Steering a giant

Malaysian Business, Jan 16, 2008 by Johannes Ridu

THE DUST has settled on Sime Darby Bhd, or has it? Not really. In fact, the real challenge for the company that was created from the merger of three plantation giants - Sime Darby Bhd, Golden Hope Plantations Bhd and Kumpulan Guthrie Bhd - has just started.

Sources say problems relating to the merger are already beginning to crop up, with many disgruntled staff submitting their resignations when the merger was completed.

Management consultants would be the first people to tell you that any post-merger integration process is a difficult and complex task. It comes along with long lists of activities and tasks that have to be fulfilled within a short time and partly with incomplete information (for example, the formation of new teams and departments). There are also many opportunities to exploit and many decisions to be made.

At the core of the issue is the merger process itself. Although dubbed a merger, some construe the whole process as a takeover by Sime Darby of Guthrie and Golden Hope. They point out that despite the merger vehicle being named Synergy Drive to give it a new image, eventually the merged entity reverted to its old name of Sime Darby.

`It is not seen as a merger between equals as mooted earlier. It is now basically seen as a takeover,' says a source.

Experts say the post-merger integration phase typically covers the operational part of the merger project. Often, this phase decides if the merger becomes a success or failure.

Typically, post-merger issues that crop up following a merger exercise are:

* communication of the new strategic objectives and the new vision of the merged organisation,

* implementation of a new shared corporate culture and management culture,

* development of a new management structure for the new, larger organisation; especially overcoming leadership problems in very large units,

* bringing together formerly separate units from former organisations,

* harmonisation of management compensation and management incentive systems,

* overcoming staff suspiciousness of the other organisation,

* filling of management positions,

* allocation of responsibilities,

* knowledge transfer among units that are to be integrated, and

* the maintenance of customer relationships during the integration phase.

According to Tharuma Rajah, the Managing Director of Hay Group South- East Asia, it will be crucial for the top management of Sime Darby to `sing the same song from the same song sheet with the same rhymes'.

`The main focus must be on organisational climate. There must be clarity in the leadership style ... a kind of standard of excellence is required and what is the trust of the team. If that is addressed, the cultural changes will naturally happen over time,' he says.

According to him, the hardest job for Sime Darby in the next few months or years will be `the execution or implementation' of the post- merger integration process. He says it will not be easy to change the culture of an established company like Sime Darby that has been in existence for more than a century. `It already has its own myths, traditions, norms, beliefs ... and history.'

So, how should Sime Darby address the cultural clash? `They have to come up with a fantastic people strategy,' Tharuma says. `Its staff needs to understand that their roles have changed. The horsepower or bandwidth of the organisation has become bigger. The incumbent workers would need to understand this.'

Tharuma also thinks that newly merged entities should conduct what he calls `executive coaching'. `This is a one-to-one executive coaching process that would normally take between six and nine months to complete. This is to tell the staff about their new job scope, new management and about themselves. For instance, a person who was the Chief Executive Officer (in one of the merged entities) will have to know that he is now a Group CEO.'

Sime Darby also needs to conduct post-merger due-diligence, draw up a development strategy and re-look at the talent pipeline of the merged entity. `They need to motivate people who lose out in the merger to eliminate the emergence of a sub-culture, silent protests and a de- motivated group,' he says.

Is a mandatory separation scheme (MSS) the answer to the problem of `misfits' in the merged entity? Tharuma says `transformational coaching' must be given to staff who are perceived as `misfits'. `(Malaysia) is already suffering from a serious brain drain. The best talents are leaving the country.'

As a global company, he says Sime Darby's top management will have to come up with an effective human capital strategy for the next three to five years,' he says. `MSS will have to be the last resort ... while it is no point to have deadwood in any organisation, a merged entity must optimise its resources.'

Incidentally, before Christmas last year, Sime Darby offered a Voluntary Separation Scheme (VSS) to 30 drivers in an apparent breach of promise that it would not reduce staff for at least a year after the merger. Following the highlighting of the issue in the `Other Thots' column in Malaysian Business, the VSS is believed to have been aborted but this could not be confirmed at the time of writing.