The Acquisition of AT Kearney by Electronic Data Systems - Case Study Example

? A.T. Kearney Case Study I. ment of the Problem(s) The the acquision of of A.T. Kearney by EDS seemed to be initially successful but the question remains whether the company can capitalized and take advantage of the synergy created from teh merger by to take advantage of the synergy created from the merger by leveraging the capabilities of both organizations. Also, to say that the corporate culture of both organizations were incorporated into one cohesive, cogent and coherent new culture only after a year of operation would be a hasty conclusion. Finally, would the merger be advantageous to the bottomline of both organization making EDS’s and T.A. Kearney’s market reach to expand and overwhelming competition with the scale of services and expertise that the merger resulted to? If so, how? II. Summary of the facts A.T. Kearney was acquired by EDS (Electronic Data Systems). It is expected that with the merger of A.T. Kearney and EDS, clients could take advantage of a much broader range of services. In essence, it is expected that both companies could become a a “one-stop shop,” capable of servicing every client requirement. Both companies are expected to complement each other’s weaknesses and achieve a synergy that could be used as a leverage in the market. The combined capability of the two companies will enable them to offer end to end services in addition to the benefit of a larger market reach. Before the merger, A.T. Kearney was well known The firm was well known for its ability to deliver value and results throughout the management process, from strategy development to business and market analysis to operations, process, and technology transformation. This mix of strategy and operations, combined with a focus on implementation, had differentiated A. T Kearney from its competitors and driven the firm’s outstanding results for over a decade. A.T. Kearney however had a weakness of “growth constrained only by having insufficient numbers of highly qualified new people at all levels of the organization” and is struggling in the globalization of its operations. These weakeness however can be complemented by EDS which is more established in the industry that “it is much present in our daily lives”. Incidentally, the core business of A.T. Kearney is EDS waterloo. For years, EDS had been struggling to establish its MCS (Management Consultancy Service). EDS “ Despite the ability to combine expertise and intellectual capital with the delivery capability of EDS, MCS was having difficulties getting off the ground” (pg. 5). Despite its size and capitalization, it registered a loss of $23 milllion in 1994. EDS just lacked the expertise to pursue MCS capability as an IT firm and lacked a clear positioning in the marketplace as a formidable “consulting” practitioner. This weakness in MCS prompted EDS to acquire A.T. Kearney for $600 million. III. Analysis Management consulting industry is a profitable industry. In 1994. It registered $40 worth of services of which $18 billion of these revenue were services related information technology (i.e., IT planning, IT strategy, strategic procurement of hardware and software solutions). Management consultancy industry was expected to grow faster than its other segment at an annual rate of up to 15 percent. Fred Steingraber suggested that total fees for the management consulting industry would double by the year 2000. The main reason for the tremendous growth in this sector can be attributed to the following reasons; Technology has been integrated into business strategy. Technology investments will increase. Corporations are embracing the philosophy of restructuring and reengineering. Senior management is becoming technology-literate as, across all industries, major corporations increasingly view themselves as “technology-oriented companies.” Senior management expresses satisfaction with return on technology investment, even in the absence of precise measurements. Given this data about this trend management consulting industry, it seemed now that the trend of the future is an complete management solution that would incorporate the businesss process and the technology aspect. To respond to this emerging trend, Fred Steingraber, A. T. Kearney’s CEO since 1983, remark that the trend of a single consulting firm offering end-to-end consulting solutions as an inevitable wave of the future was the main impetus of the merger. As a result of the merger, both companies will be able to synergize their strengths and complement each other’s weaknesses to become a formidable management and information technology solution in the market offering end to end solutions to its existing and would be customers. Before the merger, the capabilities and market reach of both company were limited in some way. A.T. Kearney’s obvious limitation was obviously its size and market reach. It has only a revenue of 10% outside the United States. This can however be complemented with the global reach of EDS which has a marketable presence in virtually almost all markets. Yet despite its size and globalized reach compared to T. A. Kearney, EDS has an obvious weakness which is its MCS (Management Consultancy Service) function where it had been struggling to set up. This shortcoming of EDS however is non-issue to T.A. Kearney because management consultancy and business processes forms part of its core business. To wit, it can complement EDS with its expertise in management process, from strategy development to business and market analysis to operations, process, and technology transformation. Despite the breadth of its scope in strategy and process management, T.A. Kearney however does not have the capability of EDS’s information technology. For EDS part, its products services were only limited into the following; a. Systems Development—EDS designed, developed, and implemented systems that supported and improved its clients’ business processes and the way they served their customers. b. Systems Integration—EDS became the single point of contact for a client, responsible for directing multiple vendors and ensuring that combinations of hardware, software, communications, and human resources worked together. c. Systems Management—EDS assumed strategic management responsibility for a client’s information technology resources. d. Process Management—EDS provided comprehensive management of business processes, such as customer service, insurance claims Combining these types of information technology to management consulting, the size of the global market will increase to a whooping $280 billion. These “enhanced management consulting capability coupled with EDS’s traditional information technology and process management expertise represents a powerful combination of business insight, industry experience and global delivery capability to help our clients successfully undertake enterprise-wide transformation initiatives” (pg. 5). In addition to the benefit of expanded market, both organizations have the advantage of synergy created from the merger by leveraging the capabilities and expertise of both organizations. The bigger concern that now rests on both organization is whether they can capitalize on these advantages and become a dominant player both in the General Management Consulting industry. IV. Recommendations The concern of the industry experts about the incorporation of the distinct culture of both companies is valid. While the first year of operation was considered to be smooth, it would be hasty to conclude that the transition period is already over. There may no major conflicts that erupted to make a glitch in the transition obvious but there are indications that the two companies have not yet realized the optimum potential of their combined market reach and expertise (Information Technology expertise of EDS and Management Consulting of T.A. Kearney). This can be gleaned from the fact that A.T. Kearney is not leveraging on its advantage evident with Rolls-Royce Project. While the project netted the company a 10-year engagement with Rolls-Royce worth over $900 million, the consulting mix was not initially offerred in the services of of CSC Index. EDS has to decide to include this in the service mix indicating that T.A. Kearney has not more proactive with its approach when Rollys Royce needed the service offering. This suggests that the cultural integration of both companies is not yet complete as both is not yet leveraging and combining each other’s strengths in the marketplace. To achieve this, the following recommendations are advised for both companies to consider; a. Implement a continuous change management – implementing and managing does not come overnight. Study shows that people who are accustomed to their old ways are often hesitant to change especially if they are asked to perform better. In fact, the biggest obstacle is change is often the internal factor that comprises 81 % of the time compared to the external factors that is only 19% of the time (Murthy, 2007: 19). This explains why T.A. Kearney is not yet that proactive in its dealings because it has not yet incorporated the sense of synergy its partnership with EDS brings. b. To hasten the process of incorporating the culture of both organizations, it is highly suggested to rotate people in both organizations. People from EDS to be rotated to T.A. Kearney and vice versa and both organizations will have a “feel” of the other organization and hasten the organizational transition accordingly. c. The opportunities that the merger will bring to both organizations have to be re-emphasized to enable both organizations to become more proactive in dealing with clients. V. Conclusion The observation of James Kennedy, publisher of Consultants News about the merger hit the nail of the main issue about the merger of these two companies. Remarking that “Consulting firms are very fragile entities They cannot be transplanted easily. You have something equivalent to organ rejection when you try to mix and match consultants from one company to another. There are huge egos here. (pg. 6)”. While the glitch in the transition (which is normal in any merger) may not have been obvious due to the absence of any overt conflict, it manifested with the reactive approach of A.T. Kearney by not offering the mix solution that EDS had to include it. This challenges however are not insurmountable. With the implementation of continuous change management, this initial reactive approach will eventually be supplanted by a more proactive stance in the market and both companies will adopt a singular culture. But this will take time and both companies only operated for a year after the merger. This process would also be hastened if they would implement job rotation among its employees. It has several advantages. First is the faster assimilation and development of culture, second, enhanced capability and lastly, cohesiveness as an organization. With the implementation of these recommendations, it will only take a little time before EDS and A.T. Kearney to dominate the General Management Consulting Industry. Together, these companies will eventually ramp up their capabilities and reach critical mass in many of its markets and ensure a broad and well-positioned global organization to service clients worldwide and become the most dominant player in the industry. Read More