Dixons Carphone case study: the hard work after the merger fanfare

When Dixons Retail merged with Carphone Warehouse this year, the two electrical goods retailers turned some of their outlets immediately into joint stores. They decided to mark out Carphone areas with lighter coloured flooring, to distinguish them from the space occupied by the legacy Dixons brands, Currys and PC World.

But Mr James, Dixons Carphone's chief executive, now worries the flooring may send the wrong message to staff and customers about a partnership he hopes will be seamless.

It is just one tiny example of the many management challenges that groups face as they enter the critical integration phase following a takeover or merger. Even the most promising unions can be doomed by unanticipated culture clashes, problems with combining systems, or tension at the top between executives who suddenly find they have to share responsibility for businesses they once headed outright.

In a sign that it is aware of the risks ahead, Dixons Carphone chose a song by Irish band Kodaline with the chorus "love like this won't last for ever" as the soundtrack for a video that illustrates the rationale for the deal. How will it avoid an eventual disappointment?

Almost exactly a year ago, Mr James, who headed Dixons before the merger, met Andrew Harrison, his opposite number at Carphone Warehouse, for a drink in the bar of the Electric Cinema on Portobello Road to discuss how they could work better together. According to Mr James, "Every way we looked at it, it felt to us it would make perfect sense if we were one business".

On August 7, Dixons and Carphone completed a "merger of equals", forming a company with nearly £10bn in sales and more than 40,000 employees in 14 countries across Europe.

Onstage at last month's FT Innovate conference, Mr James and Mr Harrison, who is now deputy chief executive of Dixons Carphone, bantered like newlyweds. "So far it's going really well, but I guess many married couples would say that three or four months into their honeymoon period," said Mr James.

On Wednesday, announcing the company's interim results, he then went so far as to say the integration seemed to be "going better than I dared hope".

The two men describe the partnership as something that seemed destined to happen. In fact, one former senior Dixons executive says the group was already toying with the idea of a deal with Carphone in 2009.

Mr Harrison says the deal discussions began with a vision of "what we wanted to achieve and a vision of where the world was going". It sounds corny, but could be a good start. Using a sample of recent US and UK transactions, Cass Business School found that mergers and acquisitions based on clear strategic intent made up a far higher percentage of those that succeeded.

Dixons and Carphone had to accelerate when rumours of the impending deal leaked in February. While the leak put short-term pressure on the two companies, it also allowed them to be more open with staff and suppliers. The same Cass research shows the importance of open communication, noting that two-thirds of successful acquirers shared more detailed information in public announcements of their plans.

By August, the two companies had gathered their 2,000 store managers together for training and to get to know each other. Individual stores took responsibility for briefing their own staff. On the Sunday before completion, for instance, the Oxford Street branch - one of seven to go live on August 7 as "Currys PC World featuring Carphone Warehouse" - organised a meeting, over pizza, "so that every single team member understood why it was happening and why it was so important," says Jyoti Kalra, the store's Carphone team leader.

The aim, adds William Chang, her Currys/PC World counterpart, was that from the outset customers would get the same in-store service, "regardless of whether they came to a black shirt or a blue shirt" - the uniforms of Currys and Carphone staff, respectively.

Cultural differences can run deep, though. Decades after Tate and Lyle, the two great British sugar and syrup processors, merged in 1921 to form Tate & Lyle, employees were still aware of whether they were "Tateses" or "Lyleses", and how that might affect their promotion chances. Alcatel-Lucent was plagued by Franco-American tension following its 2006 merger.

Mr James says fixing people issues is likely to be "quick, physically, but slow emotionally". Dixons Carphone will survey staff regularly to measure how the process is going, but "in any organisation, you have niggles, and if there is a pre-existing reason for differences that exacerbates them", he admits.

The "retail infrastructure" of the two companies is quite different, the chief executive points out, with Carphone staff trained to sell mobile phone contracts, whereas Currys/PC World staff are more used to selling hardware. At the moment, the staff are measured against separate in-store targets. But Mr James believes "selling intangibles" will become more important for the merged group, as it moves further into service, installation and maintenance of "connected" homes and offices.

A less obvious, but potentially significant concern is how to bring different warehouses, stock systems and information technology into line, to ensure, for instance, uniform pricing of the accessories. While Dixons Carphone was able to decide not to rebrand, the merging of the two companies' logistical infrastructure is unavoidable - and risky. As Mr James points out, mordantly, "the world is littered with the corpses of managers who have tried to change systems".

As for the threat of fallout among senior staff, commentators noted at the time of the deal's announcement that the combined group had a top-heavy governance structure.

To differentiate between their roles, Mr Harrison takes responsibility for the growth businesses and innovation, while Mr James has day-to-day operational control of the group. Mr Harrison also heads the single team that now handles all global supplier relationships.

As the same former Dixons executive points out, whether the combined group can win even better terms from suppliers than Dixons and Carphone did separately will be critical to the deal's success. Both men sit on a steering committee overseeing the integration process, which is run by a dedicated team headed by two senior managers, one from each of Dixons and Carphone.

"We have thought about [division of responsibilities] very hard," says Mr James. "We were very, very determined that this should not become a Game of Thrones and that we reject intrigue."

Awareness of the risk of poisonous office politics is likely to reduce the chance of it happening. But in many mergers of equals, one side eventually emerges dominant. Speculating about inevitable break-up, Kodaline sings that even if love does not last for ever, they "don't really mind at all". The difference in corporate mergers is that plenty of people, including staff, shareholders and customers, mind a great deal if the honeymoon period eventually gives way to chaos and acrimony.

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