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Power of Organizational Mechanisms – through a study on Adidas/Reebok PMI            March 20, 2013        Group 8        ...
Key Takeaways Importance of Formal Mechanisms in an organizationto  implement strategic intent Also, we look at:  Value...
Agenda Adidas & Reebok Background Context for acquisition Problems in acquisition Steps taken – Learnings Post Merger...
Adidas Founded in 1926 World leader in soccer shoes #2 behind Nike worldwide - #4 in the US Three acquisitions before ...
Reebok Founded in 1895 First athletic shoe for woman #2 in US - #4 in Europe Unique portfolio of long term league lice...
Context for Acquisition Industry factors Organizational factors at Adidas Organizational factors at Reebok
Industry Factors • The market was slowing down in 2004 as a result of slight economic slump            Source: http://www....
US Footwear Market
Other Industry Factors Retail rationalization is important Global supply chains i.e. manufacturing hubs at  several loca...
Adidas Specific factors Adidas- Salomon failure Access to U.S. markets with a local brand and  retail chain Reebok Speci...
Strategic aims from thesynergy Face their biggest competitor – Nike Achieve economies of scale and scope by  extending t...
Context in brief Economic slowdown Fierce competition at various segments Aspiration to be No.1 at adidas Nature of in...
Result In the above Context top management of both  companies approved acquisition Announcement was made on 31st Aug De...
Problems in Acquisition Differences in Culture Employees fears about the following:  Layoffs  Major Relocation  Caree...
Decision Dilemma How to handle the integration process smoothly How to design a structure and processes that  would crea...
Steps taken - Learnings Creation of Clean team Communication Strategy with employees Integration Mechanism Strategies ...
Creation of Clean team Appointment of adidas managers at Reebok soon after the  deal This team (Clean team) analysed top...
Communication Strategy Hainer visited HQ and personally stated that it wouldn’t be  shifted A new intranet site was crea...
Mechanisms for InteractiveCommunication Every person involved in acquisition was asked to give his/her  expertise Pulse ...
Mechanisms for InteractiveCommunication Dedicated HR answers to interested employees about the  integration process Glob...
Learning Hainer’s team did not stop at communication of ideas They created strong mechanisms of interactive communicatio...
Integration Process Eight “integration teams” were formed with adidas and Reebok  managers in a parity proportion Teams ...
Result Managers at various levels felt that they are involved in the  process of integration This mechanism gave a sense...
Adoption of Unified Culture Unified Mission: to be the leading sports brand in the world Communication about culture: “D...
Restructured Organization Key Decisions:  With Customers in mind, brands were to remain independent  Supply chains are ...
Learning: Corporate Umbrella makes sense only when the benefits from  synergy are greater than costs Adidas would have e...
Redesigned Organization                        CEO & Chairman                          Adidas AG                         H...
Post Merger Performance Financial Performance:  Sales revenue increases by 52 percent i.e. from € 6.636 billion in 2005 ...
Post Merger Performance Establishing Global Footprint:  In 2005 sales from Asia contributed 22.95 percent of the group t...
Analysis Integration of adidas and reebok is not a overnight process It takes years for a structure to work and adidas g...
Analysis The merger boosted the revenues to a record level within six  months
Conclusion Beyond communication, implementation of strong mechanisms  helped the top management to easily implement a com...
Q&A
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Group 8

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Group 8

  1. 1. Power of Organizational Mechanisms – through a study on Adidas/Reebok PMI March 20, 2013 Group 8 Sec D
  2. 2. Key Takeaways Importance of Formal Mechanisms in an organizationto implement strategic intent Also, we look at:  Value based leadership and its positive impact  Importance of stakeholders during decision making  Impact of a decision on organization based on the impact of stakeholders
  3. 3. Agenda Adidas & Reebok Background Context for acquisition Problems in acquisition Steps taken – Learnings Post Merger Performance Analysis Conclusion
  4. 4. Adidas Founded in 1926 World leader in soccer shoes #2 behind Nike worldwide - #4 in the US Three acquisitions before Reebok:  Company Sports Inc in 1993  Salomon in 1997  ArcTeryxin 2002 Culture of control, engineering, and production
  5. 5. Reebok Founded in 1895 First athletic shoe for woman #2 in US - #4 in Europe Unique portfolio of long term league licenses Creative marketing-driven culture
  6. 6. Context for Acquisition Industry factors Organizational factors at Adidas Organizational factors at Reebok
  7. 7. Industry Factors • The market was slowing down in 2004 as a result of slight economic slump Source: http://www.global-production.com/footwear/trendstudy/index.htm
  8. 8. US Footwear Market
  9. 9. Other Industry Factors Retail rationalization is important Global supply chains i.e. manufacturing hubs at several locations would give better margins Endorsements with sports clubs, events etc are important to earn customer base
  10. 10. Adidas Specific factors Adidas- Salomon failure Access to U.S. markets with a local brand and retail chain Reebok Specific factors  Struggling to remain in number 2 in U.S. market  Too many competitors coming up with cost leadership strategy
  11. 11. Strategic aims from thesynergy Face their biggest competitor – Nike Achieve economies of scale and scope by extending their global supply chains Access to markets Broader portfolio of products Worldwide recognition through licenses Enhanced R & D
  12. 12. Context in brief Economic slowdown Fierce competition at various segments Aspiration to be No.1 at adidas Nature of industry which demands  Global footprint in retail  Global supply chains  Global recognition through endorsements of sporting clubs, events etc
  13. 13. Result In the above Context top management of both companies approved acquisition Announcement was made on 31st Aug Deal closed on January 2006 Price: $3.52 billion
  14. 14. Problems in Acquisition Differences in Culture Employees fears about the following:  Layoffs  Major Relocation  Career Growth Customer Confusion about brand equity Structural Complexity
  15. 15. Decision Dilemma How to handle the integration process smoothly How to design a structure and processes that would create greater benefits than costs Future of both the brands keeping customers in mind
  16. 16. Steps taken - Learnings Creation of Clean team Communication Strategy with employees Integration Mechanism Strategies to drive uniform culture New Structure
  17. 17. Creation of Clean team Appointment of adidas managers at Reebok soon after the deal This team (Clean team) analysed top management at Reebok This analysis aided decision making of top management Clean team members were given strong targets by CEO to immediately leverage the potential of synergy Learning: the integrative structures should be created from the day one to avoid unfortunate fireworks during merger
  18. 18. Communication Strategy Hainer visited HQ and personally stated that it wouldn’t be shifted A new intranet site was created for employees to know about the acquisition process immediately Hainer also stated that there would be no layoffs and adidas is planning to invest more in reebok Videoconferences of CEOs of adidas and reebok are made available for download Learning: Hainer’s value based leadership created a sense of belonging for reebok employees and the acquisition was received positively
  19. 19. Mechanisms for InteractiveCommunication Every person involved in acquisition was asked to give his/her expertise Pulse check Surveys to understand feelings of employees about decisions taken  The relevant sample was chosen at various hierarchies  Each employee is given eight questions  The survey was used to determine the overall pulse about the integration process BCG was appointed to hire candidates unbiasedly to potential positions
  20. 20. Mechanisms for InteractiveCommunication Dedicated HR answers to interested employees about the integration process Global PEP (Performance Evaluation and Planning) was implemented Results: All this created a strong positive mood and a sense of belonging among employees at every level in the organization about the adidas group.
  21. 21. Learning Hainer’s team did not stop at communication of ideas They created strong mechanisms of interactive communication If the employee morale failed, Reebok performance would have shattered and the underlying logic of acquisition would become meaningless
  22. 22. Integration Process Eight “integration teams” were formed with adidas and Reebok managers in a parity proportion Teams reflected regional and functional structure of each company Task is to develop blueprint about how to leverage the synergy Verification of these blueprints with subteams at regional levels A dedicated PMO to steer the implementation of approved blueprints
  23. 23. Result Managers at various levels felt that they are involved in the process of integration This mechanism gave a sense of ownership and created sustainable business processes The power of this mechanism is Integration process can be easily adopted as several subteams were involved Learnings: A well designed process of Integration that involves its various stakeholders made the implementation very easy
  24. 24. Adoption of Unified Culture Unified Mission: to be the leading sports brand in the world Communication about culture: “Diversity is key to success” Beyond communication, the following processes are adopted  Strong communication mechanism through periodic pulse check surveys  Managers at adidas were relocated to reebok (ex: clean team) to adopt the culture Learning: Creation of an unified mission and implementing strong mechanisms helped adidas easily adopt its culture in reebok without deliberation
  25. 25. Restructured Organization Key Decisions:  With Customers in mind, brands were to remain independent  Supply chains are united: To achieve economies of scale and scope  Retail chains are united: To gain access to markets  Keep R & D separated: To design products that appeal to the brand loyalists  Sales & Marketing is separated: to competitively promote each brand  Integrated Marketing Dept: To clearly position the individual brands without overlap
  26. 26. Learning: Corporate Umbrella makes sense only when the benefits from synergy are greater than costs Adidas would have easily lost to Nike if their R & D or Sales & Marketing are combined Customer being an important stakeholder, his perception has significant influence on the design of organization
  27. 27. Redesigned Organization CEO & Chairman Adidas AG Herbert Hainer Global President & CEO- President & CEO - Finance Operations Adidas Reebok Paul Robin Stalker HarringtonGlenn Bennett Erich Stamminger R &D R&D Sales & Marketing Sales & Marketing
  28. 28. Post Merger Performance Financial Performance:  Sales revenue increases by 52 percent i.e. from € 6.636 billion in 2005 to € 10.084 billion  In 2006, representing the highest organic growth of the Adidas group within last eight years.  It was the first time in the group’s history that it crossed the benchmark of € 10 billion
  29. 29. Post Merger Performance Establishing Global Footprint:  In 2005 sales from Asia contributed 22.95 percent of the group total revenue which increased to 24.65 percent in 2008  Sale has increased significantly in Latin America which had contributed only 4.88 percent of total revenue in 2005, increased to 8.26 percent in 2008 Beat Nike’s rankings: adidas only remained a close competitor but couldn’t beat its rankings The major reason for this is reebok’s declined sales revenue Some views exist that reebok had cannibalization from adidas
  30. 30. Analysis Integration of adidas and reebok is not a overnight process It takes years for a structure to work and adidas group is consistently reinventing its organization structure to achieve the unmet goals  2007 – Reorganized from brand based to product category based structure  2009 – functional structure at board level by having separate units for brand and marketing There was no mass exodus from reebok. It shows the integration process was efficiently executed
  31. 31. Analysis The merger boosted the revenues to a record level within six months
  32. 32. Conclusion Beyond communication, implementation of strong mechanisms helped the top management to easily implement a complex process of integration of two global organizations These mechanisms also helped in inducing culture, values, goals and strategies of top management within an organization even in short time The importance of various stakeholders while implementing these mechanisms should be considered The affect on several stakeholders would impact the organization significantly
  33. 33. Q&A
  34. 34. Thank You

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