Openness, transparency and sharing resources do
not always occur naturally in a large corporation, particularly one created
through a merger. But these and other "positive behaviors" are critical to
success, says this executive. Having presided over post-merger transition twice
at the same company, he should know. Making Culture a Strategic Asset Outlook Journal, January 2001
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PDF Help In 1997, when Fred Hassan left the number two spot at
American Home Products Corporation to take the helm at foundering Pharmacia
& Upjohn, people scoffed. "Only a miracle can save this company," one
analyst wrote.
Hassan didn't work a miracle—he just reorganized the
company, moved its headquarters to New Jersey, got people to work together and
in the process engineered an impressive and widely applauded turnaround.
Three years later he roused another chorus of naysayers
when he consummated a dramatic $37 billion merger with Monsanto (the new
company is called Pharmacia Corporation). Although it's still early going,
Hassan seems on course to beat the odds and confound the skeptics again.
It's a truism that many mergers fail to deliver promised
results. While academics debate the reasons why, Hassan has defined five key
behaviors that he believes are essential to bringing companies together
effectively: shared accountability and transparency; participative management;
continuous improvement; listening and learning; and coaching and skills
development. In the fall of 2000 he sat down with Outlook Senior Contributing
Editor Greg Millman to discuss his two recent mergers and how he used his
behavioral approach to management to make them successful.
Outlook:You took a big risk a few years ago.
Leaving American Home Products for Pharmacia & Upjohn surprised many
people.
Hassan: People questioned my judgment. They were
expecting that I would be the next person to lead American Home Products, a
large company, doing well, growing nicely. Why would I leave that opportunity
for a company in a downward spiral and full of internal division and politics?
Why indeed?
Because that's the
way I am: I've always had a sense of adventure. I thought that this could be
very exciting. Not only was the company in very serious trouble, it was also in
danger of being the target of a hostile acquisition.
What had to be done first?
You
can stabilize such a situation if you establish your authority quickly. When
there is chaos or division, somebody has to say, "Now wait a minute: We are one
company and we're going to make it on our own and go somewhere."
So I immediately started visiting different sites and
talking to groups who were not working well together. That had a very positive
effect in building a sense of stability, so that people could at least start to
work on mending some of the problems that had developed.
What sort of problems were you
addressing?
[Pharmacia] was a European company that did not
have a very cohesive culture to begin with; [it was] the product of a merger
between [a] Swedish and [an] Italian company. And it was merging with Upjohn, a
very conservative company from Kalamazoo, Michigan. They came together because
both were outliers in a consolidating industry, and they both had roughly
comparable market values before the merger. So a merger of equals was the
logical way to survive. On paper it all made a lot of sense.
But it wasn't working.
The issue
was the execution of the merger afterwards. More than half of mergers fail, not
because they were badly designed or conceived mergers, but because there are a
lot of forces that are working against you when you go into a merger, and if
you don't work hard to overcome the forces, chances are that you're going to
fail.
In this case [the] forces of division and separation were
stronger than the ability of management to pull it together after the merger.
Sales were declining, costs were being cut aggressively in order to make up for
declining sales, and the cost cuts were further adding to sales declines. It
was a downward spiral—a desperate situation.
How did you fix it?
Within nine
weeks after I arrived, in my first meeting with the board of directors, I told
them that the company would not survive unless they built a strong central
headquarters to pull the whole thing together. Three separate centers—in
Kalamazoo, Michigan; in Milan; and in the Stockholm area in Sweden—were
competing as headquarters with yet another "corporate center" set up in the
U.K. But these three centers started to compete with each other; it was almost
as if they had an allergic reaction to each other.
I got the board to agree to let me dismantle these three
regional companies, and to create a new headquarters in our largest and most
important market, the U.S. So in 1998 we created a single, strong headquarters
here in New Jersey. And we created some very strong central functions at this
new center for the company.
For example?
The legal
department became accountable to one person at the center who reported directly
to me; the financial department became accountable to one person at the center
who reported to me; human resources, likewise. We started to pull the company
together through this globalized approach. In the process many people dropped
out of the company because they were not going to work with this new system.
And we had to bring some new people in to help us take the company forward in
light of the new structure.
What happened next?
In the
pharmaceutical industry we have an imbalance. The U.S. is the only free market
in our industry. If you cannot get your innovations to succeed in the U.S.,
you're going to fail as a global company.
And we were not succeeding; in fact, our US sales were
declining even though industry sales were growing in the double-digit range. If
the center is not on the ground in the market that matters the most, then it's
hard for the center to influence the operations in that market. So we relocated
global headquarters to the U.S. and pulled the US operation into the new
central location in New Jersey.
The result?
This raised some
eyebrows. But the next year the US operations registered double-digit growth,
and that by itself made the whole company turn around to double-digit growth.
Where did your idea about behaviors and culture
change enter the picture?
I put basic issues out on the table
from the start. For example, shared accountability and transparency was on the
table as soon as I arrived. I do not believe in silos or fiefdoms. And the fact
that I moved on the fiefdoms nine weeks after I arrived was a very clear
statement to the whole company that shared accountability and transparency is
the way we're going to go in the future.
For example, we centralized the research and development
management. But at the same time we created systems and processes to overcome
the typicals silos of a big pharma company, where R&D; and marketing and
sales don't talk much to each other. This encouraged all these units to
collaborate with each other in a very open and effective manner.
Why?
It takes about 15 years from
the time a molecule is synthesized to the time [a new product] is actually
brought to the customers. During that time there is constant change in the
product's profile, depending on the emerging scientific observations.
Meanwhile, the customer requirements change, the competitive landscape changes.
So a lot of resources get wasted in the industry if
research does its own thing and then just does a handoff over the wall to
marketing, which does its own thing and then does a handoff over the wall to
sales. We insisted on an open atmosphere so that marketing knows about projects
earlier on and is part of the decision-making apparatus. And likewise, research
and also sales are involved in all the key stages. It is intensely
collaborative.
Could you give an example?
Our
new antibiotic, Zyvox. Antibiotic-resistant bacteria is becoming a public
health problem in many countries, and Zyvox has a whole new mode of action that
is effective against this problem—as well as with a whole array of serious
bacterial infections.
When I went out to Kalamazoo in 1997, I came across this
product in the research silo. The European colleagues had no interest in this
product-it was a US product as far as they were concerned. By centralizing and
globalizing research, we were able to take the combined research budget and put
more money [behind] this product.
We developed the profile for this product on a global
basis, not just for the U.S., and sped the movement of the product through the
system to get it on the market very quickly. At the same time, we were able to
improve the value added by studying different infections, so when it hit the
ground in the U.S., it came in with six separate approvals for different
infectious diseases. Had the marketing people not been working intensively
together, all this good stuff would not have happened.
Did you encounter any internal resistance to your
insistence on new behaviors?
Sharing resources, openness,
transparency-all that goes against the normal territorial instincts that exist
among human beings. Most companies have to battle this problem.
But when we look at our company today, I see the positive
behaviors helping us in many areas. For example, when there's a sales meeting,
the marketing people are there to directly present their products to the sales
forces, as opposed to leaving that interpretation to sales management.
How do you encourage this kind of
behavior?
I convinced the board to let me [base] 35 percent of
the annual incentive for senior management [on] their contribution to helping
build this new culture. Incentives are typically paid based only on how much
you add in sales and how much you add in earnings. But we altered that so that
35 percent comes from behavior.
How do you measure behavior?
We
monitor it primarily by talking to a lot of people. We also have quantitative
approaches such as a 360-degree feedback survey. But my own feeling is that
this is where the soft side of the enterprise really matters. We certainly look
at the quantitative measures of behavior in how people see each other. But in
the end you know when somebody is playing on the team or if they're not playing
on the team.
Don't you sacrifice talent by insisting on this
sort of uniform behavior? What do you do with the genius no one understands,
who seems completely at odds with the culture, and yet is
brilliant?
That's a good point. I think I tend to draw a bigger
circle around people of that type and give them more room, because you can't
stifle creativity.
We try to give those who have that very special dimension
more protection from the organization, and have a much higher tolerance for
behavior variations with those kinds of people. Especially in the science
areas, where you have the discovery process, one has to allow a broader
variation in behavior, or it might actually reduce the productivity or the
creativity of some people.
How do you personally try to reconcile the needs
of creative people with the business needs of the company?
I
have counseled even the most brilliant scientists: "There is no question that
you are very bright and you've got great ideas and you're a great scientific
leader. But how much stronger a leader would you be if you would listen and
learn a little more? Because you're not learning much while you're talking,
you're learning more while you're listening."
Nowadays the pharmaceutical industry is so complex that an
individual person with a great idea is not enough. Let's say a discovery
scientist comes up with a new hypothesis that a gene variation causes a certain
disease. That may be a brilliant hypothesis and the basis for a great
scientific paper in a science journal, but you are still 15 years away from a
drug at that point.
If you don't have some of these behavioral characteristics
helping you to move the process forward, you would have chaos. You have to have
a lot of teamwork and a lot of discipline to make this work.
How are you folding Monsanto into this
culture?
When we went into this merger, we already had the
benefit of many merger experiences. So we spelled out these basic cultural
traits very early, even before the merger was closed. We said, "This is the way
this company is going to work going forward. If you want to be part of this
company, please come forward. If you don't want to be a part of this company,
you have your own decision to make." And some people made a decision and did
not want to join the new company.
Why not?
I think a lot of people
want to do their own thing with their own silo. Silo-based working goes back to
the earlier origins of human beings. People like to work in small tribes, and
everybody wants to be the chief of something small. And that's fine, but you
cannot succeed together as a company of 60,000 people if you have a tribal
culture. You have to have a company culture.
Are you succeeding?
We're now
eight months into the merger [as of mid-November 2000]. We have delivered all
the quantitative targets that we were going to deliver; we have reduced costs
and increased sales; our earnings are up 30 percent on a year-to-date basis;
our stock price is up 60 percent on a year-to-date basis. Our cultures are
coming together very nicely-there is minimal infighting and bickering, and
people basically know what the sense of direction is for the company.
Do you think your approach can be successfully
emulated?
I know that if you set the right rules of behavior
going in, there is a very high probability that, assuming the overall
parameters of the merger were good, you're going to have a successfully
executed merger. And that's happening now in this case, just like it happened
with the turnaround at Pharmacia and Upjohn.
So for me, this is a formula that works. And I also believe
that the same formula would work in any complicated organization in the private
sector or the public sector.
How deep does this culture go into the
organization?
It is absolutely a must at the senior management
level. The top management team has to understand the rules of behavior and be
committed and show it to their people. If that's not happening, then they don't
belong to the top management team. That was one of the problems we had in the
old Pharmacia and Upjohn merger: The signals were not coming from the top about
expected rules of behavior.
So we had a very important meeting six months after the
Monsanto merger and Pharmacia & Upjohn. We brought the top 450 people to
the same site to show how behaviors helped us get good results. And that had a
very important effect. We've gone through the first wave of change in the first
10 months since the announcement of the merger in December [1999].
What happens now?
We're entering
the second wave of change, which is going to last another 15 months. And during
this period we want to get the rules of behavior established, right down to the
firing-line level. We're doing it in a very systematic manner, and we're doing
very well with it.
It's important that supervisors internalize it before
they're asked to pass it down to the next level below them. That's why we have
to be patient with this cascading process.
But it's an absolute basic that if you're going to be on
the senior management team, you've got to be good at this, or you're not going
to belong. We cannot allow destruction to occur through personal agendas.
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