The Executive Newsletter of TheOfficialBoard

by Didier Toussaint

Some figures assert that less than half of the mergers among business corporations can claim to be successful. While at first it makes sense economically, the implementation of the merger eventually tends to destroy value after implementation. Why?

With a growing concern for profitability over the three past decades, the notion of corporate mission has been left aside.  While making a profit is crucial for survival in a free market economy, corporations need to foster the collective motivation that keeps people working together towards a common goal. Before it can generate profits, a corporation is an institution based on an original intention. Usually determined by its founder, the corporate purpose is what makes it meaningful.

Louis Renault founded his firm in 1899 with the concept of a low-cost vehicle. Renault kept the company geared towards innovation with a rather authoritarian management style.  The Logan, a low-cost car now assembled in Romania, is successful partly because it is consistent with that vision.  The attempt to join forces with the high-end Volvo in 1993 was not a good fit; the luxury market required a softer type of management.

Strangely enough, corporate mission is a well respected concept as far as brand management is concerned, but far too often undervalued when it comes to people management.

Mismanagement happens when processes and people collide, and anxiety develops among executives. Managers see the new diversity of knowledge, historical backgrounds, and identities as confusing or even destructive, rather than acknowledging it as a major resource. They impose artificial organizational structures for the sole purpose of reaching a complete homogeneous environment, dictated by reason and imagination rather than experience or realism. Field work and day to day operations suffer, as morale and a sense of mission are lost.

The way Air France and KLM joined forces while respecting the existing brands and identities is a perfect example of how a merger may be successful. Individual management style was taken under consideration, as was the sensitive role of the airline as a national symbol.

The nearly impossible construction of a common identity within EADS is a famous counter-example. This company has been suffering from an ill-defined identity since the beginning. In spite of this weakness, the firm is successful because it is in a business which requires a high degree of centralization and planning as far as production is concerned, and strong political support as far as sales are concerned.

Respecting the corporate purpose and meaning of each firm involved is the key to a successful merger. It requires a type of manager with exceptional interpretative skills rather than predetermined normative concepts.

After several years with Heidrick & Struggles and A.T. Kearney as a Vice-President, Didier Toussaint is a founding partner of DIT, a consulting firm focusing on change management by leveraging the unconscious processes of business corporations. He is the author of several books including Renault ou l’inconscient d’une entreprise.

By Reid Walker, Lenovo

With the global economy in upheaval, traditional distinctions between consumer and producer nations, and between developed and emerging markets has blurred, creating promise and peril for multinationals as the early “shoots” of economic recovery take root.

1. Brazil, Russia, India and China are evolving into vast market economies, and many smaller economies are making similar progress. China has emerged as today’s third largest economy and is poised to surpass the United States in GDP before mid-century, with countries like India and Brazil not far behind.

2. Demographics and education levels are changing. The population of the Western world is growing older relative to that of the East. Brazil, Russia, India, and China have a high and growing percentage of college educated adults; now approaching 20% - second only to the United States.

3. Widespread use of information and communication technology is changing the world. The PC, the internet, and inter-operable software have made real instantaneous communication on a global scale. This development has forever altered all facets of our economic, political and social lives.

The PC has been a key enabler of evolution to world sourcing. Lenovo, partly because of its origins, has pioneered its use in the PC industry. Its world sourcing approach to business has created a platform for success and leadership. A new kind of company that blends the best thinking of East and West is emerging to meet the needs of a changing world.

What did it take for us to be a world sourced company? World sourcing meant locating resources strategically to serve key markets globally. That meant having the most talented and innovative people, the strongest infrastructure, the deepest language proficiency, the finest technology capabilities, the most efficient operations and  facilities, wherever they are best available to sell wherever profitable markets exist. Easy to say…

Our World sourcing addresses 3 key challenges in getting closer to customers.  First, competition has no borders: you can’t hide from high-value, low-cost offerings.  Second, customer service is critical, but it is harder to deliver well because it demands increased knowledge of local markets, cultures and business practices including underserved consumers in developing market economies. Third, in a world with essentially one time zone, we have to source materials, innovation, talent, logistics, infrastructure, and production wherever they are best available.  And we sell wherever a profitable market exists, anywhere in the world.

In today’s economic climate, companies must world source or perish. It is that simple…

Reid Walker, is Vice President Global Communication at Lenovo, one of the 3 leading global PC suppliers.