oversight

Results-Oriented Cultures: Implementation Steps to Assist Mergers and Organizational Transformations

Published by the Government Accountability Office on 2003-07-02.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             United States General Accounting Office

GAO          Report to Congressional Subcommittees




July 2003
             RESULTS-ORIENTED
             CULTURES
             Implementation Steps
             to Assist Mergers and
             Organizational
             Transformations




GAO-03-669
             a
                                                July 2003


                                                RESULTS-ORIENTED CULTURES

                                                Implementation Steps to Assist Mergers
Highlights of GAO-03-669, a report to           and Organizational Transformations
congressional requesters




The Comptroller General convened                At the center of any serious change management initiative are the people.
a forum in September 2002 to                    Thus, the key to a successful merger and transformation is to recognize the
identify useful practices and                   “people” element and implement strategies to help individuals maximize
lessons learned from major private              their full potential in the new organization, while simultaneously managing
and public sector mergers,                      the risk of reduced productivity and effectiveness that often occurs as a
acquisitions, and organizational
transformations. This was done to
                                                result of the changes. Building on the lessons learned from the experiences
help federal agencies implement                 of large private and public sector organizations, these key practices and
successful transformations of their             implementation steps can help agencies transform their cultures so that they
cultures, as well as the new                    can be more results oriented, customer focused, and collaborative in nature.
Department of Homeland Security
merge its various originating                   Key Practices and Implementation Steps for Mergers and Organizational Transformations
components into a unified                        Practice                                     Implementation Step
department. There was general                    Ensure top leadership drives the             •   Define and articulate a succinct and compelling
agreement on a number of key                     transformation.                                  reason for change.
practices found at the center of                                                              •   Balance continued delivery of services with
successful mergers, acquisitions,                                                                 merger and transformation activities.
and transformations. In this report,             Establish a coherent mission and             •   Adopt leading practices for results-oriented
                                                 integrated strategic goals to guide the          strategic planning and reporting.
we identify the specific                         transformation.
implementation steps for the key                 Focus on a key set of principles and         •   Embed core values in every aspect of the
practices raised at the forum with               priorities at the outset of the                  organization to reinforce the new culture.
illustrative private and public                  transformation.
sector examples.                                 Set implementation goals and a timeline to   •   Make public implementation goals and timeline.
                                                 build momentum and show progress from        •   Seek and monitor employee attitudes and take
                                                 day one.                                         appropriate follow-up actions.
To identify these implementation                                                              •   Identify cultural features of merging
steps and examples, we relied                                                                     organizations to increase understanding of
primarily on interviews with                                                                      former work environments.
selected forum participants and                                                               •   Attract and retain key talent.
other experts about their                                                                     •   Establish an organizationwide knowledge and
                                                                                                  skills inventory to exchange knowledge among
experiences implementing mergers,                                                                 merging organizations.
acquisitions, and transformations                Dedicate an implementation team to           •   Establish networks to support implementation
and also conducted a literature                  manage the transformation process.               team.
review.                                                                                       •   Select high-performing team members.
                                                 Use the performance management system        •   Adopt leading practices to implement effective
                                                 to define responsibility and assure              performance management systems with
                                                 accountability for change.                       adequate safeguards.
                                                 Establish a communication strategy to        •   Communicate early and often to build trust.
                                                 create shared expectations and report        •   Ensure consistency of message.
                                                 related progress.                            •   Encourage two-way communication.
                                                                                              •   Provide information to meet specific needs of
                                                                                                  employees.
                                                 Involve employees to obtain their ideas and •    Use employee teams.
                                                 gain their ownership for the                •    Involve employees in planning and sharing
                                                 transformation.                                  performance information.
                                                                                             •    Incorporate employee feedback into new
                                                                                                  policies and procedures.
                                                                                              •   Delegate authority to appropriate organizational
                                                                                                  levels.
www.gao.gov/cgi-bin/getrpt?GAO-03-669.           Build a world-class organization.            •   Adopt leading practices to build a world-class
                                                                                                  organization.
To view the full product, including the scope
and methodology, click on the link above.       Source: GAO
For more information, contact J. Christopher
Mihm, (202) 512-6806 or mihmj@gao.gov.
Contents



Letter                                                                                                                  1


Appendixes
              Appendix I:    Mergers and Transformations: Key Practices and
                             Implementation Steps for Federal Agencies                                                  7
             Appendix II:    Objective, Scope, and Methodology                                                      32
             Appendix III:   Acknowledgments                                                                        34
             Appendix IV:    Selected Bibliography                                                                  36


Tables                       Table 1: Key Practices and Implementation Steps for Mergers and
                                      Organizational Transformations                                                 8
                             Table 2: Key Practices for Effective Performance Management                            22




                             Abbreviations

                             DHS                   Department of Homeland Security
                             DOD                   Department of Defense
                             FAA                   Federal Aviation Administration
                             FBI                   Federal Bureau of Investigation
                             GPRA                  Government Performance and Results Act
                             IRS                   Internal Revenue Service
                             NASA                  National Aeronautics and Space Administration
                             TSA                   Transportation Security Administration
                             VBA                   Veterans Benefits Administration


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                             Page i                                       GAO-03-669 Merger and Transformation Steps
A
United States General Accounting Office
Washington, D.C. 20548
                                                                                          Comptroller General
                                                                                          of the United States




                                    July 2, 2003                                                                  Lert




                                    The Honorable George V. Voinovich
                                    Chairman
                                    Subcommittee on Oversight of Government
                                      Management, the Federal Workforce, and the
                                      District of Columbia
                                    Committee on Governmental Affairs
                                    United States Senate

                                    The Honorable Jo Ann Davis
                                    Chairwoman
                                    Subcommittee on Civil Service and Agency Organization
                                    Committee on Government Reform
                                    House of Representatives

                                    Implementing large-scale change management initiatives, such as mergers
                                    and organizational transformations, are not simple endeavors and require
                                    the concentrated efforts of both leadership and employees to realize
                                    intended synergies and to accomplish new organizational goals. At the
                                    center of any serious change management initiative are the people—people
                                    define the organization’s culture, drive its performance, and embody its
                                    knowledge base. Experience shows that failure to adequately address—
                                    and often even consider—a wide variety of people and cultural issues is at
                                    the heart of unsuccessful mergers and transformations. Recognizing the
                                    “people” element in these initiatives and implementing strategies to help
                                    individuals maximize their full potential in the new organization, while
                                    simultaneously managing the risk of reduced productivity and
                                    effectiveness that often occurs as a result of the changes, is the key to a
                                    successful merger and transformation. Thus, mergers and transformations
                                    that incorporate strategic human capital management approaches will help
                                    to sustain agency efforts and improve the efficiency, effectiveness, and
                                    accountability of the federal government.

                                    GAO convened a forum on September 24, 2002, to identify and discuss
                                    useful practices and lessons learned from major private and public sector
                                    organizational mergers, acquisitions, and transformations. This was done
                                    to help federal agencies implement successful transformations of their
                                    cultures, as well as the new Department of Homeland Security (DHS)
                                    merge its various originating components into a unified department.




                                    Page 1                               GAO-03-669 Merger and Transformation Steps
The invited participants were a cross section of leaders who have had
experience managing large-scale organizational mergers, acquisitions, and
transformations, as well as academics and others who have studied these
efforts. The forum neither sought nor achieved consensus on all of the
issues identified through the discussion. Because no two merger,
acquisition, or transformation efforts are exactly alike, the “best” approach
for any given effort depends upon a variety of factors specific to each
context. Nevertheless, there was general agreement on a number of key
practices that have consistently been found at the center of successful
mergers, acquisitions, and transformations. We reported the key practices
participants identified that can serve as a basis for subsequent
consideration as federal agencies seek to transform their cultures in
response to governance challenges.1 These key practices are to:

1. Ensure top leadership drives the transformation. Leadership must
set the direction, pace, and tone and provide a clear, consistent rationale
that brings everyone together behind a single mission.

2. Establish a coherent mission and integrated strategic goals to
guide the transformation. Together, these define the culture and serve
as a vehicle for employees to unite and rally around.

3. Focus on a key set of principles and priorities at the outset of
the transformation. A clear set of principles and priorities serves as a
framework to help the organization create a new culture and drive
employee behaviors.

4. Set implementation goals and a timeline to build momentum and
show progress from day one. Goals and a timeline are essential because
the transformation could take years to complete.

5. Dedicate an implementation team to manage the transformation
process. A strong and stable team is important to ensure that the
transformation receives the needed attention to be sustained and
successful.




1
  U.S. General Accounting Office, Highlights of a GAO Forum: Mergers and
Transformation: Lessons Learned for a Department of Homeland Security and Other
Federal Agencies, GAO-03-293SP (Washington, D.C.: Nov. 14, 2002).




Page 2                                   GAO-03-669 Merger and Transformation Steps
6. Use the performance management system to define
responsibility and assure accountability for change. A “line of sight”
shows how team, unit, and individual performance can contribute to
overall organizational results.

7. Establish a communication strategy to create shared
expectations and report related progress. The strategy must reach out
to employees, customers, and stakeholders and engage them in a two-way
exchange.

8. Involve employees to obtain their ideas and gain their ownership
for the transformation. Employee involvement strengthens the process
and allows them to share their experiences and shape policies.

9. Build a world-class organization. Building on a vision of improved
performance, the organization adopts the most efficient, effective, and
economical personnel, system, and process changes and continually seeks
to implement best practices.

At your request, this report identifies the specific implementation steps for
these key practices raised at the forum with illustrative private and public
sector examples that agencies can take as they transform their cultures to
be more results oriented, customer focused, and collaborative in nature.
These implementation steps and examples are described in appendix I. To
identify these steps and examples, we interviewed selected forum
participants about their experiences managing mergers, acquisitions, and
transformations and reviewed literature on the subject drawn primarily
from private sector mergers and acquisitions change management
experiences to gain a better understanding of the issues that most
frequently occur during such large-scale change initiatives. We also used
our guidance and reports on strategic human capital management and
results-oriented management. Our scope and methodology is described in
more detail in appendix II.




Page 3                                GAO-03-669 Merger and Transformation Steps
We have observed in our recent Performance and Accountability Series
that there is no more important management reform than for agencies to
transform their cultures to respond to the transition that is taking place in
the role of government in the 21st century.2 We highlighted the following
agencies as among those that have transformations under way:

• Establishing the new DHS is an enormous undertaking that will take
  time to achieve in an effective and efficient manner. DHS must
  effectively combine 22 agencies with an estimated 170,000 employees
  specializing in various disciplines, including law enforcement, border
  security, biological research, computer security, and disaster mitigation,
  and also oversee a number of non-homeland security activities. The
  new department will need to build a successful transformation that
  instills the organization with important management principles; rapidly
  implements a phased-in transition plan; leverages the new department
  and other agencies in executing the national homeland security strategy;
  and builds collaborative partnerships with federal, state, local, and
  private sector organizations.

• The Department of Defense (DOD) transformation involves a strategic
  imperative needed to meet the security challenges of the new century.
  DOD has emphasized force transformations as necessary to effectively
  anticipate, counter, and eliminate the emergence of unconventional
  threats overseas and at home. DOD’s transformation will require
  cultural change and business process reengineering that will take years
  to accomplish. In addition, DOD is seeking congressional approval to
  undertake significant changes in its civilian personnel policies.3

• The National Aeronautics and Space Administration (NASA) has also
  begun a major transformation effort. Although NASA is in the very early
  stages of its transformation, the challenge ahead for NASA will be to
  maintain the momentum to transform, to effectively use existing and
  new authorities to strategically manage its people, and to quickly
  implement the tools needed to strengthen management and oversight.



2
U.S. General Accounting Office, Major Management Challenges and Program Risks: A
Governmentwide Perspective, GAO-03-95 (Washington, D.C.: January 2003).
3
  See most recently, U.S. General Accounting Office, Human Capital: Building on DOD’s
Reform Effort to Foster Governmentwide Improvements, GAO-03-851T (Washington, D.C.:
June 4, 2003).




Page 4                                     GAO-03-669 Merger and Transformation Steps
• The Federal Bureau of Investigation (FBI) has begun its transformation
  by organizing its operations to strengthen its management structure and
  enhance accountability. FBI’s ongoing reorganization includes shifting
  some resources from long-standing areas of focus, such as drugs, to
  counterterrorism and intelligence; building analytical capability; and
  recruiting to address selected skill gaps.

• The Federal Aviation Administration (FAA) faces the need for
  transformation to implement new ways of ensuring transportation
  security and improving safety, mobility, and economic growth. For
  example, FAA faces an impending wave of air traffic controller
  retirements. While FAA has made progress in addressing its problems,
  more remains to be done.

• The U.S. Postal Service’s long-term outlook continues to be high-risk
  and the Service faces challenges in managing its finances, human
  capital, and infrastructure. The Service has developed a transformation
  plan, which it can use to make progress on specific actions under its
  existing authority.

• The Internal Revenue Service (IRS) has a multifaceted effort under way
  to transform its operations. IRS has made important progress, but its
  transformation continues to be a work in progress, and IRS is now
  halfway through the 10 years it estimated would be needed to complete
  its modernization.

Although transformation efforts are under way, more remains to be done.
Building on lessons learned by large private and public sector
organizations, the key practices and implementation steps to assist
mergers and organizational transformations discussed in this report can be
modified to fit the circumstances and conditions that are relevant to each
agency. We at GAO are using these key practices and implementation steps
to guide our own organizational transformation. Collectively, these key
practices and implementation steps can help agencies transform their
cultures so that the federal government has the capacity to deliver its
promises, meet current and emerging needs, maximize its performance,
and ensure accountability.


As agreed with your office, unless you announce its contents earlier, we
plan no further distribution of this report until 30 days after its issuance
date. At that time, we will provide copies of the report to the Director of



Page 5                                 GAO-03-669 Merger and Transformation Steps
the Office of Personnel Management and the Director of the Office of
Management and Budget. Copies will be made available to others upon
request. This report will also be available at no charge on GAO’s Web site at
http://www.gao.gov.

For additional information on our work on federal agency transformation
efforts and strategic human capital management, please contact me or
J. Christopher Mihm, Director, Strategic Issues, at mihmj@gao.gov. Carole
Cimitile, Fig Gungor, and Lisa Shames were key contributors to this report.




David M. Walker
Comptroller General
of the United States




Page 6                                GAO-03-669 Merger and Transformation Steps
Appendix I

Mergers and Transformations: Key Practices                                                  Append
                                                                                                 xeis




and Implementation Steps for Federal
Agencies                                                                                     AppenIx
                                                                                                   di




              The Comptroller General of the United States convened a forum on
              September 24, 2002, to identify and discuss useful practices and lessons
              learned from major private and public sector organizational mergers,
              acquisitions, and transformations. This was done to help federal agencies
              implement successful transformations of their cultures, as well as the new
              Department of Homeland Security (DHS) merge its various originating
              components into a unified department. We subsequently reported the key
              practices participants identified that have consistently been found at the
              center of successful mergers, acquisitions, and transformations and can
              serve as a basis for subsequent consideration as federal agencies seek to
              transform their cultures in response to governance challenges.1 At the
              request of the Chairman, Subcommittee on Oversight of Government
              Management, the Federal Workforce, and the District of Columbia, Senate
              Committee on Governmental Affairs; and the Chairwoman, Subcommittee
              on Civil Service and Agency Organization, House Committee on
              Government Reform, this report identifies the specific implementation
              steps with illustrative private and public sector examples for these key
              practices raised at the forum. These key practices and implementation
              steps can be modified to fit the circumstances and conditions that are
              relevant to each agency as it transforms its culture to be more results
              oriented, customer focused, and collaborative in nature. These key
              practices and implementation steps are shown in table 1.




              1
               GAO-03-293SP.




              Page 7                               GAO-03-669 Merger and Transformation Steps
Appendix I
Mergers and Transformations: Key Practices
and Implementation Steps for Federal
Agencies




Table 1: Key Practices and Implementation Steps for Mergers and Organizational
Transformations

Practice                                     Implementation Step
Ensure top leadership drives the             • Define and articulate a succinct and
transformation.                                compelling reason for change.
                                             • Balance continued delivery of services with
                                               merger and transformation activities.
Establish a coherent mission and             • Adopt leading practices for results-oriented
integrated strategic goals to guide the        strategic planning and reporting.
transformation.
Focus on a key set of principles and         • Embed core values in every aspect of the
priorities at the outset of the                organization to reinforce the new culture.
transformation.
Set implementation goals and a timeline to • Make public implementation goals and
build momentum and show progress from        timeline.
day one.                                   • Seek and monitor employee attitudes and
                                             take appropriate follow-up actions.
                                           • Identify cultural features of merging
                                             organizations to increase understanding of
                                             former work environments.
                                           • Attract and retain key talent.
                                           • Establish an organizationwide knowledge
                                             and skills inventory to exchange knowledge
                                             among merging organizations.
Dedicate an implementation team to           • Establish networks to support
manage the transformation process.             implementation team.
                                             • Select high-performing team members.
Use the performance management system • Adopt leading practices to implement
to define responsibility and assure     effective performance management
accountability for change.              systems with adequate safeguards.
Establish a communication strategy to        •   Communicate early and often to build trust.
create shared expectations and report        •   Ensure consistency of message.
related progress.                            •   Encourage two-way communication.
                                             •   Provide information to meet specific needs
                                                 of employees.
Involve employees to obtain their ideas      • Use employee teams.
and gain their ownership for the             • Involve employees in planning and sharing
transformation.                                performance information.
                                             • Incorporate employee feedback into new
                                               policies and procedures.
                                             • Delegate authority to appropriate
                                               organizational levels.
Build a world-class organization.            • Adopt leading practices to build a world-
                                               class organization.
Source: GAO.




Page 8                                           GAO-03-669 Merger and Transformation Steps
                               Appendix I
                               Mergers and Transformations: Key Practices
                               and Implementation Steps for Federal
                               Agencies




Ensure Top Leadership Drives   Because a merger or transformation entails fundamental and often radical
the Transformation             change, strong and inspirational leadership is indispensable. Top
                               leadership (in the federal context, the department Secretary, Deputy
                               Secretary, and other high-level political appointees) that is clearly and
                               personally involved in the merger or transformation represents stability
                               and provides an identifiable source for employees to rally around during
                               tumultuous times. Leadership must set the direction, pace, and tone for the
                               transformation. We have reported that the appointment of agency chief
                               operating officers is one mechanism that could help to elevate attention on
                               management issues and transformational change, integrate these various
                               initiatives, and institutionalize accountability for addressing them.2
                               Experience shows that successful major change management initiatives in
                               large private and public sector organizations can often take at least 5 to 7
                               years. This length of time and the frequent turnover of political leadership
                               in the federal government have often made it difficult to obtain the
                               sustained and inspired attention to make needed changes.

                               At the outset of the merger or transformation, it is important that leaders
                               move quickly to both “make a statement” about the importance of change
                               and demonstrate conviction to making it, as well as deliver early successes.
                               In addition, the experience of major private sector mergers and
                               acquisitions is that productivity and effectiveness actually decline in the
                               period immediately following a merger and acquisition. Thus, top leaders
                               must also balance the continued delivery of services with merger and
                               transformation activities. The following steps provide additional detail on
                               how this practice can be achieved.

                               Define and articulate a succinct and compelling reason for change.
                               Top leadership must provide a clear, consistent rationale that brings
                               together the originating components behind a single mission to guide the
                               transformation and bridge the differences in leadership and management
                               styles among the originating components. Also, articulating this succinct
                               and compelling reason for change helps employees, customers, and
                               stakeholders understand the expected outcomes of the merger or
                               transformation and engenders not only their cooperation, but also their
                               ownership of these outcomes.



                               2
                                 U.S. General Accounting Office, Highlights of a GAO Roundtable: The Chief Operating
                               Officer Concept: A Potential Strategy To Address Federal Governance Challenges, GAO-03-
                               192SP (Washington, D.C.: Oct. 4, 2002).




                               Page 9                                       GAO-03-669 Merger and Transformation Steps
Appendix I
Mergers and Transformations: Key Practices
and Implementation Steps for Federal
Agencies




For example, in 1995, in anticipation of the intense and complex process of
restructuring of local governments and the merging of several health
authorities of the National Health Service, the United Kingdom Audit
Commission identified lessons from the private and public sectors’
experiences with mergers to help leaders and employees who were to be
directly involved in the health authorities’ mergers.3 The Audit
Commission found that a critical first step was to define the benefits of the
merger and describe how the future will be both different from and better
than the past. The Audit Commission emphasized that a clear and
compelling picture of what the organization intends to achieve helps build
morale and commitment to the new vision. The Audit Commission
underscored the need to “be clear about what will constitute success after
reorganization…[because] realizing improvements in efficiency,
productivity, and performance will be a much more uplifting goal than
simply surviving” the mergers. The compelling reasons for change can help
leadership reinforce the message of “success rather than survival” to those
immediately affected by the merger or transformation.

Balance continued delivery of services with merger and
transformation activities. Leadership’s primary roles during a merger or
transformation are to help the organization remain focused on the
continued delivery of services, while simultaneously conducting the
activities of the merger or transformation. Leaders need to acknowledge
that productivity often decreases as attention is concentrated on critical
and immediate integration issues and diverted from longer-term mission
issues. This happens for a number of reasons. Employees may be
concerned about their place in the new organization or may be unsure
about how they are to conduct their day-to-day responsibilities because of
confusion over the policies and procedures they are to follow during the
time of transition.

For example, to help ensure continued delivery of services, Northrop
Grumman leadership addresses employees’ concerns or confusion during
the early days of a merger or transformation by issuing short-term
operating policies or “STOPs” that usually hold from 30 to 120 days. STOPs
supercede the legacy organization’s (in the federal context, the originating
component’s) operating policies and thus stabilize operations and provide
clear guidance to employees about how to conduct business during a


3
United Kingdom Audit Commission, Less Dangerous Liaisons: Early Considerations for
Making Mergers Work (London: HMSO, 1995).




Page 10                                      GAO-03-669 Merger and Transformation Steps
                                    Appendix I
                                    Mergers and Transformations: Key Practices
                                    and Implementation Steps for Federal
                                    Agencies




                                    potentially turbulent period. STOPs stipulate the way that the new
                                    organization will handle everyday transactions such as contracts, finances,
                                    security, facility management, or ethics. Additionally, employees may also
                                    have concerns about whether the previous company’s commitments will be
                                    honored. For example, employees may be concerned about whether their
                                    current health benefits will remain in place while the merger or
                                    transformation unfolds. STOPs can let employees know that for at least a
                                    certain period of time, their benefits and other related commitments will be
                                    administered under particular guidelines until final decisions can be made.
                                    Northrop Grumman also offers orientation programs to both new and
                                    legacy employees to help them learn the new business processes. One
                                    such program, called “Navigating Through the Sector,” addresses the “how
                                    do you do it?” questions of the new organization. As an added benefit,
                                    employees are provided with an opportunity to meet the new leaders and
                                    managers with whom they will be working.

Establish a Coherent Mission        The mission and strategic goals of a transformed organization must
and Integrated Strategic Goals to   become the focus of the transformation, define the culture, and serve as the
Guide the Transformation            vehicle for employees to unite and rally around. The mission and strategic
                                    goals must be clear to employees, customers, and stakeholders because
                                    they may not see a direct personal connection to the transformation. In
                                    successful transformation efforts, developing, communicating, and
                                    constantly reinforcing the mission and strategic goals give employees a
                                    sense of what the organization intends to accomplish, as well as help
                                    employees figure out how their positions fit in with the new organization
                                    and what they need to do differently to help the new organization achieve
                                    success. The following step provides additional detail on how this practice
                                    can be achieved.




                                    Page 11                                      GAO-03-669 Merger and Transformation Steps
Appendix I
Mergers and Transformations: Key Practices
and Implementation Steps for Federal
Agencies




Adopt leading practices for results-oriented strategic planning and
reporting. The Government Performance and Results Act (GPRA)
provides a strategic planning and reporting framework intended to improve
federal agencies’ performance and hold them accountable for achieving
results. Effective implementation of GPRA’s results-oriented framework
requires agencies to clearly establish performance goals for which they will
be held accountable, measure progress towards those goals, determine
strategies and resources to effectively accomplish the goals, use
performance information to make the programmatic decisions necessary to
improve performance, and formally communicate results in performance
reports. We have developed a body of work to assist agencies in
implementing a strategic planning and reporting framework that agencies
involved in a merger or transformation can adopt to help make them results
oriented.4

For example, in November 2001, the Congress created the Transportation
Security Administration (TSA) as a new organization first housed in the
Department of Transportation and then merged into the new DHS. TSA is
responsible for security in aviation and other modes of transportation. The
Congress required TSA to adopt a results-oriented strategic planning and
reporting framework and, specifically, to provide an action plan with goals
and milestones to outline how acceptable levels of performance for
aviation security will be achieved. We reported that TSA has taken the first
steps in performance planning and reporting by defining its mission, vision,
and values and that this practice would continue to be especially important
when TSA moved into DHS.5 TSA’s overall strategic goal was to prevent
intentional harm or disruption to the transportation system by terrorists or
other persons intending to cause harm, and TSA had defined three
performance goals to support this strategic goal. TSA had established an
initial set of 32 performance measures that will allow it to demonstrate
progress toward meeting performance goals. We recommended that TSA,


4
  See for example U.S. General Accounting Office: Agency Performance Plans: Examples of
Practices That Can Improve Usefulness to Decisionmakers, GAO/GGD/AIMD-99-69
(Washington, D.C.: Feb. 26, 1999); Agencies’ Annual Performance Plans Under the Results
Act: An Assessment Guide to Facilitate Congressional Decisionmaking, GAO/GGD/AIMD-
10.1.18 (Washington, D.C.: February 1998); Agencies’ Strategic Plans Under GPRA: Key
Questions to Facilitate Congressional Review, GAO/GGD-10.1.16 (Washington D.C.: May
1997); and Executive Guide: Effectively Implementing the Government Performance and
Results Act, GAO/GGD-96-118 (Washington, D.C.: June 1996).
5
U.S. General Accounting Office, Transportation Security Administration: Actions and
Plans to Build a Results-Oriented Culture, GAO-03-190 (Washington, D.C.: Jan. 17, 2003).




Page 12                                      GAO-03-669 Merger and Transformation Steps
                                      Appendix I
                                      Mergers and Transformations: Key Practices
                                      and Implementation Steps for Federal
                                      Agencies




                                      among other things, establish security performance goals and measures for
                                      all modes of transportation as part of a strategic planning process that
                                      involves stakeholders. TSA concurred with this recommendation.

Focus on a Key Set of Principles      In bringing together the originating components, the new organization
and Priorities at the Outset of the   must have a clear set of principles and priorities that serves as a framework
Transformation                        to help the organization create a new culture and drive employee
                                      behaviors. Focusing on these principles and priorities helps the
                                      organization to maintain its drive towards achieving the goals of the
                                      transformation. In particular, principles are the core values of the new
                                      organization, and like the mission and strategic goals, can serve as an
                                      anchor that remains valid and enduring while organizations, personnel,
                                      programs, and processes may change. The following step provides
                                      additional detail on how this practice can be achieved.

                                      Embed core values in every aspect of the organization to reinforce
                                      the new culture. Core values define the attributes that are intrinsically
                                      important to what the new organization does and how it will do it. They
                                      represent the institutional beliefs and boundaries that are essential to
                                      building a new culture for the organization.

                                      For example, on “Day One” of a merger or acquisition, Northrop Grumman
                                      leadership defined the values intrinsic to its new organization and issued
                                      “non-negotiables” such as “maintaining respect for employees in all legacy
                                      or incoming organizations.” These “non-negotiables” can also include
                                      ethical boundaries, such as the continued adherence to financial reporting
                                      standards. Similarly, immediately following its recent merger with
                                      Compaq, Hewlett-Packard implemented the “FAST-START” program to
                                      embed key principles in its new organization. FAST-START focused on the
                                      new company’s core values that emphasized “motivated employees
                                      generate good customer service” and was intended to convince employees
                                      that they could make the merger successful. Hewlett-Packard piloted the
                                      FAST-START program first with senior executives, cascaded it throughout
                                      the new company reaching 150,000 employees. According to a Hewlett-
                                      Packard vice-president, an additional benefit of FAST-START was the
                                      opportunity for employees from the originating components to meet each
                                      other face-to-face for the first time and gain a different perspective on the
                                      common goals and programs they would be operating.




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                                 and Implementation Steps for Federal
                                 Agencies




Set Implementation Goals and a   A merger or transformation is a substantial commitment that could take
Timeline to Build Momentum       years before it is completed, and therefore must be carefully and closely
and Show Progress from Day       managed. As a result, it is essential to establish and track implementation
One                              goals and establish a timeline to pinpoint performance shortfalls and gaps
                                 and suggest midcourse corrections. By demonstrating progress towards
                                 these transformation goals, the organization builds momentum and
                                 demonstrates that real progress is being made. Successful mergers and
                                 transformation efforts can be much more difficult to achieve in the public
                                 sector than in the private sector for a number of reasons, including that
                                 public sector efforts must contend with greater transparency. Further, as
                                 mentioned previously, research suggests that failure to adequately
                                 address—and often even consider—a wide variety of people and cultural
                                 issues is at the heart of unsuccessful mergers and transformations. Thus,
                                 people and cultural issues must be monitored from day one of a merger and
                                 transformation. The following steps provide additional detail on how this
                                 practice can be achieved.

                                 Make public implementation goals and timeline. The demand for
                                 transparency and accountability is a fact that needs to be accepted in any
                                 public sector transformation. A full range of stakeholders and interested
                                 parties are concerned not only with what results are to be achieved, but
                                 also which processes are to be used to achieve those results. We reported
                                 in the GAO Mergers and Transformation Forum that in developing
                                 implementation goals and a timeline for a merger or transformation, it is
                                 helpful to think in terms of multiple “Day Ones” to determine—and focus
                                 attention squarely on—critical phases and the essential activities that need
                                 to be completed by and on any given date. By demonstrating progress
                                 towards these goals, the organization builds momentum and keeps
                                 employees excited about the opportunities change brings and thereby
                                 helps to ensure the merger or transformation’s successful completion.

                                 For example, according to a JPMorgan Chase managing director, the chief
                                 executive officer (in the federal context, the department’s Secretary) and
                                 the merger implementation team publicized and reported progress on
                                 specific goals for each phase of the merger to help rally employees and
                                 maintain their drive towards reaching full integration. The goals were
                                 connected to overall themes and to particular milestones. The chief
                                 executive officer reinforced these goals at leadership meetings and
                                 employee townhalls, and in Web-based messages and other
                                 communications, to help keep employees focused on achieving them. The
                                 managing director recommends that mapping out an overall timeline for




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what goals are realistic to accomplish within a set time frame can minimize
employee “merger fatigue.”

In addition, Deloitte & Touche suggests setting quantifiable and measurable
goals as well as target dates and deliverables to give the implementation
team and employees an objective means to track and report progress.
Deloitte & Touche also recommends its clients strengthen accountability
for implementation goals by having a manager or executive from different
operating units within the organization have responsibility for monitoring
the progress of interim organizational performance results for each other
and reporting that progress to top leaders.

Seek and monitor employee attitudes and take appropriate follow-
up actions. Because people are the drivers of any merger or
transformation, it is vital to monitor their attitudes. Especially at the outset
of the merger or transformation, obtaining employees’ attitudes through
pulse surveys, focus groups, or confidential hotlines can serve as a quick
check of how employees are feeling about the large-scale changes that are
occurring and the new organization as a whole. While monitoring
employee attitudes provides good information, most importantly is for
employees to see that top leadership not only listens to their concerns, but
also takes action and makes appropriate adjustments to the merger or
transformation in a visible way. By not taking appropriate follow-up action,
negative attitudes may translate into actions, such as employee departures,
among other things, that could have a detrimental effect on the merger or
transformation.

For example, Deloitte & Touche suggests asking employees to respond to a
pulse survey with 6 to 10 statements, such as “My job is now easier or
harder since the merger” and “I hope to be in this organization 2 years from
now.” These responses are used as a diagnostic reading of how well the
merger is going from the employee perspective. Management then has an
opportunity to implement strategies to address the concerns of employees
with low morale or who plan to leave the organization. According to a
Deloitte & Touche principal, employees experience discernible phases
during a merger and transformation. The first 3 months after a merger or
acquisition is announced are often marked by the excitement of joining the
new organization. Employees are drawn into new activities, such as
employee welcome or orientation programs explaining the opportunities
employees may have in the new organization. Approximately 3 to 12
months following the announcement of the merger, the excitement ends.
Deloitte & Touche calls this next phase the “Second Moment.” This is when



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employees wait to see how the organization and their positions will change
and whether the opportunities mentioned at the outset of the merger will
be realized. According to the Deloitte & Touche principal, unless
leadership continues to emphasize the importance of employees and their
contributions to the new organization, some people will give up their
aspirations and instead return to “business as usual” or even make plans to
leave the organization.

Identify cultural features of merging organizations to increase
understanding of former work environments. Fundamentally, a
change of culture is at the heart of a successful merger or transformation.
The importance of redefining the organizational culture should not be
avoided, but rather must be aggressively addressed at the outset and
throughout the transformation process. An organization’s culture
encompasses the values and behaviors that characterize its work
environment, and in particular, how people work with each other, how they
are held accountable, how they are rewarded, as well as how
communication flows through the organization.6 Many mergers or
transformations fail because the cultures of the originating components are
not fully understood or considered. Thus, identifying cultural features of
the originating components, prior to, or early on, in the merger and
transformation process, can help leadership gain a better understanding of
their beliefs and values. Organizationwide surveys, employee focus
groups, and individual interviews can assess the culture and identify both
similarities and differences in order to provide a better understanding of
how work gets done and what values are important to employees.

For example, in a recent Northrop Grumman acquisition, a significant
portion of the management team was formerly from the military. Through
an assessment process, Northrop Grumman learned that team members
were concerned that if they did not have a former military background,
their skills would not be valued in the new organization. Once
management was made aware of employees’ concerns, they let them know
that a military background was not necessary to succeed and future
opportunities existed. Northrop Grumman relied upon graduate students
from a local university to conduct the assessment.



6
  Schmidt, Jeffrey A. ed., Making Mergers Work: The Strategic Importance of People,
(Alexandria, Va.: Towers, Perrin, Foster and Crosby/Society for Human Resource
Management, 2002).




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Attract and retain key talent. Success is more likely when the best
individuals are selected for each position based on the competencies
needed for the new organization. Private sector experience with mergers
and acquisitions suggests that over 40 percent of executives in acquired
companies leave within the first year and 75 percent within the first 3 years.
While some turnover is to be expected and is appropriate, the new
organization must “re-recruit” its key talent to limit the loss of needed
individuals who leave because they do not see their place in the new
organization. When re-recruiting key talent, top leaders should select
individuals who demonstrate the competencies to help make the merger or
transformation succeed and achieve its goals, and not just the top
performers from previous originating components.

For example, Northrop Grumman identifies the key individuals it would
like to retain in the new organization within the first 30 days of the effective
date of the merger or acquisition, meets one-on-one with each individual to
let them know that they have the competencies desired for the new
organization, and informs them of the high-potential opportunities that
exist for them with the new organization. Once placed in the new
organization, management checks in with them frequently and provides
them with visible opportunities with the new leadership.

Establish an organizationwide knowledge and skills inventory to
exchange knowledge among merging organizations. At the outset of
the merger and transformation, new organizations recognize the value in
creating an employee knowledge and skills inventory. Valuable information
resides in the originating organizational components of mergers and
transformations, and when these components are combined, these
intellectual assets are extremely powerful and beneficial to employees and
stakeholders. Knowledge and skills inventories not only capture the
intellectual assets of the new organization, but also signal to employees
that their particular expertise is valued by the organization and foster a
knowledge-sharing culture.




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                             According to Conference Board research, when people freely share and are
                             rewarded for what they know, they are more likely to feel a stronger
                             connection to the new organization. For example, a recently merged
                             company recommended setting up a knowledge and skills inventory that
                             would be immediately and widely available to those in the new
                             organization who need to find employee expertise on particular topics.7
                             The value of the knowledge and skills inventory occurs when people from
                             the merging entities are able to quickly contact those with particular
                             knowledge and expertise to help them accomplish their work. The
                             company also suggested making employees aware that sharing expertise
                             and experience is important to the future success of the organization and is
                             valued in the new organization.

Dedicate an Implementation   Dedicating a strong and stable implementation or integration team that will
Team to Manage the           be responsible for the transformation’s day-to-day management is
Transformation Process       important to ensuring that it receives the focused, full-time attention
                             needed to be sustained and successful. Specifically, the implementation
                             team is important to ensuring that various change initiatives are sequenced
                             and implemented in a coherent and integrated way. Top leadership must
                             vest the team with the necessary authority and resources to set priorities,
                             make timely decisions, and move quickly to implement top leadership’s
                             decisions regarding the transformation. In our Mergers and
                             Transformation Forum, participants observed that the size of the
                             implementation team needs to be scaled to the size of the merger and
                             transformation. The composition of the team is also important because of
                             the visual sign it communicates regarding which components are dominant
                             and subordinate or whether the new organization is a “merger of equals.”
                             In addition, the qualifications of implementation team members are also a
                             visible sign that top leadership is serious and committed to the merger and
                             transformation. The following steps provide additional detail on how this
                             practice can be achieved.

                             Establish networks to support implementation team. Because a
                             transformation process is a massive undertaking, the implementation team
                             must have a “cadre of champions” to ensure that changes are thoroughly
                             implemented and sustained over time. Establishing networks, including a
                             senior executive council, functional teams, or cross-cutting teams can help
                             the implementation team conduct the day-to-day activities of the merger or


                             7
                             Lucenko, Kristina, Implementing a Post-Merger Integration (New York: The Conference
                             Board, 1999).




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transformation and help ensure that efforts are coordinated and integrated.
To be most effective, establishing clearly defined roles and responsibilities
within this network assigns accountability for parts of the implementation
process, helps reach agreement on work priorities, and builds a code of
conduct that will help all teams to work effectively.

For example, a leading management consulting firm advises creating a
senior executive council that provides the implementation team access to
leadership and reinforces its accountability for successfully implementing
the merger and transformation. This council can set policies for the merger
or transformation implementation, ensure that decisions are made quickly,
resolve conflicts that arise, review and approve implementation plans, and
monitor and report progress back to top leaders of the organization.
Members of the council might include senior executives representing the
legacy organizations. In our Mergers and Transformation Forum, it was
observed that in the federal context, such a council could be comprised of
political and career executives from within the organization and would be
particularly useful to work with top leadership (the department Secretary,
Deputy Secretary, and other high-level political appointees) in developing
the leadership’s direction and communicating its position.

Similarly, Hewlett-Packard establishes networks of both functional and
cross-cutting teams to ensure that these priorities are adequately addressed
and integrated in the implementation of a merger or transformation.
Functional teams are responsible for areas such as human capital, financial
management, and information technology. Cross-cutting teams are
responsible for areas such as organizational culture, communication, and
training and development.

Select high-performing team members. A strong and stable
implementation team comprised of top performers that is responsible for
the transformation’s day-to-day management is not only important to
ensuring the focused, full-time attention that the implementation needs to
be sustained and successful, but is also a visible signal that the merger or
transformation is being undertaken with the utmost seriousness and
commitment. Team members are selected for their ability to drive results
in a fast-paced and changing environment and their understanding that the
ultimate goal is to create a new and more successful organization.




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                              Both Hewlett-Packard and Northrop Grumman executives told us that
                              merger and transformation implementation teams should be composed of
                              people with prior merger or acquisition experience and good program
                              management skills. In addition, a Hewlett-Packard vice-president told us
                              that for their merger with Compaq, most team members selected for the
                              integration team were at the level of director or vice-president and also had
                              the skills and background to replace their superiors if necessary. Hewlett-
                              Packard told us that a selection criterion for integration team members was
                              that their previous individual performance ratings had to fall into the top
                              two ratings categories. After the integration team disbanded, these
                              selected integration team members were assigned permanent positions in
                              the new organization.

                              In addition to selecting high performers, Northrop Grumman also builds
                              the credibility of the implementation team in the eyes of the employees by
                              selecting team members from each of the originating components and then
                              distributing an organization chart that indicates the component from which
                              each team member originated. Employees can see that some of their
                              former leadership still exists in the new company and can help represent
                              their concerns in the transformation process. However, Northrop
                              Grumman adds that team members are still selected based on their
                              competence for the job and not just because they were leaders from the
                              legacy organization.

Use the Performance           The new organization’s performance management system can be a vital
Management System to Define   tool for aligning the organization with desired results and creating a “line of
Responsibility and Assure     sight” showing how team, unit, and individual performance can contribute
Accountability for Change     to overall organizational results. The performance management system
                              can help manage and direct the transformation process. The system serves
                              as the basis for setting expectations for individuals’ roles in the
                              transformation process.

                              To be successful, transformation efforts must have leaders, managers, and
                              employees who have the individual competencies to integrate and create
                              synergy among the multiple organizations involved in the transformation
                              effort. Individual performance and contributions are evaluated on
                              competencies such as change management, cultural sensitivity, teamwork
                              and collaboration, and information sharing. Leaders, managers, and
                              employees who demonstrate these competencies are rewarded for their
                              success in contributing to the achievement of the transformation process.
                              Leading organizations have modern, effective, credible, and, as
                              appropriate, validated performance management systems with adequate



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safeguards, including reasonable transparency and appropriate
accountability mechanisms, in place to support performance-based pay
and related personnel decisions. The following step provides additional
detail on how this practice can be achieved.

Adopt leading practices to implement effective performance
management systems with adequate safeguards. We have identified
specific practices that leading public sector organizations both here in the
United States and abroad have used in their performance management
systems to align their organizations and create a clear linkage—“line of
sight”—between individual performance and organizational success.8
Federal agencies should consider these practices as they develop and
implement their performance management systems. The key practices are
listed in table 2.




8
  U.S. General Accounting Office, Results-Oriented Cultures: Creating a Clear Linkage
between Individual Performance and Organizational Success, GAO-03-488 (Washington,
D.C.: Mar. 14, 2003).




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                                  Table 2: Key Practices for Effective Performance Management



                                  1.   Align individual performance expectations with organizational goals. An
                                       explicit alignment of daily activities with broader results helps individuals see the
                                       connection between their daily activities and organizational goals.

                                  2.   Connect performance expectations to cross-cutting goals. Placing greater
                                       emphasis on collaboration, interaction, and teamwork across organizational
                                       boundaries helps strengthen accountability for results.

                                  3.   Provide and routinely use performance information to track organizational
                                       priorities. Individuals use performance information to manage during the year,
                                       identify performance gaps, and pinpoint improvement opportunities.

                                  4.   Require follow-up actions to address organizational priorities. By requiring and
                                       tracking such follow-up actions on performance gaps, these organizations
                                       underscore the importance of holding individuals accountable for making progress on
                                       their priorities.

                                  5.   Use competencies to provide a fuller assessment of performance.
                                       Competencies, which define the skills and supporting behaviors that individuals need
                                       to effectively contribute to organizational results.

                                  6.   Link pay to individual and organizational performance. Pay, incentive, and
                                       reward systems that link employee knowledge, skills, and contributions to
                                       organizational results are based on valid, reliable, and transparent performance
                                       management systems with adequate safeguards.

                                  7.   Make meaningful distinctions in performance. Effective performance
                                       management systems strive to provide candid and constructive feedback and the
                                       necessary information and documentation to reward top performers and deal with
                                       poor performers.

                                  8.   Involve employees and stakeholders to gain ownership of performance
                                       management systems. Early and direct involvement helps employees’ and
                                       stakeholders’ understanding and ownership of the system and belief in its fairness.

                                  9.   Maintain continuity during transitions. Because cultural transformations take
                                       time, performance management systems reinforce accountability for change
                                       management and other organizational goals.
                                  Source: GAO.



Establish a Communication         Creating an effective, on-going communication strategy is essential to
Strategy to Create Shared         implementing a merger or transformation. Communication is most
Expectations and Report Related   effective when done early, clearly, and often, and is downward, upward,
Progress                          and lateral. The new organization must develop a comprehensive
                                  communication strategy that reaches out to employees, customers, and
                                  stakeholders and seeks to genuinely engage them in the transformation



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process. The following steps provide additional detail on how this practice
can be achieved.

Communicate early and often to build trust. Organizations
implementing mergers or transformations have found that communicating
information early and often helps to build an understanding of the purpose
of planned changes and builds trust among employees and stakeholders.
Especially for employees, frequent and timely communication cultivates a
strong relationship with management and helps gain employee ownership
for the merger or transformation.

For example, to build trust between management and employees, Deloitte
& Touche suggests first notifying employees of issues pertaining to the
merger and transformation. In particular, Deloitte & Touche recommends
information be “prereleased” to line managers whenever possible
throughout the process. Rather than obtaining information from sources
outside the organization, this prereleased information offers the courtesy
to employees of receiving information first and the opportunity to then ask
questions or voice concerns to leadership. Deloitte & Touche also suggests
that line managers report the feedback of employees to senior management
so they can address any concerns.

Even when information is limited due to legal restrictions or security
concerns, Conference Board research advises that organizations continue
to communicate with employees to build trust and to diminish any concern
or uncertainty that may be generated during these periods. The
Conference Board research suggests alternative types of information when
specific details may be embargoed due to legal restrictions or security
concerns. Such alternative types of information could include status
reports of the progress being made on the merger or transformation, the
exact time that specific details will be forthcoming, or responses to rumors
or news items that have appeared in the press.

Finally, the time spent on delivering messages to employees about the
merger or transformation should not be underestimated. One participant
at our Mergers and Transformation Forum observed that given its
importance, successful communication will require twice the time and
effort than was at first planned—no matter how ambitious the original plan
was. Similarly, a JPMorgan Chase managing director told us that during
their integration process, managers would dedicate 25 percent of their
overall work time communicating with employees about the merger. This
managing director credits JPMorgan Chase’s communication strategy as a



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major success factor in its recent merger because it was built around
getting messages out at all levels of the organization and reinforcing the
progress of the merger.

Ensure consistency of message. A message to employees and others
affected by a merger or transformation that is consistent in tone and
content can alleviate the uncertainties generated during the unsettled times
of large-scale change management initiatives. Since employees are
typically coming from different originating components during a merger or
transformation, sharing a consistent message with employees, customers,
and stakeholders helps to reduce the perception that others are getting the
“real” story when, in fact, all are receiving the same information.

For example, to ensure a message consistent in tone and content as part of
its communication strategy, Hewlett-Packard sent senior executives with
scripted talking points to various work sites for face-to-face, interactive
meetings with groups of employees to discuss the expected changes that
would occur due to the merger. Senior managers from both originating
components, Hewlett-Packard and Compaq, would appear jointly at these
employee meetings to ensure that employees had a chance to meet the new
members of the team and also see that both sides were in agreement with
expected changes.

Encourage two-way communication. Communication is not about just
“pushing the message out.” Rather, it should facilitate a two-way honest
exchange with and allow for feedback from employees, customers, and
stakeholders. This communication is central to forming the effective
internal and external partnerships that are vital to the success of any
organization. Creating opportunities for employees to communicate
concerns and experiences surrounding a merger or transformation allows
employees to feel that their experiences are acknowledged and important
to management during the implementation of the merger and
transformation. Once this feedback is received, it is important to consider
and use this solicited employee feedback to make any appropriate changes
to the implementation of the merger or transformation.




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We reported that some agencies also make use of two-way communication
when implementing human capital flexibility practices.9 For example, the
U.S. Mint collected feedback from employees at a “town hall” meeting at its
San Francisco coin-making plant where employees (with assistance from
the local union) voted on various options for implementing an alternative
work schedule for the facility. Based on that feedback, the U.S. Mint made
changes to employee work schedules.

Communication with customers and stakeholders should also be a top
priority and is central to forming the partnerships that are needed to
develop and implement the organization’s strategies. According to a
Deloitte & Touche principal, establishing a two-way communication
framework with customers and stakeholders can alleviate their concerns
about whether they will continue to receive the same levels of service.
Under this “One Face, One Voice” communication framework, the
organization:

• catalogs every customer and stakeholder relationship to be affected by
  the merger or transformation,

• designates a contact or team to keep these customers and stakeholders
  informed about how the merger will affect their particular needs,

• identifies the interests and concerns of each customer or stakeholder,

• provides information addressing those specific interests or concerns,
  and

• requires the designated contact to listen to customer and stakeholder
  needs and report these needs to management.

According to Deloitte & Touche, this communication framework gives
customers and stakeholders a greater understanding of how the merger or
transformation will affect them and provides leadership with an accurate
picture of their customer and stakeholder needs, so they can quickly
correct any misperceptions and address concerns.




9
U.S. General Accounting Office, Human Capital: Effective Use of Flexibilities Can Assist
Agencies in Managing Their Workforces, GAO-03-2 (Washington, D.C.: Dec. 6, 2002).




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Provide information to meet specific needs of employees.
Communicating with employees must include topics such as the new
organization’s strategic goals, customer service, and in particular,
employee concerns. It is important to help employees understand how the
transformation process will affect them and to address the immediate and
natural question: “what’s in it for me?” Employees will be concerned about
whether their jobs might be affected, what their rights and protections
might be, or how their responsibilities might change with the new
organization. Not only do employees seek different kinds of information,
they can receive information through a variety of means.

For example, Deloitte & Touche advises clients to prepare personalized
communication folders for various groups of employees, such as senior
executives, regarding how the merger, acquisition, or transformation will
specifically affect their salary, benefits, job duties, and career path. These
folders are distributed to employees and then meetings are held with
groups or individuals to answer the particular questions that employees
may have. This customized process helps employees to feel that their
concerns are specifically addressed.

The Conference Board research also discusses the importance of tailoring
information for groups of employees that may have divergent interests.
For example, employees with technical skills may be concerned about
whether their skills will remain relevant and valued in the new
organization; administrative staff may desire details about how they may
cope with new systems and work processes; and customer-service
representatives may need to know about how to approach relationships
with customers.

Employees may prefer to receive customized information from a variety of
sources. Varying the means of communication, such as e-mail, face-to-face
meetings, large and small group meetings, intranet Web sites, and townhall
meetings, can also be an effective strategy to reinforce the message and
reach all employees, while providing an opportunity for management to
respond to employee concerns. Toll-free hotlines and electronic bulletin
boards can be used to provide large numbers of employees a forum to
discuss their concerns and issues about the merger or transformation.




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                              For example, during a merger of two consumer products firms, a toll-free
                              hotline was established so employees could relate the rumors they had
                              heard. Every 2 weeks, a list of top 10 rumors with accompanying factual
                              information was posted to help employees compare and contrast the
                              rumors against the facts.10 This interactive approach allowed the company
                              to simultaneously communicate with large numbers of employees and
                              quickly dispel inaccurate information.

Involve Employees to Obtain   A successful merger and transformation must involve employees and their
Their Ideas and Gain Their    representatives from the beginning to gain their ownership for the changes
Ownership for the             that are occurring in the organization. Employee involvement strengthens
Transformation                the transformation process by including frontline perspectives and
                              experiences. Further, employee involvement helps to create the
                              opportunity to establish new networks and break down existing
                              organizational silos, increase employees’ understanding and acceptance of
                              organizational goals and objectives, and gain ownership for new policies
                              and procedures. It was noted at our Mergers and Transformation Forum
                              that while it is important to involve employees in the transformation
                              process, there are cautions. There tends to be a relatively small group of
                              employees in every organization who will resist any meaningful change and
                              will not or cannot buy into the transformation no matter how compelling
                              the case for change may be. This group of employees may try to “wait out”
                              the transformation and think that it will pass without taking hold.
                              Ultimately, these employees either must accept the changes under way or
                              be helped to move elsewhere within the organization or out of it. The
                              following steps provide additional detail on how this practice can be
                              achieved.

                              Use employee teams. Creating opportunities for employees to interact
                              with each other can help accelerate the merger or transformation process
                              by allowing them to learn more about each other, establish new networks,
                              and break down organizational silos. Adopting a teams-based approach to
                              operations can improve employee morale and job satisfaction by creating
                              an environment characterized by open communication, enhanced
                              flexibility in meeting job demands, and a sense of shared responsibility for
                              accomplishing organization goals and objectives. Using teams comprised
                              of a cross-section of individual members can also assist in integrating



                              10
                               Marks, Mitchell Lee and Mirvis, Philip H., Joining Forces: Making One Plus One Equal
                              Three in Mergers, Acquisitions, and Alliances (San Francisco: Jossey-Bass, 1998).




                              Page 27                                      GAO-03-669 Merger and Transformation Steps
Appendix I
Mergers and Transformations: Key Practices
and Implementation Steps for Federal
Agencies




different perspectives, flattening organizational structure, and streamlining
operations.

For example, JPMorgan Chase engaged employees in shared task forces
comprised of individuals from the originating components to find common
solutions to particular issues related to the merger. One such shared task
force focused on integrating computer systems. Team members weighed
the pros and cons of legacy systems and were able to arrive at a “best-in-
class” solution. The act of working together also helped employees to form
new bonds around their shared experience and to make it easier to work
together on future projects.

Employees may need additional training to work effectively together in
teams or to improve work processes. For example, we reported that as
part of its major reorganization, IRS’ Ogden, Utah Service Center trained its
employees in the new ways of conducting business.11 The training
workshops included learning how effective teams function; improving
working relationships among peers, managers and employees, and
managers and union stewards; enhancing effective communications among
employees, union stewards, and managers; increasing discussions about
ways to improve work processes and meet customers’ needs; and creating
a more positive workplace environment.

Involve employees in planning and sharing performance
information. Involving employees in planning and sharing performance
information can help employees understand what the organization is trying
to accomplish and how it is progressing in that direction; facilitate the
development of organizational goals and objectives that incorporate
insights about operations from a front-line perspective; and increase
employees’ understanding and acceptance of organizational goals and
objectives.

For example, to involve employees and share performance information, the
U.S. Fire Administration (formerly within the Federal Emergency
Management Agency, and now part of DHS), had teams from units
throughout the organization meet on a weekly basis and identified ways to
implement over 170 Board of Visitors recommendations for improving the
Fire Administration’s operations. These teams facilitated communications


11
 U.S. General Accounting Office, Human Capital: Practices That Empowered and
Involved Employees, GAO-01-1070 (Washington, D.C.: Sept. 14, 2001).




Page 28                                      GAO-03-669 Merger and Transformation Steps
Appendix I
Mergers and Transformations: Key Practices
and Implementation Steps for Federal
Agencies




and employee involvement by maintaining a focal point for the
organization, working toward consensus, and posting performance data
showing progress toward addressing these recommendations.

Incorporate employee feedback into new policies and procedures.
Major changes resulting from the merger can include redesigning work
processes, changing work rules, developing new job descriptions,
establishing new work hours, or making other changes to the immediate
work environment that are of particular concern to employees. In leading
organizations, management and employee representatives work
collaboratively to gain ownership for these changes. After obtaining
sufficient input from key players, the organization needs to develop clear,
documented, and transparent policies and procedures. Establishing clear
and uncomplicated policies and procedures ensures both that they are used
fairly and that they are not encumbered with unnecessary administrative
burdens.

We have reported on the practices that agencies use to empower and
involve employees to help them achieve their goals and improve
government operations.12 For example, because the IRS is exempt from
certain Title 5 personnel provisions, Congress mandated IRS to involve
employees in order to gain ownership for the new policies. IRS and the
National Treasury Employees Union entered into an agreement that was
designed to ensure that employees are adequately represented and
informed of proposed new policies and have input into the proposals. The
agreement also provided for union participation in various forums, such as
business process improvement teams and cross-unit committees.

Delegate authority to appropriate organizational levels. In a merger
or transformation, employees are more likely to support changes when
they have the necessary authority and flexibility—along with
commensurate accountability and incentives—to advance the
organization’s goals and improve performance. Delegating decision
making within core processes can further serve to streamline and improve
operations. Specifically, delegation to use certain personnel authorities is
important for managers and supervisors who know the most about an
organization’s programs and with that authority, can make those programs
work.



12
     GAO-01-1070.




Page 29                                      GAO-03-669 Merger and Transformation Steps
                                   Appendix I
                                   Mergers and Transformations: Key Practices
                                   and Implementation Steps for Federal
                                   Agencies




                                   To ensure effective use of human capital flexibilities, agencies need to
                                   delegate authority to use these flexibilities to appropriate levels within the
                                   agency, and then agency managers and supervisors need to be held
                                   accountable—both for achieving results and for treating employees fairly.
                                   We reported on the flexibilities that agencies could use effectively to
                                   manage their workforce.13 The Veterans Benefits Administration (VBA)
                                   office in Philadelphia delegated authority to immediate supervisors to
                                   approve on-the-spot monetary awards for their employees without review
                                   by senior managers. VBA supervisors said that under this delegated
                                   authority they simply complete a short form and present it to the employee,
                                   who can then proceed to the on-site credit union and receive cash, all
                                   within 1 hour.

Build a World-class Organization   Successful change efforts start with a vision of radically improved
                                   performance and the relentless pursuit of that vision. Participants at our
                                   Mergers and Transformation Forum observed that in successful private
                                   sector mergers and acquisitions leaders determine at the earliest
                                   opportunity the essential systems and processes that will need to be
                                   consistent across the organization and those that, at least initially, can
                                   differ across the organization. These decisions, the participants stressed,
                                   are based not only on what is necessary from the standpoint of operational
                                   efficiency and effectiveness, but also on what messages are to be sent to
                                   employees and customers. For example, the decision to use an
                                   organizationwide convention for e-mail addresses on the first day of
                                   operation can send a powerful message about the seriousness of the effort
                                   to create a coherent organization and the speed at which that effort will
                                   take place.

                                   The participants also noted that leaders of successful mergers and
                                   acquisitions seek to implement best practices in the systems and processes
                                   wherever they may be found and guard against automatically adopting the
                                   approaches used by the largest or acquiring component. The risk is that
                                   the new organization may migrate less than fully efficient and effective
                                   systems and processes merely because those systems and processes are
                                   most often used. Over the longer term, leaders of successful mergers and
                                   acquisitions, like successful organizations generally, seek to learn from
                                   best practices and create a set of systems and processes that are tailored to
                                   the specific needs and circumstances of the new organization. The


                                   13
                                        GAO-03-2.




                                   Page 30                                      GAO-03-669 Merger and Transformation Steps
Appendix I
Mergers and Transformations: Key Practices
and Implementation Steps for Federal
Agencies




following step provides additional detail on how to implement this
practice.

Adopt leading practices to build a world-class organization.
Selecting systems and processes from among the many choices that may
exist after a merger or during a transformation can be a difficult prospect.
To meet the goal of establishing a world-class organization, GAO has
developed a body of work—best practices reviews—that provides
guidance to help public sector organizations become world-class. These
best practices reviews identify other public and private sector
organizations’ processes, practices, and systems that are widely recognized
for contributing to performance improvements in areas such as acquisition
management, financial management, human capital, or information
technology. They provide models for other organizations as they
undertake similar management reforms. For our best practice reviews in
these areas and others, see
http://www.gao.gov/docsearch/featured/bp_reviews.html.




Page 31                                      GAO-03-669 Merger and Transformation Steps
Appendix II

Objective, Scope, and Methodology                                                                   AppenIx
                                                                                                          di




              On September 24, 2002, GAO convened a forum to identify and discuss
              useful practices and lessons learned from major private and public sector
              organizational mergers, acquisitions, and transformations. This was done
              to help federal agencies implement successful transformations of their
              cultures, as well as the new Department of Homeland Security (DHS)
              merge its various originating components into a unified department.

              This report builds on the practices identified in that forum.1 Our objective
              was to identify specific implementation steps for the key practices raised at
              the forum and provide illustrative private and public sector examples of
              these steps. To meet our objective, we relied primarily on interviews with
              selected forum participants and other experts about their experiences
              implementing mergers, acquisitions, and transformations. See appendix
              III, “Acknowledgments,” for a list of interviewees. We asked the
              interviewees to draw upon their insight and expertise based on their
              experiences managing mergers, acquisitions, and transformations and
              reviewed literature on the subject, including literature recommended by
              forum participants, to gain a better understanding of the issues that most
              frequently occur during such large-scale change initiatives. See appendix
              IV, “Selected Bibliography,” for relevant literature. We also used GAO
              guidance and reports for those practices where GAO had developed a body
              of work, such as in strategic human capital management and results-
              oriented management.

              Based on these interviews and literature review, we identified and
              categorized recurring themes under each of the nine practices and
              developed from these themes a set of specific implementation steps
              associated with each practice. We selected examples, that, in our best
              judgment, clearly illustrated and strongly supported each implementation
              step. We asked the private sector representatives to review the examples
              for accuracy and currency and incorporated their comments where
              appropriate. We did not independently verify the effectiveness of these
              examples and did not use effectiveness as a criterion for selecting the
              examples. We relied on issued GAO reports for some of our examples.

              We provided the full set of practices and implementation steps to other
              selected public and private sector individuals, who have been involved with


              1
                U.S. General Accounting Office, Mergers and Transformation: Lessons Learned for a
              Department of Homeland Security and Other Federal Agencies, GAO-03-293SP
              (Washington, D.C.: Nov. 14, 2002).




              Page 32                                    GAO-03-669 Merger and Transformation Steps
Appendix II
Objective, Scope, and Methodology




mergers, acquisitions, and transformations for their review and
incorporated their comments where appropriate. We did not obtain agency
comments on a draft of this report because we did not review any federal
agency’s on-going merger or transformation effort. We performed our work
from December 2002 through April 2003 in accordance with generally
accepted government auditing standards.




Page 33                             GAO-03-669 Merger and Transformation Steps
Appendix III

Acknowledgments                                                                                    Appen
                                                                                                       Ix
                                                                                                        di




Anthony Calenda      Director, Strategy and Business Development
                     Citigroup, Inc.

Jay Connor           Vice President, Strategies and Marketing, Consulting and Integration
                     Hewlett-Packard Company

Patricia DeGennaro   Director, The Corporate Preparedness, Security and Response Network
                     The Conference Board

Patrick J. Donohue   Lead Partner, Human Capital M&A and Integration Services
                     Deloitte & Touche, LLP

Frank M. Ioli        Executive Director, Facilities, Security and Administration
                     Northrop Grumman Information Technology

Steven L. Katz       Office of Federal Programs
                     Deloitte & Touche, LLP

Paula J. Larkin      Managing Director, Business Resiliency and Crisis Management
                     JPMorgan Chase

Marcia Marsh         Vice President, Strategic Human Resources Planning
                     Partnership for Public Service

Michael K. Neborak   Co-Head, Strategy and Business Development
                     Citigroup, Inc.

Frank Ostroff        Consultant

Larry Schein         Senior Fellow (retired)
                     The Conference Board

Jeffrey S. Shuman    Vice President, Human Resources and Administration
                     Northrop Grumman Information Technology

Pete Smith           President and Chief Executive Officer
                     Private Sector Council




                     Page 34                              GAO-03-669 Merger and Transformation Steps
                 Appendix III
                 Acknowledgments




Molly Tschang    Senior Director, Business Development Integration Group
                 Cisco Systems, Inc.

David J. Vidal   Director of Research, Global Corporate Citizenship
                 The Conference Board




                 Page 35                             GAO-03-669 Merger and Transformation Steps
Appendix IV

Selected Bibliography                                                                       Appen
                                                                                                V
                                                                                                Ix
                                                                                                 di




               Ainspan, Nathan D. and David J. Dell. Employee Communications During
               Mergers. 1270-00-RR. New York: The Conference Board, 2000.

               Galpin, Timothy J., and Mark Herndon. The Complete Guide to Mergers
               and Acquisitions: Process Tools to Support M&A Integration at Every
               Level. San Francisco: Jossey-Bass Publishers, 2000.

               Gancel, Charles, Irene Rodgers, and Marc Raynaud. Successful Mergers,
               Acquisitions and Strategic Alliances: How to Bridge Corporate Cultures.
               London: The McGraw-Hill Companies, 2002.

               Gates, Dr. Stephen. Performance Measurement During Merger and
               Acquisition Integration. 1274-00-RR. New York: The Conference Board,
               2000.

               Lucenko, Kristina. Implementing a Post-Merger Integration. 1257-99-CH.
               New York: The Conference Board, 1999.

               Marks, Mitchell Lee, and Philip H. Mirvis. Joining Forces: Making One
               Plus One Equal Three in Mergers, Acquisitions, and Alliances. San
               Francisco: Jossey-Bass Publishers, 1998.

               Martino, Jean-Marie. Valuing People in the Change Process. 1265-00-CR.
               New York: The Conference Board, 2000.

               Mirvis, Philip H., and Mitchell Lee Marks. Managing the Merger: Making
               it Work. New Jersey: Prentice Hall, 1992.

               Muirhead, Sophia A. and Audris D. Tillman. The Impact of Mergers and
               Acquisitions on Corporate Citizenship. 1272-00-RR. New York: The
               Conference Board, 2000.

               Schein, Lawrence. Managing Culture in Mergers and Acquisitions.
               R-1302-01-RR. New York: The Conference Board, 2001.

               Schein, Lawrence. Post-Merger Integration: A Human Resources
               Perspective. 1278-00-RR. New York: The Conference Board, 2000.

               Schmidt, Jeffrey A., ed. Making Mergers Work: The Strategic Importance
               of People. Alexandria, Va.: A Towers Perrin/SHRM Foundation
               Publication, 2002.




               Page 36                             GAO-03-669 Merger and Transformation Steps
           Appendix IV
           Selected Bibliography




           United Kingdom Audit Commission. Less Dangerous Liaisons: Early
           Considerations for Making Mergers Work. London: HMSO, 1995.




(450184)   Page 37                          GAO-03-669 Merger and Transformation Steps
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