GCI - May 2006 Merging and Consolidating Operations

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					                  Merging and Consolidating Operations:
                  Sorting Out the Nuts, Bolts, and Wrench-turners
                  By C. Richard Panico

                  Successfully merging and consolidating            collect, comprehend and draw meaningful
                  manufacturing operations into a unified           conclusions from relevant information. The
                  entity can be a task of great magnitude and       investment of time up front to understand
                  complexity. Implementation is laden with          the operations and carefully plan the
                  risk, and the outcomes can vary between           integration (front-end loading) will reap
                  business growth and prosperity to the             considerable dividends. Many times
                  underachievement of organizational goals          organizations instinctively want to skip right
                  and potential cultural demise.                    to implementation, often resulting in iterative
                                                                    fixes to actions that should have been done
The challenge     One way to ensure a positive outcome and          right the first time.
of successfully   help navigate the many issues posed by
merging and       these consolidation challenges is to employ       The following are key components of a
                  an approach that carefully balances two key       consolidation framework that, when
consolidating     activities:                                       effectively employed, provide an excellent
operations can                                                      process to identify and capitalize on
be met by         1.   Logical and disciplined rationalization of   available synergies while minimizing rework:
closely                the margin operations
managing the                                                        Discovery and Characterization
                  2.   Proactive and insightful management of
“hard” and             organizational change                        The first step yields a factual baseline of
“soft”                                                              processes within the merging operations
elements of       It is important to note that these activities     and forms an excellent foundation for further
the task.         are not mutually exclusive, and must be           analysis. Effective discovery and
                  effectively planned and managed                   characterization requires truthful and
                  concurrently. These activities are                accurate documentation, thereby eliminating
                  complementary in a consolidation strategy.        bias and delivering a mutually understood
                  Many consolidation projects fail before they      and agreed to definition of the current state
                  even leave the starting line. Interweaving        of the operations. Key activities include
                  the human considerations into the tactical        establishing a project management structure
                  operational planning is paramount to              followed by data mining, data verification
                  success.                                          and data compilation to represent the
                                                                    current-state operations.
                  This discussion will explore the basic steps
                  and considerations within each of these           It is imperative to ensure that the
                  critical activities while providing insight       consolidation effect is aligned strategically
                  regarding how to best plan and manage             with the expectations and objectives of the
                  their application. I will draw upon lessons       managing organization, which can be
                  learned through management of numerous            achieved by soliciting understanding and
                  operational integrations, in a variety of         agreement to the project charter with the
                  corporate environments, to relay                  appropriate stakeholders. Moving forward
                  experiences describing common pitfalls and        with an effort that is not aligned likely will
                  best practices. It is my hope that these          create failure and disappointment as the
                  lesson learned will help you to realize the       project progresses.
                  synergistic benefits of an effectively
                  consolidated operation.                           Analysis

                  The Nuts and Bolts                                The objective in this step is to visualize the
                                                                    desired end state, understand gaps or
                  The first activity of rationalizing the merging   obstacles to getting there, develop
                  operations can be thought of as the nuts          consolidation options, and conduct detailed
                  and bolts. It is rigorous and requires            analyses to qualify and quantify the benefits
                  application of a structured process to            and risks of each option.

                         Merging and Consolidating Operations: Sorting Out the Nuts, Bolts, and Wrench-turners

Typical activities include: confirming products that will             beginning, a control structure must be in place to
be manufactured and those to be outsourced to contract                facilitate management of scope, schedule, cost,
manufacturers; development and analysis of key                        communications and risks. Establishment of a control
manufacturing requirements; identification of plant                   structure allows continual assessment of performance to
operation practices, systems and intellectual property to             the implementation plan and budget while ensuring
be preserved; establishing operation and support                      effective resource utilization and risk mitigation.
personnel requirements, and developing a retention and
                                                                      The control structure requires completion of activities –
displacement strategy.
                                                                      such as development and implementation of a
The insights and conclusions developed in this step will              communication plan, creation of a formal process to
be utilized to create consolidation recommendations.                  address and evaluate project scope changes quickly
However, project teams can easily get caught up in                    and efficiently, continual assessment of project risks and
performing irrelevant analyses and spending time                      implementation of mitigation strategies, and accrual and
identifying options that do not warrant consideration.                documentation of costs and benefits as previously
Diligent adherence to the project charter and effective               identified.
stakeholder management will avert this scenario.
                                                                      A cautionary note – proper identification of either
Recommendation                                                        positive or negative variances to scope, schedule and
                                                                      budget often is neglected by project teams due to
The key activity in this step is to evaluate the options
                                                                      employment of a sliding scale. The final planning and
previously identified against objective criteria. To derive           design documents must serve as static baselines,
a recommendation that meets the overall goals of the
                                                                      allowing thorough understanding and measurement of
initiative, it is critical to establish the evaluation criteria       change. Not managing the consolidation initiative in
carefully. The use of rank prioritization methods and
                                                                      this manner can present a missed opportunity to truly
collaborative stakeholder involvement are imperative.                 gauge execution performance and understand where
Other key activities in this step include completion of the
                                                                      corrective action or positive reinforcement can be
risk and benefits assessment and development of a
preliminary implementation strategy, including schedule
and budget.
At this point, you need to trust your data and analysis
and ensure that all stakeholders have an understanding
and buy-in to the recommended option. This is critical.                           Implementation is where
Project teams must realize that they have to sell their
recommendation to sponsors. Having to retreat and re-                         the rubber meets the road. It is
analyze information is de-motivating and often                                 the transition from the current
prohibitive due to time constraints and other project
priorities. This can be avoided by being as thorough as                          state to the recommended
possible.                                                                           consolidation option.
Final Planning and Design
Once approval is received, the necessary planning
details can be prepared. A detailed work breakdown
structure is a good vehicle to identify lower level,
quantifiable tasks. These tasks then are loaded with                  The Human Element
resource, time and cost estimates. This information
then is rolled into a more robust implementation plan                 As you work through the consolidation framework and
and budget that, ultimately, will be reviewed and                     complete the individual process steps, careful attention
approved by the sponsor stakeholders.                                 also must be provided to the second part of your
                                                                      approach – the management of organizational change.
It is also essential to revisit the risks and benefits
preliminarily identified in the previous steps. Risks and             Human nature provides a reflex to preserve your
benefits must be quantified and validated in conjunction              personal comfort, a comfort typically derived from a
with the implementation plan and budget. Once the                     sense of control or knowing what lies ahead. Initially,
detailed implementation plan, budget and risk/benefit                 stakeholders may not have a clear vision of what the
assessment have been completed and approved, these                    future holds for them. Individual roles and
documents will serve as a baseline to control activities,             responsibilities, personal logistics and work
track work progress and measure performance.                          environments undoubtedly will change as the existing
                                                                      operations are merged. This can create a feeling of
Implementation                                                        discomfort that must be sensitively managed throughout
                                                                      the project to avoid stakeholder bias, resistance and
Implementation is where the rubber meets the road. It
                                                                      lack of engagement. The benefits of successfully
is the transition from the current state to the
                                                                      managing the human element can include establishing
recommended consolidation option. However, before

                        Merging and Consolidating Operations: Sorting Out the Nuts, Bolts, and Wrench-turners

focus support, high levels of individual contribution and         something new, in this case an improved and
constancy of purpose. The key considerations                      consolidated operation, can be an effective tool to
regarding managing the human element are listed                   minimize fear. By virtue of effective leadership,
below:                                                            stakeholders must be reminded that they are part of a
                                                                  select group that affects positive organizational change
                                                                  and create something that is better than what exists
Consistent leadership is an essential ingredient for              today. It will be a powerful and exciting feeling to realize
success and an absolute requirement when                          that thoughts and opinions of how things should be will
consolidating operations. Merging organizations                   not only be heard but eventually acted upon. Engaging
naturally are divided into the two sides of the                   stakeholders in this manner often can minimize negative
consolidation, “us” and “them”. This creates specific             impacts associated with the fear of change.
loyalties, opinions and perceptions among stakeholders            The challenge to merge and consolidate operations can
that may lead to conflict and distraction. Effective
                                                                  be daunting. Engagements of this type require the deft
leadership will minimize these effects by objectively             management of a myriad of data, information and
managing stakeholders and not allowing conflict or bias
                                                                  resources, and it can quickly become encumbering –
to undermine the project goals. This leadership also will         particularly without the guidance of a structured
build bridges between the two organizations, thus
                                                                  approach. It is absolutely essential to apply equal focus
imparting a spirit of unity, as they will all now need to
                                                                  to the nuts and bolts and the human element. With
work as one.                                                      respect to these critical activities, independence is not
Vision                                                            an option – substitute interdependence. The application
                                                                  of a truly interdependent, structured approach to
Perhaps the most significant contributor to the fear of           consolidating operations will yield a solution that is
change is the fear of the unknown. Clarity can be                 successful and, most importantly, sustainable. GCI
achieved through the collaborative creation of a vision of
the future, derived through execution of a structured
process. Stakeholders can gain comfort and confidence
as options are put to paper and supported by facts and
analysis that they have been party to and understand.
Two particularly relevant aspects of good
communication come to mind immediately. First, it is
important to remember that one must manage the
communications that are both sent and received. Open              Acknowledgement
communications, those that flow freely to and from, are
not a given in an inherently tumultuous situation where           C. RICHARD PANICO is president of Integrated Project
opinions are strong and often biased. A good leader               Management Company, Inc. in Burr Ridge, Illinois, St.
must also be a good listener, adeptly extracting the              Louis, Missouri, and San Francisco, California, a
knowledge and perspectives from the project team while            professional services firm that helps companies improve
confidently sharing information and direction.                    execution by blending strategic consulting with
                                                                  professional project management. Panico is a frequent
The second issue regards confidentiality. Confidentiality         guest speaker and author on the topics of business
is often an initial requirement on consolidation projects.        management, leadership and ethics in academics and
It can be difficult to draw in all the resources that are         business settings. He is chairman of the Institute of
needed to analyze and plan a complex consolidation,               Business and Professional Ethics at DePaul University,
particularly when specific details cannot be                      Chicago, IL, USA.
communicated. In this case, difficult decision must be
made to appropriately include these resources or make
educated assumptions regarding the required                       C. Richard Panico gratefully acknowledges the co-
information. Swift communication is almost always best.           authoring of this article by his colleague Larry Radowski,
Rumors and assumptions quickly will fill any void in              PMP, Manager, Project Planning and Execution at IPM.
information, and it is often more difficult to deal with
rumors than to have been up front with the organization
in the first place.
Creativity                                                        As published in the May 2006 Global Cosmetic
                                                                  Industry Magazine
An excellent way to manage the fear of change is to
transform it from a perceived negative to a perceived
positive. Engaging stakeholders in an effort to create