Business TransformationS

Towers Watson sits down with executives from The Coca-Cola Company and Delta Air Lines to find out how they dramatically improved their businesses through mergers and acquisitions.

Sucessful

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or individuals in the corporate world, the subject of a merger or acquisition can have the ability to produce a variety of intense emotions such as fear, resistance, excitement, anger, or happiness. Although business transactions have the potential to bring about much good, they are also capable of negatively affecting jobs, departments, and in some cases, entire companies. Fortunately, the latter was far from what happened for The Coca-Cola Company and Delta Air Lines. In contrast, these two companies thrived and advanced their performance significantly after completing major business transactions. For the tenth consecutive year, Business to Business has teamed up with leading global professional services company Towers Watson to study HR best practices. We have chosen to zero in on discovering the keys to success of Coca-Cola and Deltas recent merger and acquisition activity. Indepth interviews with HR executives from each company have provided

By Bethany Loesch
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Shane Smith Global Human Resources Director The Coca-Cola Company us with valuable insights and tips into what these companies did to prepare for change, execute plans, and integrate two separate companies into one.

Laura Miller Chief Human Resources Officer Coca-Cola Refreshments ity and an opportunity for two companies that had their own individual strengths to come together as one stronger company. And come together they did all 30,000 Northwest employees and 50,000 Delta employees. Working together as one, the newly reconstructed Delta was able to attain success in ways that would not have been possible prior to the merger.

Background
In October 2010, Coca-Cola finalized its $12.3 billion transaction of Coca-Cola Enterprises North American bottling business, an acquisition that was carried out to strengthen the global franchise system for the long term by integrating the product supply organization and driving profitability. This new structure is an unparalleled combination of businesses that accelerates innovation and strategically positions Coca-Cola to better market and

Orchestrating a Plan
In order to reach success in a merger or acquisition from both a business and people standpoint, planning ahead is crucial. Both Delta and

Developing a common vision and definition of success right out of the gate was critical. - Shane Smith, Coca-Cola
distribute North Americas most preferred beverage brands. Our main driver was growing our business in North America, said Laura Miller, Chief Human Resources Officer for Coca-Cola Refreshments. With the commodities challenges we face in our business environment, being aligned and working together enabled us to overcome some of the fluctuations. Delta completed its $2.8 billion merger with Northwest Airlines in October of 2008, spearheading the company to becoming the worlds premier global airline. Top executives at Delta recognized that consolidation would put the airline in a leadership position, improve margins, and build a network that would influence travelers to choose Delta. From a straight business perspective, there was too much capacity, said Allison Ausband, Vice President of Reservation Sales and Customer Care for Delta. For Delta, there was an opportunity to lessen that capacCoca-Cola took a systematic approach to handling change management and establishing goals, principles, and values early on. For both companies, a major part of that approach meant starting with a foundation for winning and growing that serves to give employees direction. Coca-Cola referred to its 2020 Vision and Roadmap for Growth, and Delta used Rules of the Road and Flight Plan. Developing a common vision and definition of success right out of the gate was critical, said Shane Smith, Global Human Resources Director for The Coca-Cola Company. Deltas CEO, Richard Anderson, created the Rules of the Road when he started with the airline. Leaders know the Rules of the Road, think about them and use them as they make decisions. In addition, we have the Flight Plan, which is our strategy and sets out our annual goals, said Rob Kight, Vice President of Global HR Services and Labor Relations for Delta.

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Rob Kight Vice President of Global HR Services and Labor Relations Delta Air Lines Some general similarities in change management approach shared by both companies included an unrelenting focus on the customer, addressing the needs of employees, recognizing the need to make changes as quickly as possible, and maintaining open lines of communication amongst employees, managers, and top executives. To plan for the early integration phases and beyond, Delta established a program management office (PMO) to oversee all activities. The PMO was made up of Delta employees who were pulled from their everyday jobs to focus solely on the success of the integration. We wanted the PMO to make sure we had change management strategies in place and

Eric McMurray Managing Consultant, Southeast Towers Watson gets, dedicated leaders, management routines, and a cadence to keep us organized through the process. Throughout the initial planning stages and well into the process, both Delta and Coca-Cola maintained an open and honest approach in regards to merger and acquisition details and information. They invested much time, money, and energy into keeping all of their employees abreast of the changes. By using and implementing so many different forms of communication as well as helpful programs, employees experienced a sense of pride in being a part of something new and exciting. However, it is important to note that no matter how much strategiz-

Coke and Delta took senior people out of their day jobs to dedicate them to the integration activity. Senior, well respected, qualified people leading that effort was important. Eric McMurray, Towers Watson
the synergies we set were attained within the timelines established. When something went wrong, the PMO raised the flag, said Mike Medeiros, Vice President of Global HR and Talent Development for Delta. Coca-Cola had a similar team that facilitated its own acquisition process, called North America Business Integration Team. Eric McMurray, Towers Watson Managing Consultant, Southeast commented, Coke and Delta took senior people out of their day jobs to dedicate them to the integration activity. Senior, well respected, qualified people leading that effort was important. Coca-Cola also employed an additional approach in change management. We had an integration scorecard that was consistent to all teams, said Smith. All of the elements on the scorecard applied to each work stream. We ran the integration like a business. We had taring, planning, and calculating a company does, no business integration ever goes completely seamlessly. Both companies admit to encountering unforeseen challenges along the way, forcing them to come up with solutions to unexpected issues. You should assume that your integration strategy will address 6070 percent of the solution and assume that 3040 percent of your strategy will need to be adapted to the scenarios that will arise, said Chris Collins, Managing Director of HR Service Delivery and Compliance for Delta. You must be willing to adapt the plan to the realities of the environment.

The Importance of Leadership

In any major business transaction, having the best talent in leadership positions is critical to success. Having the right people in the

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Mike Medeiros Vice President of Global HR and Talent Development Delta Air Lines right positions can mean the difference between providing calm in the storm or contributing to the chaos. Both Delta and Coca-Cola realized this early on and took similar steps to ensuring that key leadership positions would be filled with the most qualified individuals. We were very deliberate about evaluating talent and picking the best from both organizations and more broadly across the system, said Miller of Coca-Cola. Similarly, Delta looked to both organizations to find the most capable talent. In addition, Coca-Cola and Delta segmented their audiences and

Chris Collins Managing Director of HR Service Delivery and Compliance Delta Air Lines everybody on the same page in terms of how they talked about the merger. Going above and beyond in interacting with and providing guidance to employees, Deltas Town Hall program became an even more powerful tool during their merger with Northwest. This program assigns executives to stations around the world that they visit once a quarter to provide corporate updates and to be visible to employees. During the integration process, the regular presence of these executives was extremely valuable and appreciated. [Town Hall visits] are fun and remind me of why I am sitting in this office and working so

Visible leadership is so important in something of this magnitude because employees want to see you out there living and breathing the change with them, and understand that you are a part of the change. Mike Medeiros, Delta
equipped leaders on every level and in every department. This allowed employees across the company to have open dialogue with their direct leaders. There are a lot of people who dont work in a corporate environment and dont relate to the employee from corporate. They relate to their supervisor at their local plant or their hub. said McMurray of Towers Watson. Frontline leaders within each of these companies were educated on all aspects of the merger so that no department was left in the dark. Visible leadership is so important in something of this magnitude because employees want to see you out there living and breathing the change with them, and understand that you are a part of the change. said Medeiros of Delta. Early on, Delta made it a priority to be ahead of the game in selecting and training leaders. From the very beginning, we focused on speed wins for example, said Kight of Delta. The merger was announced in April of 2008 and by July of 2008 we had announced the leadership team. We needed to get hard, because of what our people do for customers on the frontline, said Medeiros of Delta.

Maintaining Focus and Sustaining Culture

The main drivers behind the continued focus on culture of both Delta and Coca-Cola were the carefully thought out pieces of company literature (Rules of the Road and Flight Plan for Delta, 2020 Vision and Roadmap for Growth for Coca-Cola). As Miller of Coca-Cola explains, The materials created a common language and objective that the combined team could rally around. In addition, Kight of Delta adds, The Rules of the Road boil down to running an effective, efficient, values-based business listening to and communicating effectively with people and thinking about what is important to them to best do their jobs and giving them the needed tools to succeed.

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Cianni of Towers Watson has seen a number of other successful approaches to sustaining culture during mergers and acquisitions. Its important to make sure that leaders consistently talk about the culture and what the expectations are and model that, she said. Weve seen some companies have training programs around the new culture. In some cases, companies also use recognition programs for employees who go above and beyond in exhibiting those behaviors.

Overcoming Key Issues

When looking closely at Coca-Cola and Delta, there were themes that emerged within the critical integration issues that both companies faced. These issues are not unique to just Coca-Cola and Delta, but instead are shared by nearly every company involved in a merger or acquisition. The stand-out challenges for both companies included maintaining customer satisfaction, equipping employees with the proper tools to carry out their job responsibilities on day one, integrating systems and IT, harmonizing salary and benefit plans, aligning company cultures, and adjusting to new work rules and policies. For many of the challenging changes that arise from integrations, there is virtually no way to satisfy everybody in every situation. Miller remarked, You can never underestimate the impact of change and how long it may take individuals to work through the change process. From a what does it mean to me perspective, there were lots of questions from employees. Did we get it 100% right, no, but we had to trust one another throughout the process, and I think we got to a place where we were comfortable with each other, said Medeiros of Delta. And to be successful, we needed to have the right people in place. And to get there and be successful, we all had to make the best decisions we could.

Allison Ausband Vice President of Reservation Sales and Customer Care Delta Air Lines Mary Cianni, Global Leader of M&A Services for Towers Watson believes these documents are a powerful approach in sustaining culture during transactions. Its important to provide clarity to the employees about what the expectations are, she said. Often times, things that are related to culture tend to be a bit more ambiguous. The more you can make things clear and concrete, the better. Coca-Cola made a conscious effort to focus on the similarities of the two companies cultures rather than focusing on their differences. Danny Ferron, Senior Consultant of Communication and Change Management

Measuring Success
A vast array of measures have been used to evaluate the success of both Delta and Coca-Colas integration efforts, each of which show significant improvement from before the transactions took place. Financially, Coca-Cola grew its business in North America after the acquisition. The company experienced increases in volume, revenue, profit, operating income, and value share. And from a people stand-

Weve worked hard and successfully brought two big companies together. Our product is better than ever and one our customers believe in. And, our people have regained their pride in who we are. Allison Ausband, Delta
at Towers Watson, commended them for this. They had lots of places where they could have allowed themselves to get distracted from a culture contrast perspective, and they said were not going to focus on the 20 percent that weve historically disagreed on. Were going to focus on the 80 percent that is completely shared by both organizations and agreed on, he said. Rallying around the customer was a critical part of their culture. Delta also excelled in creating and maintaining culture through their PMO that worked to keep key principles intact. The company also formed an education program for salaried employees and created a magazine called Navigator, which provided additional merger process information. Both companies believe communication was essential throughout the integration process. Transparent, open, and honest communication is key to people believing in us and in what we do every day, said Collins of Delta. point, Coca-Cola reset the tone for winning together as an integrated organization by effectively managing and clearly communicating goals and changes. After their merger with Northwest, Delta was able to see the fruits of their hard work through financial gain as well as with employee surveys, in which the company was up in all but two of 29 areas since before the transaction. Delta also proved their success by making a number of reputable lists, including Forbes Most Admired Companies airline industry list as well as rising to number three on the J.D. Power and Associates Survey. These are even better than the glory days of way back then, said Ausband of Delta. Weve worked hard and successfully brought two big companies together. Our product is better than ever and one our customers believe in. And, our people have regained their pride in who we are. F

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