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AOL Time Warner—the largest merger in history—may succeed because of HR leadership.
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The e-mails that flutter across Kaufmann’s monitor offer a glimpse of the potentially lucrative synergies starting to take shape. For example, in Sweden, a managing director of the corporation’s home video business learned valuable tips about downloading movies from the Internet that he hopes to parlay into a marketing plan.
The training program is part of an aggressive HR strategy to help build the bottom line at AOL Time Warner, the company formed when Dulles, Va.-based America Online Inc. acquired New York-based Time Warner for $162 billion in the largest merger in corporate history.
When the merger received final regulatory approval in January 2001, the newly combined company became the world’s largest media, entertainment and Internet service conglomerate. As it moves into its critical second year, its front office is relying on HR to help make all the pieces fit.
“I think HR—or what we call ‘people management’—will play a critical role,” says co-chief operating officer Richard Parsons, who will succeed Gerald Levin as chief executive officer in May. “At the end of the day, our ability to succeed depends entirely upon the people who are driving our business—whether they have the creativity, capacity to innovate and ability to execute, and whether they can do these things collaboratively.”
Parsons is banking on what he calls “enlightened” HR policies to fuel the company’s drive to expand its market share. And experts generally agree that, having survived more than a year of layoffs, acquisitions and major internal adjustments, the company now will be able to sharpen its focus on HR strategies to chart its future course.
“I think you need a couple of years to determine if a merger is going to work,” says Tom Wolzien, media analyst at Sanford C. Bernstein & Co. in New York. “The first year, you’re kind of running on adrenaline. In the second year, you start to see what you’ve really got.”
Wolzien says that, “[the merger] will work in the long run—the principal reason being that both sides had a concrete reason to do the merger and could see exactly what they were getting from each other. All the employees were put in a position to see easily that there was value in their daily work lives. Going forward, it’s important for the employees to be able to say, ‘I understand why this is happening.’”
To achieve this, the company’s HR executives minimized their conventional functions as administrators and payroll experts in favor of more proactive roles as coaches and profit consultants.
That’s a vital transition in an economy rocked by record numbers of corporate mergers, acquisitions and retrenchments. According to data supplied by Thomson Financial, a publishing company that tracks mergers and acquisitions, nearly 56,000 deals worth $6.4 trillion were announced between 1995 and 2000. That’s almost twice the number—and six times the dollar volume—of transactions announced during the previous five years.
Fewer than one-half of those unions have survived, however, so HR executives at AOL Time Warner feel it’s up to them to troubleshoot for the front-line managers who are drumming up new business and keeping the ship afloat.
“The first role that HR has is to look at how the business is being put together—that’s before you do staffing, training or anything else,” says Mark Stavish, executive vice president for HR at the company’s America Online unit in Dulles. “It’s a matter of taking stock of all your respective assets and saying to yourself, ‘How do we make these assets work better together?’ Then you can really engage the CEOs around those issues. Once you get that going, things like compensation systems sort of fall into place.”
To ease the merger transition—and make sure the pieces fit together as seamlessly as possible—HR took the following initiatives:
Structure. When merger plans were announced in 2000, an HR transition team identified the human resource functions that needed the most attention. For instance, the group determined that some of the company’s units don’t need a constant HR presence, so some HR managers divide their time among several divisions, depending on workload.
Routine administrative duties either were outsourced or shifted to other departments, allowing the HR department to concentrate on strategic planning. This also enabled the firm to limit the HR staff to about 550—a remarkably lean ratio of approximately one HR professional to 160 employees. ·
Foreign operations. As soon as the merger was approved, the entire foreign HR staff was flown to a summit at America Online’s Dulles headquarters to socialize and plot global strategy. Meanwhile, all of America Online and Time Warner’s businesses in London, Paris and Hong Kong were transferred to a single headquarters office in each of those cities to speed up production and communication, with HR handling site and facilities planning and identifying foreign labor issues related to the merger.
Management. In an effort to hone the competitive edge at each of the new company’s divisions, HR developed talent profiles of 300 key executives, a process that led to several changes. For instance, Time Inc. editorial director Walter Isaacson replaced Tom Johnson as chairman and chief executive of CNN. Johnson subsequently retired.
The talent review also led to a consolidation at the Atlanta-based TBS network, where Jamie Kellner, founder and head of the WB network, was named TBS chairman, replacing Terence McGuirk, who became vice chairman of the network and head of Turner Sports Teams.
Recruitment. Once the AOL Time Warner merger was approved, HR quickly built an executive recruitment team by hiring seasoned headhunters who already had amassed high-profile contacts in the media, finance and high-technology fields.
At lower levels, the hiring process was redesigned to speed applicants through the company’s web site and to spot transferable skills. For instance, an applicant rejected for employment at AOL Music might find a better fit at London-Sire Records.
Retention. Shortly after merger plans were announced, HR developed AOL Time Warner 101, an intranet tutorial on why the companies merged and what was in it for employees. The tutorial explains how each of the company’s businesses operates, and how employees can advance their careers under the new regime.
Managing Cultural Change
Getting the merger off the ground also required the companies to reconcile their differing management styles: AOL’s “top-down” system vs. Time Warner’s more improvisational approach. Numerous studies have linked the demise of merged companies to incompatible cultures. At AOL Time Warner, executives say the best way to dodge fatal missteps is to avoid altering the cultures in the first place.
“Anything that slides under the banner of cultural change is doomed to failure,” says Kaufmann. “One of the stupidest things you can do is to try to tell organizations that they can’t have their own cultures.”
From an HR standpoint, cultural balance is maintained by the HR council, a loosely organized brain trust of the company’s top HR managers who scour each company for techniques and practices that might be useful to both firms, implementing only those that make sense across the board. This allows the HR departments in each of the companies’ divisions—say, AOL Moviefone and the Warner Music Group—to otherwise operate as they wish.
For example, the council is considering a plan to require some divisions to use the same cluster of benefits contractors to improve service and to avoid duplication. In addition, the group is preparing to expand AOL University, an intranet career development site, so that individual divisions won’t have to set up their own programs.
The council has centralized the rank-and-file recruitment function but only for administrative personnel. “It doesn’t make sense for central recruiting to hire, say, news gatherers for CNN,” notes AOL’s Stavish. “The best organization to hire CNN’s news gatherers is CNN.”
The council is modeled after similar groups in the advertising and marketing divisions, where managers cherrypick best practices using the same “alloy management” approach, “as opposed to ‘power management,’ which is the process of one culture engulfing another,” Kaufmann says.
“One of the ways to do it wrong is to work from the inside out,” says Kaufmann, who cut his teeth on cultural integration as HR’s information technology specialist at AlliedSignal when it was acquired by Minneapolis-based Honeywell Inc. in 1999.
At AOL Time Warner, “we have more of a market focus instead of an internal focus,” he says. “You accomplish the same thing by knowing your brands, identifying your customers’ needs and by having the right decision-makers in the right places—and by making sure those decisions cascade down at the right time.”
Under a Microscope
The company’s HR team is acutely aware that the AOL Time Warner deal is one of the most closely watched transactions of the past 20 years. So far, most observers’ thumbs are pointed upward.
“This is one of the better merger combinations we’ve seen,” says Frederic H. Dickson, senior vice president and director of research at D.A. Davidson & Co. in Portland, Ore. “The companies put their resources on the line literally from day one. The key players knew who they were, what was expected of them, and through a very difficult economic environment the [new] company has functioned very smoothly. Levin’s announcement [that he will retire in May] wasn’t unexpected, but the timing was a surprise. We are comfortable with the top structure as it is with Steve Case remaining as chairman of the board, Parsons as chief executive and Pittman as the sole chief operating officer.”
The companies’ similar entrepreneurial styles have compensated for differences in culture and function, says Dickson, “so we haven’t seen this mass exodus of key people that we’ve seem from other mergers.”
“Believe me,” he says, “without a motivated workforce, they wouldn’t have been able to pull this off.”
Marc Adams is a Winchester, Va.-based journalist specializing in business, finance and legal affairs. His 34-year career as a writer and editor has included positions as a national correspondent for United Press International and as a senior business writer for The Washington Times.
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