LITMIR.BIZ

Скачать книгу

accident similar to the one at Three Mile Island had occurred some months before in the Tennessee Valley Authority. The product tampering that occurred virtually every week in North America did not seem to cause the makers of Tylenol, Aspirin, Ball Park frankfurters and other products to put effective safety measures in place. It is logical, therefore, to assume that the lessons of failed mergers and acquisitions are no easier to codify and pass on to senior managers in other corporations, or down through time, than are any other business lessons.

      The role of “integration managers” in charge of mergers and acquisitions illustrates the unique personality types that may succeed in, or are at least drawn to, such deals. This type of manager may feel aloof from the organizational chart. The command and control chain is foreshortened. He is like a “cop” demanding results from all levels. One such manager says he feels as if he is “the CEO” of the deal. Others suggest that integration managers could be models for the manager of the future.

      Often there’s an emotional high in a foreshortened organizational chart, time line and decision-making loop. It could be that observers and the integration managers themselves are simply describing a fairly typical executive addiction to the adrenalin rush one gets from deal making and crisis management. This is a powerful addiction to control. The return to normal times through the rejection of a potential merger or acquisition would result in a crashing descent from this high. Even if some mergers and acquisitions constitute unproductive or busy work, they are irresistible to many leaders. Thus, the personality of the leader is a fruitful area for investigating the existence and nature of leadership failures.

      In addition to emotion and ego that seem to play such a large role in big business deals, other research shows that quite different cognitive and decision-making powers may be needed to make mergers and acquisitions succeed. Decision-making has been found to fall into three categories:

      •Skill-based (almost automatic, such as driving)

      •Rule-based (following rules or procedures), or

      •Knowledge-based (creative).

      Mergers and acquisitions usually feature a rapidly evolving series of events where decision-making based on skills or rules would not normally succeed. If these types of decision-making skills are more-or-less evenly divided in an executive population, this would suggest that about two-thirds of all senior executives would be unsuited for such work. To generalize, the law, engineering, and accounting are based on facts, research, and rules. Yet senior management teams draw heavily on these professional areas when what seems to be needed are other skills. One researcher describes using inappropriate and unproductive techniques as “active inertia.” In this case leaders and managers rely on their modes of thinking and working that brought success in the past. They simply accelerate the process of failure.

      Traditional decision-making is a laborious process compared with what is needed to take quick advantage of a rapidly evolving business situation. Making decisions involves the identification of the problem, the generation and evaluation of options, and the choice and implementation of options, followed by more evaluation and the modification of more action. This linear methodology will not work well in rapidly escalating situations such as emergencies and the fast-paced world of mergers and acquisitions.

      The technique required in this different environment is described by the experts as “naturalistic” decision-making (NDM). Situations requiring NDM feature fluid and changing conditions, real-time reactions, ill-defined goals, ill-structured tasks and knowledgeable people. Mergers and acquisitions often feature elements of missing data, shifting and competing goals, real-time reactions, real-time feedback to changing conditions, high stakes, time stress, and other factors.

      The technique used by those trained to respond to dangerous emergencies is called “recognition-primed decision-making”. On-the-spot-decisions are driven by recognition of situations and patterns. Those decisions are re-evaluated constantly based on the latest information. In fact, emergency responders tell us they don’t make decisions-they simply take appropriate action.

      In the recognition-primed decision-making model, action is key. Experienced responders usually pick a workable option for their first attempt. Action is modified and improved by a constant assessment of the situation and further potential options. They don’t try to decide which may be the best course, they just react to avoid known or observable dangers and re-evaluate their actions as they proceed. Mental simulations keep the decision-maker in a constant position to act, with the aim to satisfy, not optimize.

      I must acknowledge that there are examples of successful mergers and acquisitions. Perhaps the most often cited is the record of achievement at GE Capital Corporation, a division of General Electric. GE Capital was originally formed to help and encourage consumers to buy appliances made by its parent company. During the 1990s, however, the CEO of General Electric used GE Capital’s financial acumen and muscle to target companies for potential acquisition. From 1993 to 1998 it completed more than 100 acquisitions, resulting in a 33% increase in employees and a 100% increase in net income.

      The CEO at General Electric at that time was Jack Welch. He was described as “feared and confrontational”. He fired more than 100,000 employees in his first five years as CEO (1981-1986). Even when economic times were good, Welch encouraged his senior managers to replace ten per cent of their subordinates every year!

      Mr. Welch himself quotes one executive as saying “Jack and I have been friends for eight years, and our wives see each other all the time. ...but he wouldn’t hesitate to get rid of me.” Another GE executive “checked himself into a mental hospital after an encounter with his CEO. Yet another, who struggled with obesity, was so worried that Welch would think him a fat slob that he had his lower bowel stapled—an operation that left him with chronic diarrhoea”.

      During his 20-year stewardship of GE, the company’s value rose 4000%. When he retired from GE in 2001 he took a severance payment of $417 million, the largest such payment up to that point in history. In 2006, Mr. Welch’s personal wealth was estimated at $720 million. However, in spite of all the accolades he received and wealth he accumulated for shareholders and himself, all was not entirely well at GE.

      When he became CEO, General Electric had just made a billion and a half dollars in annual profit, with Reginald Jones at the helm. Mr. Jones was one of the most admired businessmen of his generation. However Jack Welch, who was personally selected by Mr. Jones to be his successor, promptly cut back on General Electric’s Research & Development efforts to reduce expenses and increase profits. The result has been that a company that takes credit for first marketing the incandescent light bulb, the x-ray machine and unbreakable plastic, hasn’t come up with many revolutionary products in years.

      A chemical engineer by training, it turned out Mr. Welch’s real strength was not R&D, but appealing to Wall Street with what has been called financial engineering. His wizardry is explained in this way by John Cassidy in The New Yorker:

      “Say that G.E. has a stock-market valuation of four hundred billion dollars and profits of ten billion dollars, which means that its stock is trading at forty times its earnings. ...Now assume that G.E. buys another company with a stock-market valuation of twenty billion dollars and annual profits ...of two billion dollars. What is the value of the combined company? You might think the answer should be four hundred and twenty billion, but that’s not how Wall Street sees it. If investors continue to believe that G.E. is worth forty times its earnings, the new valuation will be four hundred and eighty billion dollars. As if by magic, sixty billion dollars will be created.”

      Mr. Welch’s legacy as a wheeler dealer is secure. GE Capital was the real engine of profits for Jack Welch, accounting for almost half of the revenues of the parent company. It is really a bank—one of the world’s largest. Indeed, it now calls itself a bank. When Mr. Welch took control of GE, it was an industrial powerhouse. Now it’s something different.

      In 1951, the CEO of General Electric commissioned a high-level task force to identify key corporate performance measures. In addition to profitability, the list included market share, productivity, employee attitudes and public responsibility. The report was silent on how these should be judged and it doesn’t seem as if GE valued these other metrics as much

Скачать книгу