Assessing acquisitions: an IAG case study

The challenges faced in integrating a large acquisition are manifold. Larissa Bannister talks to IAG’s Sam Mostyn and Jacqueline Johnson about the role of assessment and development in the culture change process following IAG’s takeover of CGU

The challenges faced in integrating a large acquisition are manifold. Larissa Bannister talks to IAGs Sam Mostyn and Jacqueline Johnson about the role of assessment and development in the culture change process following IAGs takeover of CGU

In January 2003, Insurance Australia Group (IAG) completed its acquisition of the CGU and NZI insurance businesses. This fundamental shake-up was not the first big change the business had undergone in recent years: in July 2000, it listed on the Australian Stock Exchange and in November 2001 it changed its name from NRMA.

Sam Mostyn, IAG’s chief executive of culture and reputation, describes the time leading up to and after the acquisition as pressurised. “Over a period of four years we went from a NSW-based business with a couple of thousand employees to a publicly listed company with 50 per cent of the business based outside of NSW and around 11,500 employees,” she says.

Mostyn adds that before the acquisition was complete, she wanted to measure the cultures of the two businesses to ensure that they would fit together. She chose to do this by assessing employees via an engagement survey conducted by Hewitt Associates.

“We wanted to look at how engaged people were with the business,” she says. “Previously, our climate surveys had not drilled down enough and hadn’t asked questions the right questions.”

The engagement survey examined cultural norms in both businesses and highlighted overlaps or similarities in culture, which was often. “This wasn’t just luck,” says Mostyn. “Our CEO and management team were respectful of the cultural issues and had looked at culture as one aspect to consider when making the acquisition.”

The results of the survey showed that both the NRMA and CGU businesses were proud of their history – CGU’s stretched back to the Great Fire of London in the 1660s. Mostyn also found that employees were proud of the caring aspect of insurance provision and decided to make this the basis of the new culture.

IAG then looked at the structure of the business based on the new culture and business strategy. “The changes did not involve many redundancies – several hundred out of 12,000 – because the businesses were such a good fit,” says Mostyn. “But regardless of how much change is involved, it’s important to realise the effect that change has on employees. It’s too easy for senior management to say that it should be ‘business as usual’. For the employees an acquisition can feel like a personal catastrophe and it’s important to recognise that rather than pretending that it’s not happening. Be firm on the timeframes involved and get through it as quickly as possible so that employees can stay focused on the customer.”

Integration management via workstreams

IAG decided to set up a ‘workstream’ for each business unit to manage the integration process. Jacqueline Johnson, IAG’s head of organisational effectiveness, was in charge of one of these workstreams. “The purpose was to ensure that management was consulting with employees and that we could look for best of breed when deciding on changes,” she says.

The workstream leaders had direct reports from each company to ensure that both businesses were consulted. “The key is not to give one business more power than the other and not to make assumptions before you find out facts,” says Johnson.

According to Sarah Kearney, managing director of SHL Australia, this is the stage at which defining cultural values helps with defining new roles. “You need to build a capability model around the new culture,” she says. “So if you have decided that your leaders need to be more entrepreneurial, for example, you need to define how that behaviour looks in the context of your business and then measure people based on those criteria.”

Johnson says that IAG looked each individual business unit’s structure against the business strategy and defined roles on that basis. “Because the businesses were complementary in terms of what people actually did this was more about deciding on which brand to maintain [either CGU or NRMA] than about changing people’s roles,” she comments.

The new positions that did need to be filled were treated on a case-by-case basis. “There were some roles where it was clear that there were no dual candidates – where there was only one person with the skill-set. If there was more than one potential candidate we advertised the roles internally.”

Candidates who applied were then interviewed by a panel made up of representatives from both businesses. “We used different assessment devices depending on the roles and also used information collated from appraisals done in the past,” Johnson adds. “Some used assessment centres – particularly for more managerial roles – but we had no rules apart from ensuring transparency at all times.”

Mostyn reiterates the point that flexibility is important. “In some situations you make the job open to all, in others you want to reconfirm people in their roles straight away,” she says. “The main thing is to be firm on timeframes and ensure that people remain focused on the customer throughout the process.”

Kearney says that employers should also make it clear that assessment is for the purpose of selecting in to new roles and not for selecting out of old ones. “Some people will self-select out, which is healthy,” she says. “For the others, there are various assessment methods that can be used. Psychometric tests are something to consider for roles where the competencies lean more towards IQ rather than EQ [emotional intelligence]. Otherwise, companies can choose questionnaires or simulations to observe people’s responses over a period of time.

“Remember to talk to people too – especially those who have been acquired – to get insight into performance and capabilities. Some employers also use 360 degree assessment here. It’s a tool that is traditionally used for development but if you don’t have great track record data from previous appraisals then it can be useful. Be aware though, that people can be more complimentary in their responses if they know the assessment will affect the candidate’s chances,” says Kearney.

Bedding down culture

Once the roles have been assigned comes the task of developing the culture and ensuring that employees are engaged with what it means, says Mostyn. “Because the heritage of both companies was based around the idea of social worthiness and because that was what we decided would form the basis of the new culture, we had to make sure that this was reflected in the way people were doing their jobs,” she explains. “So we decided to use the data we collate to help reduce risk in the community by working with the police on reducing theft by sharing the knowledge we have about how and where crimes are committed, for example.”

As well as company-wide initiatives like this, Mostyn believes it’s important to develop cultural values by building them into performance management systems. “We have introduced a payroll deduction scheme for a number of charities that were nominated by staff through out staff consultation committees,” she says. “We have also changed the way we reward people so that they are recognised for actions that match the new cultural values and have built the new values into assessment tools like 360s.”

Kearney says that a lot of businesses fall down at this stage. “Don’t underestimate the importance of building activity around the change – it’s not enough to just repeat the message and hope it sinks in. Include the new behavioural values in your appraisal system, change the way you remunerate your people and don’t continue to reward in the same old ways or you will just be reinforcing old behaviours.”

Communication is another important factor in developing new behaviours. IAG conducted roadshows where the executive team visited every business unit and also ran weekly meetings to ensure that the business units were moving with the change.

“The CGU operation was owned by an international insurer and one thing we found was that people liked the idea of working for an Australian business again,” says Johnson. “We harnessed those feelings into the messages that the executives were giving at the roadshows about the new business strategy.

“It’s not always easy to keep people engaged, especially when you are pulling teams apart,” she continues. “But if you are honest and transparent about the process then you can select the right people and address any development needs they may have when coming into new roles in the same way as you would at any other time.”

Mostyn says that having people talk to each other across the businesses is also very helpful. “We have introduced a talent matrix to help with future development of key employees,” she comments. “It’s a system where management gets together to discuss the quality of their direct reports in performance and capability terms with managers from other parts of the business.

“We have taken the subjectivity out of the debate and have started the discussion on what we want from our people across the board,” she continues. “It means that now people can move between the different business units and we can be confident that they will have the right values and behaviours to do that. It’s a process that has helped with the integration and is also hugely important for development and succession planning.”

Pulse surveys taken since the integration began have shown employees’ responses to the integration as it happened but the real test will be the follow-up engagement survey, due to be conducted in May this year.

“Engagement was all over the place,” says Mostyn of the survey that was conducted at the time of acquisition. “It was 44 per cent across the business as a whole but obviously varied from area to area. We have set ourselves a target of growing engagement by 10 per cent each year. The pulse surveys say we are on the right track but it’s an ongoing process that we are still in the middle of now and there’s plenty still to do.”

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