A marriage made in heaven?

timely cultural integration planning keep the newly-coupled HP-Compaq together
and prevent a corporate divorce? Many experts believe so, writes Liz Simpson

most marriages between two people, corporate mergers and acquisitions are
rarely about anything other than big numbers. However, focusing purely on the
bottom-line benefits of these corporate pairings can blind executives to the
need to pay attention to the human and cultural factors involved – factors that
can end up costing both companies more than they had planned to gain.

the AOL and Time Warner merger, announced in January 2000, which, from a
cultural perspective, was akin to a Harvard Law School professor marrying a Las
Vegas showgirl. Starting out as a $103.5bn company named AOL Time Warner, the
company’s stock value has plunged by 80 per cent in the intervening two years.
The inability of the merged divisions to work effectively with each other is
generally cited as a principal reasons for this dramatic loss in value.

to management systems expert Saul Pilnick (see box), only one in five
merger/acquisition deals live up to expectations, primarily because of
unanticipated culture clashes. Will the 63-year-old high-tech stalwart
Hewlett-Packard avoid the same fate, following its recent acquisition of the
20-year-old Compaq computer company, and succeed in seamlessly joining two sets
of employees who had formerly regarded themselves as competitors? Anne Murray
Allen certainly thinks HP (as the new company will be known) has a better
chance than most. She’s a senior consultant within the company’s strategic
change office and part of the team responsible for helping blend the cultures
of both companies from the moment the merger was announced, rather than waiting
for it to be completed.

always been a student of culture and knew it was important to both sets of
employees to keep culture in the foreground," says Murray Allen. "We
learned from the experiences of other companies that it’s not enough to put a
senior team in a room to write a values statement, create posters and
Powerpoint slides, then have all the leaders mouth words that have no bearing
on what’s actually happening. When we asked people what makes a merger
successful, one of the critical things they said was to address the issue of
cultural integration and do it well. That makes a huge difference to lowering

the outset, the cultural integration team engaged 1,600 people from both
companies in interviews and focus groups. While such qualitative data is harder
to analyse, they felt this would provide a richer source of material to work
with. This ‘deep diving’ helped the 350 top leaders of the two companies come
together to formulate HP’s new cultural statement. Indeed, HP’s CEO Carly Fiorina
kicked off that meeting with a speech on values and the behaviours associated
with them, as well as setting out the new architecture for the merged company
and how they were going to make that happen.

by the time the new HP was launched on 7 May 2002, considerable work had been
done – including researching, writing and sharing stories across the company
about how the corporate values are being translated into action by employees.
This careful planning was also helped, oddly enough, by the proxy battle with
the son of one of HP’s founders, William Hewlett.  According to Los Angeles-based alliances and mergers expert
Larraine Segil, this delay allowed the integration team time to get their act
together and ensure the new company was ready to hit the ground running in May.

did meet with some pockets of resistance, but I think most everybody understood
this was a new marketplace and environment which required things to be done
differently than the way the original HP family liked things to be done,"
adds Segil. 

one hazard when an older, larger company (such as HP) is the acquirer is that,
rather than building on the strengths of both companies, the Goliath ends up
imposing its culture and values on the new partner.

that happened when the former Compaq bought Digital Equipment at the end of
1998. Craig McCoy, now with BSkyB, was then Compaq UK’s HR director. "With
the Digital acquisition, we added about 4,500 employees – roughly five times as
many as the existing Compaq workforce," says McCoy. "Digital was a
much older company and full of wily, old politicians who knew how to turn
situations to their advantage. Compaq, being younger, was focused but somewhat
na‹ve and, as a result, having bought Digital, we became Digital because
number-wise, we were in the minority."

believes that is unlikely to happen with the new HP – an opinion borne out by
the experience of Rusty Smith, a pre-merger Compaq employee, now a director in
the Network Storage division at HP’s Houston site. Smith went through an
integration process, called Fast Start, with his new manager and peers, and
says: "We found we were actually more alike than not. There were some
terminology and process differences we had to sort out, but both companies had
a culture based on high quality, a passion for customers and trust and respect
for each other. That hasn’t changed," adds Smith, who commends his manager
for helping the team get to know each other as people, not just co-workers, by
taking them out to dinner.

his part, Smith made a point of getting to know his whole team – some new, some
he’s worked with for several years – before selecting those who would become
his direct reports. It was important, he says, to go into that with an open
mind rather than make choices based on pre-merger relationships only.

trying to mitigate as many potential problems as possible, Anne Murray Allen
stresses that you shouldn’t try to orchestrate everything on the culture side.

can start with something fundamental like values and state desired behaviours,
but a lot of what happens is emergent," says Murray Allen. "You have
to allow people to talk about what works for them and to choose effective
behaviours which may look different across the company, but when referenced
against the corporate values, still have that thread woven through them."

significant advantage that couldn’t be orchestrated is the relationship between
HP’s chairman and CEO Fiorina and former Compaq CEO Michael Capellas, now its
president. Watching how these two complement one another could be just what’s
needed to make this one of the rare high tech mergers that actually meets its
ambitious goals.

Larraine Segil observes: "Carly is perfectly willing and desirous of
having Michael as her lieutenant. He’s a superb operations person who knows
what customers want, whereas she has a tremendous vision and grasp of how to
position HP. She’s now free to do that while he takes care of the nitty-gritty
stuff. There’s no power struggle at the top in this situation compared with
AOL-Time Warner, where you get the sense they’re still trying to overturn ‘the
enemy within’."

merger timeline

September, 2001
– Hewlett-Packard and Compaq computer company announce a
merger agreement to create an $87bn global technology company, boosting share
earnings from expected ‘cost synergies’ of $2bn in fiscal 2003

November, 2001
– All HP board members, with the exception of Walter B
Hewlett, son of one of the founders, support the merger

March, 2002
– HP issues a statement regarding the attempt by Walter Hewlett
to replace HP CEO Carly Fiorina with another executive as an "outrage and
blatant disregard of a director’s responsibilities"

April, 2002
– Walter Hewlett abandons his challenge to the merger, hours
after a US judge dismissed his lawsuit seeking to overturn the outcome of an
earlier shareholder vote

May, 2002
– HP announces the completed merger with Compaq. The new HP is
subsequently launched on 7 May

objectives for the new hp

Customer loyalty

Market leadership


Employee commitment

Leadership capability

Global citizenship

a pre-nuptial agreement

Pilnick, is co-author of The Shadow Organization in Logistics: The Real World
of Culture Change and Supply Chain Efficiency (Council of Logistics Management,
2002) and president of Human Systems in Florida, USA. The company has designed
and installed culture-based management systems and organisational processes in
more than 250 distribution, manufacturing, retail and service industries,
following a 30-year study of culture-change strategies. To ensure effective
organisational integration, he suggests:

Conduct a ‘pre-marital’ business/culture organisational analysis of both
organisations to highlight the benefits and pitfalls that the proposed marriage
will bring to both parties.  Identify
business and cultural differences and similarities and attempt to spot
potential strengths and roadblocks as soon as possible

Benchmark a new business and culture model and set culture goals that support
the new unified business goals at strategic, systemic and tactical levels

Develop an intervention plan to guide everyone through the transition period,
emphasising the business synergies to draw both companies together

Recognise that sovereignty issues will inevitably exist, but view crises as a
means of identifying key business and culture issues that must be addressed if
the relationship is to succeed

Keep all differences open and above board. Provide honest feedback throughout
the business and ensure management is prepared to accept feedback too


More on the HP-Compaq integration on: http://thenew.hp.com/country/us/eng/mergerinfo/mergerinfo.html

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