Group 8
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The document summarizes Adidas' acquisition of Reebok in 2006. It describes the context of the sportswear industry at the time and factors that motivated the acquisition. Integration challenges included differences in company cultures. Adidas addressed this through value-based leadership, communication strategies, and involvement of stakeholders at various levels. The new structure kept brands independent but integrated supply chains and retail. While revenues increased, Adidas was unable to surpass Nike due to Reebok's declining sales. The acquisition boosted short-term revenues but long-term integration remained a work in progress.
Group 8
- 1. Power of Organizational Mechanisms – through a study on Adidas/Reebok PMI March 20, 2013 Group 8 Sec D
- 2. Key Takeaways Importance of Formal Mechanisms in an organizationto implement strategic intent Also, we look at: Value based leadership and its positive impact Importance of stakeholders during decision making Impact of a decision on organization based on the impact of stakeholders
- 3. Agenda Adidas & Reebok Background Context for acquisition Problems in acquisition Steps taken – Learnings Post Merger Performance Analysis Conclusion
- 4. Adidas Founded in 1926 World leader in soccer shoes #2 behind Nike worldwide - #4 in the US Three acquisitions before Reebok: Company Sports Inc in 1993 Salomon in 1997 Arc'Teryxin 2002 Culture of control, engineering, and production
- 5. Reebok Founded in 1895 First athletic shoe for woman #2 in US - #4 in Europe Unique portfolio of long term league licenses Creative marketing-driven culture
- 6. Context for Acquisition Industry factors Organizational factors at Adidas Organizational factors at Reebok
- 7. Industry Factors • The market was slowing down in 2004 as a result of slight economic slump Source: http://www.global-production.com/footwear/trendstudy/index.htm
- 9. Other Industry Factors Retail rationalization is important Global supply chains i.e. manufacturing hubs at several locations would give better margins Endorsements with sports clubs, events etc are important to earn customer base
- 10. Adidas Specific factors Adidas- Salomon failure Access to U.S. markets with a local brand and retail chain Reebok Specific factors Struggling to remain in number 2 in U.S. market Too many competitors coming up with cost leadership strategy
- 11. Strategic aims from the synergy Face their biggest competitor – Nike Achieve economies of scale and scope by extending their global supply chains Access to markets Broader portfolio of products Worldwide recognition through licenses Enhanced R & D
- 12. Context in brief Economic slowdown Fierce competition at various segments Aspiration to be No.1 at adidas Nature of industry which demands Global footprint in retail Global supply chains Global recognition through endorsements of sporting clubs, events etc
- 13. Result In the above Context top management of both companies approved acquisition Announcement was made on 31st Aug Deal closed on January 2006 Price: $3.52 billion
- 14. Problems in Acquisition Differences in Culture Employees fears about the following: Layoffs Major Relocation Career Growth Customer Confusion about brand equity Structural Complexity
- 15. Decision Dilemma How to handle the integration process smoothly How to design a structure and processes that would create greater benefits than costs Future of both the brands keeping customers in mind
- 16. Steps taken - Learnings Creation of Clean team Communication Strategy with employees Integration Mechanism Strategies to drive uniform culture New Structure
- 17. Creation of Clean team Appointment of adidas managers at Reebok soon after the deal This team (Clean team) analysed top management at Reebok This analysis aided decision making of top management Clean team members were given strong targets by CEO to immediately leverage the potential of synergy Learning: the integrative structures should be created from the day one to avoid unfortunate fireworks during merger
- 18. Communication Strategy Hainer visited HQ and personally stated that it wouldn’t be shifted A new intranet site was created for employees to know about the acquisition process immediately Hainer also stated that there would be no layoffs and adidas is planning to invest more in reebok Videoconferences of CEOs of adidas and reebok are made available for download Learning: Hainer’s value based leadership created a sense of belonging for reebok employees and the acquisition was received positively
- 19. Mechanisms for Interactive Communication Every person involved in acquisition was asked to give his/her expertise Pulse check Surveys to understand feelings of employees about decisions taken The relevant sample was chosen at various hierarchies Each employee is given eight questions The survey was used to determine the overall pulse about the integration process BCG was appointed to hire candidates unbiasedly to potential positions
- 20. Mechanisms for Interactive Communication Dedicated HR answers to interested employees about the integration process Global PEP (Performance Evaluation and Planning) was implemented Results: All this created a strong positive mood and a sense of belonging among employees at every level in the organization about the adidas group.
- 21. Learning Hainer’s team did not stop at communication of ideas They created strong mechanisms of interactive communication If the employee morale failed, Reebok performance would have shattered and the underlying logic of acquisition would become meaningless
- 22. Integration Process Eight “integration teams” were formed with adidas and Reebok managers in a parity proportion Teams reflected regional and functional structure of each company Task is to develop blueprint about how to leverage the synergy Verification of these blueprints with subteams at regional levels A dedicated PMO to steer the implementation of approved blueprints
- 23. Result Managers at various levels felt that they are involved in the process of integration This mechanism gave a sense of ownership and created sustainable business processes The power of this mechanism is Integration process can be easily adopted as several subteams were involved Learnings: A well designed process of Integration that involves its various stakeholders made the implementation very easy
- 24. Adoption of Unified Culture Unified Mission: to be the leading sports brand in the world Communication about culture: “Diversity is key to success” Beyond communication, the following processes are adopted Strong communication mechanism through periodic pulse check surveys Managers at adidas were relocated to reebok (ex: clean team) to adopt the culture Learning: Creation of an unified mission and implementing strong mechanisms helped adidas easily adopt its culture in reebok without deliberation
- 25. Restructured Organization Key Decisions: With Customers in mind, brands were to remain independent Supply chains are united: To achieve economies of scale and scope Retail chains are united: To gain access to markets Keep R & D separated: To design products that appeal to the brand loyalists Sales & Marketing is separated: to competitively promote each brand Integrated Marketing Dept: To clearly position the individual brands without overlap
- 26. Learning: Corporate Umbrella makes sense only when the benefits from synergy are greater than costs Adidas would have easily lost to Nike if their R & D or Sales & Marketing are combined Customer being an important stakeholder, his perception has significant influence on the design of organization
- 27. Redesigned Organization CEO & Chairman Adidas AG Herbert Hainer Global President & CEO- President & CEO - Finance Operations Adidas Reebok Paul Robin Stalker Harrington Glenn Bennett Erich Stamminger R &D R&D Sales & Marketing Sales & Marketing
- 28. Post Merger Performance Financial Performance: Sales revenue increases by 52 percent i.e. from € 6.636 billion in 2005 to € 10.084 billion In 2006, representing the highest organic growth of the Adidas group within last eight years. It was the first time in the group’s history that it crossed the benchmark of € 10 billion
- 29. Post Merger Performance Establishing Global Footprint: In 2005 sales from Asia contributed 22.95 percent of the group total revenue which increased to 24.65 percent in 2008 Sale has increased significantly in Latin America which had contributed only 4.88 percent of total revenue in 2005, increased to 8.26 percent in 2008 Beat Nike’s rankings: adidas only remained a close competitor but couldn’t beat its rankings The major reason for this is reebok’s declined sales revenue Some views exist that reebok had cannibalization from adidas
- 30. Analysis Integration of adidas and reebok is not a overnight process It takes years for a structure to work and adidas group is consistently reinventing its organization structure to achieve the unmet goals 2007 – Reorganized from brand based to product category based structure 2009 – functional structure at board level by having separate units for brand and marketing There was no mass exodus from reebok. It shows the integration process was efficiently executed
- 31. Analysis The merger boosted the revenues to a record level within six months
- 32. Conclusion Beyond communication, implementation of strong mechanisms helped the top management to easily implement a complex process of integration of two global organizations These mechanisms also helped in inducing culture, values, goals and strategies of top management within an organization even in short time The importance of various stakeholders while implementing these mechanisms should be considered The affect on several stakeholders would impact the organization significantly
- 33. Q&A
- 34. Thank You