Bombardier Integration Plan

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

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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

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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

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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

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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

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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.

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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

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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

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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.

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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

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Appendix1

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Appendix 2

Bombardier Integration Plan

Business

Transcript of Bombardier Integration Plan