The inside story

Without the support of staff, structural changes can result in disaster for a company. Making them aware of the reasons behind a merger or downsizing should be a priority for businesses.

Marks & Spencer, Procter & Gamble and DaimlerChrysler may operate in different fields of business, but they have at least one thing in common: when managing upheavals in the structures of their organisations, all three companies have scored spectacular own goals.

M&S sparked protests across Europe when it announced a round of restructuring, store closures and job losses last April. In France, it was taken to court over plans to close its European operations, accused of failing to follow the proper procedures when announcing the job cuts. The chain’s reputation for treating its staff well, built up over decades, was threatened by one ill-thought out action.

The merger of Germany’s Daimler-Benz and Chrysler of the US in 1998 was not exactly a textbook example of a smooth transition. The German press now refers to Chrysler as “the American patient” and there have been severe difficulties in reconciling the two corporate cultures.

P&G’s attempts to restructure its business have been just as ham-fisted. Two years ago chief executive Durk Jager announced 15,000 job cuts as part of a restructure planned for 2005. He was ousted last year because he had apparently tried to go too far, too fast. But now it seems it wasn’t far or fast enough – his successor, Alan Lafley, announced a further 9,600 job cuts in April.

Wielding the axe

Unilever, Disney, and a host of telecommunications companies including Cisco and Nortel have all joined this year’s staffing cull in an attempt to persuade investors that they are taking radical action to cut costs and address stagnating sales.

But these headline-grabbing moves can backfire in the long run – restructuring and cost-cutting can leave the “survivors” – those staff lucky enough to escape the axe and hang on to their jobs – feeling scared, demotivated and disempowered. This can trigger a downward spiral in productivity and customer service.

Compunding matters, a string of mergers – Unilever’s acquisition of Bestfoods, Halifax’s union with the Bank of Scotland (BoS) and others – have prompted questions about how the merged entities’ customers will benefit, and whether staff will see the mergers merely as a means to make directors and investors rich. Some studies have shown that up to 75 per cent of mergers fail to increase shareholder value in the long term.

According to a study by KPMG last year, half of all mergers destroy shareholder value while another third make no difference. Internal marketing experts say this is because mergers are often carried through for the worst of reasons – such as bringing about a short-term profit boost – without a strategy for the future of the businesses concerned.

Last year, worldwide acquisitions and mergers reached a record $3.5trn (&£2.4trn), up from $3.3trn (&£2.3trn) the year before. However they are on the wane – the majority occurred in the first half of the year, trailing off in the second half. The decline has continued this year.

The internal marketing sector claims that it has answers to many of the problems created by downsizing, and that corporations should not attempt mergers, acquisitions or restructuring without paying proper attention to how employees are treated during such exercises.

Mark Lundquist, head of employee strategies at Carlson Marketing Group, says: “Studies have shown that, during a drastic change, up to 90 per cent of employees’ time can be spent on counter-productive activities such as chatting with colleagues about the situation. But if you do it properly and use decent internal marketing agencies, research says that people will understand why the changes are occurring and will be able to get back to work quite quickly.”

He adds that organisations may need to spend anywhere between 0.25 per cent and 1.5 per cent of the payroll budget on internal marketing in the case of a merger, acquisition or restructuring. But he believes this expenditure is worthwhile, as it is important in making the new situation work. “The benefits will be a direct reflection of the resources put in,” he says.

Internal marketing agencies are often called in to help staff through mergers, when the benefits need to be explained to employees. They have to be persuaded that there is a long-term logic behind the merger rather than just an excuse to cut costs.

Richard Mosley, a director of the Added Value Company, says: “The most important thing is to ensure there is a clear understanding of the joint vision of the two companies, the rationale behind their coming together and the end benefit to consumers and the people in the organisations. They need to be shown it is not just about cutting costs and finding efficiencies of scale.”

For the right r

easons?

Mosley concedes that many mergers are driven by a desire to find duplicated functions that can be carried out by one worker or department rather than two. But such mergers rarely save much money in the end, he says, as they lack strategic design and are regarded by customers as solely a way of improving the companies’ stock rating. He gives the example of the BoS-Halifax merger as a deal that does make sense, as it is driven by both companies’ need to expand geographically – into England in the case of BoS and into Scotland in Halifax’s case.

According to Mike Pounsford, chief executive of internal marketing consultancy Banner McBride, there are a number of principles that need to be applied to internal communication when there is a merger, acquisition, repositioning or restructuring. He says there should be faceto-face communication and adds: “Communicate early, often, regularly and consistently – be honest and don’t spin different messages. Open two-way channels. Senior leadership plays a vital role – it must be visible and accessible and perceived as trustworthy and consistent. Managers are a top priority.”

He says the success of any restructured business depends on how survivors feel their colleagues and friends were treated. Change unsettles people – survivors will question whether they should stay. Unhappy employees can damage customer relationships, a brand’s reputation, and the company’s external image (if disgruntled employees talk to the press). An unhappy organisation can take a long time to recover, if it recovers at all, he believes.

It is said that merging companies spend most of their resources on the wedding, and too little on making the marriage work. They will spend heavily on positive PR, on lawyers and investment bankers to ensure the deal goes through without a hitch and is well-perceived. But after the honeymoon is over, the real job of forging the common goals of the combined businesses remains.

Maritz client services director James Brooke says: “We have to deal with the fallout, particularly after mergers. There is a big brouhaha around the announcements, but after that, as people are going through anxiety, you get attrition and pressure from investors for results.”

He says too much time is spent on team-building exercises between staff from the merged companies, where what is really needed is to unite them in the face of competition.

He adds: “The best way to build teamwork and a cohesive culture across two merging groups is to keep everyone focused on the external market. In general, people are motivated by the possibility of winning in the outside world. They are not motivated by team-building exercises. We often paraphrase Bob Waterman, who says: ‘Teams don’t come together to team-build, they come together to win’.”

Staff involvement

The merger of Lloyds Bank and TSB in 1998 was the subject of an internal marketing campaign carried out by Jack Morton Worldwide, which attempted to unite the 77,000 staff of the two companies and rebrand the operations as Lloyds TSB. It consisted of two stages: first, a trial of a jointly branded bank in Norwich, and second a presentation of the rationale behind the merger at a live event in Birmingham.

The pilot branch in Norwich was shown to 230 members of staff then 16 months were spent refining the messages. Then came the task of rebranding 4,300 cash machines, 2,300 branches and 40,000 uniforms. Jack Morton managing director Laurence Croneen says: “One of the most important messages was that staff had to believe they were the brand’s most powerful manifestation.”

For the live event in Birmingham, 5,000 members of staff were nominated as “pathfinders”, each representing 15 people, who would take the message back to the branches. Croneen describes the event as “enormously emotional”. It culminated in a live concert by the Corrs, who also provided the music for Lloyds TSB’s ad campaign.

In the following three weeks, information was cascaded down to the entire organisation. The process was evaluated by a team from the management centre at Kings College, at a cost of &£10,000.

According to Croneen: “The research concluded that the event was a success, that it met its objectives and that there was some change in all areas. Staff felt better informed about the changes, the values of the bank and had greater pride in it.”

The indications from internal marketers are that more companies are considering downsizing as fears of recession grow. Whether these moves will end up causing long-term damage to the businesses will depend on the way staff are treated through these traumatic times.

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