group 8
DESCRIPTION
TRANSCRIPT
Power of Organizational Mechanisms – through a study on Adidas/Reebok PMI
March 20, 2013 Group 8Sec D
Key Takeaways Importance of Formal Mechanisms in an organizationto
implement strategic intent
Also, we look at: Value based leadership and its positive impact Importance of stakeholders during decision making Impact of a decision on organization based on the impact of
stakeholders
Agenda
Adidas & Reebok Background
Context for acquisition
Problems in acquisition
Steps taken – Learnings
Post Merger Performance
Analysis
Conclusion
AdidasFounded in 1926
World leader in soccer shoes
#2 behind Nike worldwide - #4 in the US
Three acquisitions before Reebok:Company Sports Inc in 1993 Salomon in 1997 Arc'Teryxin 2002
Culture of control, engineering, and production
ReebokFounded in 1895
First athletic shoe for woman
#2 in US - #4 in Europe
Unique portfolio of long term league licenses
Creative marketing-driven culture
Context for Acquisition Industry factors
Organizational factors at Adidas
Organizational factors at Reebok
Industry Factors
Source: http://www.global-production.com/footwear/trendstudy/index.htm
• The market was slowing down in 2004 as a result of slight economic slump
US Footwear Market
Other Industry FactorsRetail rationalization is important
Global supply chains i.e. manufacturing hubs at several locations would give better margins
Endorsements with sports clubs, events etc are important to earn customer base
Adidas Specific factorsAdidas- Salomon failure
Access to U.S. markets with a local brand and retail chain
Reebok Specific factorsStruggling to remain in number 2 in U.S.
market
Too many competitors coming up with cost leadership strategy
Strategic aims from the synergyFace their biggest competitor – Nike
Achieve economies of scale and scope by extending their global supply chains
Access to markets
Broader portfolio of products
Worldwide recognition through licenses
Enhanced R & D
Context in briefEconomic slowdown
Fierce competition at various segments
Aspiration to be No.1 at adidas
Nature of industry which demands Global footprint in retail Global supply chains Global recognition through endorsements of
sporting clubs, events etc
Result In the above Context top management of both
companies approved acquisition
Announcement was made on 31st Aug
Deal closed on January 2006
Price: $3.52 billion
Problems in AcquisitionDifferences in Culture
Employees fears about the following: Layoffs Major Relocation Career Growth
Customer Confusion about brand equity
Structural Complexity
Decision DilemmaHow to handle the integration process
smoothly
How to design a structure and processes that would create greater benefits than costs
Future of both the brands keeping customers in mind
Steps taken - LearningsCreation of Clean team
Communication Strategy with employees
Integration Mechanism
Strategies to drive uniform culture
New Structure
Creation of Clean teamAppointment of adidas managers at Reebok soon after the
deal
This team (Clean team) analysed top management at Reebok
This analysis aided decision making of top management
Clean team members were given strong targets by CEO to immediately leverage the potential of synergy
Learning: the integrative structures should be created from the day one to avoid unfortunate fireworks during merger
Communication StrategyHainer visited HQ and personally stated that it wouldn’t be
shifted
A new intranet site was created for employees to know about the acquisition process immediately
Hainer also stated that there would be no layoffs and adidas is planning to invest more in reebok
Videoconferences of CEOs of adidas and reebok are made available for download
Learning: Hainer’s value based leadership created a sense of belonging for reebok employees and the acquisition was received positively
Mechanisms for Interactive CommunicationEvery person involved in acquisition was asked to give his/her
expertise
Pulse check Surveys to understand feelings of employees about decisions taken The relevant sample was chosen at various hierarchies Each employee is given eight questions The survey was used to determine the overall pulse about the
integration process
BCG was appointed to hire candidates unbiasedly to potential positions
Mechanisms for Interactive CommunicationDedicated HR answers to interested employees about the
integration process
Global PEP (Performance Evaluation and Planning) was implemented
Results:
All this created a strong positive mood and a sense of belonging among employees at every level in the organization about the adidas group.
LearningHainer’s team did not stop at communication of ideas
They created strong mechanisms of interactive communication
If the employee morale failed, Reebok performance would have shattered and the underlying logic of acquisition would become meaningless
Integration ProcessEight “integration teams” were formed with adidas and
Reebok managers in a parity proportion
Teams reflected regional and functional structure of each company
Task is to develop blueprint about how to leverage the synergy
Verification of these blueprints with subteams at regional levels
A dedicated PMO to steer the implementation of approved blueprints
ResultManagers at various levels felt that they are involved in the
process of integration
This mechanism gave a sense of ownership and created sustainable business processes
The power of this mechanism is Integration process can be easily adopted as several subteams were involved
Learnings: A well designed process of Integration that involves its various stakeholders made the implementation very easy
Adoption of Unified Culture
Unified Mission: to be the leading sports brand in the world
Communication about culture: “Diversity is key to success”
Beyond communication, the following processes are adopted Strong communication mechanism through periodic pulse check
surveys Managers at adidas were relocated to reebok (ex: clean team) to
adopt the culture
Learning: Creation of an unified mission and implementing strong mechanisms helped adidas easily adopt its culture in reebok without deliberation
Restructured OrganizationKey Decisions:
With Customers in mind, brands were to remain independent Supply chains are united: To achieve economies of scale and
scope Retail chains are united: To gain access to markets Keep R & D separated: To design products that appeal to the
brand loyalists Sales & Marketing is separated: to competitively promote each
brand Integrated Marketing Dept: To clearly position the individual
brands without overlap
Learning:Corporate Umbrella makes sense only when the benefits from
synergy are greater than costs
Adidas would have easily lost to Nike if their R & D or Sales & Marketing are combined
Customer being an important stakeholder, his perception has significant influence on the design of organization
Redesigned OrganizationCEO & Chairman Adidas AG
Herbert Hainer
Global OperationsGlenn Bennett
FinanceRobin Stalker
President & CEO- Adidas
Erich Stamminger
R &D
Sales & Marketing
President & CEO - Reebok Paul Harrington
R & D
Sales & Marketing
Post Merger PerformanceFinancial Performance:
Sales revenue increases by 52 percent i.e. from € 6.636 billion in 2005 to € 10.084 billion
In 2006, representing the highest organic growth of the Adidas group within last eight years.
It was the first time in the group’s history that it crossed the benchmark of € 10 billion
Post Merger PerformanceEstablishing Global Footprint:
In 2005 sales from Asia contributed 22.95 percent of the group total revenue which increased to 24.65 percent in 2008
Sale has increased significantly in Latin America which had contributed only 4.88 percent of total revenue in 2005, increased to 8.26 percent in 2008
Beat Nike’s rankings: adidas only remained a close competitor but couldn’t beat its rankings
The major reason for this is reebok’s declined sales revenue
Some views exist that reebok had cannibalization from adidas
Analysis Integration of adidas and reebok is not a overnight process
It takes years for a structure to work and adidas group is consistently reinventing its organization structure to achieve the unmet goals 2007 – Reorganized from brand based to product category based
structure 2009 – functional structure at board level by having separate units
for brand and marketing
There was no mass exodus from reebok. It shows the integration process was efficiently executed
AnalysisThe merger boosted the revenues to a record level within six
months
ConclusionBeyond communication, implementation of strong
mechanisms helped the top management to easily implement a complex process of integration of two global organizations
These mechanisms also helped in inducing culture, values, goals and strategies of top management within an organization even in short time
The importance of various stakeholders while implementing these mechanisms should be considered
The affect on several stakeholders would impact the organization significantly
Q&A
Thank You