be a relatively small group of employees in
every organization who will resist any meaningful change and will not or
cannot buy into the transformation no matter how compelling the case for
change may be. This group of employees may try

Appendix I Page 11 GAO- 03- 293SP Mergers and Transformation Forum to
*wait out* the transformation and think that it will pass without taking
hold.

Ultimately, these employees either must accept the changes under way or be
helped to move elsewhere within the organization or out of it. Finally,
especially while in the midst of the transformation process, the
organization should not ignore valuable traditional activities, events,
and rituals that are important to employees, such as employee recognition
ceremonies. These activities help to provide a sense that the new
organization, while becoming fundamentally different from what it once
was, will nonetheless retain positive elements of the old organization.

9. Build a world- class organization

Successful change efforts start with a vision of radically improved
performance and the relentless organizationwide pursuit of that vision.
Fundamentally, a change of culture is at the heart of a successful merger,
acquisition, and transformation. The importance of redefining the
organizational culture should be not avoided, but rather must be
aggressively addressed at the outset and throughout the transformation
process. In addition, successful mergers, acquisitions, and
transformations require enormous investments in time, leadership
commitment, energy, and resources. Participants agreed that it is
therefore critical that the organization not suboptimize in making any
needed personnel, systems, and process changes.

The private sector experience with mergers and acquisitions suggests that
success is more likely when the best individuals are selected for each
position based on their competencies rather than the originating component
where they worked. That is, the new organization needs to avoid a
situation where key personnel selections are made on a basis of an
understanding that each of the originating components gets its *turn* in
the selection process. Such an approach not only undermines the quality of
the selections, but also raises questions about top leadership*s ability
and commitment to creating a new, integrated organization.

The participants made a similar point with regard to systems and
processes. Successful private sector mergers and acquisitions determine at
the earliest opportunity the essential systems and processes that will
need to be consistent across the organization and those that, at least
initially, can differ across the organization. These decisions, the
participants stressed, are based not only on what is necessary from the
standpoint of operational efficiency and effectiveness, but also on what
messages are to be sent to employees and customers. For example, the
decision to use an organizationwide convention for E- mail addresses on
the first day of operation can send a powerful message about the
seriousness of the effort to create a coherent organization and the speed
at which that effort will take place.

The participants also noted that successful mergers and acquisitions seek
to implement best practices in the systems and processes wherever they may
be found and guard against automatically adopting the approaches used by
the largest or acquiring component. The risk is that the new organization
may migrate less than fully efficient and effective systems and processes
merely because those systems and processes are most often used. Over the
longer term, successful mergers and acquisitions, like

Appendix I Page 12 GAO- 03- 293SP Mergers and Transformation Forum
successful organizations generally, seek to learn from best practices and
create a set of

systems and processes that are tailored to the specific needs and
circumstances of the new organization.

In the federal context, this means that agencies need to ensure that they
are maximizing their use of existing authorities and flexibilities and, as
appropriate, making a business case for targeted additional legislative
changes. Any additional changes should provide reasonable flexibility to
help integrate and optimize the economy, efficiency, and effectiveness of
the organization while incorporating appropriate transparency mechanisms
and safeguards to prevent abuse of employees. Further, several
participants observed that the Congress needs to take steps to assure that
it can conduct its oversight, authorizing, and appropriation
responsibilities for a new DHS in an efficient and effective manner. As
currently envisioned, DHS would be comprised of over 20 federal agencies
or their components with numerous congressional committees of
jurisdiction. Given this significant reorganization of the executive
branch, participants commented that the Congress should be strongly
encouraged to explore ways to facilitate conducting its responsibilities
in a more consolidated and integrated manner. Whether or not the Congress
does so will likely have an impact on the timeliness and effectiveness of
DHS* implementation efforts.

__ __ __ __ __ In summary, as the news in the business press shows each
day, the private sector experience with mergers and acquisitions is mixed.
That experience, which suggests that attention to people and cultural
issues is the key to success, provides a valuable set of lessons for the
federal government. In that regard, the participants at the forum
identified a set of broad practices that have been shown to be essential
to a successful merger, acquisition, or transformation effort. Most
immediately, the practices provide a starting point for the Congress and
the executive branch in ensuring that a new DHS will be effectively
implemented as quickly as possible. These practices also provide a general
framework that can be used to help other federal government entities
transform themselves to meet the challenges of the 21 st century.

Appendix II Page 13 GAO- 03- 293SP Mergers and Transformation Forum

Mergers and Transformation Forum: Lessons Learned for a Department of
Homeland Security and Other Federal Agencies

Facilitator

David M. Walker Comptroller General of the United States U. S. General
Accounting Office (GAO)

Participants

Margot Bester Attorney- Advisor Transportation Security Administration

Jay Bourgeois Professor, Darden Graduate School of Business Administration
University of Virginia

Anthony Calenda Director of Strategy and Business Development Citigroup,
Inc.

Jay Connor Vice President of Strategies and Marketing, Consulting and
Integration Hewlett- Packard Company

Amy Donahue Special Assistant to the Administrator on Homeland Security
National Aeronautics and Space Administration

John Hamre President and Chief Executive Officer Center for Strategic and
International Studies

Colleen M. Kelley President National Treasury Employees Union

Paula Larkin Managing Director, Business Resiliency and Crisis Management
J. P. Morgan Chase

Wilson Lowery, Jr. Executive Assistant Director for FBI Administration
Federal Bureau of Investigation

Marcia Marsh Vice President, Strategic Human Resources Planning
Partnership for Public Service

Patricia McGinnis President and Chief Executive Officer Council for
Excellence in Government

Appendix II Page 14 GAO- 03- 293SP Mergers and Transformation Forum Bob
O*Neill President

National Academy of Public Administration Donna Richbourg Director of
Acquisition Initiatives

Office of the Under Secretary of Defense Department of Defense

Charles O. Rossotti Commissioner Internal Revenue Service

Larry Schein Senior Fellow (retired) The Conference Board

Jeff Shuman Vice President of Human Resources, Information Technology
Northrup Grumman

A. W. Pete Smith President and Chief Executive Officer Private Sector
Council

Max Stier President and Chief Executive Officer Partnership for Public
Service

Molly Tschang Senior Director, Business Development Integration Group
Cisco Systems, Inc.

Kevin P. Varney Director, New Threats Program Business Executives for
National Security

Paul Yingling Director, Finance and Restructuring Lockheed Martin
Corporation

Observers

Mitchell E. Daniels, Jr. Director Office of Management and Budget

Mark W. Everson Deputy Director for Management Office of Management and
Budget

(450119)
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