The science of the deal

INTRODUCTION

In the spring of 1991, operations-level success was brought to a merger many on Wall Street and in the financial press believed was doomed to fail.

More significantly, the corporate world got its first taste of a radically different method for managing mergers—one which superseded the usual volatile stew of bureaucracy, competing personalities and guesswork with a dispassionate measurement of tasks, time and resources, all aimed at completing the job without any surprises.

Two corporate giants-AT&T and NCR—relied on a small company to help manage the historic corporate takeover and proved the naysayers wrong.

Robbins-Gioia, Inc. (R-G), which got its start helping DOD manage massive automation projects, helped to successfully integrate AT&T's worldwide computer services division with NCR in record time—without interrupting business as usual. In the process, R-G broke new ground for the project management industry.

First Anniversary

A year later, AT&T and NCR are celebrating their first anniversary of the merger with revenues strong and getting stronger. Project management has proven to be versatile and flexible enough to manage change of any kind.

The process used in the post-merger integration represents an important new business model for success in handling mergers, acquisitions, downsizing efforts, corporate integration of multiple business divisions, and other extraordinary business ventures that carry a high risk of failure.

BACKGROUND OF THE DEAL

Mergers and acquisitions are risky ventures, often because they're not managed properly. ‘The ways in which a merger is managed create a climate for corporate success or failure. Unfortunately, about two-thirds of all mergers don't take for one reason or another,” according to Management Review.

The AT&T/NCR merger—at $7.4 billion the largest corporate takeover of 199 l—was particularly risky. Many financial experts and insiders predicted doom.

Why Did AT&T Want NCR?

Throughout the 1980s, AT&T had lost over $2 billion trying to create an effective computer division. NCR—the 107-year-old Dayton-based manufacturer of computers, cash registers, and automatic teller machines—was the fifth largest computer-maker in the U. S., with 55,000 employees worldwide.

By buying a successful computer business like NCR, AT&T could benefit from the overlap between the computer and the telecommunication industries. Teamed with NCR, AT&T could offer complete networking packages—computer systems and digital transmission services.

AT&T had a vision of a marriage between computers and communications. “Our intent is to equip AT&T to ride the wave of networked computing that's growing three times faster than the computer business as a whole,” explained AT&T Chairman Robert Allen.

As technology advances, more and more transactions will be done electronically. Many companies are looking for open, nonproprietary architectures and equipment, and are melding the data and telecommunications sides of their management information systems operations.

Transaction Processing

The real key to the deal was the $23 billion that changes hands each year for transaction processing. As merchants and financial services companies became more interested in communications networks and specialized terminals, AT&T became more interested in NCR's success as a leading supplier of terminals around the world.

“In the long run,” wrote Telephony in May 1991, “AT&T will become more of a one-stop-shopping entity.”

A Good Fit

There was also a good “fit” between the two corporations. Both emphasized open computing based on the Unix operating system. NCR emphasized transaction-based—or networked—computing, which links telecommunications technologies and computers (for example, retail point-of-sale terminals and automatic teller machines). The product lines and strategies were very similar.

“Together, we can move farther and faster in this market than either company could on its own. We both see the day when almost every transaction will be done electronically. From the customer's perspective, communications and computers will be one,” said Chairman Allen.

THE MERGER BEGINS

Almost as soon as the merger began, NCR executives realized that the integration process was a much larger and more complex effort than they had bargained for. In early July 1991, the NCR Executive Committee realized that they needed help.

They named Jim Walworth—then director of corporate financial planning and analysis-corporate project manager responsible for overseeing all activities relating to the post-merger integration of AT&T's computer systems. Walworth saw immediately that there was no time for a long-term “getting to know you” period.

“When it comes to a post-merger integration, you don't have the luxury of time to analyze and plan the process,” explained Walworth, “You need to start immediately with an experienced team that can support and implement the plan. We had an unmovable time constraint—the date for the integration of operations was set to coincide with the official merger date.”

A Lesson Learned In Time

Walworth contacted Robbins-Gioia, Inc. On July 18, R-G identified a project team of five and 72 hours later was actively involved in the process. The start-up team arrived at NCR World Headquarters in Dayton on July 22.

“Post-merger integration is inevitably more time-consuming and complicated than most companies predict. For many, it's a lesson learned too late,” said John Gioia, president of Robbins-Gioia, Inc. “By applying sound process control principles, a project management team can transform a high-risk and unwieldy management problem into a process that is manageable, predictable, and measurable.”

ENTER THE PROJECT MANAGEMENT TEAM

Our five member project team “hit the ground running,” Immediately, we were faced with a number of challenges:

1. The project had already begun, and the deadline for completing the entire process was only 90 days away.
2. NCR's 12 operating divisions traditionally enjoyed a high level of autonomy. Their corporate culture was such that they did not usually work as a team on integrated projects. When we arrived, there was no integrated plan. Each division had started its own schedule, but no one had yet identified the interdivisional constraints.
3. The merger dealt with intangibles-not the product environment more typical of project management applications. Every day, the plan changed.
4. For both companies, business had to continue as usual—contracts had to be fulfilled, vendors supplied, new orders processed, products sold. The merger of the computer systems had to remain transparent to customers. And to make matters even more difficult, attention to the post-merger integration was competing with NCR's 3rd quarter—the time when NCR does its business planning for the next year.
5. NCR was not accustomed to outsourcing for project management services. Many there still held the erroneous belief that the application of project management is limited to DOD and large-scale federal government projects.
6. The sheer scale of the merger was immense; it involved locations around the world—in the U. S., Canada, and Europe.

Robbins-Gioia, Inc. (R-G), is a program management services firm co-founded in 1981 by Air Force colleagues Jack Robbins and John Gioia. Robbins-Gioia provides innovative project management education and proven process control solutions to help industry and government manage change.

Robbins-Gioia got its start helping the Department of Defense manage large automation projects. The firm developed a program management process that has been used for everything from the development of new commercial aircraft to the modernization of computer systems for the Department of Defense. Rob-bins-Gioia calls the process Business Engineering, which boils down to the concept that any milestone or goal has a better chance of being met on time and within budget if guesswork is eliminated from the process. Using proven management procedures, a team of professionals to execute the procedures, and a company-developed open system software tool to track and analyze data, business engineering ensures both quality and efficiency by eliminating the one thing that can scuttle any project—a bad surprise.

What Was Involved

By the terms of the merger, NCR would retain its corporate identity and its separate management, but would be owned by AT&T. NCR would absorb AT&T's computer operations, determining which products would be continued, integrated, or discontinued.

Integrating AT&T and NCR involved 55,000 NCR employees, 450 different projects, and 3,000 separate activities-with a deadline of 90 days that could not slip. It included transferring data, moving people and hardware, rewriting code, merging product lines (hardware), and dealing with personnel (infrastructure and payroll).

AT&T's computer and server hardware would be phased-out in favor of NCR's scalable, multiprocessor-based System 3000 machines, NCR selected many of AT&T's communications products as long-term strategic offerings, including AT&T's StarGroup LAN Manager Server, networking management tools, and internetworking gear.

Minimal Tolerance For Slippage

The strategic plan called for System 3000 processors to replace AT&T's AT-Bus personal computers, StarServer S and 6386/25 Work-Group System servers, System 7000 fault-tolerant computers, and 3B2 minicomputers.

Because of the high visibility and short time frame of the merger, the tolerance for slippage was minimal. Once NCR absorbed the AT&T computer systems product line, the entire NCR system had to be ready not only to fill customer orders, including information systems, but ready with pricing, production, marketing, sales, and service. All without affecting the customer.

Process, People, And Software

The R-G project team brought three invaluable assets to the AT&T/NCR deal:

• A proven process for managing large-scale projects;
• A team of professionals to help the client execute those procedures; and
• Database management software developed by R-G to track and analyze all the data relevant to the transaction.

We treated the merger as a standalone project. Our first job was to identify every task—450 projects with 3,000 separate activities-and the resources available. We then established a timetable that allowed no guesswork.

“NCR didn't need us to tell them what to do or which areas to integrate,” explained Tex Carey, R-G's project manager for the start-up phase of the AT&T/NCR merger. “What they needed was a disciplined process to help them develop a realistic schedule, and to stick to it. Even more important, they needed a tracking, monitoring, and analysis process to make sure it was working. They didn't want any surprises.”

PMSS = Process, Expertise, Tools

The R-G project team used the Program Management Support System (PMSS), which combines the expertise of on-site contractor support with automated project management tools, to:

• Develop project plans and schedules;
• Track progress (technical, schedule, and cost) against the plans; and
• Conduct “what if” analyses.

R-G has used the same basic approach for everything from developing new commercial aircraft to modernizing DOD's computer systems. Regardless of the nature of a project or the amount of time allowed for its completion, the approach boils down to one simple concept:

Any milestone or goal has a better chance of being met on time and within budget if guesswork is banished from the process.

To do that, we identify and baseline the customer's unique process: designing to achieve their objective, managing progress, and forecasting the future. The technique ensures both quality and efficiency by eliminating the one thing that can scuttle any project—a bad surprise.

PMSS is versatile and reliable, which makes it useful for planning, directing, evaluating, and controlling any organization or extraordinary project. The concept never varies, but every PMSS is tailored to meet the specific requirements of each client. Our goal is to replace the “art of the deal” with the “science of the deal.”

WHAT THE PROJECT TEAM DID

One of our first tasks was to establish credibility within NCR. We interviewed executives from each of the 12 divisions to establish a Work Breakdown Structure (WBS). The WBS helped NCR identify all of the activities.

“They brought in very quickly what I would call a SWAT team,” said Walworth, now NCR's assistant vice president of logistics. “This deal required a very structured expertise, which they brought to bear immediately. They were soon regarded as knowing exactly what they were talking about.”

At first, some NCR managers were less than enthusiastic about using the WBS concept. Since some organizational units had already developed and begun implementing transition schedules, it made no sense to return to the WBS stage of project planning.

The project team and NCR then jointly worked out a “workable” WBS that identified the major work elements required to complete the transition. The final WBS resulted in 12 level-two elements that were then, in most cases, taken down to the fifth level. The lowest level under each level-two always translated into a discrete work requirement that could be scheduled—in this case, a transition project. Approximately 450 projects were identified.

Because of the high degree of autonomy in NCR, we structured the WBS by division, cross-referencing information by the functional areas in common across all divisions:

• Human Resources
• Management Information Systems
• Production
• Sales and Marketing
• Customer Services
• Legal
• Financial
• Public Relations

We then matrixed these functional areas to each of the divisions. For example, the Marketing department was involved in:

• Hiring and training employees from the merger company (Human Resources);
• Converting data from one system into another (MIS);
• Coordinating sales strategies for new merged products (Production);
• Training and equipping a new sales force (Sales and Marketing);
• Coordinating support for the new product lines (Customer Services);
• Understanding existing contractual implications (Legal);
• Revising and updating budgets and forecasts based on the merger (Financial); and
• Being prepared to communicate information on the goods and services available under the merged company (Public Relations).

Figure 1. Marketing vs. Production Schedules

This Gantt chart displays the timeframe required by Production to prepare a product to be “transferred” to Marketing and the timeframe required by Marketing to prepare a product for release to the field. From this Gantt it is evident that the marketing organization had planned to release the Advanced Processor product line a month before the production organization would have the product available; Production planned to transfer all products at once while Marketing planned to “stagger” the release of products.

Figure 2. Interorganizational Conflicts

This report shows activities in the Personnel Department required for an MIS reject. Finalize Benefits System Requirements and Build Payroll Interface cannot be completed until employee data is available from all operating divisions. One of the international divisions was planning to complete the Transfer Off-Site Employee Data in one day and was planning to wait until all merger-related employee actions were complete. Once the conflict was identified, the international division changed its plans, with all available data transferred prior to October 1 and additional employee data being transferred as it became available.

This approach enabled the NCR divisions to maintain their autonomy and manage their projects independently, while allowing for integration and consistent reporting.

Activities And Interdependencies

After building the WBS, we identified the activities for each WBS element and the dependencies within NCR's 12 operating divisions and between NCR and AT&T, Through this process, we developed network schedules for each division, which were then approved and baselined.

Figure 3. Gantt Chart for Dealer Marketing

The activity Gantt displays original and current schedules for the Dealer Marketing area. Original schedules are displayed as blue triangles. Current schedules are displayed as bars. If the current schedule has slipped to the point where it is “medium” risk, it is displayed in yellow. If it has slipped to the point where it is “high” risk, it is displayed in red. If it has slipped twice (bad and getting worse), a hatch pattern defines the “incremental” slip. In the Dealer Marketing area the activities related to distributor analysis are on schedule; however, the activities related to retail dealer analysis are high risk. There were far more retail dealers to negotiate with than there were distributors, making it a more time-consuming activity, Displaying schedule information in this format provided a mechanism for the managers in charge to develop a more realistic schedule.

Figure 4. Activity Estimate Slippage

This report shows activities where the baseline date was not achieved and the revised estimate was also not achieved. Activities with “fluid” schedules are high risk; neither their plans nor their “workarounds” can be achieved. The slippage column shows a running cumulative balance of working (not calendar) days slipped. For the Map Customer File Data Elements activity, a revised schedule slipped the start and finish by five working days (one week). A second estimate pushed the start and finish dates out an additional two weeks (a total of 15 working days). This activity has an actual start. The other activity, Load Customer Data into Database, is dependent upon the Map Customer File activity by five days. Load Customer File slipped again for a total slip of 17 days.

Figure 5. Functional Risk Assessment

We developed a matrix where we displayed each of the functional areas that crossed over all divisions. This became known as our “Stoplight” chart, and displayed an overall risk assessment. This higher-level report was a very effective presentation tool.

We updated the schedules biweekly with real-time, current information. Old information is useless information; the reports were never more than three days old. We received updates, resolved discrepancies, updated the information, and produced updated products for NCR's Executive Committee, made up of the CEO, president, and senior vice presidents.

Developing The PM Discipline

The project team's primary service was to bring a project management discipline to the process. As the focal point of the merger data, we tracked the status of all the network activities and consolidated activity schedules from 10 of NCR's 12 operating divisions (two of the divisions' activities were too small to require formal tracking).

R-G was contracted to provide NCR with project management support services primarily in planning, scheduling, and analysis. In addition to the WBS, key deliverables included a Master Project Schedule, related products, and a Project Management Plan, Beyond the deliverables, NCR needed us to help eliminate surprises, reduce risk, and instill confidence that they could meet schedules and achieve success.

Master Project Schedule

Generally, NCR was not accustomed to using Critical Path Method (CPM) networks. We provided tutorials, work sessions, samples, and frequent visits to get enough information to build CPM networks for the 450 projects, link the projects into larger networks and, finally, to construct an end-to-end network for the entire transition network.

After baselining the master schedule, we began to update with actuals and to track and report progress. We used traditional outputs such as Activity Status Reports and Activity Overdue Reports, To support NCR progress reviews, we produced Gantt charts at the project and activity levels.

The NCR project manager and the 12 operating division managers used planning and scheduling outputs for periodic reviews at the project level. They also used outputs (Gantt charts in overhead transparency format) to present the bi-weekly transition status to the NCR Executive Committee.

We helped NCR develop a Project Management Plan that described the transition effort in detail, and presented a course of action that was used successfully to manage the entire effort.

SYSTEMS

The project team used software created by R-G to support all project planning and scheduling. The tool is a Unix-based fourth-generation-language software program. R-G had previously developed the tool after determining that existing software packages could not fully track large projects and were not flexible enough to apply to diverse situations.

The reports and analyses enabled senior NCR management to concentrate on the pivotal activities that required attention, and allowed them to address problems before they adversely impacted the process. During one of the biweekly meetings, for example, it became apparent that Marketing had scheduled to release a product before Production had scheduled to finish it. Once this and similar areas of concern were identified, NCR's division managers worked collectively to resolve them.

We also gave NCR a luxury unheard of in the history of corporate mergers—the ability to know precisely where everything stood at any given time of any given day. As a result, NCR managers were able to anticipate every step they needed to take, and the deal was done on time with no customer service interruptions.

CUSTOMIZING PROJECT MANAGEMENT

After we completed the start-up phase and began the execution phase, we realized that we needed some new management tools. We were producing standard Gantt charts and Activity Overdue Reports, but we soon found that schedules were changing dramatically. We recognized one very important fact: Fluid schedules are high risk.

To better manage these changing elements, we developed an automated process in which we stored each set of revised schedule updates. By doing this, we could see at a glance the areas where the schedule was “bad” and “getting worse.”

One Day At A Time

According to an old project management saying, “A project gets to be a year late one day at a time.” We had to identify the problem areas early enough to be able to correct them. Our slippage report identified every activity that had slipped the last time the schedules were updated, and that had slipped further this update.

To graphically highlight the problem areas, we developed the following risk criteria and assigned a color-code to each:

HIGH RISK (red):

• Slipped 14 days or more, or
• No schedule, or
• Adversely impacting another division

MEDIUM RISK (yellow):

• Slipped 6–13 days, or
• Incomplete schedule, or
• Adversely impacted by another division

LOW RISK (green):

• No more than 5 days late, or
• Complete schedule, or
• No interdivisional conflicts

We consolidated the schedule into one very large Gantt chart and displayed color-coded summary schedules—a very effective management presentation tool. We also developed a matrix that displayed the functional areas by division and presented an overall risk assessment. This became known as our “Stoplight” chart.

Stoplights have been around for a long time and, typically, represent a manager's subjective assessment. This concept was not acceptable to NCR, however, so by applying objective assessment based on the risk criteria, we tailored the Stoplight chart into a product that fit the specific management style of NCR.

Because of the dynamic nature of the merger, precedence network logic was not appropriate for every type of activity. Therefore, we used the merger data base (the schedule information) as a Decision Support System as well as a precedence network.

The project team had a direct impact on the management decision-making process. With accurate information, managers could focus on key areas and concentrate their resources in the most critical areas. We provided this data in a timely manner so that management involved in the merger process could make real-time, proactive decisions.

LESSONS LEARNED

What NCR Learned

NCR learned that, when it comes to a post-merger integration of such high visibility and global complexity, the firm could not risk the luxury of a learning curve. Because they understood the value of project management, they were able to appreciate and quickly understand the need for specialists for this one-time extraordinary project.

The merger process had to run parallel to their ongoing business activities without tapping valuable resources or distracting senior management from the business at hand. It was essential that productivity be maintained and, cross-departmental lines of communication remain open.

NCR learned that outside experts were able to give them an objective process to successfully evaluate and manage the merger.

Points To Remember

By approaching the AT&T/NCR integration like a project, the R-G post-merger team forced the discipline of looking at the entire scope of the project, examining the steps necessary to achieve its goals, assigning responsibilities, identifying risk areas, and monitoring actual progress against the plan. Three points bear remembering:

1. Project management can be applied to intangibles like management decisions—blending different management styles, organizational missions, and different management perspectives into a high-performance entity.
2. High-level project management can take the bias out of a post-merger integration process, allowing management to make decisions in the best interest of the new organization.
3. In a merger climate, where employees are transferred, legal issues are resolved, and data systems are converted, the finished products are management decisions-not the delivery of a product to market.

The pressures of a complex merger “process, the daily operations, and the dynamic, ever-changing demands of business, require much more responsiveness and flexibility than traditional project management systems.

The Benefits

Our approach to the project brought a wide range of benefits to NCR and added significant value to the entire process. These are some of the most important contributions:

• Identifying all the work needed for successful integration;
• Creating concrete schedules that represented the level of activity required throughout NCR to achieve the transition;
• Creating a way to measure progress;
• Creating a way to easily identify problem areas;
• Providing credible information for managers to substantiate their reports and reviews;
• Controlling schedules;
• Being an independent unbiased broker for analyzing schedules and forecasting; and
• Educating NCR managers in the art and science of project management.

The R-G project team educated NCR managers in a number of project management topics: the importance of up-front planning, how to plan a project (the WBS approach), the advantages of CPM scheduling, how to track schedule progress, the importance of having the right automated project management support, and how to interpret the schedule data.

THE BOTTOM LINE

We are quite pleased with the fact that we have accomplished the merger in very short order and essentially got all of the mechanical things done. We've been able to keep the focus on our customers.

Gilbert Williamson, Chief Executive, NCR. Dayton Daily News

With the help of the project management team, AT&T and NCR met their deadline with minimum disruption to business as usual. While NCR focused on their core business, the work stayed on target and the operations-level aspects of the merger were completed on schedule.

Perhaps the biggest endorsement for project management's role in the post-merger integration is AT&T's strong revenue and operating income record since last fall. Also, in the first year since the merger, there have been no reports of disruptions or other problems between AT&T and NCR—or their customers.

“I'm not sure how it would have turned out without Robbins-Gioia's involvement,” said Walworth. “But I can say that they enabled us to eliminate surprises that could have derailed the effort.”

It maybe years before the verdict is in on the ultimate wisdom of the merger of AT&T and NCR. But on one point, there is no question: Project management can help manage all kinds of change, even an extraordinarily complex and highly pressurized financial transaction between corporate giants.

Eva Hofstadter has been a senior program analyst and project leader with Robbins-Gioia Inc. for over five years. With more than 13 years experience in the program management field, she has managed a number of diverse projects including mergers and acquisitions, major software development, and production manufacturing. Ms. Hofstadter was the project leader for the AT&T/NCR merger integration.

NOVEMBER 1992 pm network