Bombardier Integration Plan
Upcoming SlideShare
Loading in...5
×
 

Bombardier Integration Plan

on

  • 1,636 views

This case analysis has been done as a part of Mergers & Acquisition Class in Winter 2011, Schulich School of Business

This case analysis has been done as a part of Mergers & Acquisition Class in Winter 2011, Schulich School of Business

Statistics

Views

Total Views
1,636
Views on SlideShare
1,634
Embed Views
2

Actions

Likes
0
Downloads
33
Comments
0

1 Embed 2

http://www.linkedin.com 2

Accessibility

Categories

Upload Details

Uploaded via as Adobe PDF

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

Bombardier Integration Plan Bombardier Integration Plan Document Transcript

  • SGMT 6050X (Winter 2011) Section X Professor Roderick W. Pamenter The Bombardier/Adtranz Post-Merger Integration Plan March 21st 2011 Ajay Singh
  • SGMT 6050X Bombardier Transportation and the Adtranz Acquisition 1 Contents Business Strategy for Bombardier .................................................................................................. 3 ADTRANZ Acquisition.................................................................................................................. 3 Drivers for Acquisition................................................................................................................ 4 Diversification of Corporate Business Portfolio ..................................................................... 4 Product Synergies.................................................................................................................... 4 Turnkey Capabilities................................................................................................................ 4 Backlog of Orders.................................................................................................................... 4 Stronger presence in Services.................................................................................................. 4 Global Leadership.................................................................................................................... 5 Potential Risk .............................................................................................................................. 5 Sizeable Integration ................................................................................................................. 5 Incompatible Organizational Structure.................................................................................... 5 Restructuring Charges ............................................................................................................. 5 Social Issues ............................................................................................................................ 5 Regulatory Approval ............................................................................................................... 5 BT/Adtranz Integration Strategy..................................................................................................... 6 Start early with planning ............................................................................................................. 6 Integration Management Team ................................................................................................... 6
  • SGMT 6050X Bombardier Transportation and the Adtranz Acquisition 2 Organizational Structure ............................................................................................................. 7 Cultural Compatibility................................................................................................................. 7 Communication........................................................................................................................... 8 Integration Milestones .................................................................................................................... 8 Phase 1 (First week) .................................................................................................................... 8 Phase 2 (First 90 days) ................................................................................................................ 9 Phase 3 (First Year)..................................................................................................................... 9 Appendix1....................................................................................................................................... 0 Appendix 2...................................................................................................................................... 1
  • SGMT 6050X Bombardier Transportation and the Adtranz Acquisition 3 Business Strategy for Bombardier Bombardier has established itself as a diversified global company with four major divisions including Aerospace, Transportation, Recreational products and Capital. In 2001, Aerospace group is estimated to account for 66% of company’s revenue and 85% of its profits whereas Transportation accounts for only 19% revenue and mere 8.4% pre-tax profits. The other two divisions are marginal in terms of their contribution to the bottom line. But, the overall growth in the aerospace will slow down due to weaker demands and matured product lines which may be an issue for the management due to Bombardier’s over reliance on aerospace. The top management in Bombardier has realized that their rail business is counter-cyclical as compared to other businesses and could help the company in economic downturns. Europe is the technological hub of the rail industry and its standards are widely embraced all over the world, particularly in emerging economies of India and China. So, the strategy of Bombardier Transportation is to increase its product breadth and presence in Europe through acquisition so that it can leverage the technological advances and long-term growth in demand for rail industry. ADTRANZ Acquisition Over the last couple of decades, Bombardier had successfully used acquisition as a tool to implement its strategy of increasing the market share and diversification across products and geographies. The planned acquisition of Adtranz falls under the same strategic initiative. It was based in Berlin, Germany but essentially a collection of multiple companies across Europe and had seen number of ownership pattern changes over its existence. As a result, the company has never been able to develop its own culture and faces identity crisis in the DiamlerChrysler
  • SGMT 6050X Bombardier Transportation and the Adtranz Acquisition 4 conglomerate. The company is one of the four biggest players in Europe with twice the size of BT but it still has a peripheral role in the overall strategy of DaimlerChrysler. Drivers for Acquisition: There are a lot of positives in the acquisition of Adtranz by BT which will propel it to the leading global position in the rail transportation market. Diversification of Corporate Business Portfolio: The Adtranz acquisition will diversify the Bombardier’s revenue mix from 66% aerospace and 19% transportation to 52% aerospace and 35% transport. It will help to address the issue of over-reliance on aerospace group and also diversify the revenue globally from the current emphasis of more than 53% from US alone. Product Synergies: BT has in-house capabilities in assembling rail cars but lacks expertise in propulsion and control systems. As a result, BT had to previously outsource this portion of its business. On the other hand, Adtranz has excellent propulsion systems, high speed train technology and electronic locomotive technologies which can be leveraged by Bombardier to broaden its product lines. It will also be a clear marketing advantage for BT for future contracts. Turnkey Capabilities: The acquisition will provide the complete capability for any type of train system to BT. The global presence will further help the company to offer turnkey solutions to its clients at a logical market pricing with enhanced cost improvements. It will also help BT to enhance its market competitive position by solidifying its position as the largest passenger car supplier in the world and consolidating the important rail market in Europe. Backlog of Orders: BT will also benefit from $2.7 billion in backlog orders for good quality services and maintenance contracts from Adtranz which will act as a huge cash generator. Stronger presence in Services: Bombardier never had a strong toehold in the after-market services which include systems operation and rolling stock maintenance. But, this acquisition will provide BT with the key capability to deliver turnkey projects and thus participate in the
  • SGMT 6050X Bombardier Transportation and the Adtranz Acquisition 5 solidly growing and profitable services market. It will also help BT to provide more service locations across the continental Europe. Global Leadership: The acquisition will establish BT as the largest rail transportation company in the world with combined 35% market share in the passenger cars. The market size is important to take advantage of the privatization and outsourcing trends in the industry. Potential Risk: Bombardier can claim acquisition integration as its core capability and competitive advantage but any new acquisition is different from others and poses its own challenges and risks. Sizeable Integration: Adtranz is twice the size of BT with 15 product units and 22000 employees across 60 countries. It will be the largest acquisition in Bombardier’s history and will pose a unique challenge in terms of integration structure and scope. Incompatible Organizational Structure: BT was structured across five geographically based units whereas Adtranz was structured around product segments and functions. It will be a challenge to establish an optimal structure for the merged entity where resources can be suitably harnessed. Restructuring Charges: Bombardier may have to incur additional restructuring charges for the overlapping operations in Europe. Social Issues: The transaction can evoke negative reactions from labour unions and can adversely impact re-structuring process. Regulatory Approval: The transaction faces negotiation with European commission for regulatory approval and the process can take between 4-6 months. This interim period can have adverse impact on the operational effectiveness of Adtranz in terms of customer and supplier relationship, motivation of employees and the new management team at helm.
  • SGMT 6050X Bombardier Transportation and the Adtranz Acquisition 6 BT/Adtranz Integration Strategy It is critical for the success of Adtranz acquisition that BT is able to realize the expected synergies in a timely fashion. They have to ensure that the unique capabilities of Adtranz in terms of their best people and most valued customers don’t melt away during the process of integration. So, BT has to ensure certain key enablers of successful integration plan (Appendix1). Start early with planning: One of the important questions raised by Rick Dobbelaere, VP of BT’s Atlantic Europe operations, is whether to wait for EC approval before planning for potential integration. I think that it is of utmost importance that BT should start planning for the potential integration without waiting any longer. They should put integration team in place with responsibility to identify the management culture of Adtranz and the possible contentions that could arise during integration. The team should assess the possible weaknesses and strengths of Adtranz businesses related to product quality, production methods, bidding process and customer support. The team should also create a comprehensive communication plan which can address different audiences. The plan should include the communication regarding consolidation and re- structuring efforts. The given planning will provide a head start to BT with its integration efforts. Integration Management Team: The Adtranz acquisition will be the biggest transaction in the history of Bombardier and will need a full-time integration manager to manage all the complexities involved with it. Pierre Lortie, COO of BT, should act as a leader for this team responsible for taking the key decisions like profit growth, re-structuring, staffing key positions in the merged entity and customer retention. The team should select an experienced hand to manage the integration process. The candidate should preferentially be from BT’s Atlantic Europe division who is sensitive to cultural differences and possess strong interpersonal skills. It
  • SGMT 6050X Bombardier Transportation and the Adtranz Acquisition 7 is important that integration manager is being drafted into the team from the very beginning and is accountable for creating the integration plan and for reaching the plan’s different milestones. Organizational Structure: The incompatibility of the organizational structure between Adtranz and BT provides a challenging dilemma for the integration. We have BT which is organized around different geographies whereas the organizational units for Adtranz are different products segments. In that case, the merged entity should implement matrix structure which can formalize coordination and control across multiple dimensions with headquarters in Atlantic Europe so that top management is in sync with the latest industry advancements (Appendix 2). In this structure, the general manager of business division will report to his country manager but also to his business sector head, as well as having functional relationship with BT’s head of manufacturing. So, the country heads will have the primary responsibility for budgetary control, personnel appraisal and strategy formulation whereas business heads will be more hands-on with their given product segments. In terms of authority, one dimension of the matrix tends to be dominant which will be the country heads in this case. Though, matrix organization will solve the issue of coordination among multiple dimensions in a complex organization like the newly merged entity here, but the structure has to resist over-formalization so as to avoid slow decision making and dull entrepreneurial initiatives. We should also ensure hierarchy in the organizational design that is essential for efficiency and flexibility but the structural changes has to be made as quickly as possible while maintaining everyone’s dignity. The communication about the new organizational design has to be straightforward and clear so that new company can be focused on real work. Cultural Compatibility: BT and Adtranz posses a very different organizational cultures and integrating them will not be surreal task. Mismanaged integration may lead to “culture collisions” that can adversely impact productivity, turnover and employee morale. The cost of
  • SGMT 6050X Bombardier Transportation and the Adtranz Acquisition 8 such collisions can be as high as 25-30% of the performance of the acquired company. The integration team has to establish the cultural fit among the two companies by addressing the cultural issues head-on. The BT team should plan to invite the business leaders from Adtranz for a cultural workout. It is important to establish the shared understanding of the cultural differences and plans to bridge that gap. The idea is to involve the management from Adtranz in the integration efforts so that people from both the companies can work together on important business issues. Pierre should take a leadership role in establishing the new “Role Culture” for the merged entity where emphasis is on formal procedures with clearly defined role requirements and authorities. Communication: In Collaborative mergers as in the case of BT and Adtranz, success depends on exchange of technology and expertise. Integration team has to enable the right communication channels ranging from newsletters and memos to division wide meetings and top management visits so that messages are clearly passed from top echelon to middle management and below. Integration Milestones It is important to track the progress of integration efforts in a timely fashion with different milestones. We can divide the integration process in three phases as below: Phase 1 (First week) Communication blitz in a planned fashion to employees clearly stating the rationale for merger, articulating the vision for the merged entity to all stakeholders and clearly defining roles and responsibilities for the management team at Adtranz. Communicate the organizational structure changes, the new governance model and the necessary consolidations with the change in headquarters.
  • SGMT 6050X Bombardier Transportation and the Adtranz Acquisition 9 Formalize the first 90-day integration plan in consultation with the business leaders from Adtranz focusing on consolidation and cultural integration. Phase 2 (First 90 days): Application of Bombardier’s bidding system to the merged entity for any new contracts. Application of quality management techniques to improve quality and reliability of Adtranz’s products. Cultural workout meeting to ensure cultural fit among the two companies. Restructuring of the overlapping businesses and facilities. Integration of BT’s rail cars with Adtrenz’s propulsion and control systems. Implementation of BT’s just-in-time production techniques to Adtranz’s manufacturing process. Phase 3 (First Year) Outsource non-core functions to external suppliers and focus on product design, quality control and assembly. Implement revenue growth opportunities in turnkey projects Invest in new product categories in high speed trains and electronic locomotives Divest non-core product segments like fixed installations and signaling systems
  • SGMT 6050X Bombardier Transportation and the Adtranz Acquisition 0 Appendix1
  • SGMT 6050X Bombardier Transportation and the Adtranz Acquisition 1 Appendix 2