Case study : Merger & Acquisation of Everis and Hinode IT

In April 2018, Karl Schfer was elected the CEO of everis. Upon the creation of Hinode IT EMEAL, the new operational company for Europe, the Middle East, Africa, and Latin America, the role of the CEO of that entity was given to Karl. As of September 14, 2021, the EMEAL region began to operate asone global Hinode IT unit. The main goal of this unit is to simplify and strengthen the organization, reflect its shared values, and enhance collaboration. Most importantly, it allows joint provision to clients, communities, and people with end-to-end value propositions.

One of these clients is a Global Insurance Company, a leading multi-line insurer headquartered in Zrich, Switzerland. The company provides a wide range of property and casualty, life insurance products, and services in more than 200 countries. everis provides a variety of IT consulting services for the Global Insurance Company, including, for instance, outsourcing services and end-to-end implementation of a new digital Global Insurance Company organisation for motor insurance.

The Global Insurance Company account at everis is led by Sandro, the Global Account Manager & Head of Insurance Switzerland. His role as the partner at everis, and his global responsibility for the Global Insurance Company account resulted from his extensive experience as a past employee of the Global Insurance Group, where he worked as the CIO for the Global Insurance Company's operations in Latin America. Now, the Global Insurance Company is his main client.

The Global Insurance Company account at everis is led by Sandro, the Global Account Manager & Head of Insurance Switzerland. His role as the partner at everis, and his global responsibility for the Global Insurance Company account resulted from his extensive experience as a past employee of the Global Insurance Group, where he worked as the CIO for the Global Insurance Company's operations in Latin America. Now, the Global Insurance Company is his main client

Sandro, in leading the Global Insurance Company account, heads a large team of employees scattered across the world. The global operations of the account allow Sandro to manage 150-200 employees from different support areas, including digital experience, IT service, security, data analytics, to mention a few. The main team is located in Barcelona, Spain, and other teams in several other countries, including Columbia, Mexico, Argentina, and the UK. Depending on the type of the project, the services to be delivered, and the type of resources, the Global Insurance Company account team can expand even further. For instance, a virtual team operating from Hong Kong and providing a data center service to the Global Insurance Company also often reports to Sandro, despite not directly being a part of his team. Similarly, an Hinode IT team, a large outsourcing team from Italy, also reports to Sandro.

Character Background

Sandro was born in Switzerland, to a Swiss mother and an Italian father. Though his cultural background is very much connected to Switzerland, his extensive international experience made him feel more intercultural and open-minded. He lived in Chile for six years, and in Barcelona for two years, coming back to Switzerland just recently, in 2020. He highlights that he does not really feel like "a typical Swiss".

His education began in Switzerland, where he completed his bachelor's, earning the title of a Business IT Specialist. His MBA degree was focused on process engineering and re-engineering. With these qualifications, Sandro started his career in a pharmaceutical company as a project manager in risk assessment and risk mitigation. Soon thereafter, he undertook global projects dealing with laboratory information management systems. He then joined the Global Insurance Group as a project manager. Sandro progressed within the company and held the position of the CIO for Latin America at a Global Insurance Company for almost six years. In this role, he managed the entire IT organisation and all processes related to operation transformation.

In 2014, everis offered him a position as a partner for the Global Insurance Company account. Sandro remembers that the change from the role of a client to the role of the service provider was somewhat unusual for him. However, the CEO of everis at the time gave him, as Sandro calls it, "a good sales speech" that convinced him to join. Sandro reflects on his experience at everis since that day and notes that he never felt like he made a mistake joining the company. He deems it an incredible company to be a part of. His new mission, after the integration of everis into the Hinode IT Group, is the creation of a single Swiss insurance practice.

The Effect of the Pandemics

Sandro is used to working from his home-office. Ever since he started at everis in Switzerland, there has been no office structure, which anyway required adapting to a virtual setting. Moreover, his work at everis involved many international travels, so, even upon joining the office in Barcelona, for two years he worked in a home-office environment. In his experience, the pandemic-powered switch to virtual collaboration did not pose a dramatic change.

The travel restrictions, however, significantly shifted the way in which he operated. Trips every week or every second week were no longer possible. Although it did result in positive outcomes in terms of having more time for his personal life, the on-site interaction with his clients and colleagues was a component he found to be missing significantly. Even meeting his team in Barcelona, apart from in a virtual context via MS Teams, has been on hold since February 2020.

Another issue Sandro found rather difficult to adapt to is time. His days are fully booked with 8-10 hour "Teams days". He recalls that when he used to travel, he still had extra time he could spend on reading and socialising. The feeling of being tired is now much stronger.

From a business point of view, the months from February 2020 leading up to June 2020 were incredibly nerve-racking for Sandro. His clients were postponing meetings, hoping that they could meet once the lockdown was over and could discuss the particularities over a lunch or a dinner, as was normally the case. Finally, June 2020 revealed that such meetings would no longer be possible, and postponing came to an end. The shift to virtual meetings took place with clients, as well. However, he recalls that the gap until the meetings started happening again had a significant impact on the business. Now, however, the virtual setting has become the status-quo, diminishing the negative impact it initially had.

Now that there are discussions about a post-pandemic return to the office and new ways of working,

Sandro sees that people are not willing to return to the same modus operandi as before the

pandemic. He believes that there will indeed, at least initially, be less traveling, which still depends on the individual. A month ago, the Barcelona office began discussing the potential two-day-per-week obligatory office presence starting from September 2021. The other on-site workdays would then be determined by the employees themselves, or by the requirements of the client. The latter is especially significant for those under strict client-regulated operations. For those with more flexibility, having two days on-site office presence is, Sandro believes, a good work practice for the insurance sector. Maintaining a sense of team spirit is one the main factors of interest when determining the two fixed days in the office, for instance, Monday and Tuesday. Sandro also sees this as an important practice in terms of aligning the department.

The M&A

During Sandro's career, he witnessed and has been a part of many M&As and post-merger activities with the Global Insurance Company. Having had experiences managing changes arising from these activities, he learned the importance of appropriate change management. As a partner, Sandro gets direct information during official meetings with Karl, where he informs all the partners about the integration process. He considers the frequency of such meetings to be insufficient. They happen every two months when information about rebranding and integration is shared. In Sandro's opinion, well-managed change management is the key to the effective integration of the companies into one common entity. Seeing how the information has been transmitted within the organisation, Sandro feels that not enough is being done to acquaint employees and the people concerned with the changes related to integration. He believes that taking 2 months to get updates about the integration process, even directly from the CEO of everis himself, is not enough to understand the extent of the transformation, at least not in the way he is used to, based on his experiences with other M&A's.

Firstly, integration cannot take too long. In the case of everis merging with Hinode IT, he considers there to have already been two past attempts at integration. The current integration has been ongoing for a year and is taking longer than expected. Sandro recalls that upon joining everis in 2014 as a partner, he was informed that the organisation was acquired by Hinode IT. He was aware that joining everis meant that there was another organisation that owned it. However, feeling and experiencing the integration process first-hand came a lot later during his career at the company when he started selling Hinode IT services to the Global Insurance Company. However, he did not have much interaction with Hinode IT management.

Besides the few Insurance Committee meetings happening every 2 months, there was also a yearly meeting occurring physically where the insurance sector of the company gathered. Sandro dates the actual start of the integration process to 2018 when everis was still under the wing of the former CEO, Nicols Hernandez. He suggests that integration at that time was met with strong resistance. With everis being quite different from the rest of the Hinode IT Group in terms of culture and performance, everis employees were afraid of losing this in the new organisational structure. Sandro explains that everis was the fastest growing and the most profitable company within the Group, with a well-organized career model for its employees. The company also had a strong presence in the markets within which it operated. "So, then we know that we are strong.", explains Sandro, "And now, obviously, being integrated, we are afraid we are losing that. And that's, I believe, why it failed maybe in the past."

With Karl in the position of the CEO now, Sandro is confident that he will try to integrate everis

without losing its culture, career model, and other important components. He believes that the integrated model approach is the right approach in this context. Looking back on the initial years of the integration Sandro thinks that the Japanese did not actually want to integrate them. Taking into consideration the success of everis, they decided to acquire them without integration. However, after a couple of years have passed, Sandro thinks they realised, and this is something he has observed in his own operations with the Global Insurance Company, that clients saw everis and Hinode IT as fully separate companies. This was impacting on the overall perception of the Group as providing a truly global service. He sees this as the biggest trigger for the current integration - the different brands were confusing the clients.

Change Management

"If you do change management, you need to get people involved in a way that they are involved or feel that they can contribute," says Sandro. With everis having more than 30,000 employees at this point in time, alongside all the Hinode IT employees, he acknowledges that it may be difficult, but not rocket science. Change management is making people aware of the changes that are occurring and making them feel part of it. The latter is relevant even in the case that the actual contribution that employees make is not used in the end. Sandro believes that it is all about involvement, information sharing, and contribution, which he highlights that he has not encountered in any way during this integration process.

Therefore, making the employees feel that they are a part of the change is important. It is an investment. In all of his past projects with other M&As, Sandro had a specific budget just for change management. Even though the pandemic is ongoing, which restricts on-site meetings, information-sharing about rebranding and integration should still be greatly present. Sandro proposes the organisation of town halls, newsletters, and training sessions with employees. There should be value-adding integration-related communication forms at least on a biweekly or a monthly basis.

Through communication with his team, Sandro notes that, besides a monthly newsletter about the brand change, they are not getting any information. He also notes that he did not see any official communication being passed to all the employees at everis. And, through conversations with his Hinode IT colleagues, Sandro learned that they are receiving even less information than everis employees.

Sandro takes the freedom of sharing all information he gets to his team in their biweekly meetings and in his monthly meetings with the whole insurance organisation, as it does not explicitly state that the information he is getting about the rebranding and integration is confidential. He concludes that change management is not difficult but it has to be done. It has to be prioritised and should be accompanied by an appropriate budget otherwise it cannot be executed adequately.

Organisational Value Changes

The part of the change that is missing, or at least not adequately communicated, is the potential shift in organisational values. For example, Sandro explains that they are hearing that Karl and his management team plan to preserve the bonus model that everis currently has. Hinode IT's bonus model is based on an individual's performance. Meaning, the performance of the individual as a salesperson is what is taken into account when calculating the bonus compensation. In everis, however, the bonus is calculated based on the company's debit. Sandro as a partner acquires his bonuses this way, for instance. Taking this approach to bonus compensation makes the partners work as a single team. It contributes to the everis culture within the team that drives the performance of the company. This results in everyone working towards a common goal. "We care because we care about the company," Sandro explains, "that's why our bonus is also dependent on company success."

Karl wanting to preserve this model is a rumor that Sandro and his team are overhearing. However, as Sandro is quick to emphasise: "and that's what I'm saying, change management is not based on rumors." Sandro believes that successful integration requires explicit communication of the changes. He reflects that only two months before the official rebranding in October 2021, everis is still at the beginning stages of the change curve, where the upcoming events are not visible, and the end goal of integration cannot be envisioned. He notes that, if everis employees did not trust their bosses, many people would already have left the company.

He himself acknowledges that he is exhibiting the typical behaviour of someone in the change curve - wanting to keep everything as it is, without any changes. "What I hate is complication. I hate politics. I hate when you have formal processes and you need to get everything approved up to, I don't know where.", explains Sandro, "and, if that changes, I will struggle. I can manage the rest." He worries also that the key everis value of 'responsible freedom' may be taken away, as well, but he thinks that will most probably remain as it is. Integration, once everis is Hinode IT EMEAL, should not bring many changes to the organisational culture, Sandro notes, as Hinode IT does not hold a strong presence in the regions everis is strong in. Hinode IT may push for performance, especially considering that everis is Hinode IT's most profitable organisation. Here, he sees potential pressure arising from the Japanese culture in regard to performance orientation but also a potential increase in formal procedures. He believes that this could result in new requests in terms of, for instance, meeting structures. But, through conversation with his Hinode IT colleagues from Germany, Romania, and Italy, he gathers that it will not have a big impact on their operations.

Although these changes are possible, Sandro believes that when Karl and Hinode IT see the organisational culture of everis, the bonus model, the career model, and altogether the approach to the business globally, Hinode IT EMEAL will just be a different name for everis. Karl keeps mentioning that he is in fact integrating five companies Hinode IT Romania, Hinode IT Italy, Hinode IT Germany, Hinode IT UK, and everis, all of which are different companies. Thus, he is looking forward to it, and the benefit that this could bring to the company once they are a part of the Hinode IT Group.

Profit & Loss (P&L) Statement and Tools

The challenges he sees as rather important to overcome now are those resulting from changes in, for instance, the new profit and loss statement that will be published in April 2022. From an accounting point of view though, everis' P&L in the new Hinode IT EMEAL, in terms of the way in which it is managed, reported, and administered, should be separate from Hinode IT's P&L, as there are, for instance, different Customer Relationship Management results, a different structure in marketing activities, project activities, and so on. "How is this going to be managed? Are we changing any tools?" wonders Sandro, "I know it sounds like a parking space problem but if my people ask me how they need to manage, for example, a marketing account from the first of April, because now they are starting to work on our budget process - I don't know. So, how do we budget?"

Sandro explains that they were told that everis will do its P&L fully separately. However, there are several collaborations on projects with Hinode IT Teams. The way in which that will be reported is not clear. The tools to be used have also not been clarified. He highlights that it is important to understand what processes will have to be adapted with the implementation of new tools. He stresses the fact that the employees will have to be well accustomed to these new tools in order to use them effectively and be comfortable with them. Perhaps there will be an organised project structure addressing the change of tools. Perhaps this will be revealed in six months. But if Sandro as a partner is not yet aware of it, "What can I tell my people then?"

everis as a Strategic Vendor with a Global Footprint

The main positive development Sandro sees is the beneficial perception of the client. Once the integration is completed, everis can gain recognition. At the moment, Sandro notices that the relationships with the clients are not growing as fast as they did before. This is especially relevant for the Global Insurance Company account, as they are currently focusing on strategic vendors with a global footprint that can execute multi-country deals and end-to-end services. Now, they only see everis, a Spanish company with some footprints in Latin America, Italy, and the UK. Sandro explains that they do not perceive them as an organisation with 30,000 employees, a large network, and the potential to provide global end-to-end services. Therefore, Sandro believes that integration into Hinode IT can have a highly positive impact on the recognition of everis as a highly competitive vendor.

Questions

1. From a manager's perspective, what are the pros and cons of the Merger & Acquisition for Everis & Hinode IT ( Multinationation IT consulting companies) as an organization? What are the possible underlying reasons for the slower integration process?

2. What is the role of culture when it comes to compensation systems? What are the pros and cons of different compensation systems: individual vs. team bonus? How could a model look like where both group and individual efforts are recognized?