hp compaq merger 1
TRANSCRIPT
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© 2003 Hewlett-Packard Development Company, L.P.The information contained herein is subject to change without notice
Managing a successful integration: lessons learned from the HP/Compaq merger
Hugo BaguéVice President, EMEA Human ResourcesHP EMEA
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Agenda
• The opportunity• Achieving success: doing our homework• Managing a rigorous pre-close process• Preparing for launch day• Creating the post-close integration structure and
processes• Where HP stands today• Any open questions
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The opportunity
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Merger overview
• Merger created a $70 billion global technology leader with the industry's most complete set of IT products and services for both businesses and consumers
• New HP is the #1 global player in servers, imaging & printing, and access devices (PCs & hand-helds), as well as Top 3 player in IT services, storage and management software
• Combination furthers each company's commitment to open, market-unifying systems and architectures and aggressive direct and channel distribution models
• Combined company is creating substantial shareowner value through significant cost structure improvements and access to new growth opportunities
• New HP has operations in more than 160 countries and over 140,000 employees
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HP’s challenge
• Largest merger in technology history
• Skeptical market• Heated proxy battle• Weak IT market
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Achieving success: doing our homework
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Attributes of successful mergers
• Bring like businesses together, aren’t forays into new businesses
• Help achieve clear market leadership
• Are stock only and provide a stronger post-merger balance sheet
• Result in significant cost savings
• Use a strong, central planning effort
“Indeed, we found the market apparently prefers deals that are
part of an ‘expansionist’ program, in which a company seeks to boost its market share by consolidating, by
moving into new geographic regions, or by adding new
distribution channels for existing products and services. The market
seems to be less tolerant of ‘transformative’ deals,
those that seek to move companies into new lines of business or to remove a chunk of an otherwise
healthy business portfolio.”
Deals that Create ValueMcKinsey Quarterly
2001 Number 1
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10 critical success factors in execution
• Both cost and revenue synergies included• Plans, accountabilities, and clear
metrics/targets assigned to project level • Strong program management processes to
track/drive results
5. Synergies and path to realization specifically identified
• Plans in place for all functions, businesses, and geographies
• Effective transition from plan to action
4. Day one readiness
• Clear points of contact• Uninterrupted attention/support• Maintained relationships with
partners/channel
3. Unyielding focus on customers
• Communication of offerings to marketplace• Re-alignment of internal efforts• Branding strategy
2. Clear product roadmap
• Reasons for merger explained• Degree of integration defined• Criticisms addressed
1. Well-defined acquisition strategy
Sample elementsCritical success factors*
*sources: “Lessons From the M&A Front: The Morning After” Deloitte Consulting Report (1999); “Why Mergers Fail” McKinsey Quarterly (2001); “Not All M&A’s Are Created Equal – and That Matters” Harvard Business Review (2001)
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10 critical success factors in execution
• Minimize periods of uncertainty• Complete the planning prior to close• Attack synergies from day one
10. Speed/decisiveness
• Nature of cultural differences identified• Proactive steps taken to bridge gaps• “Rules of the road” for interaction defined
9. Recognition of cultural differences
• Key employees identified and targeted• Employee morale issues addressed• Incentives utilized where appropriate
8. Focus on employee retention
• Communication early and often• Reaches all stakeholders (employees,
shareholders, analysts, customers, partners, et al.)
• Clear, consistent messages
7. Effective communications to stakeholders
• Board/executive roles agreed to• Organization structure defined• Line management roles determined
6. Clearly defined new co. governance
Sample elementsCritical success factors*
*sources: “Lessons From the M&A Front: The Morning After” Deloitte Consulting Report (1999); “Why Mergers Fail” McKinsey Quarterly (2001); “Not All M&A’s Are Created Equal – and That Matters” Harvard Business Review (2001)
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Managing a rigorous pre-close process
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Building the integration planning team
• Post-merger integration (PMI) leadership and group management named at time of announcement on September 4, 2001
• Additional “new HP” senior leaders announced October 12, 2001
• Dedicated, full-time PMI leads from both HP and Compaq directing planning for businesses, functions and horizontal processes since September– Linked to “new HP” senior management team
• World-class advisors engaged
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New HP vision and merger integration team purpose
Merger integration team purpose:• Provide effective overall leadership for the planning and
execution of the integration of HP and Compaq• Assure effective linkages with the business line managers,
functions, regions, the integration steering committee and HP’s Executive Council
• Assure that the value captured is maximized and exceeds public expectations
• Assure the new HP is set up to achieve long-term growth objectives
New HP visionWe create a great new company that is a leader in our chosen fields
and is positioned to be the leading overall IT solutions provider
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Guiding principles for the merger integration team
• Start with the customer experience, retain the highest level of customer satisfaction
• Name executive leaders early and link tightly into planning
• Ensure that structure follows strategy• Make decisions quick and make them stick • “Adopt and go”• Clarify roles and ensure shared accountability• Create dedicated integration teams• Address cultural similarities and differences• Rigorously measure, manage and communicate
integration progress, wins, issues and opportunities
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Sharply focus on value creationPre-close merger integration team structure
Bus
ines
ses
Hor
izon
tal p
roce
sses
Pro
gram
sp
ecifi
c
Imaging and printing systems group
go-to-market
Personal systems group
go-to-market
Enterprise systems group
go-to-market
Services
go-to-market
Central program management office (cPMO)
Closing/antitrust (legal)Global functions infrastructure
Communications – merger communications & messaging
Supply chainCustomer to cash team (CRM, OM, PDM)
Information technologyFinance
Human resources (includes organizational design and selection)Brand architecture
Communications – organizationHP labs
Real estateCTO
e-inclusion and community engagement.com/e-commerceGovernment affairs
Shared go-to-marketValue capture
Culture
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Integration planning framework
Measures• Customer satisfaction• Financial• Employee satisfaction • Operational excellence • Recognition and reward
systems
Structure & process• Organization structure • Systems & processes• Information flows and
decision making process• Financial & information
systems architecture
Strategy• Strategic priorities• Go to market strategy• Portfolio • Channel strategy
People & culture• One common culture• Retention of top talent• New competencies for our
people• Roles and responsibilities
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Integration team focus before completing the merger
Organization & GTM structure• Level 1-3 leadership • Top 100 accounts• Contingency plan• Organizing principles• Go-to-market structure and planning• Supply chain partners
Financial plan• Historical model• Base case and target model• Headcount, restructuring,
discretionary spending targets• Accountability and operational
metrics
Product roadmaps• Base model revenue, market share• Product lines as they exist today• Go-forward product lines and sub-
brands• Phase-out set of products• Hand-off to master brand team
Launch plan• Touch programs• Advertising/brand launch• Web launch• Account plan process• Training
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Workstream spotlight:Cultural Integration
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Cultural integration goals
To build a strong, new culture that:• Is clearly defined and broadly understood• Reflects the business strategy and brand• Supports best-in-class performance with customers,
partners, shareowners and employees• Produces alignment, commitment and excitement• Establishes a competitive advantage• Is reflected in the communications and actions of core
leaders
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Culture integration planning framework
Sample input• Newco exec
culture session• HP historical• CPQ historical• New HP brand• Competitive
environment• Customer
Sample output• Vision & governance
for new company• Balanced scorecard
& pay metrics• Leadership selection• Formation & start-up
of new teams• Customer (quality)
initiatives• FastStart program
Strategies
Corporateobjectives
Values
Structure & process
Metrics &rewardsBehaviors
Policies &practices
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Preparing for launch
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Day 1 preparation
• Focus solely on launch day• Gain agreement on day 1 requirements across
functions/activities• Make adopt-and-go decisions• Develop conceptual/ physical models• Prepare• Test• Review readiness • Establish command centers
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HP Playbook example
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Measuring success at launch‘We were ready’
• >170 client business managers, 25 partner business managers and 30 retail account managers trained and announced
• >800 senior managers named, including region and country leads• Product roadmaps and transition plans available• Customer and partner outreach and training programs initiated
– >1100 customers contacted to date – 23 top US/EMEA retail accounts contacted on day 1 – All partners given access to on-line sales training
• Sales readiness training website received 40,000 hits in the first hour of launch and 100,000 hits by end of day
• >20,000 presales and sales call center agents and 8000 consumer support users trained and ready day 1
• Channel strategy in place and communicated• Work force restructuring initiated
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Launch report: Infrastructure delivers
• hp.com (online store) open for business• @hp employee portal accessible to all employees• Company networks connected at key strategic locations • Active directory and enterprise directory synchronized• E-mail systems interconnected• All external call centers with HP greeting on day 1• Employee names with hp.com suffix for external email
(both in-bound and out-bound)• Day 1 infrastructure management environment
– Monitoring and reporting process– Escalation and incident management process– Command center for 30 days
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The new world of HP IT
Mailboxes229,000
Accounts232,632
Number of desktops220,000
Sitesnetworked
1193# of network
devices39,000
Number of countries>160
Hits/dayon @hp employee portal
>2 million
Applications>7000 # of daily calls
(IT help centers)
8000
IT professionals
10,000
Weekly email volume24 million
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Post-close integration structure and processes
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Integration plan of record
• Managing integration progress through a rigorous process
• Tracking all projects and their milestones to ensure we meet synergy goals on schedule
• Ensuring tie off with value capture, restructuring and financial planning targets
• Determining accountability owner for each project • Driving results through merger integration office focus
on cross-organizational dependencies, pan-HP view
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Remain sharply focused on value creationPost-close merger integration team structure
Steering committee
Central merger integration office
Groups Regions/countries
Worldwideoperations
Corporate functions
PMI PMI PMI PMI
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Value capture planning framework
Value capture team
• Drive overall top-down corporate planning process to achieve full value of the merger by 2004
– Provides top-down baseline, forecasts, synergy targets
– Consolidates integration team submissions
Integration teams
– Verify and refine top-down baseline, forecasts and synergy targets with bottom-up data
Corporate planning– Monitors and tracks revenue, cost
and synergy capture over timeGroups
– Responsible for revenue, owned cost and synergy targets
– Execute on synergy capture for day-to-day operations
Functions– Execute on synergy capture on
owned costs for day-to-day operations
Management compensation tied toachieving value capture goals
Integration planning Implementation post-closing
Kick-off of group and functional teamsTime
Integration starts
Deal close
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EMEA High Level Integration Structure Implemented
Cross BGCross BG
Infrastructure(HR, Fin, IT etc)
Infrastructure(HR, Fin, IT etc)
PSGPSG IPGIPG ESGESG HPSHPS
• Strong central design management – Clean Room & IPORs plus clear targeting• There are 2 main elements to the integration structure implemented;
– Cross Business Group / Infrastructure– Business Group Specific
• The cross Business Group structures focussed on integration elements that touched multiple Business Groups
• They are run at regional and country levels
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Where HP stands today
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Ahead of plan on four key areas
Key area of focus Milestones/targets
Procurement/supply chain
Headcount reduction
Administrative facilities closures
IT integration
• $550 million direct procurement synergies• $250 million indirect procurement synergies • $125 million manufacturing facilities closure
• 10,000 by end of 2002• 17,900 by 2003• $1.5 billion synergies
• 21% reduction in total square footage• $250 million administrative facilities closure
• Complete integration of key systems• Reduce current application portfolio• Transform IT innovation into competitive
advantage
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Important lessons learned
• Detailed planning is essential – Entails more work than expected– Requires sufficient, full-time resources on planning teams– Requires balanced teams – knowledge and culture
• Working cultural issues is essential– Due diligence– Values (new)– Fast Start
• Must create a sense of urgency and move quickly– Name executives and planning leadership and start planning
immediately• Set ambitious goals and measure rigorously• Understand and take into account EMEA complexities• Additional end to end process focus preferable• Use ‘adopt and go’ decision style• Define an end date – not too soon & not too late! (12 – 18
months)
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Merger integration success: It all starts with people
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HP’s People Strategy after the merger...
Managing Cultural Change
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Managing Cultural Change
I. The need for a change management strategyII. HP’s People Strategy
– Stabilize: Building the new HP foundation – Mobilize: Creating a high performance
workplace– Energize: Ensuring the best work environment
III. Conclusion IV. Q&A
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Change is an opportunity that you can influence, and when managed correctly
it will energize an organization
Quote slide
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Why Manage Change?
• Significant workplace change can defocus an organization
• Consistently practiced change management techniques will:– anticipate the phases of emotions– address the issues– maintain strong communication efforts– provide the catalyst to move people through change without
losing focus and productivity
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HP-Compaq Merger: The Challenge for HR
Develop a strategy to maintain and surpassthe pre-merger standards of both companies
while managing massive cultural change
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Five Stages of Change Management
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Stage One: Awareness
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The HP People Strategy is aligned to our corporate objectives and
valuesand designed to keep employee
commitment, especially in this timeof change.
Quote slide
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HP’s People Strategy enabled HR to:
• Speed and smooth the process of change
• Move through the initial change period
• Set a culture of high performance right from the start
HP’s People Strategy
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Overview: HP’s People Strategy
Best Place to WorkEnergize
High Performance WorkplaceMobilize
New HP FoundationStabilize
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Stages Two and Three: Cope, Internalize and Align
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Building the New HP Foundation
Build New HP FoundationStabilize
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Building the New HP Foundation
organizationimplementation
&effectiveness
org designorg design& selection& selection
MRUMRUFast StartFast Start
culture culture cornerstonecornerstone
ss
workforceworkforcereductionreduction
totaltotalrewards &rewards &benefitsbenefitsdesigndesign
– job titles– job levels– pay/bonus
mix– structuresbenefits– retirement– time-off– health
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• Speed is essential
• Act early
• Encourage face-to-face interaction
• Be pragmatic
• Choose a cornerstone for the new organization
Guidelines for Building the New Foundation
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Building the New HP Foundation
• Speed is essential– Clear, regular and open communication
• Act early– Involvement of management and employees from the very
beginning– “Clean Room” teams discussed the design and culture of
the new organization
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Building the New HP Foundation
• Encourage face-to-face interaction– Fast Start sessions
• Be pragmatic– “Adopt and go” methodology
• Choose a cornerstone of the new organization– Employee portal: @hp
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Stage Four: Execute
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Creating a High Performance Workplace
High Performance WorkplaceMobilize
New HP FoundationStabilize
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What is High Performance?
The high performance culture accelerates future growth by:
• Maximizing organizational/individual productivity and capability
• Aligning individual performance with company and business objectives
• Using rewards as the motivator • Developing people through effective coaching, performance
feedback and development planning
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The High Performance Model
balanced scorecard, HP values and supporting behaviors
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Stage Five: Reinforce and Arrive
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Ensuring the Best Work Environment
Best Work Environment
Energize
High Performance WorkplaceMobilize
New HP FoundationStabilize
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Ensuring the Best Work Environment
1. Re-evaluated personal conduct policies and practices2. Objectively examined behaviors and actions within HP3. Created a new set of standards that define what we
stand for today, owned by all HP employees. 4. Not an HR program—a broad-based, company-wide
initiative5. Long-term solution6. Personal
accountability and ownership
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”How we get things done is as important as what we get done.”
- Carly Fiorina
Quote slide
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Reinforcing desired behavior
• Clearly set expectations for personal conduct• Charge each employee with accountability and responsibility
for creating the best work environment• Provide resources, training and tools• Reward those who contribute to and ensure best work
environment
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Five Stages of Change Management
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Question & Answer Session
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