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entitled 'Results-Oriented Cultures: Implementation Steps to Assist 
Mergers and Organizational Transformations' which was released on July 
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Report to Congressional Subcommittees: 

July 2003: 

Results-Oriented Cultures: 

Implementation Steps to Assist Mergers and Organizational 
Transformations: 

GAO-03-669: 

GAO Highlights: 

Highlights of GAO-03-669, a report to congressional requesters: 

Why GAO Did This Study: 

The Comptroller General convened a forum in September 2002 to identify 
useful practices and lessons learned from major private and public 
sector mergers, acquisitions, and organizational transformations. This 
was done to help federal agencies implement successful transformations 
of their cultures, as well as the new Department of Homeland Security 
merge its various originating components into a unified department. 
There was general agreement on a number of key practices found at the 
center of successful mergers, acquisitions, and transformations. In 
this report, we identify the specific implementation steps for the key 
practices raised at the forum with illustrative private and public 
sector examples. 

To identify these implementation steps and examples, we relied 
primarily on interviews with selected forum participants and other 
experts about their experiences implementing mergers, acquisitions, and 
transformations and also conducted a literature review. 

What GAO Found: 

At the center of any serious change management initiative are the 
people. Thus, the key to a successful merger and transformation is to 
recognize the “people” element and implement strategies to help 
individuals maximize their full potential in the new organization, 
while simultaneously managing the risk of reduced productivity and 
effectiveness that often occurs as a result of the changes. Building on 
the lessons learned from the experiences of large private and public 
sector organizations, these key practices and implementation steps can 
help agencies transform their cultures so that they can be more results 
oriented, customer focused, and collaborative in nature. 

Key Practices and Implementation Steps for Mergers and Organizational 
Transformations: 

Practice: Ensure top leadership drives the transformation; 
Implementation Step: 
* Define and articulate a succinct and compelling reason for change; 
* Balance continued delivery of services with merger and transformation 
activities. 

Practice: Establish a coherent mission and integrated strategic goals 
to guide the transformation; 
Implementation Step: 
* Adopt leading practices for results-oriented strategic planning and 
reporting. 

Practice: Focus on a key set of principles and priorities at the outset 
of the transformation; 
Implementation Step: 
* Embed core values in every aspect of the organization to reinforce 
the new culture. 

Practice: Set implementation goals and a timeline to build momentum and 
show progress from day one; 
Implementation Step: 
* Make public implementation goals and timeline; 
* Seek and monitor employee attitudes and take appropriate follow-up 
actions; 
* Identify cultural features of merging organizations to increase 
understanding of former work environments; 
* Attract and retain key talent; 
* Establish an organizationwide knowledge and skills inventory to 
exchange knowledge among merging organizations. 

Practice: Dedicate an implementation team to manage the transformation 
process; 
Implementation Step: 
* Establish networks to support implementation team; 
* Select high-performing team members. 

Practice: Use the performance management system to define 
responsibility and assure accountability for change; 
Implementation Step: 
* Adopt leading practices to implement effective performance management 
systems with adequate safeguards. 

Practice: Establish a communication strategy to create shared 
expectations and report related progress; 
Implementation Step: 
* Communicate early and often to build trust; 
* Ensure consistency of message; 
* Encourage two-way communication; 
* Provide information to meet specific needs of employees. 

Practice: Involve employees to obtain their ideas and gain their 
ownership for the transformation; 
Implementation Step: 
* Use employee teams; 
* Involve employees in planning and sharing performance information; 
* Incorporate employee feedback into new policies and procedures; 
* Delegate authority to appropriate organizational levels. 

Practice: Build a world-class organization; 
Implementation Step: 
* Adopt leading practices to build a world-class organization. 

Source: GAO. 

[End of table]

www.gao.gov/cgi-bin/getrpt?GAO-03-669. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact J. Christopher Mihm, 
(202) 512-6806 or mihmj@gao.gov. 

[End of section]

Letter: 

Appendixes: 

Appendix I: Mergers and Transformations: Key Practices and 
Implementation Steps for Federal Agencies: 

Appendix II: Objective, Scope, and Methodology: 

Appendix III: Acknowledgments: 

Tables: 

Table 1: Key Practices and Implementation Steps for Mergers and 
Organizational Transformations: 

Table 2: Key Practices for Effective Performance Management: 

Abbreviations: 

DHS: Department of Homeland Security: 

DOD: Department of Defense: 

FAA: Federal Aviation Administration: 

FBI: Federal Bureau of Investigation: 

GPRA: Government Performance and Results Act: 

IRS: Internal Revenue Service: 

NASA: National Aeronautics and Space Administration: 

TSA: Transportation Security Administration: 

VBA: Veterans Benefits Administration: 

Letter July 2, 2003: 

The Honorable George V. Voinovich: 
Chairman: 
Subcommittee on Oversight of Government Management, the Federal 
Workforce, and the District of Columbia: 
Committee on Governmental Affairs: 
United States Senate: 

The Honorable Jo Ann Davis 
Chairwoman 
Subcommittee on Civil Service and Agency Organization: 
Committee on Government Reform: 
House of Representatives: 

Implementing large-scale change management initiatives, such as mergers 
and organizational transformations, are not simple endeavors and 
require the concentrated efforts of both leadership and employees to 
realize intended synergies and to accomplish new organizational goals. 
At the center of any serious change management initiative are the 
people--people define the organization's culture, drive its 
performance, and embody its knowledge base. Experience shows that 
failure to adequately address--and often even consider--a wide variety 
of people and cultural issues is at the heart of unsuccessful mergers 
and transformations. Recognizing the "people" element in these 
initiatives and implementing strategies to help individuals maximize 
their full potential in the new organization, while simultaneously 
managing the risk of reduced productivity and effectiveness that often 
occurs as a result of the changes, is the key to a successful merger 
and transformation. Thus, mergers and transformations that incorporate 
strategic human capital management approaches will help to sustain 
agency efforts and improve the efficiency, effectiveness, and 
accountability of the federal government. 

GAO convened a forum on September 24, 2002, to identify and discuss 
useful practices and lessons learned from major private and public 
sector organizational mergers, acquisitions, and transformations. This 
was done to help federal agencies implement successful transformations 
of their cultures, as well as the new Department of Homeland Security 
(DHS) merge its various originating components into a unified 
department. 

The invited participants were a cross section of leaders who have had 
experience managing large-scale organizational mergers, acquisitions, 
and transformations, as well as academics and others who have studied 
these efforts. The forum neither sought nor achieved consensus on all 
of the issues identified through the discussion. Because no two merger, 
acquisition, or transformation efforts are exactly alike, the "best" 
approach for any given effort depends upon a variety of factors 
specific to each context. Nevertheless, there was general agreement on 
a number of key practices that have consistently been found at the 
center of successful mergers, acquisitions, and transformations. We 
reported the key practices participants identified that can serve as a 
basis for subsequent consideration as federal agencies seek to 
transform their cultures in response to governance challenges.[Footnote 
1] These key practices are to: 

1. Ensure top leadership drives the transformation. Leadership must set 
the direction, pace, and tone and provide a clear, consistent rationale 
that brings everyone together behind a single mission. 

2. Establish a coherent mission and integrated strategic goals to guide 
the transformation. Together, these define the culture and serve as a 
vehicle for employees to unite and rally around. 

3. Focus on a key set of principles and priorities at the outset of the 
transformation. A clear set of principles and priorities serves as a 
framework to help the organization create a new culture and drive 
employee behaviors. 

4. Set implementation goals and a timeline to build momentum and show 
progress from day one. Goals and a timeline are essential because the 
transformation could take years to complete. 

5. Dedicate an implementation team to manage the transformation 
process. A strong and stable team is important to ensure that the 
transformation receives the needed attention to be sustained and 
successful. 

6. Use the performance management system to define responsibility and 
assure accountability for change. A "line of sight" shows how team, 
unit, and individual performance can contribute to overall 
organizational results. 

7. Establish a communication strategy to create shared expectations and 
report related progress. The strategy must reach out to employees, 
customers, and stakeholders and engage them in a two-way exchange. 

8. Involve employees to obtain their ideas and gain their ownership for 
the transformation. Employee involvement strengthens the process and 
allows them to share their experiences and shape policies. 

9. Build a world-class organization. Building on a vision of improved 
performance, the organization adopts the most efficient, effective, and 
economical personnel, system, and process changes and continually seeks 
to implement best practices. 

At your request, this report identifies the specific implementation 
steps for these key practices raised at the forum with illustrative 
private and public sector examples that agencies can take as they 
transform their cultures to be more results oriented, customer focused, 
and collaborative in nature. These implementation steps and examples 
are described in appendix I. To identify these steps and examples, we 
interviewed selected forum participants about their experiences 
managing mergers, acquisitions, and transformations and reviewed 
literature on the subject drawn primarily from private sector mergers 
and acquisitions change management experiences to gain a better 
understanding of the issues that most frequently occur during such 
large-scale change initiatives. We also used our guidance and reports 
on strategic human capital management and results-oriented management. 
Our scope and methodology is described in more detail in appendix II. 

We have observed in our recent Performance and Accountability Series 
that there is no more important management reform than for agencies to 
transform their cultures to respond to the transition that is taking 
place in the role of government in the 21ST century.[Footnote 2] We 
highlighted the following agencies as among those that have 
transformations under way: 

* Establishing the new DHS is an enormous undertaking that will take 
time to achieve in an effective and efficient manner. DHS must 
effectively combine 22 agencies with an estimated 170,000 employees 
specializing in various disciplines, including law enforcement, border 
security, biological research, computer security, and disaster 
mitigation, and also oversee a number of non-homeland security 
activities. The new department will need to build a successful 
transformation that instills the organization with important management 
principles; rapidly implements a phased-in transition plan; leverages 
the new department and other agencies in executing the national 
homeland security strategy; and builds collaborative partnerships with 
federal, state, local, and private sector organizations. 

* The Department of Defense (DOD) transformation involves a strategic 
imperative needed to meet the security challenges of the new century. 
DOD has emphasized force transformations as necessary to effectively 
anticipate, counter, and eliminate the emergence of unconventional 
threats overseas and at home. DOD's transformation will require 
cultural change and business process reengineering that will take years 
to accomplish. In addition, DOD is seeking congressional approval to 
undertake significant changes in its civilian personnel 
policies.[Footnote 3]

* The National Aeronautics and Space Administration (NASA) has also 
begun a major transformation effort. Although NASA is in the very early 
stages of its transformation, the challenge ahead for NASA will be to 
maintain the momentum to transform, to effectively use existing and new 
authorities to strategically manage its people, and to quickly 
implement the tools needed to strengthen management and oversight. 

* The Federal Bureau of Investigation (FBI) has begun its 
transformation by organizing its operations to strengthen its 
management structure and enhance accountability. FBI's ongoing 
reorganization includes shifting some resources from long-standing 
areas of focus, such as drugs, to counterterrorism and intelligence; 
building analytical capability; and recruiting to address selected 
skill gaps. 

* The Federal Aviation Administration (FAA) faces the need for 
transformation to implement new ways of ensuring transportation 
security and improving safety, mobility, and economic growth. For 
example, FAA faces an impending wave of air traffic controller 
retirements. While FAA has made progress in addressing its problems, 
more remains to be done. 

* The U.S. Postal Service's long-term outlook continues to be high-risk 
and the Service faces challenges in managing its finances, human 
capital, and infrastructure. The Service has developed a transformation 
plan, which it can use to make progress on specific actions under its 
existing authority. 

* The Internal Revenue Service (IRS) has a multifaceted effort under 
way to transform its operations. IRS has made important progress, but 
its transformation continues to be a work in progress, and IRS is now 
halfway through the 10 years it estimated would be needed to complete 
its modernization. 

Although transformation efforts are under way, more remains to be done. 
Building on lessons learned by large private and public sector 
organizations, the key practices and implementation steps to assist 
mergers and organizational transformations discussed in this report can 
be modified to fit the circumstances and conditions that are relevant 
to each agency. We at GAO are using these key practices and 
implementation steps to guide our own organizational transformation. 
Collectively, these key practices and implementation steps can help 
agencies transform their cultures so that the federal government has 
the capacity to deliver its promises, meet current and emerging needs, 
maximize its performance, and ensure accountability. 

As agreed with your office, unless you announce its contents earlier, 
we plan no further distribution of this report until 30 days after its 
issuance date. At that time, we will provide copies of the report to 
the Director of the Office of Personnel Management and the Director of 
the Office of Management and Budget. Copies will be made available to 
others upon request. This report will also be available at no charge on 
GAO's Web site at http://www.gao.gov. 

For additional information on our work on federal agency transformation 
efforts and strategic human capital management, please contact me or J. 
Christopher Mihm, Director, Strategic Issues, at mihmj@gao.gov. Carole 
Cimitile, Fig Gungor, and Lisa Shames were key contributors to this 
report. 

Signed by: 

David M. Walker 

Comptroller General of the United States: 

[End of section]

Appendixes: 

Appendix I: Mergers and Transformations: Key Practices and 
Implementation Steps for Federal Agencies: 

The Comptroller General of the United States convened a forum on 
September 24, 2002, to identify and discuss useful practices and 
lessons learned from major private and public sector organizational 
mergers, acquisitions, and transformations. This was done to help 
federal agencies implement successful transformations of their 
cultures, as well as the new Department of Homeland Security (DHS) 
merge its various originating components into a unified department. We 
subsequently reported the key practices participants identified that 
have consistently been found at the center of successful mergers, 
acquisitions, and transformations and can serve as a basis for 
subsequent consideration as federal agencies seek to transform their 
cultures in response to governance challenges.[Footnote 4] At the 
request of the Chairman, Subcommittee on Oversight of Government 
Management, the Federal Workforce, and the District of Columbia, Senate 
Committee on Governmental Affairs; and the Chairwoman, Subcommittee on 
Civil Service and Agency Organization, House Committee on Government 
Reform, this report identifies the specific implementation steps with 
illustrative private and public sector examples for these key practices 
raised at the forum. These key practices and implementation steps can 
be modified to fit the circumstances and conditions that are relevant 
to each agency as it transforms its culture to be more results 
oriented, customer focused, and collaborative in nature. These key 
practices and implementation steps are shown in table 1. 

Table 1: Key Practices and Implementation Steps for Mergers and 
Organizational Transformations: 

Practice: Ensure top leadership drives the transformation; 
Implementation Step: 
* Define and articulate a succinct and compelling reason for change; 
* Balance continued delivery of services with merger and transformation 
activities. 

Practice: Establish a coherent mission and integrated strategic goals 
to guide the transformation; 
Implementation Step: 
* Adopt leading practices for results-oriented strategic planning and 
reporting. 

Practice: Focus on a key set of principles and priorities at the outset 
of the transformation; 
Implementation Step: 
* Embed core values in every aspect of the organization to reinforce 
the new culture. 

Practice: Set implementation goals and a timeline to build momentum and 
show progress from day one; 
Implementation Step: 
* Make public implementation goals and timeline; 
* Seek and monitor employee attitudes and take appropriate follow-up 
actions; 
* Identify cultural features of merging organizations to increase 
understanding of former work environments; 
* Attract and retain key talent; 
* Establish an organizationwide knowledge and skills inventory to 
exchange knowledge among merging organizations. 

Practice: Dedicate an implementation team to manage the transformation 
process; 
Implementation Step: 
* Establish networks to support implementation team; 
* Select high-performing team members. 

Practice: Use the performance management system to define 
responsibility and assure accountability for change; 
Implementation Step: 
* Adopt leading practices to implement effective performance management 
systems with adequate safeguards. 

Practice: Establish a communication strategy to create shared 
expectations and report related progress; 
Implementation Step: 
* Communicate early and often to build trust; 
* Ensure consistency of message; 
* Encourage two-way communication; 
* Provide information to meet specific needs of employees. 

Practice: Involve employees to obtain their ideas and gain their 
ownership for the transformation; 
Implementation Step: 
* Use employee teams; 
* Involve employees in planning and sharing performance information; 
* Incorporate employee feedback into new policies and procedures; 
* Delegate authority to appropriate organizational levels. 

Practice: Build a world-class organization; 
Implementation Step: 
* Adopt leading practices to build a world-class organization. 

Source: GAO. 

[End of table]

Ensure Top Leadership Drives the Transformation: 

Because a merger or transformation entails fundamental and often 
radical change, strong and inspirational leadership is indispensable. 
Top leadership (in the federal context, the department Secretary, 
Deputy Secretary, and other high-level political appointees) that is 
clearly and personally involved in the merger or transformation 
represents stability and provides an identifiable source for employees 
to rally around during tumultuous times. Leadership must set the 
direction, pace, and tone for the transformation. We have reported that 
the appointment of agency chief operating officers is one mechanism 
that could help to elevate attention on management issues and 
transformational change, integrate these various initiatives, and 
institutionalize accountability for addressing them.[Footnote 5] 
Experience shows that successful major change management initiatives in 
large private and public sector organizations can often take at least 5 
to 7 years. This length of time and the frequent turnover of political 
leadership in the federal government have often made it difficult to 
obtain the sustained and inspired attention to make needed changes. 

At the outset of the merger or transformation, it is important that 
leaders move quickly to both "make a statement" about the importance of 
change and demonstrate conviction to making it, as well as deliver 
early successes. In addition, the experience of major private sector 
mergers and acquisitions is that productivity and effectiveness 
actually decline in the period immediately following a merger and 
acquisition. Thus, top leaders must also balance the continued delivery 
of services with merger and transformation activities. The following 
steps provide additional detail on how this practice can be achieved. 

Define and articulate a succinct and compelling reason for change. Top 
leadership must provide a clear, consistent rationale that brings 
together the originating components behind a single mission to guide 
the transformation and bridge the differences in leadership and 
management styles among the originating components. Also, articulating 
this succinct and compelling reason for change helps employees, 
customers, and stakeholders understand the expected outcomes of the 
merger or transformation and engenders not only their cooperation, but 
also their ownership of these outcomes. 

For example, in 1995, in anticipation of the intense and complex 
process of restructuring of local governments and the merging of 
several health authorities of the National Health Service, the United 
Kingdom Audit Commission identified lessons from the private and public 
sectors' experiences with mergers to help leaders and employees who 
were to be directly involved in the health authorities' 
mergers.[Footnote 6] The Audit Commission found that a critical first 
step was to define the benefits of the merger and describe how the 
future will be both different from and better than the past. The Audit 
Commission emphasized that a clear and compelling picture of what the 
organization intends to achieve helps build morale and commitment to 
the new vision. The Audit Commission underscored the need to "be clear 
about what will constitute success after reorganization…[because] 
realizing improvements in efficiency, productivity, and performance 
will be a much more uplifting goal than simply surviving" the mergers. 
The compelling reasons for change can help leadership reinforce the 
message of "success rather than survival" to those immediately affected 
by the merger or transformation. 

Balance continued delivery of services with merger and transformation 
activities. Leadership's primary roles during a merger or 
transformation are to help the organization remain focused on the 
continued delivery of services, while simultaneously conducting the 
activities of the merger or transformation. Leaders need to acknowledge 
that productivity often decreases as attention is concentrated on 
critical and immediate integration issues and diverted from longer-term 
mission issues. This happens for a number of reasons. Employees may be 
concerned about their place in the new organization or may be unsure 
about how they are to conduct their day-to-day responsibilities because 
of confusion over the policies and procedures they are to follow during 
the time of transition. 

For example, to help ensure continued delivery of services, Northrop 
Grumman leadership addresses employees' concerns or confusion during 
the early days of a merger or transformation by issuing short-term 
operating policies or "STOPs" that usually hold from 30 to 120 days. 
STOPs supersede the legacy organization's (in the federal context, the 
originating component's) operating policies and thus stabilize 
operations and provide clear guidance to employees about how to conduct 
business during a potentially turbulent period. STOPs stipulate the way 
that the new organization will handle everyday transactions such as 
contracts, finances, security, facility management, or ethics. 
Additionally, employees may also have concerns about whether the 
previous company's commitments will be honored. For example, employees 
may be concerned about whether their current health benefits will 
remain in place while the merger or transformation unfolds. STOPs can 
let employees know that for at least a certain period of time, their 
benefits and other related commitments will be administered under 
particular guidelines until final decisions can be made. Northrop 
Grumman also offers orientation programs to both new and legacy 
employees to help them learn the new business processes. One such 
program, called "Navigating Through the Sector," addresses the "how do 
you do it?" questions of the new organization. As an added benefit, 
employees are provided with an opportunity to meet the new leaders and 
managers with whom they will be working. 

Establish a Coherent Mission and Integrated Strategic Goals to Guide 
the Transformation: 

The mission and strategic goals of a transformed organization must 
become the focus of the transformation, define the culture, and serve 
as the vehicle for employees to unite and rally around. The mission and 
strategic goals must be clear to employees, customers, and stakeholders 
because they may not see a direct personal connection to the 
transformation. In successful transformation efforts, developing, 
communicating, and constantly reinforcing the mission and strategic 
goals give employees a sense of what the organization intends to 
accomplish, as well as help employees figure out how their positions 
fit in with the new organization and what they need to do differently 
to help the new organization achieve success. The following step 
provides additional detail on how this practice can be achieved. 

Adopt leading practices for results-oriented strategic planning and 
reporting. The Government Performance and Results Act (GPRA) provides a 
strategic planning and reporting framework intended to improve federal 
agencies' performance and hold them accountable for achieving results. 
Effective implementation of GPRA's results-oriented framework requires 
agencies to clearly establish performance goals for which they will be 
held accountable, measure progress towards those goals, determine 
strategies and resources to effectively accomplish the goals, use 
performance information to make the programmatic decisions necessary to 
improve performance, and formally communicate results in performance 
reports. We have developed a body of work to assist agencies in 
implementing a strategic planning and reporting framework that agencies 
involved in a merger or transformation can adopt to help make them 
results oriented.[Footnote 7]

For example, in November 2001, the Congress created the Transportation 
Security Administration (TSA) as a new organization first housed in the 
Department of Transportation and then merged into the new DHS. TSA is 
responsible for security in aviation and other modes of transportation. 
The Congress required TSA to adopt a results-oriented strategic 
planning and reporting framework and, specifically, to provide an 
action plan with goals and milestones to outline how acceptable levels 
of performance for aviation security will be achieved. We reported that 
TSA has taken the first steps in performance planning and reporting by 
defining its mission, vision, and values and that this practice would 
continue to be especially important when TSA moved into DHS.[Footnote 
8] TSA's overall strategic goal was to prevent intentional harm or 
disruption to the transportation system by terrorists or other persons 
intending to cause harm, and TSA had defined three performance goals to 
support this strategic goal. TSA had established an initial set of 32 
performance measures that will allow it to demonstrate progress toward 
meeting performance goals. We recommended that TSA, among other things, 
establish security performance goals and measures for all modes of 
transportation as part of a strategic planning process that involves 
stakeholders. TSA concurred with this recommendation. 

Focus on a Key Set of Principles and Priorities at the Outset of the 
Transformation: 

In bringing together the originating components, the new organization 
must have a clear set of principles and priorities that serves as a 
framework to help the organization create a new culture and drive 
employee behaviors. Focusing on these principles and priorities helps 
the organization to maintain its drive towards achieving the goals of 
the transformation. In particular, principles are the core values of 
the new organization, and like the mission and strategic goals, can 
serve as an anchor that remains valid and enduring while organizations, 
personnel, programs, and processes may change. The following step 
provides additional detail on how this practice can be achieved. 

Embed core values in every aspect of the organization to reinforce the 
new culture. Core values define the attributes that are intrinsically 
important to what the new organization does and how it will do it. They 
represent the institutional beliefs and boundaries that are essential 
to building a new culture for the organization. 

For example, on "Day One" of a merger or acquisition, Northrop Grumman 
leadership defined the values intrinsic to its new organization and 
issued "non-negotiables" such as "maintaining respect for employees in 
all legacy or incoming organizations." These "non-negotiables" can also 
include ethical boundaries, such as the continued adherence to 
financial reporting standards. Similarly, immediately following its 
recent merger with Compaq, Hewlett-Packard implemented the "FAST-START" 
program to embed key principles in its new organization. FAST-START 
focused on the new company's core values that emphasized "motivated 
employees generate good customer service" and was intended to convince 
employees that they could make the merger successful. Hewlett-Packard 
piloted the FAST-START program first with senior executives, cascaded 
it throughout the new company reaching 150,000 employees. According to 
a Hewlett-Packard vice-president, an additional benefit of FAST-START 
was the opportunity for employees from the originating components to 
meet each other face-to-face for the first time and gain a different 
perspective on the common goals and programs they would be operating. 

Set Implementation Goals and a Timeline to Build Momentum and Show 
Progress from Day One: 

A merger or transformation is a substantial commitment that could take 
years before it is completed, and therefore must be carefully and 
closely managed. As a result, it is essential to establish and track 
implementation goals and establish a timeline to pinpoint performance 
shortfalls and gaps and suggest midcourse corrections. By demonstrating 
progress towards these transformation goals, the organization builds 
momentum and demonstrates that real progress is being made. Successful 
mergers and transformation efforts can be much more difficult to 
achieve in the public sector than in the private sector for a number of 
reasons, including that public sector efforts must contend with greater 
transparency. Further, as mentioned previously, research suggests that 
failure to adequately address--and often even consider--a wide variety 
of people and cultural issues is at the heart of unsuccessful mergers 
and transformations. Thus, people and cultural issues must be monitored 
from day one of a merger and transformation. The following steps 
provide additional detail on how this practice can be achieved. 

Make public implementation goals and timeline. The demand for 
transparency and accountability is a fact that needs to be accepted in 
any public sector transformation. A full range of stakeholders and 
interested parties are concerned not only with what results are to be 
achieved, but also which processes are to be used to achieve those 
results. We reported in the GAO Mergers and Transformation Forum that 
in developing implementation goals and a timeline for a merger or 
transformation, it is helpful to think in terms of multiple "Day Ones" 
to determine--and focus attention squarely on--critical phases and the 
essential activities that need to be completed by and on any given 
date. By demonstrating progress towards these goals, the organization 
builds momentum and keeps employees excited about the opportunities 
change brings and thereby helps to ensure the merger or 
transformation's successful completion. 

For example, according to a JPMorgan Chase managing director, the chief 
executive officer (in the federal context, the department's Secretary) 
and the merger implementation team publicized and reported progress on 
specific goals for each phase of the merger to help rally employees and 
maintain their drive towards reaching full integration. The goals were 
connected to overall themes and to particular milestones. The chief 
executive officer reinforced these goals at leadership meetings and 
employee townhalls, and in Web-based messages and other communications, 
to help keep employees focused on achieving them. The managing director 
recommends that mapping out an overall timeline for what goals are 
realistic to accomplish within a set time frame can minimize employee 
"merger fatigue."

In addition, Deloitte & Touche suggests setting quantifiable and 
measurable goals as well as target dates and deliverables to give the 
implementation team and employees an objective means to track and 
report progress. Deloitte & Touche also recommends its clients 
strengthen accountability for implementation goals by having a manager 
or executive from different operating units within the organization 
have responsibility for monitoring the progress of interim 
organizational performance results for each other and reporting that 
progress to top leaders. 

Seek and monitor employee attitudes and take appropriate follow-up 
actions. Because people are the drivers of any merger or 
transformation, it is vital to monitor their attitudes. Especially at 
the outset of the merger or transformation, obtaining employees' 
attitudes through pulse surveys, focus groups, or confidential hotlines 
can serve as a quick check of how employees are feeling about the large-
scale changes that are occurring and the new organization as a whole. 
While monitoring employee attitudes provides good information, most 
importantly is for employees to see that top leadership not only 
listens to their concerns, but also takes action and makes appropriate 
adjustments to the merger or transformation in a visible way. By not 
taking appropriate follow-up action, negative attitudes may translate 
into actions, such as employee departures, among other things, that 
could have a detrimental effect on the merger or transformation. 

For example, Deloitte & Touche suggests asking employees to respond to 
a pulse survey with 6 to 10 statements, such as "My job is now easier 
or harder since the merger" and "I hope to be in this organization 2 
years from now." These responses are used as a diagnostic reading of 
how well the merger is going from the employee perspective. Management 
then has an opportunity to implement strategies to address the concerns 
of employees with low morale or who plan to leave the organization. 
According to a Deloitte & Touche principal, employees experience 
discernible phases during a merger and transformation. The first 3 
months after a merger or acquisition is announced are often marked by 
the excitement of joining the new organization. Employees are drawn 
into new activities, such as employee welcome or orientation programs 
explaining the opportunities employees may have in the new 
organization. Approximately 3 to 12 months following the announcement 
of the merger, the excitement ends. Deloitte & Touche calls this next 
phase the "Second Moment." This is when employees wait to see how the 
organization and their positions will change and whether the 
opportunities mentioned at the outset of the merger will be realized. 
According to the Deloitte & Touche principal, unless leadership 
continues to emphasize the importance of employees and their 
contributions to the new organization, some people will give up their 
aspirations and instead return to "business as usual" or even make 
plans to leave the organization. 

Identify cultural features of merging organizations to increase 
understanding of former work environments. Fundamentally, a change of 
culture is at the heart of a successful merger or transformation. The 
importance of redefining the organizational culture should not be 
avoided, but rather must be aggressively addressed at the outset and 
throughout the transformation process. An organization's culture 
encompasses the values and behaviors that characterize its work 
environment, and in particular, how people work with each other, how 
they are held accountable, how they are rewarded, as well as how 
communication flows through the organization.[Footnote 9] Many mergers 
or transformations fail because the cultures of the originating 
components are not fully understood or considered. Thus, identifying 
cultural features of the originating components, prior to, or early on, 
in the merger and transformation process, can help leadership gain a 
better understanding of their beliefs and values. Organizationwide 
surveys, employee focus groups, and individual interviews can assess 
the culture and identify both similarities and differences in order to 
provide a better understanding of how work gets done and what values 
are important to employees. 

For example, in a recent Northrop Grumman acquisition, a significant 
portion of the management team was formerly from the military. Through 
an assessment process, Northrop Grumman learned that team members were 
concerned that if they did not have a former military background, their 
skills would not be valued in the new organization. Once management was 
made aware of employees' concerns, they let them know that a military 
background was not necessary to succeed and future opportunities 
existed. Northrop Grumman relied upon graduate students from a local 
university to conduct the assessment. 

Attract and retain key talent. Success is more likely when the best 
individuals are selected for each position based on the competencies 
needed for the new organization. Private sector experience with mergers 
and acquisitions suggests that over 40 percent of executives in 
acquired companies leave within the first year and 75 percent within 
the first 3 years. While some turnover is to be expected and is 
appropriate, the new organization must "re-recruit" its key talent to 
limit the loss of needed individuals who leave because they do not see 
their place in the new organization. When re-recruiting key talent, top 
leaders should select individuals who demonstrate the competencies to 
help make the merger or transformation succeed and achieve its goals, 
and not just the top performers from previous originating components. 

For example, Northrop Grumman identifies the key individuals it would 
like to retain in the new organization within the first 30 days of the 
effective date of the merger or acquisition, meets one-on-one with each 
individual to let them know that they have the competencies desired for 
the new organization, and informs them of the high-potential 
opportunities that exist for them with the new organization. Once 
placed in the new organization, management checks in with them 
frequently and provides them with visible opportunities with the new 
leadership. 

Establish an organizationwide knowledge and skills inventory to 
exchange knowledge among merging organizations. At the outset of the 
merger and transformation, new organizations recognize the value in 
creating an employee knowledge and skills inventory. Valuable 
information resides in the originating organizational components of 
mergers and transformations, and when these components are combined, 
these intellectual assets are extremely powerful and beneficial to 
employees and stakeholders. Knowledge and skills inventories not only 
capture the intellectual assets of the new organization, but also 
signal to employees that their particular expertise is valued by the 
organization and foster a knowledge-sharing culture. 

According to Conference Board research, when people freely share and 
are rewarded for what they know, they are more likely to feel a 
stronger connection to the new organization. For example, a recently 
merged company recommended setting up a knowledge and skills inventory 
that would be immediately and widely available to those in the new 
organization who need to find employee expertise on particular 
topics.[Footnote 10] The value of the knowledge and skills inventory 
occurs when people from the merging entities are able to quickly 
contact those with particular knowledge and expertise to help them 
accomplish their work. The company also suggested making employees 
aware that sharing expertise and experience is important to the future 
success of the organization and is valued in the new organization. 

Dedicate an Implementation Team to Manage the Transformation Process: 

Dedicating a strong and stable implementation or integration team that 
will be responsible for the transformation's day-to-day management is 
important to ensuring that it receives the focused, full-time attention 
needed to be sustained and successful. Specifically, the implementation 
team is important to ensuring that various change initiatives are 
sequenced and implemented in a coherent and integrated way. Top 
leadership must vest the team with the necessary authority and 
resources to set priorities, make timely decisions, and move quickly to 
implement top leadership's decisions regarding the transformation. In 
our Mergers and Transformation Forum, participants observed that the 
size of the implementation team needs to be scaled to the size of the 
merger and transformation. The composition of the team is also 
important because of the visual sign it communicates regarding which 
components are dominant and subordinate or whether the new organization 
is a "merger of equals." In addition, the qualifications of 
implementation team members are also a visible sign that top leadership 
is serious and committed to the merger and transformation. The 
following steps provide additional detail on how this practice can be 
achieved. 

Establish networks to support implementation team. Because a 
transformation process is a massive undertaking, the implementation 
team must have a "cadre of champions" to ensure that changes are 
thoroughly implemented and sustained over time. Establishing networks, 
including a senior executive council, functional teams, or cross- 
cutting teams can help the implementation team conduct the day-to-day 
activities of the merger or transformation and help ensure that efforts 
are coordinated and integrated. To be most effective, establishing 
clearly defined roles and responsibilities within this network assigns 
accountability for parts of the implementation process, helps reach 
agreement on work priorities, and builds a code of conduct that will 
help all teams to work effectively. 

For example, a leading management consulting firm advises creating a 
senior executive council that provides the implementation team access 
to leadership and reinforces its accountability for successfully 
implementing the merger and transformation. This council can set 
policies for the merger or transformation implementation, ensure that 
decisions are made quickly, resolve conflicts that arise, review and 
approve implementation plans, and monitor and report progress back to 
top leaders of the organization. Members of the council might include 
senior executives representing the legacy organizations. In our Mergers 
and Transformation Forum, it was observed that in the federal context, 
such a council could be comprised of political and career executives 
from within the organization and would be particularly useful to work 
with top leadership (the department Secretary, Deputy Secretary, and 
other high-level political appointees) in developing the leadership's 
direction and communicating its position. 

Similarly, Hewlett-Packard establishes networks of both functional and 
cross-cutting teams to ensure that these priorities are adequately 
addressed and integrated in the implementation of a merger or 
transformation. Functional teams are responsible for areas such as 
human capital, financial management, and information technology. Cross- 
cutting teams are responsible for areas such as organizational culture, 
communication, and training and development. 

Select high-performing team members. A strong and stable implementation 
team comprised of top performers that is responsible for the 
transformation's day-to-day management is not only important to 
ensuring the focused, full-time attention that the implementation needs 
to be sustained and successful, but is also a visible signal that the 
merger or transformation is being undertaken with the utmost 
seriousness and commitment. Team members are selected for their ability 
to drive results in a fast-paced and changing environment and their 
understanding that the ultimate goal is to create a new and more 
successful organization. 

Both Hewlett-Packard and Northrop Grumman executives told us that 
merger and transformation implementation teams should be composed of 
people with prior merger or acquisition experience and good program 
management skills. In addition, a Hewlett-Packard vice-president told 
us that for their merger with Compaq, most team members selected for 
the integration team were at the level of director or vice-president 
and also had the skills and background to replace their superiors if 
necessary. Hewlett-Packard told us that a selection criterion for 
integration team members was that their previous individual performance 
ratings had to fall into the top two ratings categories. After the 
integration team disbanded, these selected integration team members 
were assigned permanent positions in the new organization. 

In addition to selecting high performers, Northrop Grumman also builds 
the credibility of the implementation team in the eyes of the employees 
by selecting team members from each of the originating components and 
then distributing an organization chart that indicates the component 
from which each team member originated. Employees can see that some of 
their former leadership still exists in the new company and can help 
represent their concerns in the transformation process. However, 
Northrop Grumman adds that team members are still selected based on 
their competence for the job and not just because they were leaders 
from the legacy organization. 

Use the Performance Management System to Define Responsibility and 
Assure Accountability for Change: 

The new organization's performance management system can be a vital 
tool for aligning the organization with desired results and creating a 
"line of sight" showing how team, unit, and individual performance can 
contribute to overall organizational results. The performance 
management system can help manage and direct the transformation 
process. The system serves as the basis for setting expectations for 
individuals' roles in the transformation process. 

To be successful, transformation efforts must have leaders, managers, 
and employees who have the individual competencies to integrate and 
create synergy among the multiple organizations involved in the 
transformation effort. Individual performance and contributions are 
evaluated on competencies such as change management, cultural 
sensitivity, teamwork and collaboration, and information sharing. 
Leaders, managers, and employees who demonstrate these competencies are 
rewarded for their success in contributing to the achievement of the 
transformation process. Leading organizations have modern, effective, 
credible, and, as appropriate, validated performance management systems 
with adequate safeguards, including reasonable transparency and 
appropriate accountability mechanisms, in place to support performance- 
based pay and related personnel decisions. The following step provides 
additional detail on how this practice can be achieved. 

Adopt leading practices to implement effective performance management 
systems with adequate safeguards. We have identified specific practices 
that leading public sector organizations both here in the United States 
and abroad have used in their performance management systems to align 
their organizations and create a clear linkage--"line of sight"-- 
between individual performance and organizational success.[Footnote 11] 
Federal agencies should consider these practices as they develop and 
implement their performance management systems. The key practices are 
listed in table 2. 

Table 2: Key Practices for Effective Performance Management: 

1. Align individual performance expectations with organizational goals. 
An explicit alignment of daily activities with broader results helps 
individuals see the connection between their daily activities and 
organizational goals; 
2. Connect performance expectations to cross- cutting goals. Placing 
greater emphasis on collaboration, interaction, and teamwork across 
organizational boundaries helps strengthen accountability for results; 
3. Provide and routinely use performance information to track 
organizational priorities. Individuals use performance information to 
manage during the year, identify performance gaps, and pinpoint 
improvement opportunities; 
4. Require follow-up actions to address organizational priorities. By 
requiring and tracking such follow-up actions on performance gaps, 
these organizations underscore the importance of holding individuals 
accountable for making progress on their priorities; 
5. Use competencies to provide a fuller assessment of performance. 
Competencies, which define the skills and supporting behaviors that 
individuals need to effectively contribute to organizational results; 
6. Link pay to individual and organizational performance. Pay, 
incentive, and reward systems that link employee knowledge, skills, and 
contributions to organizational results are based on valid, reliable, 
and transparent performance management systems with adequate 
safeguards; 
7. Make meaningful distinctions in performance. Effective performance 
management systems strive to provide candid and constructive feedback 
and the necessary information and documentation to reward top 
performers and deal with poor performers; 
8. Involve employees and stakeholders to gain ownership of performance 
management systems. Early and direct involvement helps employees' and 
stakeholders' understanding and ownership of the system and belief in 
its fairness; 
9. Maintain continuity during transitions. Because cultural 
transformations take time, performance management systems reinforce 
accountability for change management and other organizational goals. 

Source: GAO. 

[End of table]

Establish a Communication Strategy to Create Shared Expectations and 
Report Related Progress: 

Creating an effective, on-going communication strategy is essential to 
implementing a merger or transformation. Communication is most 
effective when done early, clearly, and often, and is downward, upward, 
and lateral. The new organization must develop a comprehensive 
communication strategy that reaches out to employees, customers, and 
stakeholders and seeks to genuinely engage them in the transformation 
process. The following steps provide additional detail on how this 
practice can be achieved. 

Communicate early and often to build trust. Organizations implementing 
mergers or transformations have found that communicating information 
early and often helps to build an understanding of the purpose of 
planned changes and builds trust among employees and stakeholders. 
Especially for employees, frequent and timely communication cultivates 
a strong relationship with management and helps gain employee ownership 
for the merger or transformation. 

For example, to build trust between management and employees, Deloitte 
& Touche suggests first notifying employees of issues pertaining to the 
merger and transformation. In particular, Deloitte & Touche recommends 
information be "prereleased" to line managers whenever possible 
throughout the process. Rather than obtaining information from sources 
outside the organization, this prereleased information offers the 
courtesy to employees of receiving information first and the 
opportunity to then ask questions or voice concerns to leadership. 
Deloitte & Touche also suggests that line managers report the feedback 
of employees to senior management so they can address any concerns. 

Even when information is limited due to legal restrictions or security 
concerns, Conference Board research advises that organizations continue 
to communicate with employees to build trust and to diminish any 
concern or uncertainty that may be generated during these periods. The 
Conference Board research suggests alternative types of information 
when specific details may be embargoed due to legal restrictions or 
security concerns. Such alternative types of information could include 
status reports of the progress being made on the merger or 
transformation, the exact time that specific details will be 
forthcoming, or responses to rumors or news items that have appeared in 
the press. 

Finally, the time spent on delivering messages to employees about the 
merger or transformation should not be underestimated. One participant 
at our Mergers and Transformation Forum observed that given its 
importance, successful communication will require twice the time and 
effort than was at first planned--no matter how ambitious the original 
plan was. Similarly, a JPMorgan Chase managing director told us that 
during their integration process, managers would dedicate 25 percent of 
their overall work time communicating with employees about the merger. 
This managing director credits JPMorgan Chase's communication strategy 
as a major success factor in its recent merger because it was built 
around getting messages out at all levels of the organization and 
reinforcing the progress of the merger. 

Ensure consistency of message. A message to employees and others 
affected by a merger or transformation that is consistent in tone and 
content can alleviate the uncertainties generated during the unsettled 
times of large-scale change management initiatives. Since employees are 
typically coming from different originating components during a merger 
or transformation, sharing a consistent message with employees, 
customers, and stakeholders helps to reduce the perception that others 
are getting the "real" story when, in fact, all are receiving the same 
information. 

For example, to ensure a message consistent in tone and content as part 
of its communication strategy, Hewlett-Packard sent senior executives 
with scripted talking points to various work sites for face-to-face, 
interactive meetings with groups of employees to discuss the expected 
changes that would occur due to the merger. Senior managers from both 
originating components, Hewlett-Packard and Compaq, would appear 
jointly at these employee meetings to ensure that employees had a 
chance to meet the new members of the team and also see that both sides 
were in agreement with expected changes. 

Encourage two-way communication. Communication is not about just 
"pushing the message out." Rather, it should facilitate a two-way 
honest exchange with and allow for feedback from employees, customers, 
and stakeholders. This communication is central to forming the 
effective internal and external partnerships that are vital to the 
success of any organization. Creating opportunities for employees to 
communicate concerns and experiences surrounding a merger or 
transformation allows employees to feel that their experiences are 
acknowledged and important to management during the implementation of 
the merger and transformation. Once this feedback is received, it is 
important to consider and use this solicited employee feedback to make 
any appropriate changes to the implementation of the merger or 
transformation. 

We reported that some agencies also make use of two-way communication 
when implementing human capital flexibility practices.[Footnote 12] For 
example, the U.S. Mint collected feedback from employees at a "town 
hall" meeting at its San Francisco coin-making plant where employees 
(with assistance from the local union) voted on various options for 
implementing an alternative work schedule for the facility. Based on 
that feedback, the U.S. Mint made changes to employee work schedules. 

Communication with customers and stakeholders should also be a top 
priority and is central to forming the partnerships that are needed to 
develop and implement the organization's strategies. According to a 
Deloitte & Touche principal, establishing a two-way communication 
framework with customers and stakeholders can alleviate their concerns 
about whether they will continue to receive the same levels of service. 
Under this "One Face, One Voice" communication framework, the 
organization: 

* catalogs every customer and stakeholder relationship to be affected 
by the merger or transformation,

* designates a contact or team to keep these customers and stakeholders 
informed about how the merger will affect their particular needs,

* identifies the interests and concerns of each customer or stakeholder,

* provides information addressing those specific interests or concerns, 
and: 

* requires the designated contact to listen to customer and stakeholder 
needs and report these needs to management. 

According to Deloitte & Touche, this communication framework gives 
customers and stakeholders a greater understanding of how the merger or 
transformation will affect them and provides leadership with an 
accurate picture of their customer and stakeholder needs, so they can 
quickly correct any misperceptions and address concerns. 

Provide information to meet specific needs of employees. Communicating 
with employees must include topics such as the new organization's 
strategic goals, customer service, and in particular, employee 
concerns. It is important to help employees understand how the 
transformation process will affect them and to address the immediate 
and natural question: "what's in it for me?" Employees will be 
concerned about whether their jobs might be affected, what their rights 
and protections might be, or how their responsibilities might change 
with the new organization. Not only do employees seek different kinds 
of information, they can receive information through a variety of 
means. 

For example, Deloitte & Touche advises clients to prepare personalized 
communication folders for various groups of employees, such as senior 
executives, regarding how the merger, acquisition, or transformation 
will specifically affect their salary, benefits, job duties, and career 
path. These folders are distributed to employees and then meetings are 
held with groups or individuals to answer the particular questions that 
employees may have. This customized process helps employees to feel 
that their concerns are specifically addressed. 

The Conference Board research also discusses the importance of 
tailoring information for groups of employees that may have divergent 
interests. For example, employees with technical skills may be 
concerned about whether their skills will remain relevant and valued in 
the new organization; administrative staff may desire details about how 
they may cope with new systems and work processes; and customer-service 
representatives may need to know about how to approach relationships 
with customers. 

Employees may prefer to receive customized information from a variety 
of sources. Varying the means of communication, such as e-mail, face- 
to-face meetings, large and small group meetings, intranet Web sites, 
and townhall meetings, can also be an effective strategy to reinforce 
the message and reach all employees, while providing an opportunity for 
management to respond to employee concerns. Toll-free hotlines and 
electronic bulletin boards can be used to provide large numbers of 
employees a forum to discuss their concerns and issues about the merger 
or transformation. 

For example, during a merger of two consumer products firms, a toll- 
free hotline was established so employees could relate the rumors they 
had heard. Every 2 weeks, a list of top 10 rumors with accompanying 
factual information was posted to help employees compare and contrast 
the rumors against the facts.[Footnote 13] This interactive approach 
allowed the company to simultaneously communicate with large numbers of 
employees and quickly dispel inaccurate information. 

Involve Employees to Obtain Their Ideas and Gain Their Ownership for 
the Transformation: 

A successful merger and transformation must involve employees and their 
representatives from the beginning to gain their ownership for the 
changes that are occurring in the organization. Employee involvement 
strengthens the transformation process by including frontline 
perspectives and experiences. Further, employee involvement helps to 
create the opportunity to establish new networks and break down 
existing organizational silos, increase employees' understanding and 
acceptance of organizational goals and objectives, and gain ownership 
for new policies and procedures. It was noted at our Mergers and 
Transformation Forum that while it is important to involve employees in 
the transformation process, there are cautions. There tends to be a 
relatively small group of employees in every organization who will 
resist any meaningful change and will not or cannot buy into the 
transformation no matter how compelling the case for change may be. 
This group of employees may try to "wait out" the transformation and 
think that it will pass without taking hold. Ultimately, these 
employees either must accept the changes under way or be helped to move 
elsewhere within the organization or out of it. The following steps 
provide additional detail on how this practice can be achieved. 

Use employee teams. Creating opportunities for employees to interact 
with each other can help accelerate the merger or transformation 
process by allowing them to learn more about each other, establish new 
networks, and break down organizational silos. Adopting a teams-based 
approach to operations can improve employee morale and job satisfaction 
by creating an environment characterized by open communication, 
enhanced flexibility in meeting job demands, and a sense of shared 
responsibility for accomplishing organization goals and objectives. 
Using teams comprised of a cross-section of individual members can also 
assist in integrating different perspectives, flattening organizational 
structure, and streamlining operations. 

For example, JPMorgan Chase engaged employees in shared task forces 
comprised of individuals from the originating components to find common 
solutions to particular issues related to the merger. One such shared 
task force focused on integrating computer systems. Team members 
weighed the pros and cons of legacy systems and were able to arrive at 
a "best-in-class" solution. The act of working together also helped 
employees to form new bonds around their shared experience and to make 
it easier to work together on future projects. 

Employees may need additional training to work effectively together in 
teams or to improve work processes. For example, we reported that as 
part of its major reorganization, IRS' Ogden, Utah Service Center 
trained its employees in the new ways of conducting business.[Footnote 
14] The training workshops included learning how effective teams 
function; improving working relationships among peers, managers and 
employees, and managers and union stewards; enhancing effective 
communications among employees, union stewards, and managers; 
increasing discussions about ways to improve work processes and meet 
customers' needs; and creating a more positive workplace environment. 

Involve employees in planning and sharing performance information. 
Involving employees in planning and sharing performance information can 
help employees understand what the organization is trying to accomplish 
and how it is progressing in that direction; facilitate the development 
of organizational goals and objectives that incorporate insights about 
operations from a front-line perspective; and increase employees' 
understanding and acceptance of organizational goals and objectives. 

For example, to involve employees and share performance information, 
the U.S. Fire Administration (formerly within the Federal Emergency 
Management Agency, and now part of DHS), had teams from units 
throughout the organization meet on a weekly basis and identified ways 
to implement over 170 Board of Visitors recommendations for improving 
the Fire Administration's operations. These teams facilitated 
communications and employee involvement by maintaining a focal point 
for the organization, working toward consensus, and posting performance 
data showing progress toward addressing these recommendations. 

Incorporate employee feedback into new policies and procedures. Major 
changes resulting from the merger can include redesigning work 
processes, changing work rules, developing new job descriptions, 
establishing new work hours, or making other changes to the immediate 
work environment that are of particular concern to employees. In 
leading organizations, management and employee representatives work 
collaboratively to gain ownership for these changes. After obtaining 
sufficient input from key players, the organization needs to develop 
clear, documented, and transparent policies and procedures. 
Establishing clear and uncomplicated policies and procedures ensures 
both that they are used fairly and that they are not encumbered with 
unnecessary administrative burdens. 

We have reported on the practices that agencies use to empower and 
involve employees to help them achieve their goals and improve 
government operations.[Footnote 15] For example, because the IRS is 
exempt from certain Title 5 personnel provisions, Congress mandated IRS 
to involve employees in order to gain ownership for the new policies. 
IRS and the National Treasury Employees Union entered into an agreement 
that was designed to ensure that employees are adequately represented 
and informed of proposed new policies and have input into the 
proposals. The agreement also provided for union participation in 
various forums, such as business process improvement teams and cross- 
unit committees. 

Delegate authority to appropriate organizational levels. In a merger or 
transformation, employees are more likely to support changes when they 
have the necessary authority and flexibility--along with commensurate 
accountability and incentives--to advance the organization's goals and 
improve performance. Delegating decision making within core processes 
can further serve to streamline and improve operations. Specifically, 
delegation to use certain personnel authorities is important for 
managers and supervisors who know the most about an organization's 
programs and with that authority, can make those programs work. 

To ensure effective use of human capital flexibilities, agencies need 
to delegate authority to use these flexibilities to appropriate levels 
within the agency, and then agency managers and supervisors need to be 
held accountable--both for achieving results and for treating employees 
fairly. We reported on the flexibilities that agencies could use 
effectively to manage their workforce.[Footnote 16] The Veterans 
Benefits Administration (VBA) office in Philadelphia delegated 
authority to immediate supervisors to approve on-the-spot monetary 
awards for their employees without review by senior managers. VBA 
supervisors said that under this delegated authority they simply 
complete a short form and present it to the employee, who can then 
proceed to the on-site credit union and receive cash, all within 1 
hour. 

Build a World-class Organization: 

Successful change efforts start with a vision of radically improved 
performance and the relentless pursuit of that vision. Participants at 
our Mergers and Transformation Forum observed that in successful 
private sector mergers and acquisitions leaders determine at the 
earliest opportunity the essential systems and processes that will need 
to be consistent across the organization and those that, at least 
initially, can differ across the organization. These decisions, the 
participants stressed, are based not only on what is necessary from the 
standpoint of operational efficiency and effectiveness, but also on 
what messages are to be sent to employees and customers. For example, 
the decision to use an organizationwide convention for e-mail addresses 
on the first day of operation can send a powerful message about the 
seriousness of the effort to create a coherent organization and the 
speed at which that effort will take place. 

The participants also noted that leaders of successful mergers and 
acquisitions seek to implement best practices in the systems and 
processes wherever they may be found and guard against automatically 
adopting the approaches used by the largest or acquiring component. The 
risk is that the new organization may migrate less than fully efficient 
and effective systems and processes merely because those systems and 
processes are most often used. Over the longer term, leaders of 
successful mergers and acquisitions, like successful organizations 
generally, seek to learn from best practices and create a set of 
systems and processes that are tailored to the specific needs and 
circumstances of the new organization. The following step provides 
additional detail on how to implement this practice. 

Adopt leading practices to build a world-class organization. Selecting 
systems and processes from among the many choices that may exist after 
a merger or during a transformation can be a difficult prospect. To 
meet the goal of establishing a world-class organization, GAO has 
developed a body of work--best practices reviews--that provides 
guidance to help public sector organizations become world-class. These 
best practices reviews identify other public and private sector 
organizations' processes, practices, and systems that are widely 
recognized for contributing to performance improvements in areas such 
as acquisition management, financial management, human capital, or 
information technology. They provide models for other organizations as 
they undertake similar management reforms. For our best practice 
reviews in these areas and others, see 
http://www.gao.gov/bestpractices/reviews.html. 

[End of section]

Appendix II: Objective, Scope, and Methodology: 

On September 24, 2002, GAO convened a forum to identify and discuss 
useful practices and lessons learned from major private and public 
sector organizational mergers, acquisitions, and transformations. This 
was done to help federal agencies implement successful transformations 
of their cultures, as well as the new Department of Homeland Security 
(DHS) merge its various originating components into a unified 
department. 

This report builds on the practices identified in that forum.[Footnote 
17] Our objective was to identify specific implementation steps for the 
key practices raised at the forum and provide illustrative private and 
public sector examples of these steps. To meet our objective, we relied 
primarily on interviews with selected forum participants and other 
experts about their experiences implementing mergers, acquisitions, and 
transformations. See appendix III, "Acknowledgments," for a list of 
interviewees. We asked the interviewees to draw upon their insight and 
expertise based on their experiences managing mergers, acquisitions, 
and transformations and reviewed literature on the subject, including 
literature recommended by forum participants, to gain a better 
understanding of the issues that most frequently occur during such 
large-scale change initiatives. See appendix IV, "Selected 
Bibliography," for relevant literature. We also used GAO guidance and 
reports for those practices where GAO had developed a body of work, 
such as in strategic human capital management and results-oriented 
management. 

Based on these interviews and literature review, we identified and 
categorized recurring themes under each of the nine practices and 
developed from these themes a set of specific implementation steps 
associated with each practice. We selected examples, that, in our best 
judgment, clearly illustrated and strongly supported each 
implementation step. We asked the private sector representatives to 
review the examples for accuracy and currency and incorporated their 
comments where appropriate. We did not independently verify the 
effectiveness of these examples and did not use effectiveness as a 
criterion for selecting the examples. We relied on issued GAO reports 
for some of our examples. 

We provided the full set of practices and implementation steps to other 
selected public and private sector individuals, who have been involved 
with mergers, acquisitions, and transformations for their review and 
incorporated their comments where appropriate. We did not obtain agency 
comments on a draft of this report because we did not review any 
federal agency's on-going merger or transformation effort. We performed 
our work from December 2002 through April 2003 in accordance with 
generally accepted government auditing standards. 

[End of section]

Appendix III: Acknowledgments: 

Anthony Calenda: 
Director, Strategy and Business Development: 
Citigroup, Inc. 

Jay Connor: 
Vice President, Strategies and Marketing, Consulting and Integration: 
Hewlett-Packard Company: 

Patricia DeGennaro: 
Director, The Corporate Preparedness, Security and Response Network: 
The Conference Board: 

Patrick J. Donohue: 
Lead Partner, Human Capital M&A and Integration Services: 
Deloitte & Touche, LLP: 

Frank M. Ioli: 
Executive Director, Facilities, Security and Administration: 
Northrop Grumman Information Technology: 

Steven L. Katz: 
Office of Federal Programs: 
Deloitte & Touche, LLP: 

Paula J. Larkin: 
Managing Director, Business Resiliency and Crisis Management: 
JPMorgan Chase: 

Marcia Marsh: 
Vice President, Strategic Human Resources Planning: 
Partnership for Public Service: 

Michael K. Neborak: 
Co-Head, Strategy and Business Development: 
Citigroup, Inc. 

Frank Ostroff: 
Consultant: 

Larry Schein: 
Senior Fellow (retired): 
The Conference Board: 

Jeffrey S. Shuman: 
Vice President, Human Resources and Administration: 
Northrop Grumman Information Technology: 

Pete Smith: 
President and Chief Executive Officer: 
Private Sector Council: 

Molly Tschang: 
Senior Director, Business Development Integration Group: 
Cisco Systems, Inc. 

David J. Vidal: 
Director of Research, Global Corporate Citizenship: 
The Conference Board: 

[End of section]

Appendix IV: Selected Bibliography: 

Ainspan, Nathan D. and David J. Dell. Employee Communications During 
Mergers. 1270-00-RR. New York: The Conference Board, 2000. 

Galpin, Timothy J., and Mark Herndon. The Complete Guide to Mergers and 
Acquisitions: Process Tools to Support M&A Integration at Every Level. 
San Francisco: Jossey-Bass Publishers, 2000. 

Gancel, Charles, Irene Rodgers, and Marc Raynaud. Successful Mergers, 
Acquisitions and Strategic Alliances: How to Bridge Corporate Cultures. 
London: The McGraw-Hill Companies, 2002. 

Gates, Dr. Stephen. Performance Measurement During Merger and 
Acquisition Integration. 1274-00-RR. New York: The Conference Board, 
2000. 

Lucenko, Kristina. Implementing a Post-Merger Integration. 1257-99-CH. 
New York: The Conference Board, 1999. 

Marks, Mitchell Lee, and Philip H. Mirvis. Joining Forces: Making One 
Plus One Equal Three in Mergers, Acquisitions, and Alliances. San 
Francisco: Jossey-Bass Publishers, 1998. 

Martino, Jean-Marie. Valuing People in the Change Process. 1265-00-CR. 
New York: The Conference Board, 2000. 

Mirvis, Philip H., and Mitchell Lee Marks. Managing the Merger: Making 
it Work. New Jersey: Prentice Hall, 1992. 

Muirhead, Sophia A. and Audris D. Tillman. The Impact of Mergers and 
Acquisitions on Corporate Citizenship. 1272-00-RR. New York: The 
Conference Board, 2000. 

Schein, Lawrence. Managing Culture in Mergers and Acquisitions. R-1302- 
01-RR. New York: The Conference Board, 2001. 

Schein, Lawrence. Post-Merger Integration: A Human Resources 
Perspective. 1278-00-RR. New York: The Conference Board, 2000. 

Schmidt, Jeffrey A., ed. Making Mergers Work: The Strategic Importance 
of People. Alexandria, Va.: A Towers Perrin/SHRM Foundation 
Publication, 2002. 

United Kingdom Audit Commission. Less Dangerous Liaisons: Early 
Considerations for Making Mergers Work. London: HMSO, 1995. 

(450184): 

FOOTNOTES

[1] U.S. General Accounting Office, Highlights of a GAO Forum: Mergers 
and Transformation: Lessons Learned for a Department of Homeland 
Security and Other Federal Agencies, GAO-03-293SP (Washington, D.C.: 
Nov. 14, 2002). 

[2] U.S. General Accounting Office, Major Management Challenges and 
Program Risks: A Governmentwide Perspective, GAO-03-95 (Washington, 
D.C.: January 2003). 

[3] See most recently, U.S. General Accounting Office, Human Capital: 
Building on DOD's Reform Effort to Foster Governmentwide Improvements, 
GAO-03-851T (Washington, D.C.: June 4, 2003). 

[4] GAO-03-293SP. 

[5] U.S. General Accounting Office, Highlights of a GAO Roundtable: The 
Chief Operating Officer Concept: A Potential Strategy To Address 
Federal Governance Challenges, GAO-03-192SP (Washington, D.C.: Oct. 4, 
2002). 

[6] United Kingdom Audit Commission, Less Dangerous Liaisons: Early 
Considerations for Making Mergers Work (London: HMSO, 1995). 

[7] See for example U.S. General Accounting Office: Agency Performance 
Plans: Examples of Practices That Can Improve Usefulness to 
Decisionmakers, GAO/GGD/AIMD-99-69 (Washington, D.C.: Feb. 26, 1999); 
Agencies' Annual Performance Plans Under the Results Act: An Assessment 
Guide to Facilitate Congressional Decisionmaking, GAO/GGD/AIMD-10.1.18 
(Washington, D.C.: February 1998); Agencies' Strategic Plans Under 
GPRA: Key Questions to Facilitate Congressional Review, GAO/GGD-10.1.16 
(Washington D.C.: May 1997); and Executive Guide: Effectively 
Implementing the Government Performance and Results Act, GAO/GGD-96-118 
(Washington, D.C.: June 1996). 

[8] U.S. General Accounting Office, Transportation Security 
Administration: Actions and Plans to Build a Results-Oriented Culture, 
GAO-03-190 (Washington, D.C.: Jan. 17, 2003). 

[9] Schmidt, Jeffrey A. ed., Making Mergers Work: The Strategic 
Importance of People, (Alexandria, Va.: Towers, Perrin, Foster and 
Crosby/Society for Human Resource Management, 2002). 

[10] Lucenko, Kristina, Implementing a Post-Merger Integration (New 
York: The Conference Board, 1999). 

[11] U.S. General Accounting Office, Results-Oriented Cultures: 
Creating a Clear Linkage between Individual Performance and 
Organizational Success, GAO-03-488 (Washington, D.C.: Mar. 14, 2003). 

[12] U.S. General Accounting Office, Human Capital: Effective Use of 
Flexibilities Can Assist Agencies in Managing Their Workforces, GAO-03- 
2 (Washington, D.C.: Dec. 6, 2002). 

[13] Marks, Mitchell Lee and Mirvis, Philip H., Joining Forces: Making 
One Plus One Equal Three in Mergers, Acquisitions, and Alliances (San 
Francisco: Jossey-Bass, 1998). 

[14] U.S. General Accounting Office, Human Capital: Practices That 
Empowered and Involved Employees, GAO-01-1070 (Washington, D.C.: Sept. 
14, 2001). 

[15] GAO-01-1070. 

[16] GAO-03-2. 

[17] U.S. General Accounting Office, Mergers and Transformation: 
Lessons Learned for a Department of Homeland Security and Other Federal 
Agencies, GAO-03-293SP (Washington, D.C.: Nov. 14, 2002). 

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