Story:
Making Mergers Work: Innovating M&A Integration from the Ground Up

By Sam Knuth (Folk-Williams) - Senior Manager, Customer Content Services at Red Hat

January 6, 2013 at 6:50am

Summary

Red Hat’s Global Support Services (GSS) organization has been innovating on internal processes and service offerings for some time (see http://www.managementexchange.com/story/designing-open-collab and https://www.redhat.com/about/news/archive/2012/10/innovating-support-at-red-hat). In the recent past, we have faced the need to extend that spirit of innovation toward a new challenge: how to manage the complexities of integrating the customers, employees and processes of a newly acquired business with very little notice and no downtime from normal operations. It’s critical that incoming customers can continue business as usual during the integration process, that incoming employees stay engaged and informed while they re-adjust, that existing employees learn about and welcome their new colleagues and products, and that existing customers can be informed about the new offerings. In this story, I’ll discuss how we empowered people who normally wouldn’t be exposed to this kind of business process to establish a method to make acquisition integrations smooth and successful.

Context

How can you make something as complex as an integration succeed, keeping employees and customers happy and engaged on top of the already high workload? Red Hat is a rapidly growing technology company where the pace of work is frenetic. In the support organization, there is never a slow moment in working with our diverse customer base on a complex array of different use cases for our enterprise software products. Acquisitions, of course, can be stressful and complicated in the best of times. Integrating cultures, processes, people, tools, and customers is a daunting task and one that can easily result in complications and hard lessons learned.

Triggers

For our team, the primary trigger for these business process innovations was Red Hat’s acquisition of another software company, Gluster, in October of 2011. I found out about the acquisition the day it was publicly announced, and the VP of Global Support Services insisted that we had to integrate Gluster’s support operations with ours within the first 30 days. We knew that there was a good chance we’d need to apply our lessons learned from this experience in the future, and we were right. In the next 14 months we completed three additional acquisitions.

Key Innovations & Timeline

On the day the Gluster acquisition was announced publicly, I and several other members of the Global Support Services management team were told about the acquisition for the first time, and informed that we would make up the integration team – each of us responsible for our specific area. We were also told that we needed to target 30 days for the transition of all the internal and external processes and tools, as well as customers and employees, from Gluster to Red Hat systems. This tight timeline was a key innovation over previous acquisitions that we had done. It was arbitrary, but proved critical. By setting a high goal to strive for, the team was able to mobilize quickly and focus. Extra time (or no timeline at all) can drag out the process and encourage procrastination or lack of focus.

Immediately, everyone started chiming in with what they thought needed to be done to ensure success in their domain. This was important, but also chaotic. If each person struck out on their own to manage the integration for their area, we would end up stepping on each others toes, as well as missing opportunities or duplicating efforts. So, the first thing the group decided was to assign a point person to organize the activities and give that person the authority and autonomy that they needed (including directing people much more senior than themselves). We had to make sure this person had enough flexibility in their schedule to incorporate the new responsibility. A key innovation was to avoid the inclination to name a senior manager to this role. A senior manager would struggle to devote enough time to the task, and would also be too far removed from the operational details to be effective. I was nominated to lead the integration effort.

I quickly realized I had no idea how to pull this off. This led to a series of what I consider small innovations – approaches to managing the integration that others in Red Hat hadn’t tried before, knowing that we were testing out ideas that we wanted to use again in the future.

Assign one person from each area to be accountable for everything in their domain (and empower, then enable them to own that accountability by working with the appropriate management team). This required us to make a list of each function – which, again, is harder than you might think; can you articulate each discrete function in your department that might be needed to ensure a smooth integration of dozens of new customers and staff and all the accompanying processes? This led to a key realization: don’t ask the senior managers – they are too far removed from the daily processes. Ask the people on the front line or the front line supervisors. Bringing in people “further down the chain” proved a critical part of success.
Ask integration team members and incoming employees lots of questions, and challenge their assumptions. Do this by holding frequent integration meetings that include employees of the acquired company (2-3 times a week for 30-60 minutes). Each question, no matter how simple, reveals the deep complexity of each task. A good technique is to ask the question “why” or “how” 5-7 times for every assertion. This can force a more detailed level of critical thinking and uncover overlooked details. For example, in one early meeting I asked “What phone number will Gluster customers call when they want to open a support case?” They would continue to call the same number they did before the acquisition. But how long would that number remain active? Did we need to forward that number to our main number? If so, when? And, when we did that, would the automated phone tree options be confusing to Gluster customers? Did we need to add a special menu option just for them? Who do we need to contact to forward the number (who will actually do that work)? Who actually owns the phone number? How do we transfer ownership? (The results of this line of questioning are now accounted for in our integration template).
Keep everyone informed. There is a lot of secrecy during the period of time acquisitions are evaluated, negotiated and executed, where transparency outside a small deal team is impossible. Integration is a different phase where increased communication and transparency should be the norm. In the absence of updates from the integration team, people will make assumptions and fill in their own theories. Remember that acquisitions are stressful – emotions can run high, and people will speculate on what is going to happen. Keeping people informed of the status of the integration is an easy way to avoid potential problems. Having a comprehensive (and documented) communication plan proved a critical part of a successful process.

At the end of the first 30 days, we had made significant progress. We weren’t 100% done, but the major pieces of the transition were all in place. The new employees had been onboarded, the existing associates had been coached on the new products, and the customers had received continuous communication and were successfully transitioned to our systems. Best of all, we had a blueprint for how to do this in the future.

Challenges & Solutions

One of the biggest challenges we encountered as a support organization was the realization that not all the customers of the acquired business were necessarily good customers for Red Hat. We had to have some tough conversations with customers and our new colleagues about what made the most sense for all parties involved – there are big differences between start-up companies and established enterprise companies. A customer might not agree with the product roadmap we have in mind, for example, or they might require a level of support that we can’t justify providing. It isn’t easy, but it’s much better to have these conversations than to ignore potential problems.
M&A is scary stuff. Often reserved for a special team or to senior levels of management, surrounded by legal and HR questions, fraught with cultural sensitivities and personal insecurities – it’s not something most people are ready to take on. The solution to this challenge is to disambiguate the process. Break it down into small pieces that people can understand and relate to. Anybody can help take on this challenge if it’s presented in the right way.
Change is hard. If you’ve never been “acquired”, imagine how scary it must be to the people in the target company. Even if you are confident that your job will move to the new company, how would you cope knowing that everything about your workplace (including the physical office) was about to be totally transformed? It’s important to continually reach out to the incoming staff. Have senior managers check in with them regularly. What are the pain points? What are the questions? Set them up with a “buddy” to show them the ropes. And don’t forget your current employees – they may feel threatened or uncertain about how to welcome their new peers.
Among the many sensitivities during the M&A process is the need to keep up business as usual – at both companies – without sacrificing the customer (or the employee) experience. Frequent communication is critical here to make sure nothing gets dropped. Also, have open conversations about priorities and what things can wait until after the integration activities are settled.
Big vs. Small. Acquiring companies are often big enterprises, and acquired companies are often small startups. Navigating the cultural and structural differences between these groups is difficult, but crucial. An attitude of “assimilation” is probably not going to be well received. Being open to change and innovation on both sides can be an important attitude for a smooth transition.
There is no time for this! There is no way around this challenge – some people will have to work really hard for a period of time. Ideally, there is a way to offset the normal workload of the integration team members, but most likely managing the integration will require extra effort from a lot of people. It’s important to reward the people who help, and let them know how important their work is.

Benefits & Metrics

The easiest way to measure the success of an integration operationally is to look at how things are working (I will not address other metrics for M&A activities, such as financial performance). In our case as Red Hat’s support organization, we look at several areas:

Incoming Customers. How do customers feel about the transition? Were they informed during the process? Did their expectations in terms of service get met (or, hopefully, surpassed)? The key here is to ask them – either through a survey or by talking to them directly.
Incoming associates. Are the incoming associates able to do their jobs? Do they feel comfortable? Do they have someone to go to with questions? Are they learning the processes and cultural norms of your organization? Again, frequent communication is key.
Existing associates. Do existing associates understand the new company and its products? Are they absorbing and welcoming their new colleagues?
Operational metrics. Are the normal operational metrics keeping up? Is there a dip in productivity?

If any of these areas show warning signs, it’s important to investigate to understand the cause of the problem and take steps to address it. It’s easy to forget things or let things slip during the integration process, but most things can be remedied once a problem is discovered and acknowledged.

Lessons

There are several key lessons from the acquisition of Gluster that we have applied in subsequent acquisitions:

Show respect to the acquired business, its products and its people. The incoming employees surely do things differently – and that doesn’t mean it’s wrong. They’ve worked hard to get where they are, and they have good products and services (or you wouldn’t have acquired them!). Talk to the incoming employees frequently, make sure they are included in the integration team, and learn from them what you can. They know more about their products and their customers than you do. For Gluster, we had daily meetings with the incoming support manager, and we immediately flew their technical employees to our main office to do knowledge transfer with their new Red Hat colleagues. In subsequent acquisitions, we worked with the incoming management to understand the career ambitions of the incoming employees and how we could help them achieve their goals within Red Hat. For example, we recently promoted to management a high performing employee from a business we acquired this past September.
Don’t keep the integration team active forever – there is a point where you are no longer “integrating”, but you are simply doing business as usual. Try to reach this point quickly, and when you get there, acknowledge it, thank the integration team for their work, and move on.
You need to have a map. For us, this was the task list that we developed by asking each member of the integration team to articulate everything that had to be done to run the business in their area. The key lesson here is to write down everything you do (and everything you learn) as you go. Keep the list evolving so that next time the process will go more smoothly. For Gluster, we had to create the map on the spot. For subsequent acquisitions we had a much better starting place, but each one is unique.
Be prepared for the unexpected. If there is one thing you can count on, it’s that something will go wrong or some last minute complication will be introduced. What if a key member of the staff of the target company quits and takes key knowledge with them? What if the legal team discovers an unexpected complication? Take all developments with stride – there is no “normal” for how integrations work.
Disclose more people sooner. One of the biggest challenges we had to deal with during the Gluster integration was the fact that the integration team was not informed of the acquisition until the day it was publicly announced. Like many companies, Red Hat doesn’t do enough acquisitions to justify a dedicated M&A team. But, the members of the legal team who perform due diligence on acquisitions learned from Gluster that it can be enormously beneficial to disclose earlier people who will be leading the integration efforts across the company. For subsequent acquisitions, I was informed far enough before close to make our first 30 days post-integration happen much more smoothly.