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Chapter 6
Integration: Mergers, Acquisitions, and Business Alliances
Examination Questions and Answers
1. The integration process if done effectively can help to mitigate the potential loss of employees.
True or False
2. Integration is among the most important factors contributing to the success or failure of mergers
and acquisitions. True or False
3. Rapid integration helps to realize the planned synergies and may contribute to a higher present
value for the merger or acquisition. True or False
4. High employee turnover is rarely a problem during the integration of the target firm into the
acquirer. True or False
5. High employee defection during the integration period is an excellent way to realize cost savings?
True or False
6. Employees or so-called “human capital” are often the most valuable asset of the target firm. True
or False
7. Employees of both the target and acquiring firms are likely to resist change following a takeover.
True or False
8. Differences in the way the management of the acquiring and target firms make decisions, the pace
of decision-making, and perceived values are common examples of cultural differences between
the two firms. True or False
9. Focus on customers is generally considered a factor critical to the ultimate success or failure of the
merger or acquisition. True or False
10. Revenue growth is often sacrificed in an effort to engage in aggressive cost cutting during the
integration period. True or False
11. Divulging the true intentions of the acquiring firm to the target firm’s employees should be
deferred until it can be determined that such employees can be trusted. True or False
12. Communication plans should be developed for all stakeholder groups except for suppliers, because
they generally have a lower priority in the integration process. True or False
13. Developing staffing plans involves identifying staffing requirements and developing a
compensation strategy, among other things. True or False
14. Co-locating employees from the acquiring and target firms is rarely a good idea early in the
integration period because of the inevitable mistrust that will arise. True or False
15. So-called contract related transition issues often involve how the new employees will be paid and
what benefits they should receive. True or False
16. Employee health care or disability claims tend to escalate just before a transaction closes, thereby
adding to the total cost of the transaction. Who will pay such claims should be determined in the
agreement of purchase and sale. True or False
17. In hostile takeovers, the employees that are on the post-merger integration team should come from
the acquiring firm because of concerns that the target firm’s employees cannot be trusted.
True or False
18. The management integration team’s primary responsibilities should be monitoring the daily
operations of the work-teams assigned to complete specific tasks during the integration.
True or False
19. The management integration team’s primary responsibilities should be to focus on achieving long-
term profit goals, monitoring actual performance to the goals of the integration plan, and on cost
management. True or False
20. An acquiring firm that focuses heavily on integrating a target firm, which represents a sizeable
portion of its total operations, frequently sees deterioration in its own current operating
performance. True or False
21. It is generally more important to respond to current issues as they arise in your communication
plans even if it results in the appearance of a somewhat inconsistent theme throughout
communications made to stakeholders. True or False
22. Key stakeholders in the integration effort generally include employees, customers, suppliers,
communities, and regulators. True or False
23. A newly merged company will often experience at least a 5-10% loss of current customers during
the integration effort. True or False
24. Following an acquisition, long-term contracts with suppliers can generally be broken without
redress. True or False
25. In building a new organization for the combined firms, it is important to start with a clean sheet of
paper and ignore the organizational structures that existed prior to the merger or acquisition.
True or False
26. Highly decentralized organizational structures generally expedite the integration effort more so
than highly centralized structures. True or False
27. The extent to which compensation plans for the acquiring and acquired firms are integrated
depends on whether the two companies are going to be managed separately or fully integrated.
True or False
28. Benchmarking important functions such as the acquirer’s and the target’s manufacturing and
information technology operations and processes is a useful starting point for determining how to
integrate these activities. True or False
29. When two companies with very different cultures merge, the new firm inevitably adopts one of the
two cultures that existed prior to the merger. True or False
30. Sharing common goals, standards, services, and space can be a highly effective and practical way
to integrate disparate corporate cultures. True or False
31. It is crucial to focus on the highest leverage issues in implementing post-merger integration. True
of False
32. A merger agreement should specify how the seller should be reimbursed for products shipped or
services provided by the seller before closing but not paid for by the customer until after closing.
True or False
33. Pre-closing integration planning is likely to be easier in friendly than in hostile transactions. True
or False
34. Customers of newly acquired firms are usually slow to switch to other suppliers even if product
quality deteriorates due to inertia. True or False
35. Decentralized management control usually facilitates the integration of a newly acquired business.
True or False
36. Merging compensation systems can be one of the most challenging activities of the integration
process. True or False
37. Benchmarking important functions such as the acquirer’s and the target’s manufacturing and IT
operations and processes is a useful starting point for determining how to integrate these activities.
True or False
38. Plant consolidation rarely requires the adoption of a common set of systems and standards for all
manufacturing activities. True or False
39. The extent to which the sales forces of the two firms are combined depends on their relative size,
the nature of their products and markets, and their geographic location. True or False
40. Enabling the customer to see a consistent image in advertising and promotional campaigns is often
the greatest challenge facing the integration of the marketing function. True or False
41. The speed with which two firms are merged is an important factor determining the long-term
success of the merger. True or False
42. Whenever possible, integration planning should begin before closing. True or False
43. Newly merged firms frequently experience a loss of existing customers as a direct consequence of
the merger. True or False
44. Integration planning involves addressing human resource, customer, and supplier issues that
overlap the change of ownership. True or False
45. Integration of a new business into an existing one rarely affects current operations of either
business. True or False
46. When news about the integration is bad, it is critical never to share it with employees. True or
False
47. The newly integrated firm must be able to communicate a compelling vision to investors. True or
False
48. An effective starting point in setting up a structure is to learn from the past and to recognize that
the needs of the business drive structure and not the other way around. True or False
49. Staffing plans should be postponed to relatively late in the integration process. True or False
50. The extent to which compensation plans are integrated depends on whether the two companies are
going to be managed separated or integrated. True or False
1. Rapid integration is usually important for all of the following reasons except for
a. Minimizes employee turnover
b. Improves the morale and productivity of current employees of both the acquiring and
acquired firms
c. Builds confidence in current employees in the competence of management
d. Dispenses with the need for pre-integration planning
e. Reduces customer turnover
2. All of the following are often cited as factors critical to the ultimate success of the integration
effort except for
a. Plan carefully, act quickly
b. The use of project management techniques
c. Early communication from the top of the organization
d. Salary and benefit reductions for many employees of the acquired company in order to
realize cost savings
e. Making the tough decisions as early as possible
3. Certain post integration issues are best addressed prior to the closing. These include all of the
following except for
a. Who will pay for employee severance expenses
b. How will employee payroll be managed during ownership transition
c. What will be done with checks from customers that the seller continues to receive after
closing
d. How will the seller be reimbursed for monies owed to suppliers for products sold prior to
closing
e. Who will pay for health care and disability claims that often arise just before a business is
sold?
4. Which of the following is not true about the primary responsibilities of the management
integration team (MIT)?
a. The MIT should direct the daily operations of the individual work teams set up to
implement certain activities.
b. Focus the organization on meeting ongoing business commitments and operational
performance targets
c. The creation of an early warning system to determine when performance targets are
likely to be missed.
d. Establish a rigorous communication program
e. Establishing a master schedule of what should be done by whom and by what date.
5. Which of the following is generally not true about communication during the integration period?
a. Communication should be as frequent as possible
b. Employees should be sheltered from bad news
c. The CEO of the combined firms should lead the effort to communicate to employees at
all levels
d. Regularly scheduled employee meetings are often the best way to communicate progress
to plan
e. The reasons for changing work practices and compensation must be thoroughly explained
to employees
6, Customer attrition following an acquisition is commonly related to uncertainty about
a. On time product delivery
b. Product quality
c. Pricing and payment terms
d. A and B only
e. A, B, and C
7. All of the following are generally considered stakeholders in the integration process except for
a. Suppliers
b. Employees
c. Competitors
d. Regulators
e. Customers
8. All of the following are generally true about creating new organizations except for
a. Learn from prior organizational strengths and weaknesses
b. Business needs should drive structure and not the reverse
c. Centralized organizations facilitate the pace of the integration
d. The structure employed during the integration must be the one used in the long-run
e. Senior managers should be given responsibility for selecting their own subordinates
9. Developing staffing plans requires which of the following?
a. Identifying personnel requirements
b. Determining the availability of skilled employees to fill these requirements
c. Developing compensation plans
d. A and B only
e. A, B, and C
10. All of the following are true about the challenges of integrating firms with different corporate
cultures except for
a. Cultural issues can run the gamut from dress codes to compensation
b. The acquired firm’s overarching culture is generally rapidly accepted by the target firm’s
employees
c. Small companies are usually highly unstructured and informal
d. There are often differences in culture even between firms in the same industry
e. Integration may be inappropriate if acquirer and acquired firm’s cultures are extremely
different.
11. Which of the following represent commonly used techniques for integrating corporate cultures?
a. Employees are encouraged to share the same overall goals
b. “Best practices” in one department are employed in other departments
c. Multiple businesses share the same service such as the legal department
d. Employees are co-located
e. All of the above
12. Which of the following is not true about integrating business alliances?
a. Teamwork is the underpinning that makes alliances work.
b. Control is best exerted through coordination
c. Decisions are made at the top of the organization
d. Decisions are based on the premise that all participants to the alliance have had an
opportunity to express their opinions.
e. The failure of one party to meet commitments will erode trust
13. Successfully integrated mergers and acquisitions are frequently those which
a. Communicate candidly and continuously
b. Appoint an integration manager and team with clearly defined goals and responsibilities
c. Establish well defined lines of authority
d. Focus on issues that have the greatest near-term impact
e. All of the above
14. Post-closing integration may be viewed in terms of a process consisting of the following activities
a. Integration planning
b. Developing communication plans
c. Creating a new organization
d. Developing staffing plans
e. All of the above
15. The acquirer’s sales force sells very complex software solutions to its customers. The target firm
manufactures commodity hardware products. Customers of the two firms sometimes buy both
products. The benefits of integrating the sales force of both the acquirer and target firms includes
all of the following except for
a. Generates significant cost savings by eliminating duplicate sales representatives
b. Eliminates related sales support expenses
c. Minimizes potential customer confusion by enabling customers to deal with a single sales
representative
d. Facilitates communication of a consistent brand image
e. Makes product cross-selling more effective
16. The post-closing integration process consists of all of the following activities except for
a. Integration planning
b. Developing communication plans
c. Creating a new organization
d. Developing staffing plans
e. Identifying the acquisition vehicle
17. Which of the following activities are likely to extend beyond what is normally considered the
conclusion of the post-closing integration period?
a. Developing communication plans
b. Cultural integration
c. Integration planning
d. Developing staffing plans
e. None of the above
18. Delay in integrating the acquired business contributes to which of the following?
a. Employee anxiety
b. Customer attrition
c. Employee anxiety
d. Deteriorating employee productivity
e. All of the above
19. Successfully integrated M&As are those that demonstrate leadership by candidly and continuously
communicating which of the following?
a. A clear vision
b. A set of values
c. Unambiguous priorities for each employee
d. A & B only
e. A, B, & C
20. Which of the following represent important decisions that must be made early in the integration
process?
a. Identifying the appropriate organizational structure
b. Defining key reporting relationships
c. Selecting the right managers
d. Identifying and communicating key roles and responsibilities
e. All of the above
21. Poorly executed integration often results in high employee turnover. The costs of such turnover
include which of the following?
a. Declining morale among those that remain
b. Retraining costs
c. Declining productivity
d. Deteriorating customer service
e. All of the above
22. Which of the following factors affect customer attrition that normally accompanies post-merger
integration?
a. Customer uncertainty about on-time delivery
b. More aggressive pricing from competitors
c. Deteriorating customer services
d. Deteriorating product quality
e. All of the above
23. Which of the following is not true about the recommendation that integration should occur
rapidly?
a. All significant operations of the two firms must be integrated immediately.
b. Rapid integration helps to minimize customer attritition.
c. Rapid integration reduces unwanted employee turnover.
d. Rapid integration reduces employee anxiety.
e. None of the above
24. Key management integration team responsibilities include all of the following except for
a. Building a master schedule of activities that need to be accomplished
b. Establishing work teams
c. Tracking the daily operation of the firms
d. Monitoring and expediting key decisions
e. Establishing a rigorous communications program
25. When corporate cultures are substantially different, it may be appropriate to
a. Integrate the businesses as rapidly as possible
b. Leave the businesses separate indefinitely
c. Initially leave the businesses separate but integrate at a later time
d. A or B
e. B or C
Case Study Short Essay Examination Questions
Alcatel Merges with Lucent, Highlighting Cross-Cultural Issues
Alcatel SA and Lucent Technologies signed a merger pact on April 3, 2006, to form a Paris-based
telecommunications equipment giant. The combined firms would be led by Lucent's chief executive officer
Patricia Russo. Her charge would be to meld two cultures during a period of dynamic industry change.
Lucent and Alcatel were considered natural merger partners because they had overlapping product lines
and different strengths. More than two-thirds of Alcatel’s business came from Europe, Latin America, the
Middle East, and Africa. The French firm was particularly strong in equipment that enabled regular
telephone lines to carry high-speed Internet and digital television traffic. Nearly two-thirds of Lucent's
business was in the United States. The new company was expected to eliminate 10 percent of its workforce
of 88,000 and save $1.7 billion annually within three years by eliminating overlapping functions.
While billed as a merger of equals, Alcatel of France, the larger of the two, would take the lead in
shaping the future of the new firm, whose shares would be listed in Paris, not in the United States. The
board would have six members from the current Alcatel board and six from the current Lucent board, as
well as two independent directors that must be European nationals. Alcatel CEO Serge Tehuruk would
serve as the chairman of the board. Much of Ms. Russo's senior management team, including the chief
operating officer, chief financial officer, the head of the key emerging markets unit, and the director of
human resources, would come from Alcatel. To allay U.S. national security concerns, the new company
would form an independent U.S. subsidiary to administer American government contracts. This subsidiary
would be managed separately by a board composed of three U.S. citizens acceptable to the U.S.
government.
International combinations involving U.S. companies have had a spotty history in the
telecommunications industry. For example, British Telecommunications PLC and AT&T Corp. saw their
joint venture, Concert, formed in the late 1990s, collapse after only a few years. Even outside the telecom
industry, transatlantic mergers have been fraught with problems. For example, Daimler Benz's 1998 deal
with Chrysler, which was also billed as a merger of equals, was heavily weighted toward the German
company from the outset.
In integrating Lucent and Alcatel, Russo faced a number of practical obstacles, including who would
work out of Alcatel's Paris headquarters. Russo, who became Lucent's chief executive in 2000 and does not
speak French, had to navigate the challenges of doing business in France. The French government has a big
influence on French companies and remains a large shareholder in the telecom and defense sectors. Russo's
first big fight would be dealing with the job cuts that were anticipated in the merger plan. French unions
tend to be strong, and employees enjoy more legal protections than elsewhere. Hundreds of thousands took
to the streets in mid-2006 to protest a new law that would make it easier for firms to hire and fire younger
workers. Russo has extensive experience with big layoffs. At Lucent, she helped orchestrate spin-offs,
layoffs, and buyouts involving nearly four-fifths of the firm's workforce.
Making choices about cuts in a combined company would likely be even more difficult, with Russo
facing a level of resistance in France unheard of in the United States, where it is generally accepted that
most workers are subject to layoffs and dismissals. Alcatel has been able to make many of its job cuts in
recent years outside France, thereby avoiding the greater difficulty of shedding French workers. Lucent
workers feared that they would be dismissed first simply because it is easier than dismissing their French
counterparts.
After the 2006 merger, the company posted six quarterly losses and took more than $4.5 billion in write-
offs, while its stock plummeted more than 60 percent. An economic slowdown and tight credit limited
spending by phone companies. Moreover, the market was getting more competitive, with China's Huawei
aggressively pricing its products. However, other telecommunications equipment manufacturers facing the
same conditions have not fared nearly as badly as Alcatel-Lucent. Melding two fundamentally different
cultures (Alcatel's entrepreneurial and Lucent's centrally controlled cultures) has proven daunting.
Customers who were uncertain about the new firm's products migrated to competitors, forcing Alcatel-
Lucent to slash prices even more. Despite the aggressive job cuts, a substantial portion of the projected $3.1
billion in savings from the layoffs were lost to discounts the company made to customers in an effort to
rebuild market share.
Frustrated by the lack of progress in turning around the business, the Alcatel-Lucent board announced in
July 2008 that Patricia Russo, the American chief executive, and Serge Tchuruk, the French chairman,
would leave the company by the end of the year. The board also announced that, as part of the shake-up,
the size of the board would be reduced, with Henry Schacht, a former chief executive at Lucent, stepping
down. Perhaps hamstrung by its dual personality, the French-American company seemed poised to take on
a new personality of its own by jettisoning previous leadership.
Discussion Questions:
1. Explain the logic behind combining the two companies. Be specific.
2. What are the major challenges the management of the combined companies are likely to face?
How would you recommend resolving these issues?
3. Most corporate mergers are beset by differences in corporate cultures. How do cross-border
transactions compound these differences?
4. Why do you think mergers, both domestic and cross-border, are often communicated by the
acquirer and target firms’ management as mergers of equals?
5. In what way would you characterize this transaction as a merger of equals? In what ways
should it not be considered a merger of equals?
Panasonic Moves to Consolidate Past Acquisitions
Key Points:
• Minority investors may impede a firm’s ability to implement its business strategy by slowing the
decision making process.
• A common solution is for the parent firm to buy out or “squeeze-out” minority shareholders
______________________________________________________________________________
Increased competition in the manufacture of rechargeable batteries and other renewable energy products
threatened to thwart Panasonic Corporation’s move to achieve a dominant global position in renewable
energy products. South Korean rivals Samsung Electronics Company and LG Electronics Inc. were
increasing investment to overtake Panasonic in this marketplace. These firms have already been successful
in surpassing Panasonic’s leadership position in flat-panel televisions.
Despite having a majority ownership in several subsidiaries, Sanyo Electric Company and Panasonic
Electric Works Company that are critical to its long-term success in the manufacture and sale of renewable
energy products, Panasonic has been frustrated by the slow pace of decision making and strategy
implementation. In particular, Sanyo Electric has been reluctant to surrender decision making to Panasonic.
Despite appeals by Panasonic president Fumio Ohtsubo ’s for collaboration, Panasonic and Sanyo
continued to compete for customers. Sanyo Electric maintains a brand that is distinctly different from the
Panasonic brand, thereby creating confusion among customers.
Sanyo Electric, the global market share leader in rechargeable lithium ion batteries, also has a growing
presence in solar panels. Panasonic Electric Works makes lighting equipment, sensors, and other key
components for making homes and offices more energy efficient.
To gain greater decision-making power, Panasonic acquired the remaining publicly traded shares in
both Sanyo Electric and Panasonic Electric Works in March 2011 and plans to merge these two operations
into the parent. Plans call for combining certain overseas sales operations and production facilities of Sanyo
Electric and Panasonic Electric Works, as well as using Panasonic factories to make Sanyo products.
The two businesses were consolidated in 2012. The challenge to Panasonic now is gaining full control
without alienating key employees who may be inclined to leave and destroying those attributes of the
Sanyo culture that are needed to expand Panasonic’s global position in renewable energy products.
This problem is not unique to Panasonic. Many Japanese companies consist of large interlocking
networks of majority-owned subsidiaries that are proving less nimble than firms with more centralized
authority. After four straight years of operating losses, Hitachi Ltd. spent 256 billion yen ($2.97 billion) to
buy out minority shareholders in five of its majority-owned subsidiaries in order to achieve more
centralized control.
Discussion Questions
1. Describe the advantages and disadvantages of owning less than 100 percent of another company.
2. When does it make sense to buy a minority interest, a majority interest, or 100 percent of the
publicly traded shares of another company?
HP Acquires Compaq—The Importance of Preplanning Integration
The proposed marriage between Hewlett-Packard (HP) and Compaq Computer got off to a rocky start when
the sons of the founders came out against the transaction. The resulting long, drawn-out proxy battle
threatened to divert management's attention from planning for the postclosing integration effort. The
complexity of the pending integration effort appeared daunting. The two companies would need to meld
employees in 160 countries and assimilate a large array of products ranging from personal computers to
consulting services. When the transaction closed on May 7, 2002, critics predicted that the combined
businesses, like so many tech mergers over the years, would become stalled in a mess of technical and
personal entanglements.
Instead, HP's then CEO Carly Fiorina methodically began to plan for integration prior to the deal
closing. She formed an elite team that studied past tech mergers, mapped out the merger's most important
tasks, and checked regularly whether key projects were on schedule. A month before the deal was even
announced on September 4, 2001, Carly Fiorina and Compaq CEO Michael Capellas each tapped a top
manager to tackle the integration effort. The integration managers immediately moved to form a 30-person
integration team. The team learned, for example, that during Compaq's merger with Digital some server
computers slated for elimination were never eliminated. In contrast, HP executives quickly decided what to
jettison. Every week they pored over progress charts to review how each product exit was proceeding. By
early 2003, HP had eliminated 33 product lines it had inherited from the two companies, thereby reducing
the remaining number to 27. Another 6 were phased out in 2004.
After reviewing other recent transactions, the team recommended offering retention bonuses to
employees the firms wanted to keep, as Citigroup had done when combining with Travelers. The team also
recommended that moves be taken to create a unified culture to avoid the kind of divisions that plagued
AOL Time Warner. HP executives learned to move quickly, making tough decisions early with respect to
departments, products, and executives. By studying the 1984 merger between Chevron and Gulf Oil, where
it had taken months to name new managers, integration was delayed and employee morale suffered. In
contrast, after Chevron merged with Texaco in 2001, new managers were appointed in days, contributing to
a smooth merger.
Disputes between HP and former Compaq staff sometimes emerged over issues such as the different
approaches to compensating sales people. These issues were resolved by setting up a panel of up to six
sales managers enlisted from both firms to referee the disagreements. HP also created a team to deal with
combining the corporate cultures and hired consultants to document the differences. A series of workshops
involving employees from both organizations were established to find ways to bridge actual or perceived
differences. Teams of sales personnel from both firms were set up to standardize ways to market to
common customers. Schedules were set up to ensure that agreed-upon tactics were actually implemented in
a timely manner. The integration managers met with Ms. Fiorina weekly.
The results of this intense preplanning effort were evident by the end of the first year following closing.
HP eliminated duplicate product lines and closed dozens of facilities. The firm cut 12,000 jobs, 2,000 more
than had been planned at that point in time, from its combined 150,000 employees. HP achieved $3 billion
in savings from layoffs, office closures, and consolidating its supply chain. Its original target was for
savings of $2.4 billion after the first 18 months.
Despite realizing greater than anticipated cost savings, operating margins by 2004 in the PC business
fell far short of expectations. This shortfall was due largely to declining selling prices and a slower than
predicted recovery in PC unit sales. The failure to achieve the level of profitability forecast at this time of
the acquisition contributed to the termination of Ms. Fiorina in early 2005.
Discussion Questions
1. Explain how premerger planning aided in the integration of HP and Compaq.
2. What did HP learn by studying other mergers? Give examples.
3. Cite key cultural differences between the two organizations. How were they resolved?
Integrating Supply Chains: Coty Cosmetics Integrates Unilever Cosmetics International
In mid-August 2005, Coty, one of the world's largest cosmetics and fragrance manufacturers, acquired
Unilever Cosmetics International (UCI), a subsidiary of the Unilever global conglomerate, for $800
million. Coty viewed the transaction as one in which it could become a larger player in the prestigious
fragrance market of expensive perfumes. Coty believed it could reap economies of scale from having just
one sales force, marketing group, and the like selling and managing the two sets of products. It hoped to
retain the best people from both organizations. However, Coty's management understood that if it were not
done quickly enough, it might not realize the potential cost savings and would risk losing key personnel.
By mid-December, Coty's IT team had just completed moving UCI's employees from Unilever's
infrastructure to Coty's. This involved such tedious work as switching employees from Microsoft's Outlook
to Lotus Notes. Coty's information technology team was faced with the challenge of combining and
standardizing the two firms' supply chains, including order entry, purchasing, processing, financial,
warehouse, and shipping systems. At the end of 2006, Coty's management announced that it anticipated
that the two firms would be fully integrated by June 30, 2006. From an IT perspective, the challenges were
daunting. The new company's supply chain spanned ten countries and employed four different enterprise
resource planning (ERP) systems that had three warehouse systems running five major distribution
facilities on two continents. ERP is an information system or process that integrates all production and
related applications across an entire corporation.
On January 11–12, 2006, 25 process or function "owners," including the heads of finance, customer
service, distribution, and IT, met to create the integration plan for the firm's disparate supply chains. In
addition to the multiple distribution centers and ERP systems, operations in each country had unique
processes that had to be included in the integration planning effort. For example, Italy was already using
the SAP system on which Coty would eventually standardize. The largest customers there placed orders at
the individual store level and expected products to be delivered to these stores. In contrast, the United
Kingdom used a legacy (i.e., a highly customized, nonstandard) ERP system, and Coty's largest customer in
the United Kingdom, the Boots pharmacy chain, placed orders electronically and had them delivered to
central warehouses.
Coty's IT team, facing a very demanding schedule, knew it could not accomplish all that needed to be
done in the time frame required. Therefore, it started with any system that directly affected the customer,
such as sending an order to the warehouse, shipment notification, and billing. The decision to focus on
"customer-facing" systems came at the expense of internal systems, such as daily management reports
tracking sales and inventory levels. These systems were to be completed after the June 30, 2006, deadline
imposed by senior management.
To minimize confusion, Coty created small project teams that consisted of project managers, IT
directors, and external consultants. Smaller teams did not require costly overhead, like dedicated office
space, and eliminated chains of command that might have prevented senior IT management from receiving
timely, candid feedback on actual progress against the integration plan. The use of such teams is credited
with allowing Coty's IT department to combine sales and marketing forces as planned at the beginning of
the 2007 fiscal year in July 2006. While much of the "customer-facing" work was done, many tasks
remained. The IT department now had to go back and work out the details it had neglected during the
previous integration effort, such as those daily reports its senior managers wanted and the real-time
