Strategy & Operations » Governance » ThyssenKrupp Tata Steel merger – what happens next?

Alex Poppleton, Principle at leading consultancy firm, Kotter International, explains what needs to happen in the crucial period after a major merger, in order to make it a success

After two years of talking and numerous headlines over the past few weeks, ThyssenKrupp and Tata Steel have agreed to combine their European operations, becoming the continent’s number two steel producer.  How the new company chooses to tackle the substantial early challenges will set the tone for future and ultimately determine its success.

This agreement has an unusual structure. It will be a 50-50 joint venture rather than an acquisition or takeover, and could produce annual synergies of up to €600 million.

Tata and ThyssenKrupp have diligently prepared for their joint venture, including an exploration of the familial heritage of each organisation and an acknowledgement of respect for the culture that each has developed over time. Careful financial structuring will ensure that a balanced new organisation is created, despite the difference in size between the two.

Beyond due diligence, there are other considerations ThyssenKrupp and Tata need to be factoring in, to ensure success.? Of all major changes, 70% of them, including mergers, do not result in the anticipated benefits, according to research by Dr John Kotter.  The integration of two organisations often fails to deliver the predicted outcomes, including economies of scale, profitability, market share, shareholder value, customer loyalty and an engaged workforce.

The next step for ThyssenKrupp Tata is to create a clear value proposition that goes beyond just looking at ‘cost synergies’ or market position.

If the newly formed ThyssenKrupp Tata business is to be among the 30% of large scale transformations that meet their goals, or even better, the 5% that exceed expectations, the new leadership team must adopt an approach that balances enthusiasm for change, with recognition of the existing company structures, cultures and heritage.  These are the steps they need to take to ensure success.

Have a strong post-merger vision

The most common factor for failure is a lack of post-merger vision that engages everyone in the combined organisation.  City analysts believe that if ThyssenKrupp Tata can pull off the merger and become a pure industrial goods maker, it would make it ‘one of the most complex corporate turnarounds in the history of the EU steel sector’.  But leaders often focus on integration logistics and forging together businesses, without ever asking themselves the fundamental question, ‘What more could we become by coming together?’

This vision of success can’t just languish at the highest reaches of the organisation’s hierarchy; it needs to be accessible, relatable and inspiring to employees throughout all levels of both companies. If the combined organisation is to succeed, the joint senior leadership team need to to articulate and widely communicate a message for the future that inspires people to contribute to, engage with and help drive this vision forward.

Respect the different cultures at play

Too often the leadership teams fail to develop an understanding of the people, processes and organisational cultures that need to be addressed during the integration. In the case of ThyssenKrupp Tata, the merging companies have German, UK, Dutch and Indian heritage. Workers in the UK are said to be “cautiously welcoming” this change, because for them, it ends the uncertainty around Tata’s future after a string of heavy losses. Some UK workers gave up some of their retirement benefits in exchange for investment in the company and more secure jobs. While in Germany, steel workers held a protest rally against the planned merging of European operations.

This challenge of workforces, already split, will require strength of purpose and clear leadership from the new Board. The strategic opportunity to strengthen and consolidate a key part of the European steel business is clear, but will the new leadership be able to articulate the opportunity to workers effectively enough to gain their trust and buy-in?

Engage as many people as possible

Success of a joint venture requires engaging the diverse many – more than half of the organisation – rather than just a ‘select few’ leaders at the top. For ThyssenKrupp Tata, this means galvanising the core of the organisation to be part of the transformation in ways that are relevant to them, and where the actions of many (or lack thereof) can make the difference between success and failure. It will be critical in Europe, in particular among plants in the UK, Netherlands and Germany in the current climate of uncertainty around Brexit. Having started well with the owner families, does ThyssenKrupp and Tata have the leadership capabilities and insight to enable its employees to do the same at all levels in the organisations?

Really successful transformations merging organisations utilise the strong networks of people that run parallel to the leadership team and hierarchy of the organisation. These networks can help implement the vision for success and assist with buy-in efforts.  In this case, mobilising the networks from the two businesses and preparing them together to work as a uniting force of intentionally identified change agents throughout all organisational levels creates joint transformation networks with the potential to infuse the company with more agility, adaptability and innovation than a hierarchy alone allows. Serving as a communication hub as well as silo-crossing accelerator of key initiatives, the network can adapt quickly to new ways of working and innovate processes that drive toward the company’s future goals, disseminating new cultural norms much faster than in a hierarchical structure.

Engage heads and hearts

These measures help to accelerate the transference of ideas, cultivate the energy and culture within the new entity and enable the transition to continue at a speed that a traditional top-down structure simply can’t achieve. The leaders of ThyssenKrupp Tata will need to use messaging that engages both heads and hearts, building on their respect for the heritage of each organisation, to drive the transformation forward, harnessing latent organisational energy and creating a culture where people want to get involved.

One recent highly successful merger in the US stated the opportunity in terms of combining the best teams in sales, technology and operations to become the market leader in its industry and to better serve its customers by creating a culture of innovation and customer service that would drive future growth and profits. This vision, widely communicated in many ways throughout the organisation, combined with a heartfelt ask from the senior leaders to help make it a reality, made sense to people across the merged entity. Its soaring aspiration appealed to many hearts across entities, departments and levels. It served as a catalyst for action that resulted in swift integration and outstanding results.

Subject to regulatory approvals, the two groups expect to sign a formal merger at the start of 2018 for completion by the end of next year. There is no magic bullet that guarantees success in merging complex entities.  But, if ThyssenKrupp Tata focuses negotiations on creating a vision early on that clearly spells out the opportunities ahead, and galvanising energy towards this vision then they have a much stronger chance of achieving their goals, engaging their employees, and gaining market share.

 

Alex Poppleton is a Principal at Kotter International, a leading consultancy firm helping organisations lead complex change.