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IDEAS AT WORK

The work starts well before the ink is dry.

Making the Deal Real:


How GE Capital
Integrates Acquisitions

by Ronald N. Ashkenas,
Lawrence J. DeMonaco, and Suzanne C. Francis

L IKE THE PROCESS BY WHICH A CHILD LEARNS TO WALK,

J most business innovations emerge from dozens of trial-and-error


experiments; from seemingly random actions that eventually form a
pattern; from hundreds of small, almost imperceptible adjustments
tbat eventually result in a solid step forward. This has been true for
developments ranging from lean manufacturing to concurrent prod-
uct development to business process reengineering-all now well-
accepted innovations that emerged from dozens of experiments until
they crystallized to form a methodology others could follow.

ARTWORK BYJENNIFER RENNINGER 165


IDEAS AT WORK MAKING THE DEAL REAL: HOW GE CAPITAL INTEGRATES ACQUISITIONS

An exception to this rule thus far challenges facing husinesses today. For the past three years^ we bave
has been innovation relating to ac- Industry consolidations, the global- been part of a team that has helped
quisition integration-the process ization of competition, technologi- GE Capital learn from its extensive
by wbicb one company melds witb cal developments, and other trends acquisition-integration experience
another after the deal is done. Most bave touched off an unprecedented to create a more replicable process.
acquisitions and mergers are one- wave of mergers and acquisitions We bave interviewed dozens of man-
time events tbat companies manage that shows no signs of abating. Ac- agers and staff members from both
cording to figures from acquiring and acquired husinesses,
tbe Securities Data Com- including many wbo after heing ac-
No wonder most managers pany publisbed in the quired hy GE Capital hecame acquir-
New York Times, tbe dol- ers themselves. Using these inter-
tliinkabout how loyel lar value of U.S. mergers views and related documents and
and acquisitions an- materials, we bave belped GE Capi-
acquisilionsoverwith-nol nounced in 1996 alone
grew more tban 27% to
tal create a model for acquisition in-
tegration. Tbis model has been fine-
to do them belter. $658.8 billion from $518
billion in 1995.
tuned tbrougb worksbops with GE
Capital's many acquisition-integra-
witb beroic effort; few companies go Despite this enormous growtb in tion experts, and it bas heen applied
tbrougb tbe process often enough to merger activity, acquisitions tbat suceessfully to several reeent inte-
develop a pattern. Thus it tends to he appear to he hoth financially and gration efforts. (See the exhibit "The
seen not as a process-as sometbing strategically sound on paper often Wheel of Fortune.")
replicable - but only as sometbing to turn out to be disappointing for
get finished, so everyone can get many companies: the acquiring Growth Through Acquisition
back to husiness. company takes too many years to re- To appreciate the lessons GE Capital
Tbe tendency to see integration as alize the expected synergies or is un- bas learned about acquisition inte-
a unique event in an organization's able to get people to work togetber gration, it is important to under-
life is magnified hy tbe fact tbat ac- productively or puts the companies stand that GE Capital itself is the
quisitions and mergers often are togetber in sucb a heavy-banded product of dozens of acquisitions
painful and anxiety-producing expe- way that the unique capahilities of tbat have heen blended to form one
riences. Tbey involve job loss, re- the acquired company (its best peo- of the world's largest financial-ser-
structured responsibilities, derailed ple and most valued customers, for vices organizations.
careers, diminisbed power, and example) melt away. Perhaps that's
GE Capital was founded in 1933 as
mucb else that is stressful. No won- why a study reported last January in
a subsidiary of the General Electric
der most managers tbink ahout bow the Economist of 300 major mergers
Company to provide consumers
to get tbem over witb-not how to conducted over a ten-year period hy
witb credit to purcbase GE appli-
do them better the next time. Mercer Management Consulting
ances. Since tben, tbe company has
found tbat in S7% of tbese merged
Improving tbe acquisition integra- grown to become a major financial-
companies return to shareholders
tion process, bowever, may be one of services conglomerate with 27 sepa-
lagged hehind the average for their
the most urgent and compelling rate husinesses, more tban 50,000
industries.
employees worldwide (nearly balf of
Ronald N. Ashkenas is the manag- Given tbis confluence of events- tbem outside tbe United States), and
ing partner of Robert H. Schaffer &> a growing numher of mergers and a net income in 1996 of $2.8 billion.
Associates, a management-consult- acquisitions comhined witb bigb The businesses that generate these
ing firm based in Stamford, Con- failure rates-it is increasingly im- returns range from private-lahel
necticut. He has led transformation portant that executives learn bow to credit-card services to commercial
efforts at several public-sector and manage tbe integration of acquisi- real-estate financing to railcar and
Fortune ^oo companies, including tions as a replicahle process and not aircraft leasing. More tban half of
General Electric. Lawrence J. De- as a onetime-only event. One com- tbese husinesses became part of GE
Monaco has been a human re- pany to learn from is GE Capital Ser- Capital through acquisitions.
sources executive with GE for 20 vices - an organization tbat bas For the past decade, since Gary
years. For the past 4 years, he has made more tban 100 acquisitions in Wendt became chairman of GE Cap-
been a senior vice president of hu- tbe past five years, resulting in a ital, the company's plans for growth
man resources for GE Capital, re- 30% increase in its workforce, the have included acquiring companies.
sponsible for HR activities outside rapid glohalization of its husinesses, Tbus every business is constantly
the United States. Suzanne C. Fran- and a doubling of its net income. GE seeking acquisitions. To engineer
cis is a senior partner with Robert H. Capital bas been working to make tbese deals, eacb executive vice
Schaffer &? Associates. For the past 5 acquisition integration a core capa- president (who heads a group of busi-
years, she has worked with GE Cap- bility and a competitive advantage nesses) has a Business Development,
ital to develop and apply its acquisi- that will enable it to eontinue its or BD, officer. Larger husinesses
tion integration process. growtb in tbe future. witbin each group have their own

166 HARVARD BUSINESS REVIEW January-February 1998


MAKING THE DEAL REAL: HOW GE CAPITAL INTEGRATES ACQUISITIONS IDEAS AT WORK

THE WHEEL OF FORTUNE


Over the years, GE Capital Services' acquisition-integration process has been discussed, debated, tested, changed,
and refined. It is now establisbed well cnougb to be codified in what we call tbe Pathfinder Model.
The model divides tbe process into four "action stages," starting with tbe work tbat goes on before tbe acquisi-
tion is completed-tbat is, hefore the deal closes-and continuing all tbe way tbrough assimilation. Tbere are two
or tbree subprocesses in eacb action stage, sucb as due diligence during tbe preacquisition stage and strategy for-
mulation during the foundation-building stage. Finally, eacb action stage includes several hest practices - specific
and practical steps managers can take to support tbe process.
The model's neat and systematic appearance belies the fact that acquisition integration is as mucb art as sci-
ence. The Pathfinder Model recommends a particular sequence of leveraged actions, but there arc aspects of every
acquisition-integration process that are new or unique. As in any major organizational transformation, managers
will bave to improvise. The model, however, can prevent improvisation from hecoming the whole sbow.

START

• Continue developing Begin cultural


common tools, practices, assessment
processes, and language identify business/cultural
• Continue longer-term barriers to integration success
management exchanges Select integration manager
• Utilize corporate education Assess strengths/weaknesses
center and Crotonville of business and function leaders
Use audit staff for integration audit Develop communication strategy

BEST PRACTICES

Use process mapping,CAP. and • Formally introduce integration manager


Workout to accelerate integration • Orient nev/ executives to GE Capital
• Use audit staff for process audits business rhythms and nonnegotiables
• Use feedback and learning to " Jointly formulate integration
continually adapt integration plan plan, including 100-day and
• Initiate short-term management communication plans
exchange • Visibly involve senior management
• Provide sufficient resources
and assign accountability

HARVARD BUSINESS REVIEW January-February 1998 167


IDEAS AT WORK MAKING THE DEAL REAL! HOW GE CAPITAL INTEGRATES ACQUISITIONS

BD officer, and Wendt also has BD ment, and closing the deal. And pany's communication expert use
people on his staff. Those profession- given these stages, it is natural to the regulatory review period before
als, many from consulting firms, assume that integration would begin the Gelco acquisition closed to cre-
focus on finding, analyzing, and ne- after the deal is closed. ate a comprehensive communica-
gotiating acquisitions that will con- For many years, GE Capital, like tion plan for the forthcoming inte-
trihute to GE Capital's growth. most organizations, proceeded un- gration. But instead of just a
The acquisitions come in different der that assumption.
shapes and sizes. Sometimes, the ac- Business development
quisition is a portfolio or asset pur- specialists, working iail/tlUUII Ulill
chase that adds volume to a particu- with business leaders
lar business without adding people. and finance experts, a'1 S
<
Sometimes, it is a consolidating ac- saw most of the deals
quisition in which a company is pur- through to closing.
chased and then consolidated into After the documents '»l-*r\llf
an existing GE Capital business. were signed and the clWV^UL throiigli experience.
That happened when GE Capital mementos exchanged,
Vendor Financial Services bought managers were expected to take over commimication plan, what emerged
and begin the integration process. was the framework for an entire
Chase Manhattan Bank's leasing
business. Sometimes, the acquisi- Unfortunately, in most cases, that integration strategy. That strategy
tion moves into fresh territory, approach to integration was less ineluded a 48-hour communication
spawning an entirely new GE Capi- than effective. Integration was slow hlitz directed at employees immedi-
tal business. GE Capital made such a and costly. There were constant sur- ately after the deal closed; the for-
"platform," or strategic, acquisition prises about peoples' reactions to be- mulation of a role in the new organi-
when it bought the Travelers Corpo- ing acquired, and financial returns zation for the former Gelco, D&K,
ration's Mortgage Services business. were often hindered by delays in and Kerr executives; a strategy for
And finally, sometimes, the acquisi- putting the companies together. In presenting the acquisition to the
tion is a hybrid, parts of which fit some cases, when acquisitions did media; a way to handle some neces-
into one or more existing businesses succeed, it was mainly beeause the sary consolidations of headquarters
while other parts stand alone or be- acquired company was left alone and staff; and an outplacement plan.
come joint ventures. not integrated into GE Capital. Most important, the framework
From these acquisitions, and its Necessity mothers invention. signaled a new way of thinking
efforts to make them work on a fi- Like most things an organization about integration - a recognition
nancial and organizational basis, GE learns, the realization that integra- that there were predictable issues
Capital has learned the following tion is not a stage following the deal, that could be anticipated long before
four lessons: and could be done faster and more the deal actually closed. The Gelco
effectively if it were begun sooner, acquisition turned out to he a water-
LESSON 1: came about through experience. In shed for GE Capital, a demonstra-
Acquisition integration is not a the mid-r98os, GE Capital acquired tion that extremely complex trans-
discrete phase of a deal and does Dart & Kraft Leasing and Kerr Leas- actions could be assimilated more
ing, intending to integrate Kerr into successfully by planning for integra-
not begin when the documents D&K. In the midst of that integra- tion well before the closing.
are signed. Rather, it is a process tion process, GE Capital acquired Integrating: earlier is better. Even-
that begins with due diligence Gelco Corporation, a much larger tually, the planning process began to
and runs through the ongoing leasing company that also included extend back even further-into the
management of the other financial-services businesses. due diligence phase-as GE Capital
At that point, the acquisition strat- executives realized that thinking
new enterprise. egy called for integrating both D&K about integration that early could
and Kerr into Gelco's auto-fleet- speed the eventual melding. In the
Any manager who has been involved
leasing business, spinning off some early 1990s, that thinking was for-
with an acquisition will agree that
other pieces of Gelco into freestand- malized during due diligence for a
the process proceeds through a num-
ing businesses, and selling some Chicago-based equipment-leasing
ber of fairly predictable stages: se-
nonstrategic pieces of the company. company. The head of the due dili-
lecting possible acquisitions, nar-
rowing the field, agreeing on a In short, this was no simple acqui- gence effort, having seen how effec-
first-choice candidate, assessing sition integration, and many of GE tive the Gelco plan had been, con-
compliance with regulations, con- Capital's senior executives were vened a series of end-of-day meetings
vening preliminary discussions, for- concerned that the standard ap- for the functional captains of the
mulating a letter of intent, conduct- proaches to integration would be various due-diligence teams (includ-
ing due diligence, completing inadequate. ing finance, operations, systems,
financial negotiations, making the human resources, and sales) to dis-
As a response, a human resources
announcement, signing the agree- cuss what they had learned each day
executive suggested that the com-

168 HARVARD BUSINESS REVIEW January-February 1998


MAKING THE DEAL REAL! HOW GE CAPITAL INTEGRATES ACQUISITIONS IDEAS AT WORK

and to develop preliminary plans for into a positive experience that led ers, did not have sufficient knowl-
managing the acquisition after the to boosted morale (as measured edge of GE Capital, its resources, or
deal closed. through attitude surveys], greater its integration requirements. What's
Applying those lessons to subse- receptivity to other changes, and more, they tended to be preoccupied
quent acquisitions, GE Capital higher productivity. with running the company and also
found that heing sensitive to integra- with a bost of personal issues-pro-
tion issues during the due diligence LESSON 2: tecting, reassuring, or outplacing
phase began to foster better deci- Integration management is a their people; figuring out whether
sions about whether to proceed with they wanted to stay in the new com-
an acquisition at all. During the final full-time job and needs to be pany; and (perhaps unconsciously)
stages of due diligence for the acqui- recognized as a distinct business proving that their company was
sition of a British leasing-equipment function, just like operations, even better than the huyers thought.
company, for example, two senior marketing, or finance. Given those realities, the husiness
business leaders from GE Capital leader of the acquiring GE business
had a working lunch with the CEO Since acquisition integration is an was usually assumed to he aeeount-
and CFO of the company, expressly ongoing process and not a discrete ahle for integration. But for a num-
to discuss some of GE Capital's ex- stage of a deal, someone needs to ber of reasons, that was an unrealis-
pectations for how the merged com- manage it. That may seem obvious, tic assignment. In most cases, the
pany would be run. During lunch, but in reality the issue is complex- business leader bad other units to
significant differences in basic man- one that GE Capital has grappled run and was not dedicated fully to
agement styles and values became with for more than a decade. the new acquisition. And even when
clear. The conversation led GE Capi- the business leader was able to de-
tal to take a harder look at the man- Let's look at the key players in an
acquisition: The acquiring business vote time to the acquisition, his or
agement culture of the target com- her focus usually was not on inte-
pany and to realize that integration usually will have a due diligence
team that includes people from such grating the cultures, processes, and
could be difficult and contentious. people but, appropriately, on such
On that basis, despite very favorable areas as finance, tax, business devel-
opment, human resources, and tech- critical husiness issues as profit
financials, GE Capital walked away growth, staffing key jobs, and cus-
from the transaction. nology. It will have a "leader" (GE's
term for a general manager) who is tomer retention.
Today recognizing that planning the ultimate "buyer" of the company. Furthermore, the husiness leader's
for integration can begin with the Similarly, the acquired business will very position of authority often lim-
very first discussions gives GE Capi- have a business leader and a full ited his or her ability to facilitate
tal a head start in bringing new com- complement of managers and staff. integration. People in a newly ac-
panies into the fold. For example, Who among that cast of characters quired company need someone they
during investigations relating to the focuses on integration? Who is the can talk to freely, to ask "stupid"
credit card husiness of a major Euro- one person responsible for making questions, find out how things work
pean retailer, the due diligence team sure that the new company hecomes at GE Capital, and discover what re-
learned that employees of tbe soon- a fully functioning, high-performing sources are available and how to use
to-be-acquired company were con- part of the acquirer? them. They need a guide to the new
cerned that they might lose their For many years at GE Capital, the culture and a bridge between their
traditional shopping-discount bene- answer to that question was unclear. company and GE Capital. The last
fit at the retailer's stores. GE Capital The due diligence team, which de- person who fits that role is the new
persuaded the retailer to continue veloped the deepest knowledge of boss they want to impress.
the discount for one year after the the new company and had the hest A role is born. At GE Capital, the
insight into what would role of designated integration man-
he needed to integrate it ager evolved, as most innovations
Recognizing that planning lor closed, usu- do, through a combination of chance
and necessity. Consider, again, the
integration can l)egin with the Swi"k,£met case of Gelco. At the time, it was GE
bers returning to their Capital's largest acquisition. Larry
very first discussions i^ave regular jobs or moving on Toole, a senior human-resources ex-
to the next transaction. ecutive who had been involved in
^T7 capital
jr. P ' l M i f ' J '»a \ L. j ^ e functional and busi- the due diligence effort, was asked to
ness leaders of the acquir- stay on and support the newly ac-
acquisition and also agreed to make ing GE company typically foeused quired Gelco team. Toolc (now GE
up the difference of the lost benefit only on the integration of their par- Capital's head of human resources)
in subsequent years hy adding ap- ticular units. The newly acquired acted as a facilitator to the new lead-
proximately $200 to each employee's husiness leaders, who had the most ership team. He brought groups of
paycheck. As a result, GE Capital incentive to integrate and learn how people from GE Capital and Gelco
turned a potential cause of friction to be successful with tbeir new own- together in work sessions to develop

HARVARD BUSINESS REVIEW January-February 1998 169


IDEAS AT WORK MAKING THE DEAL REAL: HOW GE CAPITAL INTEGRATES ACQUISITIONS

common plans; he oriented the new time integration manager, turned GF Capital well and has proven
team to GE Capital's requirements; the situation around. management skills-usually takes
he made sure that the soft sides of By 1994, it was apparent that the on the integration joh.
the integration (such as communica- integration manager was a key role. In all cases, the integration man-
tion and benefits) were taken into Then the questions hecame. Who agers that have heen most effective
account; and he counseled Gelco's would make a good integration man- have been those that have served on
senior managers ahout how to suc- ager? and How should the job actual- the due diligence team. The integra-
ceed in GE Capital. ly work ^ tion manager then becomes a full-
By the end of the 1980s, it was All accidental role becomes an in- fledged member of the leadership
clear that the Gelco integration had tentional strategy. Today two types team for the acquired business, re-
gone well. But the critical role that of people are generally selected to porting directly to its business
Toole had played as an integration be integration managers in GE Capi- leader. Selection of the integration
manager was not fully recognized t a l - t h e high-potential individual manager is based as much on person-
until several other acquisitions that and the experienced hand. The high- al characteristics as on technical
had no integration managers failed potential manager is usually a less skills. In the past several years, the
to proceed as smoothly. For exam- seasoned person with strong func- hackgrounds of successful integra-
ple, no integration manager was tional credentials who is viewed as a tion managers have heen drawn
assigned when GE Capital's retail future business leader. That type of from fields as diverse as human re-
credit-card business bought the person is widely employed in small, sources, auditing, finance, technol-
credit card operations of the Burton straightforward, or highly structured ogy, marketing, and law. Some need
Group (a U.K. retailer) in 1991. Two integration efforts. For more com- to be skilled in a second language.
years later, when the unit was not plex acquisitions or those that incor- But all have strong interpersonal
meeting expectations, a rcintegra- porate multiple businesses, an expe- skills and are sensitive to cultural
tion effort, which did include a full- rienced hand-someone who knows differences. All have the ability to

WHAT IT TAKES TO BE AN INTEGRATION MANAGER


Integtation managers manage the manager in Taipei, for example, Capital system don't usually
integration process, not the busi- who reports to a business in cover that territory.
ness. To do so, they: Chicago, how to buy a personal m Introducing GE Capital's busi-
computer through the GE pur- ness practices to the new com-
Facilitate and manage integration chasing network. pany, including its "workout,"
activities by • Educating the new manage- "quality leadership," "change
• Working closely with the man- ment team ahout GE Gapital's acceleration," and "manage-
agers of the acquired company to business cycle; reviews; and such ment-education" programs.
make its practices consistent other processes as strategic plan-
with GF Capital's requirements ning, budgeting, and human Help GE Capital understand the
and standards. resource assessments. acquired business by
• Creating strategies to quickly • Translating and explaining • Making sure managers of the
communicate important infor- GF's and GE Capital's various newly acquired company are not
mation about the integration ef- acronyms. swamped with requests for infor-
fort to employees. • Helping managers of the ac- mation from GE Capital. A num-
• Helping tbe new company add quired company understand GE her of integration managers in-
functions tbat may not have ex- Capital's culture and husiness sist, for example, that all requests
isted before, such as risk manage- customs. for information go through them
ment or quality improvement. • Helping managers of the ac- so that they can sort through the
quired company understand both important ones and allow the
Help the acquired business un- the fundamental and minor other managers to stay focused on
derstand GE Capital by changes in their johs. For exam- the husiness.
• Assisting managers of the new- ple, a CFO accustomed to having • Briefing GE executives about
ly acquired eompany as tbey nav- full responsihility for tax and the newly acquired company to
igate through the GF Capital sys- treasury accounting needs to be help them understand why it
tem - explaining to a new finance informed that CFOs in the GE works the way it does.

170 HARVARD BUSINESS REVIEW January-February 1998


IDEAS AT WORK MAKING THE DEAL REAL: HOW GE CAPITAL INTEGRATES ACQUISITIONS

facilitate groups and a deep knowl- To avoid such a reaction, the inte- management to shipping dock staff.
edge of how GE Capital works. And gration manager quickly commis- Their script tells them that when
all have the energy to do what it sioned a small group of managers companies are purchased, the ac-
takes to make an integration success- and staff members to develop a con- quiring company often puts its own
ful (See the insert "What It Takes to structive way to convey the integ- people in charge, changes policies
Be an Integration Manager." 1 rity policy. The group decided that and procedures, restructures, con-
Given the job's broad range of re- its own managers (rather than GE's solidates, and generally takes over.
sponsibilities, it would seem natural people) should introduce the policy So they walk onto the stage of the
to hold the integration manager ac- at a series of all-employee meetings. new company feeling anxious, inse-
countable for the performance of the They introduced those meetings by cure, uncertain, and even angry.
business. But GE Capital's experi- saying, "One of the benefits of be- Who are these new owners? What
ence suggests that doing so reduces longing to GE is that they have made are their intentions? Can we trust
the accountability of both the busi- explicit the principles of integrity what they say? Do we still have jobs,
ness leader and the rest of the leader- that we have always followed in our and are they the same as before?
ship team. And in reality, the inte- company but that we never had the Why did our previous owners sell?
gration manager does not control the resources to write down. And here Did we do a bad job, or did they be-
critical business resources. Instead they are..." tray us?
of having P&L responsibility then, That may seem like a small mat- In short, the acquiring managers
most of GE Capital's integration ter, but the accumulation of such close the deal with a certain amount
managers are held accountable for small matters can destroy the con- of euphoria, ready to get on with the
the creation and delivery of a disci- nective tissue between companies. exciting challenge of running the
plined integration plan and for The job of the integration manager is new business better. But the staff
reaching the plan's milestones. In to keep that tissue growing. members needed to keep things run-
reaching those milestones, the inte- ning and make improvements are
gration manager acts more as a con- LESSON 3: preoccupied with issues of security
sultant than anything else. The job and identity. They have no interest
Decisions about management
is to build connective tissue be- in a close-the-deal party,- they just
tween GE Capital and the new orga- structure, key roles, reporting
want to know if they still have jobs.
nization, tissue that will allow infor- relationships, layoffs,
mation and resources to pass freely restructuring, and other career- If left unrecognized, this psy-
back and forth, tissue that will be- chodrama can be debilitating and
affecting aspects of the can send the integration process
come self-generating over time.
integration should be made, down the wrong path. On one hand,
An example from a European ac- announced, and implemented as when issues of security are not ad-
quisition illustrates how the integra- soon as possible after the deal is dressed immediately, levels of pro-
tion manager builds connective signed - within days, if possible. ductivity, customer service, and in-
tissue. After completing the acquisi- novation quickly deteriorate as
Creeping changes, uncertainty, employees focus on their own needs
tion, the business leader asked the
integration manager to quickly in- and anxiety that last for months ratber than on tbose of the company.
troduce the new company to GE's in- are debilitating and immediately On the other hand, if acquiring man-
tegrity policy. At GE, integrity is not start to drain value from an agers restructure quickly but with-
iust embodied in a standard corpo- acquisition. out sensitivity, they risk beginning
rate-policy statement. It is a detailed their tenure without the trust and
requirement meant to ensure that With all the tension of a medieval respect of the remaining staff. The
every employee understands what passion play, at the moment that an challenge is to avoid both traps, to
constitutes proper and improper acquisition closes, an intense drama make structural changes as quickly
ways of conducting business. begins to unfold between the new as possible but in a way that main-
owners and their new employees. tains everyone's dignity. If that chal-
Given the importance of the in-
On one side of the stage are the ac- lenge is not met, successful integra-
tegrity policy, the business leader
quirer's managers, who almost al- tion may not be possible.
expected that the material would be
immediately reprinted, distributed, ways believe they can run the ac- First things first: Do I have a job?
and used in dozens of meetings quired company better-whether Most acquisitions involve restruc-
mandatory for all employees. But through the introduction of new turing, either to improve the effi-
the integration manager took anoth- capital, new technology, new re- ciency of the acquired unit or to en-
er tack. He asked a few senior man- sources, new energy, or new ideas. sure that its organization fits with
agers from the new company how And since acquisitions come at a that of the new owner. But moving
people would react to GE's policy. price, one aspect of their agenda quickly to restructure is not easy,
The response was a surprise: "If we almost always is to reduce costs. even when obvious changes need to
send that out, it will be like saying to Playing opposite the new man- be made. Often the new owners fear
our people that before GE came agers arc all the employees of the that early layoffs will send the signal
along we didn't have any integrity!" acquired company-from senior that they are the "bad guys." So they

172 HARVARD BUSINESS REVIEW lanuary-February 1998


delay the inevitable until the "right" much of tbe year waiting for the
time. Or the new owners may worry plans to be announced.
about the publicity and the potential We have interviewed ten CEOs of
impact on their company's image- companies tbat GE Gapital bas ac-
so they, too, wait to make layoffs, quired from different countries
imagining tbat they can be made about the pace of consolidation. All
quietly later, when no one is watch- bave said the same thing: "Altbougb
ing, And in some situations, the new at the time we tbougbt tbat tbings
owners worry that they do not have were moving too quickly, in retro-
enougb experience with the com- spect, you did not go fast enough." In
There's somelhing- you can do pany and its staff, tbat tbey will sbort, tbey said that there is no such
today that will have a profound make mistakes. So tbey want to wait thing as an acquisition tbat does not
impact in the new millennium. until tbey get to know everyone and include some degree of change-in
understand tbe company better. either structure, philosophy, sys-
You can plant trees with tems, or strategy. Tbeir message was
Global ReLeaf.
For many years, GE Capital strug-
tbis: ii change is inevitable, let's get
gled botb witb the cballenge of find-
on with it ratber tban allow anxiety
ing the right time to restructure ac-
and speculation to diffuse energy
Trees clean ihe aii-, puriiy the quisitions and witb the decision of
and focus.
water, furnish the earth with when, or if, to hring in new man-
agers. Sometimes, structural moves Restructure with respect, A cru-
oxygen and provide shade were delayed for many montbs after cial springboard to successful inte-
to reduce the effects of the company bad been bought. Tbe gration is tbe manner in wbich re-
global warmint realization that tbis was a mistake structuring is carried out. Eirst and
came in 1991, one year after tbe ac- foremost, tbe acquiring company
quisition of a finance company in needs to be straightforward about
Please dig in. If you can't plani Europe. It was obvious when the what is happening and what is
your own tree, or if you want to company was purchased that re- planned. Even when the news is had,
structuring was needed. Twelve lay- the one tbing tbe staff of newly
do more. Global ReLeaf will plant
ers of management (which worked acquired eompanies appreeiates
10 trees for every $IO out to one manager for every two most is tbe truth. Tbat includes
you donate. Just call employees) had created a high-cost, being able to say "we don't know"
bigh-control organization whose ahout certain areas or "we bave not
(800)873-5323 today
ability to innovate and change was yet decided" ahout others. It also in-
or vi.sii our website at highly limited. Yet despite the obvi- cludes sbaring information ahout
www.amfor.ore' ous need for "de-layering" and cost wben and by wbat process a decision
reduction, GE Gapital kept all tbe may be reacbed. Tbe truth also
members of the management team means acknowledging some of tbe
Help an important idea take root. in place and allowed them to keep stress and otber emotions. As one
the organization intact. That was CEO of an acquired company wisely
done for a number of seemingly noted, "Never tell the acquired staff
rational reasons: fear of destroying tbat it will be 'business as usual'
morale, lack of confi-
dence about which
managers to let go, and '
a feeling that bere was cr tell the acquired slalT
a European culture
tbat GE Gapital per- that il w ill he business as usual
haps did not fully
understand. il never will be again.
A year passed. Costs remained wben it will never be tbe same for
high, and performance remained tbem again. And don't tell tbem that
low. Finally, GE Capital's husiness tbis was a 'merger of equals' when
leader stepped in and forced a tbor- you bave clearly taken tbem over.
ougb consolidation. The surprise And don't tell tbem that tbey bave
was tbe staff's reaction. Instead of 'a wonderful future' to look forward
heing upset, most employees (as re- to when they are still confused and
Global ReLeat jooo ported in surveys) wondered wby GE grieving over the past."
IS a campaign ol
AwftiCAN FoM^ri, GL©BAL Capital bad taken so long. Tbey bad
seen tbe need for cost reduction
Second, it is critical to treat tbose
rlie naiion's oldesi cini
conservarion orgamiari REiLEAT' from tbe beginning and had spent
individuals who will be negatively
lounded m 1875
^2000 affected witb dignity, respect, and
P.O. Box 2000, Washington, DC 20013
HARVARD BUSINESS REVIEW )anuiiry-Fobruary 1998
support. Not only is this the right that failing to take steps like these to
NEW STRATEGIES
thing to do, it is also a powerful way address the "soft" side of integration
to show those who remain what turns the "hard" aspects of integra- FOR NEW TIMES
kind of company they now are work- tion-such as reconciling different
ing for-and to help them develop financial-accounting practices - into
positive feelings. mechanical exercises that are exe- CHAMPIONS OF
But the most powerful way to cuted without understanding or CHANGE
move ahead is to get the employees finesse, and often without success. Hm CEOs and
of the acquired company focused on Meet, greet, and plan (urgently). Iheir Companies are
the real work of growing the newly Once the deal is elosed and the Mastering tbe ^ilk of
formed husiness. How to shift the transfer of ownership becomes offi- Radical Change
focus toward the future, and get peo- cial, the GE Capital husiness leader,
David A. Nodter
ple to start working on it, is the last with the help of the acquisition
lesson from GE Capital's experience. manager, organizes orientation and "Few exeiufives expert ihe
planning sessions for the memhers (ulure to be nwre stable
LESSON 4: than Itie present. Yel lew have seriausly begun ttie ki[»g jaurney
of the management team of the new of rethinking and redesigning itiemselves and their organizations
A successful integration melds acquisition and their counterparts in fai the future. Hie Insights artd methods presented by David
not only the various technical GE Capital. The intent is to use Nadler will, hopehilly, er)gerHJer the [ourage to embark."

aspects of the businesses but these sessions to create a ioo-day —Peter Senge, dltetior, Center for Orgnnjzfflional learning, Mil
plan for acquisition integration. Horikom 256poges ISBN 0-7&79-0947-S S26.00
also the different cultures. The These sessions help welcome the
best way to do so is to get people new senior managers into GE Capi-
tal and give them a chance to social-
TNEnCHNOLOGY
working together quickly to LEADERS
solve business problems and ize with their new colleagues. They
also provide an opportunity for hoth
accomplish results that could sides to exchange information and Pradtable HigbJecb
not have been achieved before. share their feelings and reactions Companies Innovate
about the recently completed deal. Ibeir Way to Success
In many ways, an acquisition is like
Peter S. Cohan
an arranged marriage: the "parents" As part of the information ex-
negotiate the deal, sign the contract, change, the newly aequired man- "Hey, business executives!
and then expect the "newlyweds" to agers are asked to talk about their or- Woke up! Stop Ihe off-site
live together in harmony. An ganization, produets, people, and planning meetings, tear up the strategic plan, and buy everyone
in yaur campany a capy of this book. With Cohan's crisp descrip-
arranged marriage, however, has a plans. In particular, they are asked to tion of the 'success cycle' and his cold slap-in-the-face reality of
much hetter chance of suceess than talk ahout the positive aspects of 'betting under uncertainty,' you'll rethink every decision ofter
an acquisition does since only one their eompany-what they feel good you put down this pnge-tuner"
couple is involved, and the parties ahout and what sbould be built —Kevin R. (ompton, general portner, Kleiner Perkins
usually come from similar cultures upon. They are then asked to share Coufield & Byer
and share common values. In acqui- their thoughts about opportunities Hordtover 224 poges ISBN 0 7879-lOM 7 S27.95
sitions, many people-sometimes for improvement-what could be
thousands-need to learn how to live changed, areas of potential growth, JOINING FORCES
together, and the values and mind- and synergies with GE Capital.
sets of the acquiring and acquired or- Making One Plus
Following that exchange, the GE One Equal Tbree in
ganizations almost always differ. Capital business leader, the integra-
That disparity is even more marked Mergers, Acquisitions,
tion manager, and other executives and Alliances
when the two companies arc hased describe what it means to be a part of
in different national cultures. GE Capital-the values, the respon- Mitchell Lee Marks
H. Mirvis
One vital issue when integrating sibilities, the challenges, and the re-
wards. That includes a presentation "Marks and Mirvis have writ-
any acquisition, then, is how to
ten the new bible on merg-
speed the process of getting dozens, and discussion of the standards re- ers, acquisitions, and alliances. This is must reading if you're
hundreds, or thousands of people to quired of a CE Capital business unit, leading, managing, advising, or living through such chollenging
work together in harmony. How do including a list of approximately 25 orgonizotional chonges."
you get people from different cul- policies and practices that need to be —David W. Jamieson, president, Jamieson Consulting Group
tures, who may even have heen com- incorporated into the way the ac- Hflrdtaver 288 pages ISBN 0-7879-03SO-7 S26.00
petitors, to build a new company quired company does husiness.
that will grow and prosper? Those range from quarterly operat-
ing reviews to risk policies to quality Available in fine bookstores
From its experience, GE Capital
has distilled four steps husiness and integrity procedures. or call 1-800-956-7739
leaders can take to hridge the cul- Drawing on the standards set by
tural gaps that exist when integrat- GE Capital and the opportunities for E JOSSEY-BASS PUBLISHERS
ing any acquisition. We have found improvement presented hy the § • • •1

HARVARD BUSINESS REVIEW January-Fehruary 1998


IDEAS AT WORK MAKING THE DEAL REAL! HOW GE GAPITAL INTEGRATES ACQUISITIONS

acquired management team, Lhe the community; and the media. Tbe Those issues were rooted in differ-
group then begins to draft the ioo- appropriate time to communicate ences in corporate culture hut were
day plan for acquisition integration. was identified for each audience- magnified and complicated by differ-
As its name implies, the plan out- hefore the deal was closed, for in- ences in national culture. For exam-
lines what will be done in the first stance, or at closing, or perbaps 60 ple, in some companies, deference to
IOO days to bring the new company days after the closing. And for eacb authority prevented managers from
into GE Capital. The plan addresses audience, tbe appropriate mode of challenging, questioning, and tbus
such issues as the need for integrat- communication was selected, rang- enriching GE Capital's ideas about
ing from newsletters how to grow the new business. In
and memos to videos to countries witb hierarchical social
It became dear that cultural small-group huddles to systems, tbis pattern of deference
town meetings and visits seemed to he even more apparent. In
issues were getting in the way from management. otber settings, seemingly straight-
A fundamental mes- forward instructions were misinter-
of fast, effective integration. sage about GE Capital's preted, not only hecause of language
culture underlay tbe en- barriers hut also because of assump-
ing functions, taking any steps nec- tire communication effort-tbat at tions about intentions. And in still
essary for financial and procedural GE Capital, communication and in- otber cases, GE Capital found that
compliance, making any shifts in volvement are valued and consid- newly acquired leaders didn't com-
compensation and benefits, and ered to be critical success factors; fortably accept the autonomy that
managing customer contacts. The that GE Capital does not bide infor- comes along with empowerment.
ioo-day timetable creates a sense of mation from employees; tbat GE To deal with those issues, GE Cap-
urgency, challenge, and excitement; Capital wants to create a relation- ital worked witb a consulting firm
it imbues the integration with a feel- ship of trust and open dialogue to construct a systematic process of
ing of zest and energy. At the same across all boundaries in tbe organi- cross-cultural analysis, leading up to
time, it forces the management zation. That's wby managers, and a structured tbree-day "cultural
team to move into action and avoid not professional communicators, are workout" session between GE Capi-
hecoming paralyzed hy mixed feel- asked to take tbe lead in many as- tal and tbe newly acquired manage-
ings and personal politics. pects of tbe process-so that tbey ment team. Tbat process is now ap-
will engage in dialogue witb their
Communicate, communicate- plied in most of GE Capital's
employees, peers, customers, and
and then communicate some more. acquisitions, especially wben there
otbers. At another level, messages
Creating a communication plan dur- is a significant non-U.S. component.
about the course of the integration
ing the due diligence and negotia- Here is bow the process works.
process are communicated hy dis-
tion phases of a transaction so that Using the results of focus groups and
seminating tbe 100-day plan itself,
employees and external parties are interviews with customers and em-
so that everyone bas an opportunity
informed as soon as a deal is closed ployees, a computer-generated
to learn its hroad outlines.
is only the first step in an effective analysis is developed that plots the
communication program. Keeping The assumption here is that the acquired company's culture on a
the communication process going- more people know about what is scattergram across four dimensions:
and making it reacb broadly and happening, the more
deeply throughout tbe organi- tbey will be ahle to ac-
z a t i o n - r e q u i r e s more tban just cept change and over- A [)()v\ erful way to integrate
sharing information bulletins. It re- come their cultural
quires tbe creation of forums for dia- and historical differ- cultur es is to assign short-term
logue and interaction tbat can belp ences. But in GE Capi-
span the cultural chasm hetween tal's experience, sucb projec ts to yield quick results.
acquirer and aequiree. intensive communica-
As in any communication plan, tion, even when combined witb ex- costs, technology, brands, and cus-
there are four considerations: Audi- tensive integration planning, is tomers. Tbe analysis also contrasts
ence, timing, mode, and message. sometimes not enough to hridge bow employees see tbe eompany
For example, for one of its integra- deep cultural gaps. A more direct ap- witb tbe way customers see it. A
tions, GE Capital's Private Label proach to cultural integration may similar survey is done for tbe GE
Credit Card business identified sev- be needed as well. Capital business.
eral distinct audiences: tbe senior Address the cultural issues head- Once the survey results are ready,
managers of hotb organizations; tbe on. Several years ago, as GE Capital the managers from both GE Capital
integration manager and bis team; began to make more acquisitions and tbe acquired company meet for
all of tbe employees of the acquired outside tbe United States, it hecame tbe tbree-day cultural workout. (If
organization; all of GE Capital's em- clear that a numher of unrecognized everything is on schedule, this meet-
ployees; tbe customers, clients, and cultural issues were getting in tbe ing takes place at or close to tbe end
vendors of the combined company; way of fast and effective integration. of tbe first 100 days.) At tbat session.

176 HARVARD BUSINESS REVIEW Jatiuary - February 1998


MAKING THE DEAL REAL: HOW GE CAPITAL INTEGRATES ACQUISITIONS IDEAS AT WORK

the data from the two companies are the original deal, now augmented by ulation access to tbe same body of
compared to highlight areas of con- the collective dreams and aspira- cultural data as the management
vergence and difference. With a fa- tions of tbe new management team. team has - and the same opportunity
cilitator, participants go through the After the first ioo days, the stage is to digest it and eonsider its implica-
data and talk about wby they tbink set for continuing the integration tions for the integration. But a more
the results turned out the way they and development process over tbe powerful way to spread tbe cultural
did. They talk about the history of next six months or more on the basis integration furtber is tbrough ac-
their companies, the folklore, and of a shared understanding of cultural tion. Sbort-term projects tbat focus
the heroes that made them what differences and a concrete plan for on acbieving results quickly and in-
they are. That leads to focused dis- bridging the gaps. clude staff members from hotb GE
cussions ahout cultural differences To move from the few to the Capital and tbe acquired company
and similarities and tbeir implica- many, cascade the integration pro- almost always serve to bridge tbe
tions for doing business-for in- cess. Bridging cultural gaps with the gap between cultures. In otber
stance, bow to go to market, bow words, the faster people from botb
acquired management team is criti-
much to focus on cost, or bow con-
cal to the integration proeess and companies are given opportunities
cepts of authority differ.
almost always leads to a richer husi- to work together on important husi-
By the third day of the session, ness plan to which more employees ness issues, tbe faster integration
participants sbift their focus from are committed. But in most cases, will occur.
tbe past to the future. Based on wbat hundreds or even thousands of other For example, in 1995, wben GE
has heen accomplished in the first people also need to he part of the Capital's Glohal Consumer Finance
IOO days, tbey are asked two ques- process. How can that process business acquired Minehea Finan-
tions: Where do they want to take of hridging cultures be spread be- cial, a Japanese finaneial-serviees
the company? and What kind of fu- yond the management team? company, the business leader com-
ture do they want to create? Tbat The results of the cultural work- missioned a numher of joint GCF-
diseussion results in a written out- out can he widely sbared and dis- Minebea teams to accomplisb criti-
line of a new business plan for the eussed tbrougb small group meet- cal business goals in the first roo
acquired company, based on tbe ings, videos, and other channels. days. One team reduced the cost of
goals that were establisbed as part of That gives the wider employee pop- materials through an initiative

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Bottom-iine appiication
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HARVARD BUSINESS REVIEW )anuary-February 1998 177


IDEAS AT WORK MAKING THE DEAL REAL! Ht)W GE CAI'ITAL INTEGRATES ACQUISITIONS

aimed at having the suppliers man- in those organizations newly ac- Today these lessons are availahle
age inventory. Another arranged for quired from outside the United on-line to all GE Capital husiness
the sale of written-off receivahles. States, the company has initiated a leaders over the company's intranet.
Still another redueed the time it program called Capital University. There, too, are communication
took to respond to eustomers' tele- In this program, selected middle plans, 100-day plans, functional in-
phone calls from three minutes to managers arc given 6- to 12-month tegration checklists, workshop
ten seconds. As important as those assignments in a GE Capital husi- agendas, consulting resources, and
results were, equally important was ness or head-office function in the the like. A staff memher from the
what the people from GCF and United States. With their families, corporate human-resources depart-
Minehea learned hy working to- these managers learn not only ahout ment keeps these materials up-to-
gether. By achieving results quickly, GE Capital hut also ahout the na- date and assists in accessing them.
everyhody could immediately see tional culture in whieh GE Capital is Despite this progress, acquisition
the benefits of the acquisition-that rooted. They, too, are coached indi- integration remains an ongoing ehal-
more eould he achieved together vidually hy consultants ahout differ- lenge for GE Capital. The structure
than could ever have heen accom- ences in national cultures. of every aequisition is unique; each
plished separately.
has a one-of-a-kind husiness strate-
GE Capital also has heen experi- A Work in Progress gy; each has its own personality and
menting with other ways to help For almost a deeade, GE Capital's eulture. No matter how many in-
individuals deal with differences in leaders have heen thinking ahout sights and models previous transac-
national eultures. For example, an how to make acquisition integration tions generate, the next deal is al-
American assigned to lead a key a core competence, and they have ways different, as mueh an art as a
function in India is individually engaged hundreds of people in the science. Therefore, any company
coached hy an external consultant effort. Starting in 1989, workout that hopes to henefit from GE Capi-
who specializes in national cultures. teams have mapped out the entire tal's experience needs to accept at
The consultant can help the relocat- transaction process and have identi- least one aspect of its culture-that
ing manager understand in advance fied essential steps for integration. competence is something never
suhtle, hut critical differences in cul- In 1992, GE Capital employed a fully attained, that it is only the
ture-the need for specific, rather "change aeceleration" methodology jumping-off point for an ever higher
than general, instruetions, for exam- to identify hest integration practices standard. Today, drawing from the
ple, or the importance of variations and develop a set of model approach- lessons it has learned, GE Capital is
in attitudes toward class and gender, es. And sinee 1995, GE Capital has better at acquisitions than it was last
in the willingness to criticize others, sponsored periodic conferences to year. But next year, the goal is to he
or in the degree to whieh employees refine those hest practices, share
are expected to take initiative. tools and lessons, and discuss case even hetter. U
studies of integration efforts cur-
Finally, to introduce the GE Capi- rently in progress. Reprint 98101
tal culture to high-potential leaders To oilier reprints, see the last page of this issue.

'Time for an upgrade?"

178 CARTOON BY MICK STEVENS


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