Strategic Change Case Study: GreenHealth-Cranberry Merger Introduction GreenHealth is a UK based manufacturer of vitamins, minerals and herbal supplements. Its products are sold through high street retailers such as Holland and Barrett, and Boots in the UK. It has a strong foothold in the US where the products are sold through grocery stores such as Whole Food Market, Trader Joe’s and Harris Teeter. The company headquarters and manufacturing base are in the south of England (Reading). It employs 930 staff and total revenue in 2011 was £237m. Cranberry is a company based in Cumbria, in the North of England. It manufactures natural and ethical beauty products plus a small range of herbal supplements and sells through Boots and Superdrug in the UK. The core beauty products are sold through retailers in over 50 countries and online. Over 60% of its revenues are from Europe where the products are sold in supermarkets such as Auchan, Carrefour and Aldi. Both companies are listed on the London Stock Exchange. In January 2012, Marcus Steele, the CEO of GreenHealth and Carol Moss, the CEO of Cranberry announced that the two companies would merge. The Chairman of GreenHealth would become the new Chairman and the Chairman of Cranberry, Deputy Chairman. Carol Moss was named as the new Chief Executive and Bruno Meta, Chief Financial Office (CFO) of GreenHealth, was appointed as CFO for the new company. What was the rationale for the merger? Carol: Cranberry started up in 1980 and for the first 20 years we experienced significant growth year on year. The recession slowed us down a little but did not impact us significantly and we are relatively cash rich compared to many of our competitors. We had been looking for opportunities to expand and grow our core business but also to broaden our horizons and identify new opportunities that complemented our existing business. We are roughly the same size as GreenHealth in terms of revenues and approached them because we thought they were a good strategic fit with significant benefit for both parties. We could see substantial cost savings through combining resources. We operate in different geographic regions so we can support each other in expanding globally. However, we also saw opportunities for new product developments that harness the expertise of GreenHealth in vitamins and minerals and Cranberry in beauty products. We already have a Vitamin E based moisturiser that is one of our strongest selling products. The combined technical facilities of GreenHealth and Cranberry should enable us to develop more leading edge products based on a wider range of vitamins and herbs. Then there’s the heritage image of GreenHealth. We think their branding will be perfect for the growing men’s skincare market. The share price of both companies rose when the news was announced, although slightly more for GreenHealth. It was an all share deal and investors from both companies gained an equal share of the merged group’s equity. What was GreenHealth like before the merger? Bruno: GreenHealth began as a family business in 1902 and I have to say it sometimes felt like it hadn’t changed very much. The company has been part of Reading’s history and there are people working for us whose parents and grandparents worked for the company. The average age of employees is over 45 and many have worked for GreenHealth their whole careers. We like to develop people and to promote from within the company. I was unusual in that I was an external appointment about 5 years ago. When I first arrived I was surprised to see that I had a car park space outside the building with my name on it. The building we operate from is modern but there was a granite plaque in the atrium with the names of Board members. I could see my name had been added to it. Where I come from it is unusual for anyone at Board level to stay longer than 3 years, so no-one’s name is ever carved in rock. And I only ever got a good parking space in the past because I was the first to arrive, never because I was senior. It was not an easy company to work for. I found it very difficult to know how to get things done. The old adage, ‘it’s not what you know but who you know’ seemed particularly true. I don’t think I would have survived for long except that I had a very good secretary who knew the company well and all the people in it. If you wanted to get something done then it was no use sending an email or raising an action point in a meeting. You had to plant ideas, make small suggestions and then slowly things would come together. It was bureaucratic in that there was a lot of process and things took a lot of time but it was not transparent. You could not easily document the process or tell someone else how it worked. Between you and me, the company had been very badly managed for a long time and that‘s why Marcus Steele retired as part of the merger deal. He was highly dictatorial but also secretive and had his group of cronies or favourites. If you were in with him then you got the biggest bonus and your ideas would be taken on board but if you were out of favour, it didn’t matter how smart you were, you were going nowhere. But the company growth over the last five years had all come from the US and it was my team that set up that side of the business. I had contacts in the US through my previous jobs and I could make things happen because it was very separate from the UK side of the GreenHealth business, I think Marcus thought it would keep me out of the way. We have 930 staff and I suspect about 90% were already de-motivated and then became even more worried when the merger was announced. People thought that it was going to be a takeover. There were rumours that the new CEO would favour Cranberry staff over GreenHealth, that they just wanted access to our technical facilities and there would be massive redundancies. We didn’t know what the new company would be called or where Head Office was going to be. No-one wanted to relocate to the North of England where it rains all the time, even if the house prices are cheaper. Employees were not used to change. The company’s products are modern but the ethos is crafted and traditional. The fact that people have been doing things the same way for 100 years is a source of pride, people don’t see it as a criticism. What was Cranberry like before the merger? Carol: The beauty industry has been growing rapidly over the last 20 years and we have been part of that growth. We employed about 900 people and our revenue in 2011 was around £200m. We’re a young company with a lot of talented employees. We talent scout from universities across the country and we are always looking for people who can think outside the box. We really value creativity and people who have the passion and ambition to drive their ideas through to delivery. There are a lot of creative people in the company. It’s not likely that the top management team will always have the best ideas. We have lots of forums where employees can challenge us and ask questions and some questions are very challenging. But we like that! We like people who are not afraid to share their thoughts. Our offices are all open plan and we run exercise classes in the atrium in the morning from 6-7am. We also have a health suite where people can get massages and facials using our products. There was a huge amount of work leading up to the merger. We had a staff forum and the biggest issue people raised was overwork and stress. The building is open 24 hours; 7 days a week and I heard stories of people sleeping in the cafeteria because it was too late to go home. There is also quite a lot of travel for many people. Our main market is Europe and we like to build close relationships with the retailers who distribute our ranges. We do mystery shopping and sales observation where we see customers trying our products and find out what they like about us. Our online systems record inventory and sales but we also collect customer feedback and reviews, like Amazon do, and we use a similar system to capture employee feedback and ideas. We have a small team that are constantly analysing all the data and they also manage our social media presence like Twitter and Facebook. In 2011 there were three products that were significantly re-developed in response to customer feedback. The sales increased dramatically and the customers love it because they know that we listen. Delivering products that customers love, that are good for them, and good for the planet, that’s what we’re here for. Everyone in the company could state our mission and people came to work for us because they wanted to be a part of it. If it was just about the money then people would not work as hard as they do. We all do it because we love it. So how did you set about change? Carol: Some of the biggest aspects of the change were agreed as part of the merger announcement. So we knew it would be a 50/50 merger of equals and we knew that I would be CEO and Bruno CFO and that Marcus would be retiring. We had a Chairman and Deputy Chair but the rest was up to us. Bruno and I worked closely together and developed a shared proposal to take to the Board. The overall vision for the merger was based on three key objectives; 20% cost savings through staff and estates reductions, global expansion into Europe (for GreenHealth) and the US (for Cranberry) and new product development, of which the first would be a men’s skincare range. We didn’t have a name for the new company so we decided to canvas employee ideas and suggestions and the most popular choice was to trade as GreenHealth-Cranberry and keep the existing product brand names. We had a Board meeting where we invited a range of speakers who had experience of merger and asked their opinions about the most important lessons they had learned. The two things that stood out were, getting the top team right quickly and trying to reduce the physical separation between the two companies, which just seems to fuel the sense of ‘them and us’. So what happened next? Bruno: The change impacted the senior team first. We worked closely with HR, we issued redundancy notices and new job descriptions for the new top team. Cranberry had a divisional structure with a Managing Director for the UK and another for Europe and another for Rest of World (RoW). GreenHealth had a functional structure with a Director for Marketing and Sales, another for Operations, myself for Finance and the HR Director. We decided that we needed change and the best way to get people doing things differently was to go for a radical change of structure. There are now four main divisions which are UK, US and Europe and New Market Development (NDM) which covers the rest of the world. Each division is responsible for both vitamin, and mineral supplements and beauty products. There is also a HR Director and Finance Director but Marketing and Sales, and Operations now sit within the different divisions. The objective of the restructure was to focus the company geographically so the Divisional Head for the US, for example, could develop retailing relationships for GreenHealth products alongside Cranberry products. The focus would be outward facing, on the target customers and markets. And how did people respond? Bruno: I think it pulled the rug out from under a lot of people. The HR and Finance function where relatively unchanged but everything else was up in the air. No-one had experience of both businesses so there was no-one who felt they were guaranteed a senior job. There was also no Operations Director role or Marketing and Sales Director role so they could apply for one of the other posts but their teams were going to be split up and were very demoralised. I don’t think very much work got done during that time. The senior team were busy applying for the new posts and everyone else was gossiping about what the outcome would be. The senior team were interviewed by Carol and I and the HR Director and two non Executive Board members. There were four divisional director roles and the candidates had to present their vision for the future of the division. We were looking for people with ambition, drive and a strong, clear strategy. The three Cranberry divisional directors got three divisional roles (UK, Europe and the RoW Director got the NDM role) and the GreenHealth Marketing and Sales Director got the US role. So we had an ex-Cranberry CEO and three ex-Cranberry division Heads and an ex-GreenHealth CFO and HR Director and one division head. People did feel that Cranberry had done better than GreenHealth but, by then, quite a few people at GreenHealth had started to enjoy some of the management practices that were coming from Cranberry, like being consulted about the name, so it was generally ok. Once the senior team was in place then we had to sort out the location issues. We knew that if we each kept in our own location then it wouldn’t work. It was not ideal but we started by renting an open plan office floor in Birmingham and the senior management team worked there every Tuesday and Wednesday. At least we were all commuting so it was not unfair or unequal. It certainly helped us bond as a management team and get to know each other better. There is nothing quite like seeing someone, who you thought was incredibly intimidating, wringing their hands in despair and crashing their head on the desk because something has gone wrong somewhere. You quickly learn that they are just human too. We all stayed overnight so we got to go out together socially as well. An unexpected bonus was that we got a lot of work done because we were away from our direct reports and they got on and made decisions for themselves. It was interesting to see who stepped up in our absence and who loafed off. The distance also gave some objectivity because we had to make tough decisions, as a team, about how we would restructure the next layer of management to fully establish the new divisions. And where are things up to now at the end of the change? Carol: well the top team restructure was in place by the end of March 2012 and it’s a year on now. We restructured the rest of the organisation to reflect the new structure and now have a combined total of about 1500 employees. We are still operating from two sites but with UK and Europe on one site now and US and New Market Development on the other. Employees from Cranberry have generally been happy to move to Reading with the terms that we offer. Less people have located from Reading to Cumbria but we have a voluntary redundancy scheme for people who don’t want to relocate. As a management team we now spend every Wednesday together, either in Reading or Cumbria. So one week we commute and the next we get to stay at home but we still go out socially as a group. We also encourage our direct reports to spend at least a day every fortnight at the other site. We have a company coach that goes twice a day door to door and has reduced the travel costs and inconvenience. The IT systems we had at Cranberry were internet based and have now been rolled out across the two companies. This has improved the customer information and GreenHealth products are also using the mystery shopping and customer observations that Cranberry developed. That is starting to pay dividends in re-developing some of the GreenHealth products. The Divisional structure seems to have provided a bit of healthy competitive rivalry between the divisions. We have a monthly conference call with all staff and we talk about sales by UK, Europe, US and New Markets. It does not matter whether you are part of the vitamins and minerals product lines or the beauty products; if you work in the Europe division then it’s all about sales in Europe. Many of the products are now sold in the same stores so people are more excited about whether Aldi sales are higher than Carrefour than whether it’s a vitamin supplement or a moisturiser that has been sold. We’re also finding that a lot of our customers are the same, so people who buy our supplements are often also buying our skincare. We recently trialled a promotion in the UK where we gave a discount voucher with a vitamin E supplement for a vitamin E moisturiser and sales of moisturiser went up by 5%. That would not have been a possibility before the merger. So, what has been achieved? Bruno: The most important achievement to date has been achieving our cost reduction target and getting the new organisation structure in place. We have less people so we have been able to release two floors of a building in Cumbria with significant cost savings. We also have many of the systems and processes in place that enable us to operate as one company. On the revenue and growth side it is still early days. However, we have already started to expand Cranberry products into the US and GreenHealth into Europe through many of our existing retail partners. Culturally, we have a strong sense of divisional identity along geographic lines which means there is now a new ‘them and us’. It is no longer GreenHealth vs Cranberry but US vs UK vs Europe and RoW. It’s been painful because people have lost their jobs, chosen to leave and in some cases moved their families to other parts of the country. And we all have a lot of commuting up and down the country. But I think, if we hadn’t enforced so much radical change, people would have just carried on doing what they had always done and tried to keep things the same. So much has changed, through the restructuring and relocation, that people did not have the option of just carrying on as they had always done. What’s your outlook and concerns for the future? What’s next? Carol: I think the culture change is coming along nicely. We were very different companies on the surface but actually we’re both operating in the same country and perhaps we weren’t as different as we thought. When the senior team were away in Birmingham there were people in both companies who stepped up and took the lead. I think the team in Reading were just waiting for the opportunity to have someone listen to their ideas and encourage them to take some initiative. We got rid of the granite name board in the atrium at Reading and we’ve updated the cafeteria and made the building more open plan but with a mix of quiet spaces and social spaces so people can work together or on their own. We want to encourage synergy and cross fertilisation of ideas so the physical spaces are designed to facilitate that and the IT systems. We have also encouraged the GreenHealth employees to spend more time with their customers and they have very much embraced that. In the cafeteria I will hear them recount stories that customers have told them or anecdotes from sales staff they have met. Both buildings are open 24x7 and both seem to be busy from early in the morning until late in the evening. I know employees are tired and the change has been very hard but we need to maintain momentum now and make sure the Division Heads in particular stay focussed on growth. They have a really important leadership and motivational role in the company and have to make sure that they represent GreenHealth-Cranberry and not be seen to be more focussed on one than the other. The Division Heads look to Bruno and I, so it helps that we have developed such a strong working relationship. I came from Cumbria and now spend most of my time in Reading, and Bruno has relocated from Reading to Cumbria, so you have to lead by example. New product development is still something of a concern. It’s happening geographically but those are small scale tweaks and repackaging initiatives. The development of the new men’s skincare range did not fall logically into any one division. Placing it in one geographic division could tip the emphasis within the division too far towards beauty products and upset a delicate balance. We may need to extend the New Markets Division to include new Products or develop a small separate division. The geographic division heads are really too busy selling existing products to focus much time on developing new products. It’s always difficult to get the balance right between exploiting existing products and exploring new opportunities but we’re working on it. Global Sales Cranberry Beauty Products Revenue (% total) 2007 2008 2009 2010 2011 UK 56 50 38 28 20 France 20 23 26 29 30 Germany 22 25 29 32 33 RoW 2 2 6 10 15 Online 0 0 1 1 2 Total 100 100 100 100 100 GreenHealth Vitamin, Mineral and Herbal Supplements Revenue (% total) 2007 2008 2009 2010 2011 UK 85 74 72 69 63 US 0 10 12 16 22 RoW 15 16 16 15 15 Total 100 100 100 100 100