Lenore Industries had been in existence for more than 50 years and served as a strategic supplier…

Lenore Industries had been in existence for more than 50 years and served as a strategic supplier of parts to the automobile industry. Lenore’s market share was second only to its largest competitor, Belle Manufacturing. Lenore believed that the economic woes of the U.S. automobile industry between 2008 and 2010 would reverse themselves by the middle of the next decade and that strategic opportunities for growth were at hand.

The stock prices of almost all of the automotive suppliers were grossly depressed. Lenore’s stock price was also near a 10-year low. But Lenore had rather large cash reserves and believed that the timing was right to make one or more strategic acquisitions before the market place turned around. With this in mind, Lenore decided to purchase its largest competitor, Belle Manufacturing.

It was now apparent to Lenore that these common failures resulted because the acquisition simply cannot occur without organizational and cultural changes that are often disruptive in nature. Lenore had rushed into the acquisition with lightning speed but with little regard for how the project management value-added chains would be combined.

The first common problem area was inability to combine project management methodologies within the project management value-added chains. This occurred for four reasons:

1. A poor understanding of each other’s project management practices prior to the acquisition
2. No clear direction during the preacquisition phase on how the integration would take place
3. Unproven project management leadership in one or both firms
4. The existence of a persistent attitude of “we–them”

Some methodologies may be so complex that a great amount of time is needed for integration to occur, especially if each organization has a different set of clients and different types of projects. As an example, a company developed a project management methodology to provide products and services for large publicly held companies. The company then acquired a small firm that sold exclusively to government agencies. The company realized too late that integration of the methodologies would be almost impossible because of requirements imposed by government agencies for doing business with the government. The methodologies were never integrated and the firm servicing government clients was allowed to function as a subsidiary, with its own specialized products and services. The expected synergy never took place.

Some methodologies simply cannot be integrated. It may be more prudent to allow the organizations to function separately than to miss windows of opportunity in the marketplace. In such cases, pockets of project management may exist as separate entities throughout a large corporation.

Lenore knew that Belle Manufacturing services many clients outside of the United States but did not realize that Belle maintained a different methodology for those clients. Lenore was hoping to establish just one methodology to service all clients.

The second major problem area was the existence of differing cultures. Although project management can be viewed as a series of related processes, it is the working culture of the organization that must eventually execute these processes. Resistance by the corporate culture to effectively support project management can cause the best plans to fail. Sources for the problems with differing cultures include a culture that:

• Has limited project management expertise (i.e., missing competencies) in one or both firms
• Is resistant to change
• Is resistant to technology transfer
• Is resistant to transfer of any type of intellectual property
• Will not allow for a reduction in cycle time
• Will not allow for the elimination of costly steps
• Must reinvent the wheel
• Views project criticism as personal criticism

Integrating two cultures can be equally difficult during favorable and unfavorable economic times. People may resist any changes to their work habits or comfort zones, even though they recognize that the company will benefit by the changes.

Multinational mergers and acquisitions are equally difficult to integrate because of cultural differences. Several years ago, an American automotive supplier acquired a European firm. The American company supported project management vigorously and encouraged its employees to become certified in project management. The European firm provided very little support for project management and discouraged its workers from becoming certified, arguing that its European clients do not regard project management as highly as do General Motors, Ford, and Chrysler. The European subsidiary saw no need for project management. Unable to combine the methodologies, the American parent company slowly replaced the European executives with American executives to drive home the need for a single project management approach across all divisions. It took almost five years for the complete transformation to take place. The American parent company believed that the resistance in the European division was more of a fear of change in its comfort zone than a lack of interest by its European customers.

Planning for cultural integration can also produce favorable results. Most banks grow through mergers and acquisitions. The general practice in the banking industry is to grow or be acquired. One Midwest bank recognized this and developed project management systems that allowed it to acquire other banks and integrate the acquired banks into its culture in less time than other banks allowed for mergers and acquisitions. The company viewed project management as an asset that had a very positive effect on the corporate bottom line. Many banks today have manuals for managing merger and acquisition projects.

The third problem area Lenore discovered was the impact on the wage and salary administration program. The common causes of the problems with wage and salary administration included:

• Fear of downsizing
• Disparity in salaries
• Disparity in responsibilities
• Disparity in career path opportunities
• Differing policies and procedures
• Differing evaluation mechanisms

When a company is acquired and integration of methodologies is necessary, the impact on wage and salary administration can be profound. When an acquisition takes place, people want to know how they will be affected individually, even though they know that the acquisition is in the best interests of the company.

The company being acquired often has the greatest apprehension about being lured into a false sense of security. Acquired organizations can become resentful to the point of trying to subvert the acquirer. This will result in value destruction

where self-preservation becomes paramount, often at the expense of project management systems.

Consider the following situation. Company A decides to acquire company B. Company A has a relatively poor project management system, where project management is a part-time activity and not regarded as a profession. Company B, in contrast, promotes project management certification and recognizes the project manager as a full-time, dedicated position. The salary structure for the project managers in Company B was significantly higher than for their counterparts in Company A. The workers in Company B expressed concern that “We don’t want to be like them,” and self-preservation led to value destruction.

Because of the wage and salary problems, Company A tried to treat Company B as a separate subsidiary. But when the differences became apparent, project managers in Company A tried to migrate to Company B for better recognition and higher pay. Eventually, the pay scale for project managers in Company B became the norm for the integrated organization.

When people are concerned with self-preservation, the short-term impact on the combined value-added project management chain can be severe. Project management employees must have at least the same, if not better, opportunities after acquisition integration as they did prior to the acquisition.

The problem area that the integration team discovered was the overestimation of capabilities after acquisition integration. Included in this category were:

• Missing technical competencies
• Inability to innovate
• Speed of innovation
• Lack of synergy
• Existence of excessive capability
• Inability to integrate best practices

Project managers and those individuals actively involved in the project management value-added chain rarely participate in preacquisition decision making. As a result, decisions are made by managers who may be far removed from the project management value-added chain and whose estimates of postacquisition synergy are overly optimistic.

The president of a relatively large company held a news conference announcing that his company was about to acquire another firm. To appease the financial analysts attending the news conference, he meticulously identified the synergies expected from the combined operations and provided a timeline for new products to appear on the marketplace. This announcement did not sit well with the workforce, who knew that the capabilities were overestimated and the dates were unrealistic. When the product launch dates were missed, the stock price plunged and blame was erroneously placed on the failure of the integrated project management value-added chain.

In this case the problem area identified was leadership failure during postacquisition integration. Included in this category were:

• Leadership failure in managing change
• Leadership failure in combining methodologies
• Leadership failure in project sponsorship
• Overall leadership failure
• Invisible leadership
• Micromanagement leadership
• Believing that mergers and acquisitions must be accompanied by major restructuring

Managed change works significantly better than unmanaged change. Managed change requires strong leadership, especially with personnel experienced in managing change during acquisitions.

Company A acquires Company B. Company B has a reasonably good project management system, but it has significant differences from Company A’s system. Company A then decides, “We should manage them like us,” and nothing should change. Company A then replaces several Company B managers with experienced Company A managers, a change that took place with little regard for the project management value-added chain in Company B. Employees within the chain in Company B were receiving calls from different people, most of whom were unknown to them and were not told whom to contact when problems arose.

As the leadership problem grew, Company A kept transferring managers back and forth. This resulted in smothering the project management value-added chain with bureaucracy. As expected, performance was diminished rather than enhanced, and the strategic objectives were never attained.

Transferring managers back and forth to enhance vertical interactions is an acceptable practice after an acquisition. However, it should be restricted to the vertical chain of command. In the project management value-added chain, the main communication flow is lateral, not vertical. Adding layers of bureaucracy and replacing experienced chain managers with personnel inexperienced in lateral communications can create severe roadblocks in the performance of the chain.

The integration team then concluded that any of the problem areas, either individually or in combination, could cause the project management value chain to have problem areas, such as:

• Poor deliverables
• Inability to maintain schedules
• Lack of faith in the chain
• Poor morale
• Trial by fire for all new personnel
• High employee turnover
• No transfer of project management intellectual property

Company A now realized that it may have bitten off more than it could chew. The problem was how to correct these issues in the shortest amount of time without sacrificing its objectives for the acquisition.

QUESTIONS

1. How should Lenore handle differences in the culture if Lenore has the better culture?

2. How should Lenore handle differences in the culture if Belle has the better ­culture?

3. Is it possible to prevent an overoptimistic view of the project management capability of the company being acquired?

4. How should Lenore handle disparities in leadership styles?