Results-Oriented Cultures: Implementation Steps to Assist Mergers
and Organizational Transformations (02-JUL-03, GAO-03-669).
The Comptroller General convened a forum in September 2002 to
identify useful practices and lessons learned from major private
and public sector mergers, acquisitions, and organizational
transformations. This was done to help federal agencies implement
successful transformations of their cultures, as well as the new
Department of Homeland Security merge its various originating
components into a unified department. There was general agreement
on a number of key practices found at the center of successful
mergers, acquisitions, and transformations. In this report, we
identify the specific implementation steps for the key practices
raised at the forum with illustrative private and public sector
examples. To identify these implementation steps and examples, we
relied primarily on interviews with selected forum participants
and other experts about their experiences implementing mergers,
acquisitions, and transformations and also conducted a literature
review.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-03-669
ACCNO: A07399
TITLE: Results-Oriented Cultures: Implementation Steps to Assist
Mergers and Organizational Transformations
DATE: 07/02/2003
SUBJECT: Best practices
Corporate mergers
Federal agency reorganization
Private sector practices
Productivity in government
Strategic planning
Best practices reviews
CG Forum
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GAO-03-669
* July 2, 2003
* Mergers and Transformations: Key Practices and Implementation Steps
for Federal Agencies
* Objective, Scope, and Methodology
* Acknowledgments
* Selected Bibliography
* http://www.gao.gov
United States General Accounting Office
Report to Congressional Subcommittees
GAO
July 2003
RESULTS-ORIENTED CULTURES
Implementation Steps to Assist Mergers and Organizational Transformations
a
Highlights of GAO-03-669, a report to congressional requesters
The Comptroller General convened a forum in September 2002 to identify
useful practices and lessons learned from major private and public sector
mergers, acquisitions, and organizational transformations. This was done
to help federal agencies implement successful transformations of their
cultures, as well as the new Department of Homeland Security merge its
various originating components into a unified department. There was
general agreement on a number of key practices found at the center of
successful mergers, acquisitions, and transformations. In this report, we
identify the specific implementation steps for the key practices raised at
the forum with illustrative private and public sector examples.
To identify these implementation steps and examples, we relied primarily
on interviews with selected forum participants and other experts about
their experiences implementing mergers, acquisitions, and transformations
and also conducted a literature review.
July 2003
RESULTS-ORIENTED CULTURES
Implementation Steps to Assist Mergers and Organizational Transformations
At the center of any serious change management initiative are the people.
Thus, the key to a successful merger and transformation is to recognize
the "people" element and implement strategies to help individuals maximize
their full potential in the new organization, while simultaneously
managing the risk of reduced productivity and effectiveness that often
occurs as a result of the changes. Building on the lessons learned from
the experiences of large private and public sector organizations, these
key practices and implementation steps can help agencies transform their
cultures so that they can be more results oriented, customer focused, and
collaborative in nature.
Key Practices and Implementation Steps for Mergers and Organizational
Transformations Practice Implementation Step
Ensure top leadership drives the o Define and articulate a succinct and
compelling transformation. reason for change.
o Balance continued delivery of services with merger and transformation
activities.
Establish a coherent mission and o Adopt leading practices for
results-oriented
integrated strategic goals to strategic planning and reporting.
guide the
transformation.
Focus on a key set of principles o Embed core values in every aspect of
and the
priorities at the outset of the organization to reinforce the new
culture.
transformation.
Set implementation goals and a timeline to o Make public implementation
goals and timeline. build momentum and show progress from o Seek and
monitor employee attitudes and take day one. appropriate follow-up
actions.
o Identify cultural features of merging organizations to increase
understanding of former work environments.
o Attract and retain key talent.
o Establish an organizationwide knowledge and skills inventory to
exchange knowledge among merging organizations.
Dedicate an implementation team to o Establish networks to support
implementation manage the transformation process. team.
o Select high-performing team members.
Use the performance management o Adopt leading practices to implement
system to define responsibility effective performance management
and assure accountability for systems with adequate safeguards.
change.
Establish a communication o Communicate early and often to build
strategy to trust.
create shared expectations and o Ensure consistency of message.
report related progress. o Encourage two-way communication.
o Provide information to meet specific
needs of
employees.
Involve employees to obtain their o Use employee teams.
ideas and
gain their ownership for the o Involve employees in planning and
transformation. sharing performance information.
o Incorporate employee feedback into
new
policies and procedures.
o Delegate authority to appropriate
organizational
levels.
www.gao.gov/cgi-bin/getrpt? GAO-03-669.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact J. Christopher Mihm, (202)
512-6806 or [email protected].
Build a world-class organization. o Adopt leading practices to build a
world-class organization.
Source: GAO
Contents
Letter
Appendixes
Appendix I: Mergers and Transformations: Key Practices and
Implementation Steps for Federal Agencies 7
Appendix II: Objective, Scope, and Methodology 32
Appendix III: Acknowledgments 34
Appendix IV: Selected Bibliography 36
Table 1: Key Practices and Implementation Steps for
Tables Mergers and
Organizational Transformations 8
Table 2: Key Practices for Effective Performance 22
Management
Abbreviations
DHS Department of Homeland Security
DOD Department of Defense
FAA Federal Aviation Administration
FBI Federal Bureau of Investigation
GPRA Government Performance and Results Act
IRS Internal Revenue Service
NASA National Aeronautics and Space Administration
TSA Transportation Security Administration
VBA Veterans Benefits Administration
This is a work of the U.S. government and is not subject to copyright
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separately.
Comptroller General Aof the United States
United States General Accounting Office Washington, D.C. 20548
July 2, 2003
The Honorable George V. Voinovich Chairman Subcommittee on Oversight of
Government
Management, the Federal Workforce, and the
District of Columbia Committee on Governmental Affairs United States
Senate
The Honorable Jo Ann Davis Chairwoman Subcommittee on Civil Service and
Agency Organization Committee on Government Reform House of
Representatives
Implementing large-scale change management initiatives, such as mergers
and organizational transformations, are not simple endeavors and require
the concentrated efforts of both leadership and employees to realize
intended synergies and to accomplish new organizational goals. At the
center of any serious change management initiative are the people-people
define the organization's culture, drive its performance, and embody its
knowledge base. Experience shows that failure to adequately address- and
often even consider-a wide variety of people and cultural issues is at the
heart of unsuccessful mergers and transformations. Recognizing the
"people" element in these initiatives and implementing strategies to help
individuals maximize their full potential in the new organization, while
simultaneously managing the risk of reduced productivity and effectiveness
that often occurs as a result of the changes, is the key to a successful
merger and transformation. Thus, mergers and transformations that
incorporate strategic human capital management approaches will help to
sustain agency efforts and improve the efficiency, effectiveness, and
accountability of the federal government.
GAO convened a forum on September 24, 2002, to identify and discuss useful
practices and lessons learned from major private and public sector
organizational mergers, acquisitions, and transformations. This was done
to help federal agencies implement successful transformations of their
cultures, as well as the new Department of Homeland Security (DHS) merge
its various originating components into a unified department.
The invited participants were a cross section of leaders who have had
experience managing large-scale organizational mergers, acquisitions, and
transformations, as well as academics and others who have studied these
efforts. The forum neither sought nor achieved consensus on all of the
issues identified through the discussion. Because no two merger,
acquisition, or transformation efforts are exactly alike, the "best"
approach for any given effort 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. We reported the key
practices participants identified that can serve as a basis for subsequent
consideration as federal agencies seek to transform their cultures in
response to governance challenges.1 These key practices are to:
to ensure that the
transformation receives the needed attention to be sustained and
successful.
1U.S. General Accounting Office, Highlights of a GAO Forum: Mergers and
Transformation: Lessons Learned for a Department of Homeland Security and
Other Federal Agencies, GAO-03-293SP (Washington, D.C.: Nov. 14, 2002).
Page 2 GAO-03-669 Merger and Transformation Steps
responsibility and
assure accountability for change. A "line of sight" shows how team,
unit, and individual performance can contribute to overall
organizational results.
um with illustrative private and
public sector examples that agencies can take as they transform their
cultures to be more results oriented, customer focused, and collaborative
in nature. These implementation steps and examples are described in
appendix I. To identify these steps and examples, we interviewed selected
forum participants about their experiences managing mergers, acquisitions,
and transformations and reviewed literature on the subject drawn primarily
from private sector mergers and acquisitions change management experiences
to gain a better understanding of the issues that most frequently occur
during such large-scale change initiatives. We also used our guidance and
reports on strategic human capital management and results-oriented
management. Our scope and methodology is described in more detail in
appendix II.
We have observed in our recent Performance and Accountability Series that
there is no more important management reform than for agencies to
transform their cultures to respond to the transition that is taking place
in the role of government in the 21st century.2 We highlighted the
following agencies as among those that have transformations under way:
o Establishing the new DHS is an enormous undertaking that will take
time to achieve in an effective and efficient manner. DHS must
effectively combine 22 agencies with an estimated 170,000 employees
specializing in various disciplines, including law enforcement, border
security, biological research, computer security, and disaster
mitigation, and also oversee a number of non-homeland security
activities. The new department will need to build a successful
transformation that instills the organization with important
management principles; rapidly implements a phased-in transition plan;
leverages the new department and other agencies in executing the
national homeland security strategy; and builds collaborative
partnerships with federal, state, local, and private sector
organizations.
o The Department of Defense (DOD) transformation involves a strategic
imperative needed to meet the security challenges of the new century.
DOD has emphasized force transformations as necessary to effectively
anticipate, counter, and eliminate the emergence of unconventional
threats overseas and at home. DOD's transformation will require
cultural change and business process reengineering that will take
years to accomplish. In addition, DOD is seeking congressional
approval to undertake significant changes in its civilian personnel
policies.3
o The National Aeronautics and Space Administration (NASA) has also
begun a major transformation effort. Although NASA is in the very
early stages of its transformation, the challenge ahead for NASA will
be to maintain the momentum to transform, to effectively use existing
and new authorities to strategically manage its people, and to quickly
implement the tools needed to strengthen management and oversight.
2U.S. General Accounting Office, Major Management Challenges and Program
Risks: A Governmentwide Perspective, GAO-03-95 (Washington, D.C.: January
2003).
3See most recently, U.S. General Accounting Office, Human Capital:
Building on DOD's Reform Effort to Foster Governmentwide Improvements,
GAO-03-851T (Washington, D.C.: June 4, 2003).
Page 4 GAO-03-669 Merger and Transformation Steps
o The Federal Bureau of Investigation (FBI) has begun its transformation
by organizing its operations to strengthen its management structure
and enhance accountability. FBI's ongoing reorganization includes
shifting some resources from long-standing areas of focus, such as
drugs, to counterterrorism and intelligence; building analytical
capability; and recruiting to address selected skill gaps.
o The Federal Aviation Administration (FAA) faces the need for
transformation to implement new ways of ensuring transportation
security and improving safety, mobility, and economic growth. For
example, FAA faces an impending wave of air traffic controller
retirements. While FAA has made progress in addressing its problems,
more remains to be done.
o The U.S. Postal Service's long-term outlook continues to be high-risk
and the Service faces challenges in managing its finances, human
capital, and infrastructure. The Service has developed a
transformation plan, which it can use to make progress on specific
actions under its existing authority.
o The Internal Revenue Service (IRS) has a multifaceted effort under way
to transform its operations. IRS has made important progress, but its
transformation continues to be a work in progress, and IRS is now
halfway through the 10 years it estimated would be needed to complete
its modernization.
Although transformation efforts are under way, more remains to be done.
Building on lessons learned by large private and public sector
organizations, the key practices and implementation steps to assist
mergers and organizational transformations discussed in this report can be
modified to fit the circumstances and conditions that are relevant to each
agency. We at GAO are using these key practices and implementation steps
to guide our own organizational transformation. Collectively, these key
practices and implementation steps can help agencies transform their
cultures so that the federal government has the capacity to deliver its
promises, meet current and emerging needs, maximize its performance, and
ensure accountability.
As agreed with your office, unless you announce its contents earlier, we
plan no further distribution of this report until 30 days after its
issuance date. At that time, we will provide copies of the report to the
Director of
Page 5 GAO-03-669 Merger and Transformation Steps
the Office of Personnel Management and the Director of the Office of
Management and Budget. Copies will be made available to others upon
request. This report will also be available at no charge on GAO's Web site
at
http://www.gao.gov.
For additional information on our work on federal agency transformation
efforts and strategic human capital management, please contact me or
J. Christopher Mihm, Director, Strategic Issues, at [email protected]. Carole
Cimitile, Fig Gungor, and Lisa Shames were key contributors to this
report.
David M. Walker Comptroller General of the United States Appendix I
Mergers and Transformations: Key Practices and Implementation Steps for Federal
Agencies
The Comptroller General of the United States convened a forum on September
24, 2002, to identify and discuss useful practices and lessons learned
from major private and public sector organizational mergers, acquisitions,
and transformations. This was done to help federal agencies implement
successful transformations of their cultures, as well as the new
Department of Homeland Security (DHS) merge its various originating
components into a unified department. We subsequently reported the key
practices participants identified 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.1 At the
request of the Chairman, Subcommittee on Oversight of Government
Management, the Federal Workforce, and the District of Columbia, Senate
Committee on Governmental Affairs; and the Chairwoman, Subcommittee on
Civil Service and Agency Organization, House Committee on Government
Reform, this report identifies the specific implementation steps with
illustrative private and public sector examples for these key practices
raised at the forum. These key practices and implementation steps can be
modified to fit the circumstances and conditions that are relevant to each
agency as it transforms its culture to be more results oriented, customer
focused, and collaborative in nature. These key practices and
implementation steps are shown in table 1.
1 GAO-03-293SP.
Table 1: Key Practices and Implementation Steps for Mergers and
Organizational Transformations
Practice Implementation Step
Ensure top leadership drives the o Define and articulate a succinct and
transformation. compelling reason for change.
o Balance continued delivery of services with merger and transformation
activities.
Establish a coherent mission and o Adopt leading practices for
results-oriented integrated strategic goals to guide the strategic
planning and reporting. transformation.
Focus on a key set of principles and o Embed core values in every aspect
of the priorities at the outset of the organization to reinforce the new
culture. transformation.
Set implementation goals and a timeline to build momentum and show
progress from day one.
o Make public implementation goals and timeline.
o Seek and monitor employee attitudes and take appropriate follow-up
actions.
o Identify cultural features of merging organizations to increase
understanding of former work environments.
o Attract and retain key talent.
o Establish an organizationwide knowledge and skills inventory to
exchange knowledge among merging organizations.
Dedicate an implementation team to o Establish networks to support
manage the transformation process. implementation team.
o Select high-performing team members.
Use the performance management system o Adopt leading practices to
implement to define responsibility and assure effective performance
management accountability for change. systems with adequate safeguards.
Establish a communication strategy to o Communicate early and often to
build trust. create shared expectations and report o Ensure consistency
of message. related progress. o Encourage two-way communication.
o Provide information to meet specific needs of employees.
Involve employees to obtain their ideas o Use employee teams. and gain
their ownership for the o Involve employees in planning and sharing
transformation. performance information.
o Incorporate employee feedback into new policies and procedures.
o Delegate authority to appropriate organizational levels.
Build a world-class organization. o Adopt leading practices to build a
worldclass organization.
Source: GAO.
Ensure Top Leadership Drives the Transformation
Because a merger or transformation entails fundamental and often radical
change, strong and inspirational leadership is indispensable. Top
leadership (in the federal context, the department Secretary, Deputy
Secretary, and other high-level political appointees) that is clearly and
personally involved in the merger or transformation represents stability
and provides an identifiable source for employees to rally around during
tumultuous times. Leadership must set the direction, pace, and tone for
the transformation. We have reported that the appointment of agency chief
operating officers is one mechanism that could help to elevate attention
on management issues and transformational change, integrate these various
initiatives, and institutionalize accountability for addressing them.2
Experience shows that successful major change management initiatives in
large private and public sector organizations can often take at least 5 to
7 years. This length of time and the frequent turnover of political
leadership in the federal government have often made it difficult to
obtain the sustained and inspired attention to make needed changes.
At the outset of the merger or transformation, it is important that
leaders move quickly to both "make a statement" about the importance of
change and demonstrate conviction to making it, as well as deliver early
successes. In addition, 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. Thus, top
leaders must also balance the continued delivery of services with merger
and transformation activities. The following steps provide additional
detail on how this practice can be achieved.
Define and articulate a succinct and compelling reason for change.
Top leadership must provide a clear, consistent rationale that brings
together the originating components behind a single mission to guide the
transformation and bridge the differences in leadership and management
styles among the originating components. Also, articulating this succinct
and compelling reason for change helps employees, customers, and
stakeholders understand the expected outcomes of the merger or
transformation and engenders not only their cooperation, but also their
ownership of these outcomes.
2U.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).
Page 9 GAO-03-669 Merger and Transformation Steps
For example, in 1995, in anticipation of the intense and complex process
of restructuring of local governments and the merging of several health
authorities of the National Health Service, the United Kingdom Audit
Commission identified lessons from the private and public sectors'
experiences with mergers to help leaders and employees who were to be
directly involved in the health authorities' mergers.3 The Audit
Commission found that a critical first step was to define the benefits of
the merger and describe how the future will be both different from and
better than the past. The Audit Commission emphasized that a clear and
compelling picture of what the organization intends to achieve helps build
morale and commitment to the new vision. The Audit Commission underscored
the need to "be clear about what will constitute success after
reorganization...[because] realizing improvements in efficiency,
productivity, and performance will be a much more uplifting goal than
simply surviving" the mergers. The compelling reasons for change can help
leadership reinforce the message of "success rather than survival" to
those immediately affected by the merger or transformation.
Balance continued delivery of services with merger and transformation
activities. Leadership's primary roles during a merger or transformation
are to help the organization remain focused on the continued delivery of
services, while simultaneously conducting the activities of the merger or
transformation. Leaders need to acknowledge that productivity often
decreases as attention is concentrated on critical and immediate
integration issues and diverted from longer-term mission issues. This
happens for a number of reasons. Employees may be concerned about their
place in the new organization or may be unsure about how they are to
conduct their day-to-day responsibilities because of confusion over the
policies and procedures they are to follow during the time of transition.
For example, to help ensure continued delivery of services, Northrop
Grumman leadership addresses employees' concerns or confusion during the
early days of a merger or transformation by issuing short-term operating
policies or "STOPs" that usually hold from 30 to 120 days. STOPs supercede
the legacy organization's (in the federal context, the originating
component's) operating policies and thus stabilize operations and provide
clear guidance to employees about how to conduct business during a
3United Kingdom Audit Commission, Less Dangerous Liaisons: Early
Considerations for Making Mergers Work (London: HMSO, 1995).
Page 10 GAO-03-669 Merger and Transformation Steps
Establish a Coherent Mission and Integrated Strategic Goals to Guide the
Transformation
potentially turbulent period. STOPs stipulate the way that the new
organization will handle everyday transactions such as contracts,
finances, security, facility management, or ethics. Additionally,
employees may also have concerns about whether the previous company's
commitments will be honored. For example, employees may be concerned about
whether their current health benefits will remain in place while the
merger or transformation unfolds. STOPs can let employees know that for at
least a certain period of time, their benefits and other related
commitments will be administered under particular guidelines until final
decisions can be made. Northrop Grumman also offers orientation programs
to both new and legacy employees to help them learn the new business
processes. One such program, called "Navigating Through the Sector,"
addresses the "how do you do it?" questions of the new organization. As an
added benefit, employees are provided with an opportunity to meet the new
leaders and managers with whom they will be working.
The mission and strategic goals of a transformed organization must become
the focus of the transformation, define the culture, and serve as the
vehicle for employees to unite and rally around. The mission and strategic
goals must be clear to employees, customers, and stakeholders because they
may not see a direct personal connection to 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 achieve
success. The following step provides additional detail on how this
practice can be achieved.
Adopt leading practices for results-oriented strategic planning and
reporting. The Government Performance and Results Act (GPRA) provides a
strategic planning and reporting framework intended to improve federal
agencies' performance and hold them accountable for achieving results.
Effective implementation of GPRA's results-oriented framework requires
agencies to clearly establish performance goals for which they will be
held accountable, measure progress towards those goals, determine
strategies and resources to effectively accomplish the goals, use
performance information to make the programmatic decisions necessary to
improve performance, and formally communicate results in performance
reports. We have developed a body of work to assist agencies in
implementing a strategic planning and reporting framework that agencies
involved in a merger or transformation can adopt to help make them results
oriented.4
For example, in November 2001, the Congress created the Transportation
Security Administration (TSA) as a new organization first housed in the
Department of Transportation and then merged into the new DHS. TSA is
responsible for security in aviation and other modes of transportation.
The
Congress required TSA to adopt a results-oriented strategic planning and
reporting framework and, specifically, to provide an action plan with
goals and milestones to outline how acceptable levels of performance for
aviation security will be achieved. We reported that TSA has taken the
first steps in performance planning and reporting by defining its mission,
vision, and values and that this practice would continue to be especially
important when TSA moved into DHS.5 TSA's overall strategic goal was to
prevent intentional harm or disruption to the transportation system by
terrorists or other persons intending to cause harm, and TSA had defined
three performance goals to support this strategic goal. TSA had
established an initial set of 32 performance measures that will allow it
to demonstrate progress toward meeting performance goals. We recommended
that TSA,
4See for example U.S. General Accounting Office: Agency Performance Plans:
Examples of Practices That Can Improve Usefulness to Decisionmakers,
GAO/GGD/AIMD-99-69 (Washington, D.C.: Feb. 26, 1999); Agencies' Annual
Performance Plans Under the Results Act: An Assessment Guide to Facilitate
Congressional Decisionmaking, GAO/GGD/AIMD-
10 .1.18 (Washington, D.C.: February 1998); Agencies' Strategic Plans
Under GPRA: Key Questions to Facilitate Congressional Review, GAO/GGD-10
.1.16 (Washington D.C.: May 1997); and Executive Guide: Effectively
Implementing the Government Performance and Results Act, GAO/GGD-96-118
(Washington, D.C.: June 1996).
5U.S. General Accounting Office, Transportation Security Administration:
Actions and Plans to Build a Results-Oriented Culture, GAO-03-190
(Washington, D.C.: Jan. 17, 2003).
Focus on a Key Set of Principles and Priorities at the Outset of the
Transformation
among other things, establish security performance goals and measures for
all modes of transportation as part of a strategic planning process that
involves stakeholders. TSA concurred with this recommendation.
In bringing together the originating components, the new organization must
have a clear set of principles and priorities that serves as a framework
to help the organization create a new culture and drive employee
behaviors. Focusing on these principles and priorities helps the
organization to maintain its drive towards achieving the goals of the
transformation. In particular, principles are the core values of the new
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. The following step provides additional
detail on how this practice can be achieved.
Embed core values in every aspect of the organization to reinforce the new
culture. Core values define the attributes that are intrinsically
important to what the new organization does and how it will do it. They
represent the institutional beliefs and boundaries that are essential to
building a new culture for the organization.
For example, on "Day One" of a merger or acquisition, Northrop Grumman
leadership defined the values intrinsic to its new organization and issued
"non-negotiables" such as "maintaining respect for employees in all legacy
or incoming organizations." These "non-negotiables" can also include
ethical boundaries, such as the continued adherence to financial reporting
standards. Similarly, immediately following its recent merger with Compaq,
Hewlett-Packard implemented the "FAST-START" program to embed key
principles in its new organization. FAST-START focused on the new
company's core values that emphasized "motivated employees generate good
customer service" and was intended to convince employees that they could
make the merger successful. Hewlett-Packard piloted the FAST-START program
first with senior executives, cascaded it throughout the new company
reaching 150,000 employees. According to a Hewlett- Packard
vice-president, an additional benefit of FAST-START was the opportunity
for employees from the originating components to meet each other
face-to-face for the first time and gain a different perspective on the
common goals and programs they would be operating.
Set Implementation Goals and a Timeline to Build Momentum and Show
Progress from Day One
A merger or transformation is a substantial commitment that could take
years before it is completed, and therefore must be carefully and closely
managed. As a result, it is essential to establish and track
implementation goals and establish a timeline to pinpoint performance
shortfalls and gaps and suggest midcourse corrections. By demonstrating
progress towards these transformation goals, the organization builds
momentum and demonstrates that real progress is being made. Successful
mergers and transformation efforts can be much more difficult to achieve
in the public sector than in the private sector for a number of reasons,
including that public sector efforts must contend with greater
transparency. Further, as mentioned previously, research suggests that
failure to adequately address-and often even consider-a wide variety of
people and cultural issues is at the heart of unsuccessful mergers and
transformations. Thus, people and cultural issues must be monitored from
day one of a merger and transformation. The following steps provide
additional detail on how this practice can be achieved.
Make public implementation goals and timeline. The demand for transparency
and accountability is a fact that needs to be accepted in any public
sector transformation. 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. We reported in
the GAO Mergers and Transformation Forum that in developing implementation
goals and a timeline for a merger or transformation, it is helpful to
think in terms of multiple "Day Ones" to determine-and focus attention
squarely on-critical phases and the essential activities that need to be
completed by and on any given date. By demonstrating progress towards
these goals, the organization builds momentum and keeps employees excited
about the opportunities change brings and thereby helps to ensure the
merger or transformation's successful completion.
For example, according to a JPMorgan Chase managing director, the chief
executive officer (in the federal context, the department's Secretary) and
the merger implementation team publicized and reported progress on
specific goals for each phase of the merger to help rally employees and
maintain their drive towards reaching full integration. The goals were
connected to overall themes and to particular milestones. The chief
executive officer reinforced these goals at leadership meetings and
employee townhalls, and in Web-based messages and other communications, to
help keep employees focused on achieving them. The managing director
recommends that mapping out an overall timeline for what goals are
realistic to accomplish within a set time frame can minimize employee
"merger fatigue."
In addition, Deloitte & Touche suggests setting quantifiable and
measurable goals as well as target dates and deliverables to give the
implementation team and employees an objective means to track and report
progress. Deloitte & Touche also recommends its clients strengthen
accountability for implementation goals by having a manager or executive
from different operating units within the organization have responsibility
for monitoring the progress of interim organizational performance results
for each other and reporting that progress to top leaders.
Seek and monitor employee attitudes and take appropriate followup actions.
Because people are the drivers of any merger or transformation, it is
vital to monitor their attitudes. Especially at the outset of the merger
or transformation, obtaining employees' attitudes through pulse surveys,
focus groups, or confidential hotlines can serve as a quick check of how
employees are feeling about the large-scale changes that are occurring and
the new organization as a whole. While monitoring employee attitudes
provides good information, most importantly is for employees to see that
top leadership not only listens to their concerns, but also takes action
and makes appropriate adjustments to the merger or transformation in a
visible way. By not taking appropriate follow-up action, negative
attitudes may translate into actions, such as employee departures, among
other things, that could have a detrimental effect on the merger or
transformation.
For example, Deloitte & Touche suggests asking employees to respond to a
pulse survey with 6 to 10 statements, such as "My job is now easier or
harder since the merger" and "I hope to be in this organization 2 years
from now." These responses are used as a diagnostic reading of how well
the merger is going from the employee perspective. Management then has an
opportunity to implement strategies to address the concerns of employees
with low morale or who plan to leave the organization. According to a
Deloitte & Touche principal, employees experience discernible phases
during a merger and transformation. The first 3 months after a merger or
acquisition is announced are often marked by the excitement of joining the
new organization. Employees are drawn into new activities, such as
employee welcome or orientation programs explaining the opportunities
employees may have in the new organization. Approximately 3 to 12 months
following the announcement of the merger, the excitement ends. Deloitte &
Touche calls this next phase the "Second Moment." This is when employees
wait to see how the organization and their positions will change and
whether the opportunities mentioned at the outset of the merger will be
realized. According to the Deloitte & Touche principal, unless leadership
continues to emphasize the importance of employees and their contributions
to the new organization, some people will give up their aspirations and
instead return to "business as usual" or even make plans to leave the
organization.
Identify cultural features of merging organizations to increase
understanding of former work environments. Fundamentally, a change of
culture is at the heart of a successful merger or transformation. The
importance of redefining the organizational culture should not be avoided,
but rather must be aggressively addressed at the outset and throughout the
transformation process. An organization's culture encompasses the values
and behaviors that characterize its work environment, and in particular,
how people work with each other, how they are held accountable, how they
are rewarded, as well as how communication flows through the
organization.6 Many mergers or transformations fail because the cultures
of the originating components are not fully understood or considered.
Thus, identifying cultural features of the originating components, prior
to, or early on, in the merger and transformation process, can help
leadership gain a better understanding of their beliefs and values.
Organizationwide surveys, employee focus groups, and individual interviews
can assess the culture and identify both similarities and differences in
order to provide a better understanding of how work gets done and what
values are important to employees.
For example, in a recent Northrop Grumman acquisition, a significant
portion of the management team was formerly from the military. Through an
assessment process, Northrop Grumman learned that team members were
concerned that if they did not have a former military background, their
skills would not be valued in the new organization. Once management was
made aware of employees' concerns, they let them know that a military
background was not necessary to succeed and future opportunities existed.
Northrop Grumman relied upon graduate students from a local university to
conduct the assessment.
6Schmidt, Jeffrey A. ed., Making Mergers Work: The Strategic Importance of
People, (Alexandria, Va.: Towers, Perrin, Foster and Crosby/Society for
Human Resource Management, 2002).
Page 16 GAO-03-669 Merger and Transformation Steps
Attract and retain key talent. Success is more likely when the best
individuals are selected for each position based on the competencies
needed for the new organization. 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 the loss of needed
individuals who leave because they do not see their place in the new
organization. When re-recruiting key talent, top leaders should select
individuals who demonstrate the competencies to help make the merger or
transformation succeed and achieve its goals, and not just the top
performers from previous originating components.
For example, Northrop Grumman identifies the key individuals it would like
to retain in the new organization within the first 30 days of the
effective date of the merger or acquisition, meets one-on-one with each
individual to let them know that they have the competencies desired for
the new organization, and informs them of the high-potential opportunities
that exist for them with the new organization. Once placed in the new
organization, management checks in with them frequently and provides them
with visible opportunities with the new leadership.
Establish an organizationwide knowledge and skills inventory to exchange
knowledge among merging organizations. At the outset of the merger and
transformation, new organizations recognize the value in creating an
employee knowledge and skills inventory. Valuable information resides in
the originating organizational components of mergers and transformations,
and when these components are combined, these intellectual assets are
extremely powerful and beneficial to employees and stakeholders. Knowledge
and skills inventories not only capture the intellectual assets of the new
organization, but also signal to employees that their particular expertise
is valued by the organization and foster a knowledge-sharing culture.
Dedicate an Implementation Team to Manage the Transformation Process
According to Conference Board research, when people freely share and are
rewarded for what they know, they are more likely to feel a stronger
connection to the new organization. For example, a recently merged company
recommended setting up a knowledge and skills inventory that would be
immediately and widely available to those in the new organization who need
to find employee expertise on particular topics.7 The value of the
knowledge and skills inventory occurs when people from the merging
entities are able to quickly contact those with particular knowledge and
expertise to help them accomplish their work. The company also suggested
making employees aware that sharing expertise and experience is important
to the future success of the organization and is valued in the new
organization.
Dedicating a strong and stable implementation or integration 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. Specifically, the implementation
team is important to ensuring that various change initiatives are
sequenced and implemented in a coherent and integrated way. 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. In our Mergers and
Transformation Forum, participants observed that the size of the
implementation team needs to be scaled to the size of the merger and
transformation. The composition of the 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 addition, the qualifications of implementation team members are also a
visible sign that top leadership is serious and committed to the merger
and transformation. The following steps provide additional detail on how
this practice can be achieved.
Establish networks to support implementation team. Because a
transformation process is a massive undertaking, the implementation team
must have a "cadre of champions" to ensure that changes are thoroughly
implemented and sustained over time. Establishing networks, including a
senior executive council, functional teams, or cross-cutting teams can
help the implementation team conduct the day-to-day activities of the
merger or
7Lucenko, Kristina, Implementing a Post-Merger Integration (New York: The
Conference Board, 1999).
Page 18 GAO-03-669 Merger and Transformation Steps
transformation and help ensure that efforts are coordinated and
integrated. To be most effective, establishing clearly defined roles and
responsibilities within this network assigns accountability for parts of
the implementation process, helps reach agreement on work priorities, and
builds a code of conduct that will help all teams to work effectively.
For example, a leading management consulting firm advises creating a
senior executive council that provides the implementation team access to
leadership and reinforces its accountability for successfully implementing
the merger and transformation. This council can set policies for the
merger or transformation implementation, ensure that decisions are made
quickly, resolve conflicts that arise, review and approve implementation
plans, and monitor and report progress back to top leaders of the
organization. Members of the council might include senior executives
representing the legacy organizations. In our Mergers and Transformation
Forum, it was observed that in the federal context, such a council could
be comprised of political and career executives from within the
organization and would be particularly useful to work with top leadership
(the department Secretary, Deputy Secretary, and other high-level
political appointees) in developing the leadership's direction and
communicating its position.
Similarly, Hewlett-Packard establishes networks of both functional and
cross-cutting teams to ensure that these priorities are adequately
addressed and integrated in the implementation of a merger or
transformation. Functional teams are responsible for areas such as human
capital, financial management, and information technology. Cross-cutting
teams are responsible for areas such as organizational culture,
communication, and training and development.
Select high-performing team members. A strong and stable implementation
team comprised of top performers that is responsible for the
transformation's day-to-day management is not only important to ensuring
the focused, full-time attention that the implementation needs to be
sustained and successful, but is also a visible signal that the merger or
transformation is being undertaken with the utmost seriousness and
commitment. Team members are selected for their ability to drive results
in a fast-paced and changing environment and their understanding that the
ultimate goal is to create a new and more successful organization.
Use the Performance Management System to Define Responsibility and Assure
Accountability for Change
Both Hewlett-Packard and Northrop Grumman executives told us that merger
and transformation implementation teams should be composed of people with
prior merger or acquisition experience and good program management skills.
In addition, a Hewlett-Packard vice-president told us that for their
merger with Compaq, most team members selected for the integration team
were at the level of director or vice-president and also had the skills
and background to replace their superiors if necessary. Hewlett-Packard
told us that a selection criterion for integration team members was that
their previous individual performance ratings had to fall into the top two
ratings categories. After the integration team disbanded, these selected
integration team members were assigned permanent positions in the new
organization.
In addition to selecting high performers, Northrop Grumman also builds the
credibility of the implementation team in the eyes of the employees by
selecting team members from each of the originating components and then
distributing an organization chart that indicates the component from which
each team member originated. Employees can see that some of their former
leadership still exists in the new company and can help represent their
concerns in the transformation process. However, Northrop Grumman adds
that team members are still selected based on their competence for the job
and not just because they were leaders from the legacy organization.
The new organization's performance management system can be a vital tool
for aligning the organization with desired results and creating 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 individuals' roles in the
transformation process.
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. Individual performance and contributions are evaluated 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. Leading
organizations have modern, effective, credible, and, as appropriate,
validated performance management systems with adequate safeguards,
including reasonable transparency and appropriate accountability
mechanisms, in place to support performance-based pay and related
personnel decisions. The following step provides additional detail on how
this practice can be achieved.
Adopt leading practices to implement effective performance management
systems with adequate safeguards. We have identified specific practices
that leading public sector organizations both here in the United States
and abroad have used in their performance management systems to align
their organizations and create a clear linkage-"line of sight"-between
individual performance and organizational success.8 Federal agencies
should consider these practices as they develop and implement their
performance management systems. The key practices are listed in table 2.
8U.S. General Accounting Office, Results-Oriented Cultures: Creating a
Clear Linkage between Individual Performance and Organizational Success,
GAO-03-488 (Washington, D.C.: Mar. 14, 2003).
Page 21 GAO-03-669 Merger and Transformation Steps
Establish a Communication Strategy to Create Shared Expectations and
Report Related Progress
Table 2: Key Practices for Effective Performance Management
or making progress on their priorities.
d systems that link employee knowledge, skills, and
contributions to organizational results are based on valid, reliable,
and transparent performance management systems with adequate
safeguards.
tegy is essential to
implementing a merger or transformation. Communication is most effective
when done early, clearly, and often, and is downward, upward, and lateral.
The new 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. The following steps
provide additional detail on how this practice can be achieved.
Communicate early and often to build trust. Organizations implementing
mergers or transformations have found that communicating information early
and often helps to build an understanding of the purpose of planned
changes and builds trust among employees and stakeholders. Especially for
employees, frequent and timely communication cultivates a strong
relationship with management and helps gain employee ownership for the
merger or transformation.
For example, to build trust between management and employees, Deloitte &
Touche suggests first notifying employees of issues pertaining to the
merger and transformation. In particular, Deloitte & Touche recommends
information be "prereleased" to line managers whenever possible throughout
the process. Rather than obtaining information from sources outside the
organization, this prereleased information offers the courtesy to
employees of receiving information first and the opportunity to then ask
questions or voice concerns to leadership. Deloitte & Touche also suggests
that line managers report the feedback of employees to senior management
so they can address any concerns.
Even when information is limited due to legal restrictions or security
concerns, Conference Board research advises that organizations continue to
communicate with employees to build trust and to diminish any concern or
uncertainty that may be generated during these periods. The Conference
Board research suggests alternative types of information when specific
details may be embargoed due to legal restrictions or security concerns.
Such alternative types of information could include status reports of the
progress being made on the merger or transformation, the exact time that
specific details will be forthcoming, or responses to rumors or news items
that have appeared in the press.
Finally, the time spent on delivering messages to employees about the
merger or transformation should not be underestimated. One participant at
our Mergers and Transformation Forum observed that given its importance,
successful communication will require twice the time and effort than was
at first planned-no matter how ambitious the original plan was. Similarly,
a JPMorgan Chase managing director told us that during their integration
process, managers would dedicate 25 percent of their overall work time
communicating with employees about the merger. This managing director
credits JPMorgan Chase's communication strategy as a major success factor
in its recent merger because it was built around getting messages out at
all levels of the organization and reinforcing the progress of the merger.
Ensure consistency of message. A message to employees and others affected
by a merger or transformation that is consistent in tone and content can
alleviate the uncertainties generated during the unsettled times of
large-scale change management initiatives. Since employees are typically
coming from different originating components during a merger or
transformation, sharing a consistent message with employees, customers,
and stakeholders helps to reduce the perception that others are getting
the "real" story when, in fact, all are receiving the same information.
For example, to ensure a message consistent in tone and content as part of
its communication strategy, Hewlett-Packard sent senior executives with
scripted talking points to various work sites for face-to-face,
interactive meetings with groups of employees to discuss the expected
changes that would occur due to the merger. Senior managers from both
originating components, Hewlett-Packard and Compaq, would appear jointly
at these employee meetings to ensure that employees had a chance to meet
the new members of the team and also see that both sides were in agreement
with expected changes.
Encourage two-way communication. Communication is not about just "pushing
the message out." Rather, it should facilitate a two-way honest exchange
with and allow for feedback from 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.
Creating opportunities for employees to communicate concerns and
experiences surrounding a merger or transformation allows employees to
feel that their experiences are acknowledged and important to management
during the implementation of the merger and transformation. Once this
feedback is received, it is important to consider and use this solicited
employee feedback to make any appropriate changes to the implementation of
the merger or transformation.
We reported that some agencies also make use of two-way communication when
implementing human capital flexibility practices.9 For example, the
U.S. Mint collected feedback from employees at a "town hall" meeting at
its San Francisco coin-making plant where employees (with assistance from
the local union) voted on various options for implementing an alternative
work schedule for the facility. Based on that feedback, the U.S. Mint made
changes to employee work schedules.
Communication 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. According to a
Deloitte & Touche principal, establishing a two-way communication
framework with customers and stakeholders can alleviate their concerns
about whether they will continue to receive the same levels of service.
Under this "One Face, One Voice" communication framework, the
organization:
o catalogs every customer and stakeholder relationship to be affected by
the merger or transformation,
o designates a contact or team to keep these customers and stakeholders
informed about how the merger will affect their particular needs,
o identifies the interests and concerns of each customer or stakeholder,
o provides information addressing those specific interests or concerns,
and
o requires the designated contact to listen to customer and stakeholder
needs and report these needs to management.
According to Deloitte & Touche, this communication framework gives
customers and stakeholders a greater understanding of how the merger or
transformation will affect them and provides leadership with an accurate
picture of their customer and stakeholder needs, so they can quickly
correct any misperceptions and address concerns.
9U.S. General Accounting Office, Human Capital: Effective Use of
Flexibilities Can Assist Agencies in Managing Their Workforces, GAO-03-2
(Washington, D.C.: Dec. 6, 2002).
Page 25 GAO-03-669 Merger and Transformation Steps
Provide information to meet specific needs of employees. 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 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 might be affected, what their rights and protections might be,
or how their responsibilities might change with the new organization. Not
only do employees seek different kinds of information, they can receive
information through a variety of means.
For example, Deloitte & Touche advises clients to prepare personalized
communication folders for various groups of employees, such as senior
executives, regarding how the merger, acquisition, or transformation will
specifically affect their salary, benefits, job duties, and career path.
These folders are distributed to employees and then meetings are held with
groups or individuals to answer the particular questions that employees
may have. This customized process helps employees to feel that their
concerns are specifically addressed.
The Conference Board research also discusses the importance of tailoring
information for groups of employees that may have divergent interests. For
example, employees with technical skills may be concerned about whether
their skills will remain relevant and valued in the new organization;
administrative staff may desire details about how they may cope with new
systems and work processes; and customer-service representatives may need
to know about how to approach relationships with customers.
Employees may prefer to receive customized information from a variety of
sources. Varying the means of communication, such as e-mail, face-to-face
meetings, large and small group meetings, intranet Web sites, and townhall
meetings, can also be an effective strategy to reinforce the message and
reach all employees, while providing an opportunity for management to
respond to employee concerns. Toll-free hotlines and electronic bulletin
boards can be used to provide large numbers of employees a forum to
discuss their concerns and issues about the merger or transformation.
Involve Employees to Obtain Their Ideas and Gain Their Ownership for the
Transformation
For example, during a merger of two consumer products firms, a toll-free
hotline was established so employees could relate the rumors they had
heard. Every 2 weeks, a list of top 10 rumors with accompanying factual
information was posted to help employees compare and contrast the rumors
against the facts.10 This interactive approach allowed the company to
simultaneously communicate with large numbers of employees and quickly
dispel inaccurate information.
A successful merger and transformation must involve employees and their
representatives from the beginning to gain their ownership for the changes
that are occurring in the organization. Employee involvement strengthens
the transformation process by including frontline perspectives and
experiences. Further, employee involvement helps to create the opportunity
to establish new networks and break down existing organizational silos,
increase employees' understanding and acceptance of organizational goals
and objectives, and gain ownership for new policies and procedures. It was
noted at our Mergers and Transformation Forum that while it is important
to involve employees in the transformation process, there are cautions.
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 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. The following steps
provide additional detail on how this practice can be achieved.
Use employee teams. Creating opportunities for employees to interact with
each other can help accelerate the merger or transformation process by
allowing them to learn more about each other, establish new networks, and
break down organizational silos. Adopting a teams-based approach to
operations can improve employee morale and job satisfaction by creating an
environment characterized by open communication, enhanced flexibility in
meeting job demands, and a sense of shared responsibility for
accomplishing organization goals and objectives. Using teams comprised of
a cross-section of individual members can also assist in integrating
10Marks, Mitchell Lee and Mirvis, Philip H., Joining Forces: Making One
Plus One Equal Three in Mergers, Acquisitions, and Alliances (San
Francisco: Jossey-Bass, 1998).
Page 27 GAO-03-669 Merger and Transformation Steps
different perspectives, flattening organizational structure, and
streamlining operations.
For example, JPMorgan Chase engaged employees in shared task forces
comprised of individuals from the originating components to find common
solutions to particular issues related to the merger. One such shared task
force focused on integrating computer systems. Team members weighed the
pros and cons of legacy systems and were able to arrive at a
"best-in-class" solution. The act of working together also helped
employees to form new bonds around their shared experience and to make it
easier to work together on future projects.
Employees may need additional training to work effectively together in
teams or to improve work processes. For example, we reported that as part
of its major reorganization, IRS' Ogden, Utah Service Center trained its
employees in the new ways of conducting business.11 The training workshops
included learning how effective teams function; improving working
relationships among peers, managers and employees, and managers and union
stewards; enhancing effective communications among employees, union
stewards, and managers; increasing discussions about ways to improve work
processes and meet customers' needs; and creating a more positive
workplace environment.
Involve employees in planning and sharing performance information.
Involving employees in planning and sharing performance information can
help employees understand what the organization is trying to accomplish
and how it is progressing in that direction; facilitate the development of
organizational goals and objectives that incorporate insights about
operations from a front-line perspective; and increase employees'
understanding and acceptance of organizational goals and objectives.
For example, to involve employees and share performance information, the
U.S. Fire Administration (formerly within the Federal Emergency Management
Agency, and now part of DHS), had teams from units throughout the
organization meet on a weekly basis and identified ways to implement over
170 Board of Visitors recommendations for improving the Fire
Administration's operations. These teams facilitated communications
11U.S. General Accounting Office, Human Capital: Practices That Empowered
and Involved Employees, GAO-01-1070 (Washington, D.C.: Sept. 14, 2001).
Page 28 GAO-03-669 Merger and Transformation Steps
and employee involvement by maintaining a focal point for the
organization, working toward consensus, and posting performance data
showing progress toward addressing these recommendations.
Incorporate employee feedback into new policies and procedures. Major
changes resulting from the merger can include redesigning work processes,
changing work rules, developing new job descriptions, establishing new
work hours, or making other changes to the immediate work environment that
are of particular concern to employees. In leading organizations,
management and employee representatives work collaboratively to gain
ownership for these changes. After obtaining sufficient input from key
players, the organization needs to develop clear, documented, and
transparent policies and procedures. Establishing clear and uncomplicated
policies and procedures ensures both that they are used fairly and that
they are not encumbered with unnecessary administrative burdens.
We have reported on the practices that agencies use to empower and involve
employees to help them achieve their goals and improve government
operations.12 For example, because the IRS is exempt from certain Title 5
personnel provisions, Congress mandated IRS to involve employees in order
to gain ownership for the new policies. IRS and the National Treasury
Employees Union entered into an agreement that was designed to ensure that
employees are adequately represented and informed of proposed new policies
and have input into the proposals. The agreement also provided for union
participation in various forums, such as business process improvement
teams and cross-unit committees.
Delegate authority to appropriate organizational levels. In a merger or
transformation, employees are more likely to support changes when they
have the necessary authority and flexibility-along with commensurate
accountability and incentives-to advance the organization's goals and
improve performance. Delegating decision making within core processes can
further serve to streamline and improve operations. Specifically,
delegation to use certain personnel authorities is important for managers
and supervisors who know the most about an organization's programs and
with that authority, can make those programs work.
12 GAO-01-1070 .
Build a World-class Organization
To ensure effective use of human capital flexibilities, agencies need to
delegate authority to use these flexibilities to appropriate levels within
the agency, and then agency managers and supervisors need to be held
accountable-both for achieving results and for treating employees fairly.
We reported on the flexibilities that agencies could use effectively to
manage their workforce.13 The Veterans Benefits Administration (VBA)
office in Philadelphia delegated authority to immediate supervisors to
approve on-the-spot monetary awards for their employees without review by
senior managers. VBA supervisors said that under this delegated authority
they simply complete a short form and present it to the employee, who can
then proceed to the on-site credit union and receive cash, all within 1
hour.
Successful change efforts start with a vision of radically improved
performance and the relentless pursuit of that vision. Participants at our
Mergers and Transformation Forum observed that in successful private
sector mergers and acquisitions leaders 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 leaders of 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, leaders of successful mergers and
acquisitions, like 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. The
13 GAO-03-2 .
following step provides additional detail on how to implement this
practice.
Adopt leading practices to build a world-class organization. Selecting
systems and processes from among the many choices that may exist after a
merger or during a transformation can be a difficult prospect. To meet the
goal of establishing a world-class organization, GAO has developed a body
of work-best practices reviews-that provides guidance to help public
sector organizations become world-class. These best practices reviews
identify other public and private sector organizations' processes,
practices, and systems that are widely recognized for contributing to
performance improvements in areas such as acquisition management,
financial management, human capital, or information technology. They
provide models for other organizations as they undertake similar
management reforms. For our best practice reviews in these areas and
others, see http://www.gao.gov/docsearch/featured/bp_reviews.html .
Appendix II
Objective, Scope, and Methodology
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. This was done
to help federal agencies implement successful transformations of their
cultures, as well as the new Department of Homeland Security (DHS) merge
its various originating components into a unified department.
This report builds on the practices identified in that forum.1 Our
objective was to identify specific implementation steps for the key
practices raised at the forum and provide illustrative private and public
sector examples of these steps. To meet our objective, we relied primarily
on interviews with selected forum participants and other experts about
their experiences implementing mergers, acquisitions, and transformations.
See appendix III, "Acknowledgments," for a list of interviewees. We asked
the interviewees to draw upon their insight and expertise based on their
experiences managing mergers, acquisitions, and transformations and
reviewed literature on the subject, including literature recommended by
forum participants, to gain a better understanding of the issues that most
frequently occur during such large-scale change initiatives. See appendix
IV, "Selected Bibliography," for relevant literature. We also used GAO
guidance and reports for those practices where GAO had developed a body of
work, such as in strategic human capital management and resultsoriented
management.
Based on these interviews and literature review, we identified and
categorized recurring themes under each of the nine practices and
developed from these themes a set of specific implementation steps
associated with each practice. We selected examples, that, in our best
judgment, clearly illustrated and strongly supported each implementation
step. We asked the private sector representatives to review the examples
for accuracy and currency and incorporated their comments where
appropriate. We did not independently verify the effectiveness of these
examples and did not use effectiveness as a criterion for selecting the
examples. We relied on issued GAO reports for some of our examples.
We provided the full set of practices and implementation steps to other
selected public and private sector individuals, who have been involved
with
1U.S. General Accounting Office, Mergers and Transformation: Lessons
Learned for a Department of Homeland Security and Other Federal Agencies,
GAO-03-293SP (Washington, D.C.: Nov. 14, 2002).
Page 32 GAO-03-669 Merger and Transformation Steps
mergers, acquisitions, and transformations for their review and
incorporated their comments where appropriate. We did not obtain agency
comments on a draft of this report because we did not review any federal
agency's on-going merger or transformation effort. We performed our work
from December 2002 through April 2003 in accordance with generally
accepted government auditing standards.
Appendix III
Acknowledgments
Anthony Calenda Director, Strategy and Business Development
Citigroup, Inc.
Vice President, Strategies and Marketing, Consulting
Jay Connor and Integration
Hewlett-Packard Company
Director, The Corporate Preparedness, Security and
Patricia DeGennaro Response Network
The Conference Board
Lead Partner, Human Capital M&A and Integration
Patrick J. Donohue Services
Deloitte & Touche, LLP
Executive Director, Facilities, Security and
Frank M. Ioli Administration
Northrop Grumman Information Technology
Steven L. Katz Office of Federal Programs
Deloitte & Touche, LLP
Managing Director, Business Resiliency and Crisis
Paula J. Larkin Management
JPMorgan Chase
Marcia Marsh Vice President, Strategic Human Resources Planning
Partnership for Public Service
Michael K. Neborak Co-Head, Strategy and Business Development
Citigroup, Inc.
Frank Ostroff Consultant
Larry Schein Senior Fellow (retired)
The Conference Board
Jeffrey S. Shuman Vice President, Human Resources and Administration
Northrop Grumman Information Technology
Pete Smith President and Chief Executive Officer
Private Sector Council
Molly Tschang Senior Director, Business Development Integration Group
Cisco Systems, Inc.
David J. Vidal Director of Research, Global Corporate Citizenship
The Conference Board
Appendix IV
Selected Bibliography
Ainspan, Nathan D. and David J. Dell. Employee Communications During
Mergers. 1270-00-RR. New York: The Conference Board, 2000.
Galpin, Timothy J., and Mark Herndon. The Complete Guide to Mergers and
Acquisitions: Process Tools to Support M&A Integration at Every Level. San
Francisco: Jossey-Bass Publishers, 2000.
Gancel, Charles, Irene Rodgers, and Marc Raynaud. Successful Mergers,
Acquisitions and Strategic Alliances: How to Bridge Corporate Cultures.
London: The McGraw-Hill Companies, 2002.
Gates, Dr. Stephen. Performance Measurement During Merger and Acquisition
Integration. 1274-00-RR. New York: The Conference Board, 2000.
Lucenko, Kristina. Implementing a Post-Merger Integration. 1257-99-CH. New
York: The Conference Board, 1999.
Marks, Mitchell Lee, and Philip H. Mirvis. Joining Forces: Making One Plus
One Equal Three in Mergers, Acquisitions, and Alliances. San Francisco:
Jossey-Bass Publishers, 1998.
Martino, Jean-Marie. Valuing People in the Change Process. 1265-00-CR. New
York: The Conference Board, 2000.
Mirvis, Philip H., and Mitchell Lee Marks. Managing the Merger: Making it
Work. New Jersey: Prentice Hall, 1992.
Muirhead, Sophia A. and Audris D. Tillman. The Impact of Mergers and
Acquisitions on Corporate Citizenship. 1272-00-RR. New York: The
Conference Board, 2000.
Schein, Lawrence. Managing Culture in Mergers and Acquisitions.
R-1302-01-RR. New York: The Conference Board, 2001.
Schein, Lawrence. Post-Merger Integration: A Human Resources Perspective.
1278-00-RR. New York: The Conference Board, 2000.
Schmidt, Jeffrey A., ed. Making Mergers Work: The Strategic Importance of
People. Alexandria, Va.: A Towers Perrin/SHRM Foundation Publication,
2002.
United Kingdom Audit Commission. Less Dangerous Liaisons: Early
Considerations for Making Mergers Work. London: HMSO, 1995.
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