by Tracy Mayor

From Chaos, Agility

Jun 01, 20048 mins
Mergers and Acquisitions

When Jim McGrane learned in August 2001 that he would be CIO of the soon-to-be-formed MeadWestvaco Corp.?the result of the merger the following January between paper and packaging players Mead and Westvaco?his first thoughts weren’t about org charts, dueling data centers, different e-mail standards, headcount reduction or even the fact that he’d never held the title of CIO before.

No, McGrane’s first thoughts were about agility…responsiveness…dynamism. In other words, change management writ large.

He’d have to tackle all those other issues, and more, before his first year was out. But from the outset in this merger of equals, McGrane was intent on not simply choosing the best of two cultures and systems, but in forging a third way. The similarity of Mead and Westvaco in revenue, numbers of employees, market capitalization and IT sophistication?and the absence of the two entities’ previous CIOs, who stepped down or moved on?meant that McGrane had a freer hand than most executives in M&A situations.

“I saw the merger as an opportunity to get new ideas in,” he says. “With no one side having ultimate leverage over the other, it was the perfect environment to introduce new concepts,” namely, to transform IT from several operations-focused organizations to a coherent group able to drive competitive advantage and sustain change over a long period of time.

But if McGrane was going to introduce this kind of mind-set shift, he’d have to work fast?and accomplish it amid an atmosphere of relocations, executive departures, plant closings and massive layoffs. “We had laid out a very aggressive time line, 90 days,” he recalls, “which meant we had to go forward organizationally at the same time we were getting on the same page with a shared vision.”

Fast-Track Change

McGrane came from the Mead side of the merger, having overseen the company’s ERP implementation as vice president of business process development. With one company’s CIO ready to retire and the other’s moving deeper into the packaging end of the industry, McGrane found himself with a new title, CIO, just four months before the merger took effect in January 2002, and a long list of action items to accomplish.

McGrane had to decide on technology standards, the number of data centers and so on. But more pressing in his mind was the task of combining what were essentially four separate technology cultures?two at each company, in ERP and in IT?into a single organization with a shared vision, objectives for the integration period, and a common strategic plan for IT in the first year of the new company and beyond.

McGrane was wise to tackle the big picture first, before tying up the tech details, IT management specialists say. “In a merger-and-acquisition situation, there’s a lot of opportunity but also a lot of risk,” says Jonathan Poe, a principal analyst at Meta Group. “The question for the executive becomes, ’How well do you handle the risk to take advantage of the opportunities?’”

“CIOs in an M&A situation need to take a fast path to the integration process,” Poe continues. “You need to articulate how you’re going to share power, how you’re going to converge, how you’re going to grow and persist as an organization. And you need to be able to say how IT is going to help those objectives. It really is a message that has to come from the top down.”

To help communicate (and construct) his integration message, McGrane set up two teams, one for business executives and the other within IT. The Enterprise Information Solutions Steering Committee?comprising senior-level operating, financial and human resource executives?oversees the overall strategic direction of IT, reviews its investments and helps resolve competing demands among different business groups.

And within his IT organization, McGrane set up a 35-member extended leadership team. His goal was to build an information organization that would be able not only to weather the merger but also to respond quickly to a sometimes perilous marketplace. “I started with 35 people with the idea of achieving a common, highly adaptive culture, then have them cascade that culture to all 500 people [within IT],” he says.

Toward a More Nimble Culture

The extended leadership team, made up of McGrane’s direct reports and their direct reports, was also one way for him to manage what was suddenly a much larger operation. “I was coming from overseeing a major business process software implementation, which was very project driven, and having to continue that while at the same time taking on day-to-day operations and cost restructuring,” he explains. “The organization was five times larger than what I had been managing. I couldn’t walk around and touch everybody anymore, so the leadership team became a way to get everyone engaged.”

The IT leadership team met several times with two consultants from Millemann & Associates, Jack Gilbert and Carolyn Hendrickson. Their contribution was not only to facilitate a shift in the approach to IT, but also to bring together disparate players during a time of great upheaval. “It’s hard to describe how much was up in the air,” says Gilbert. “We had 35 people in a room, many of whom had never worked together before, many in a different organization with a new leader, many of whom were dealing with the loss of colleagues and with relocation. There was a roomful of people wondering, What does nimble mean anyhow?”

“Jim had a clear vision of what a nimble organization meant to him,” says Hendrickson. “He knew he needed to have that capability, but he also knew he didn’t have two to five years to get that in place.” To that end, she and Gilbert focused on helping the team hammer out a change model for reorganizing into a more centrally administered, standards-centric group; a strategic evolution plan; and a new stewardship model that made the group responsible for proving IT value to business-IT teams.

And they hammered on McGrane as well. Even within Mead, there were two different technology cultures before the merger, so McGrane wasn’t well-known. As many of his key employees were getting used to him, McGrane had to endure some change of his own. “Jim had a little coaching too,” says Gilbert with a laugh. “Every now and again, we’d have to tell him to stop talking.”

Cutting Costs, Cutting People

In the more than two years since the merger, McGrane and his team have converted 5,000 workstations into a standard environment, migrated the same number of users to a common e-mail system, converged the company’s wide and local area networks, migrated to a single data center, deployed SAP to about 70 percent of the new company, and merged and upgraded the company’s PeopleSoft system.

Technology tasks are taken care of by a phalanx of managers who report directly to McGrane, including a CTO and directors of technical services, operations, manufacturing systems, and business and emerging technologies.

This team has cut costs?a lot. In two years, spending has dropped some 23 percent overall, with 20 percent of the savings coming from restructuring, 20 percent from purchasing efficiencies and 50 percent from staff reductions. All told, McGrane oversaw a 25 percent reduction in the total labor force?down to about 500 full-time U.S. employees in IT.

He was faced with the particularly sticky task of handling a drawn-out period of layoffs. One group of people (including many contractors and third-party personnel) was let go during the first three months of the merger, but other employees were asked to work through those initial months knowing their jobs would ultimately be eliminated?an awkward situation, McGrane acknowledges.

“It’s a challenge. All you can do is be up-front with people. We said, ’Here’s our current state, here’s our future state, here’s what the benefit package will look like,’” he says. “We were blessed with people who were very loyal to their organization, and I hope they felt like they were being treated with honesty.”

McGrane may have stabilized MeadWestvaco’s IT group, but the company itself isn’t winning accolades from Wall Street. Pamela Rice, a credit analyst with Standard & Poor’s, says her company revised its outlook on MeadWestvaco to negative in late 2003, noting that coated paper is one of the weakest segments of the forest-products industry at the moment.

To do his part to improve MeadWestvaco’s fortunes, McGrane is pushing forward with his three-to-five-year goal of revamping how IT investments are managed, to ensure that IT is as closely aligned with business strategy as possible. He’s looking for ways to leverage ERP, for example, to improve the company’s supply chain and drive down costs. “I do believe IT is strategic, and I do believe it can make a difference,” he says.