Merging Supply Chains, lessons learned

A couple weeks ago I received the Quarter 2/2009 release of CSCMP's Supply Chain Quarterly, where I found a really interesting article titled: "When Supply Chains merge: 5 mistakes to avoid" by Harpal Singh. Reading the article, I was thinking about some of the experiences gained during the HP/Compaq merger and could well relate to the points made.

Harpal Singh starts by pointing out that companies require making a careful post-merger assessment of the Supply Chain. This is precisely what happened in the HP/Compaq clean rooms. Joe Francis describes, in an article titled "Team Building with the SCOR Model", how things happened and how the Supply Chain Operational Reference Model (SCOR) allowed the combined team to analyze the existing business processes from both companies with an open mind. Carly Fiorina had stated that during the merger, the new company would use the best of both companies, without inventing new approaches, business processes or tools. This became known as the "Adopt and Go" approach. By using external measures, the members of the supply chain clean room (originating from both companies) could identify which process to keep. Using standard and well defined measures proved invaluable in the process. Having benchmarks available allowing comparisons with other companies in the same or a different sector has helped us refine those processes over time and achieve ongoing savings. Because SCOR did not address all processes under review, it was complemented with two other models, DCOR (Design Chain) and CCOR (Customer Chain), originating in the merger and later transferred to the Supply Chain Council. As Joe Francis states, the company overshot its target performance goal by $1 Billion, helping in making it one of the most successful mergers in history.  There is often no need for rocket science to find good metrics, they are available, and the whole issue is to convince the organization the metrics focus the attention of the organization on the right behavior.

The next mistake highlighted is to consolidate systems too soon. I have seen many organizations trying to address everything at the same time and in doing so, destabilize their operating environment. Merged companies inherit different ways of doing things, and to maximize the synergies they would like to address the issue. Rather than merging the systems quickly (which is often a huge risk), we decided to build service oriented front-ends that allowed users to work in a consistent manner, while taking into account the specific approaches implemented in the back-end systems. This proved tremendously relevant not only in the early phases of the merger, but also later, when the systems were finally integrated/replaced, as this could be done transparently to the users.

The third mistake highlighted is the lack of attention to planning. The clean room process was really our planning process, and the fact the merger took longer than expected (I'm sure the intricacies of the HP/Compaq merger have not gone unnoticed to most readers), helped us to plan the implementation to the uttermost details. But I believe there was a second element to this, and that was the implementation of PMO's (Project Management Offices) in each of the businesses to ensure the planning was implemented, and measuring progress along the process. Planning is one thing, but ensuring the plan is implemented is at least as critical. As all parts of the organization rely on each other and interact on a daily basis, ensuring the pieces fit together facilitate the working of the organization. This however, requires a detailed planning of how to progress the integration of the organizations (this is actually mistake four, defining the end state, but not the steps to get there). One cannot plan enough, but ensuring the plan is followed is even more critical.

Mergers bring disruptions with them. For a period of time it is difficult to understand how the organization operates. Communication is of the utter most importance during that period to re-assure people and make them understand how the integration progresses. As Singh states, this is often underestimated.

To state bluntly, suddenly you no longer know a large amount of people in the organization, and you have lost your way somehow. In a number of the smaller mergers HP have done over the last couple years, we have implemented what we call a "buddy program", where we team up people from both organizations, allowing them to help each other understand where they come from, how things used to be and who is who in the new organization. This program actually turned out to be really helpful to integrate faster.

Mergers and acquisitions bring a lot of uncertainty in organizations. The quicker the integration can be over with, the better as teams can turn the page and move on. Careful planning, ruthless execution keeping the end state in mind, constant communication and leading by example facilitate integration and reduce risks of failure. The day people stopped asking "are you red or are you blue", we knew the merger was done, even if the systems still had to be integrated. That day, the company acted as one, and that was the most important.