a

GAO

United States General Accounting Office

By the Comptroller General of the 

United States 

November 2002 HIGHLIGHTS OF A 

GAO FORUM

Mergers and 

Transformation: 

Lessons Learned for a 

Department of 

Homeland Security 

and Other Federal 

Agencies

GAO-03-293SP
There are a number of key practices 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. These

practices include the following.

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 the mission and goals 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 serve 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.

HIGHLIGHTS OF A GAO FORUM

Mergers and Transformation: Lessons

Learned for a Department of Homeland

Security and Other Federal Agencies

www.gao.gov/cgi-bin/getrpt?GAO-03-293SP.

To view the full report, including the scope

and methodology, click on the link above.

For more information, contact J. Christopher

Mihm at (202) 512-6806 or mihmj@gao.gov.

Highlights of GAO-03-293SP

November 2002

The early years of the 21st century

are proving to be a period of

profound transition for our world,

our country, and our government.

The federal government needs to

engage in a comprehensive review,

reassessment, reprioritization, and

as appropriate, re-engineering of

what the government does, how it

does business, and in some cases,

who does the government’s

business. Leading public and

private organizations in the United

States and abroad have found that

for organizations to successfully

transform themselves they must

often fundamentally change their

culture.

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 that federal

agencies could implement to

successfully transform their

cultures and a new Department of

Homeland Security could use to

merge its various originating

components into a unified

department. The invited

participants have experience

managing or studying large-scale

organizational mergers,

acquisitions, and transformations.
GAO-03-293SP Mergers and Transformation Forum

United States General Accounting Office

Washington, DC 20548

Comptroller General

of the United States

November 14, 2002

Subject: Highlights of a GAO Forum on Mergers and Transformation: Lessons

 Learned for a Department of Homeland Security and Other Federal

 Agencies

The early years of the 21st century are proving to be a period of profound transition for

our world, our country, and our government. This transition is being driven by a number

of key trends, including global interdependence; diverse, diffuse, and asymmetrical

security threats; changes in the nature of the economy; rapidly evolving science and

technologies; dramatic shifts in the age and composition of our population; important

quality of life issues; and evolving government structures and concepts. Given the

challenges these trends present, the federal government needs to engage in a

comprehensive review, reassessment, reprioritization, and as appropriate, re-engineering

of what the government does, how it does business, and in some cases, who does the

government’s business. Leading public and private organizations in the United States

and abroad have found that for organizations to successfully transform themselves, they

must often fundamentally change their cultures so they are more results oriented,

customer focused, and collaborative in nature.

The nation’s response to the September 11th terrorist attacks and the continuing

consideration of how best to structure a new Department of Homeland Security (DHS)

are manifestations of the transition and transformation under way in the federal

government. The creation of DHS will represent an enormous management challenge.

Over 170,000 federal employees from over 20 originating agencies or their components

with differing missions, cultures, systems, and procedures will need to be efficiently and

effectively integrated into a single department. While the events and issues surrounding

the creation of DHS represent a major transformation challenge for the U.S. government,

there are many other such challenges that also need to be addressed.

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 that federal agencies could implement to successfully

transform their cultures and a DHS could use to merge its various originating

components into a unified department. The invited participants were a cross section of

leaders in the public and private sectors who have had experience managing large-scale

organizational mergers, acquisitions, and transformations, as well as leading academics

and others who have studied these efforts. As agreed with the participants, the purpose

of the discussion was not to reach a consensus, but rather to engage in an open,
Page 2 GAO-03-293SP Mergers and Transformation Forum

nonattribution-based dialogue. Therefore, appendix I of this letter summarizes the

collective discussion and does not necessarily represent the views of any individual

participant, including GAO.

Many major mergers and acquisitions in the private sector do not live up to their

expectations or potential. In the short term, 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. This happens for a number of

reasons. For example, attention is concentrated on critical and immediate integration

issues and diverted from longer-term mission issues. In addition, employees and

managers inevitably worry about their place in the new organization. The key is to adopt

practices that minimize the duration and the significance of the reduced productivity and

effectiveness and ultimately create a new organization that is more than the “sum of its

parts.”

The research suggests that the failure to adequately address—and often even consider—

a wide variety of people and cultural issues is at the heart of unsuccessful mergers,

acquisitions, and transformations. But this does not have to be the case. While there is

no one right way to manage a successful merger, acquisition, or transformation, the

experiences of both successful and unsuccessful efforts suggest that there are practices

that are key to their success. These key practices, detailed in appendix I, can serve as a

basis for subsequent consideration as federal agencies seek to transform their cultures in

response to governance challenges. These practices include the following.

1. Ensure top leadership drives the transformation.

2. Establish a coherent mission and integrated strategic goals to guide the

transformation.

3. Focus on a key set of principles and priorities at the outset of the transformation.

4. Set implementation goals and a timeline to build momentum and show progress

from day one.

5. Dedicate an implementation team to manage the transformation process.

6. Use the performance management system to define responsibility and assure

accountability for change.

7. Establish a communication strategy to create shared expectations and report

related progress.

8. Involve employees to obtain their ideas and gain their ownership for the

transformation.

9. Build a world-class organization.

A successful merger and acquisition in the private sector can be very difficult. In fact,

successful merger and transformation efforts can be much more difficult to achieve in

the public sector than in the private sector. Public sector efforts must contend with

more stakeholders and power centers, less management flexibility, and greater

transparency than in the private sector. Moreover, creating a successful DHS may be

especially difficult because of the size, complexity, and importance of the effort.
Page 3 GAO-03-293SP Mergers and Transformation Forum

The continuing discussion about how best to structure DHS has raised questions

regarding how the Congress can best meet its oversight, authorizing, and appropriation

responsibilities for the new department. As currently envisioned, DHS will be comprised

of over 20 federal agencies or their components with numerous congressional

committees of jurisdiction. Given this significant reorganization of the executive branch,

the Congress should explore ways to facilitate conducting its responsibilities in a more

consolidated and integrated manner. Whether or not the Congress does so could serve

to have an impact on the effective implementation and oversight of DHS.

Moving forward, GAO will continue to play a professional, objective, and constructive

role in assisting the Congress and the executive branch as agencies implement

transformation initiatives and DHS is created and becomes operational. For example,

working with a wide range of interested parties, we will seek to identify specific

implementation steps along with illustrative private and public sector examples for the

key practices raised at the forum.

Appendix I provides highlights of the discussion organized around the key practices

forum participants identified, as well as subsequent comments we received from the

participants on a draft summary of the forum discussion. Appendix II provides a list of

the participants and observers.

For additional information on our work on federal agency transformation efforts and

strategic human capital management, please contact J. Christopher Mihm, Director,

Strategic Issues, on (202) 512-6806 or at mihmj@gao.gov.

I wish to thank each of the participants in the forum for taking the time to share their

knowledge and to provide their insights and perspectives on the important matters this

document discusses. I look forward to working with them on other important issues of

mutual interest and concern in the future.

David M. Walker

Comptroller General

of the United States
Appendix I

Page 4 GAO-03-293SP Mergers and Transformation Forum

Mergers and Transformation Forum: Lessons Learned for a

Department of Homeland Security and Other Federal Agencies

Highlights of Forum Discussion

The forum’s overall purpose was to identify and discuss useful practices and lessons

learned from major private and public sector organizational mergers, acquisitions, and

transformations that federal agencies could implement to successfully transform their

cultures and a Department of Homeland Security (DHS) could use to merge its various

originating components into a unified department. The forum neither sought nor

achieved consensus on all of the issues identified through the discussion. In fact, no two

merger, acquisition, or transformation efforts are exactly alike and the “best” approach

for any given effort therefore 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. These key practices can serve as a basis for subsequent consideration

as agencies transform their cultures to be prepared to address governance challenges.

These practices include the following.

1. Ensure top leadership drives the transformation

There was widespread agreement that strong, inspirational leadership is indispensable to

successful transformations. Leadership must set the direction, pace, and tone for the

transformation and is essential to provide a clear, consistent rationale that brings

together the originating components behind a single mission to guide the transformation.

By its very nature, the transformation process entails fundamental change. Top

leadership that is clearly and personally leading the change presents stability and

provides an identifiable source for employees to rally around during tumultuous times.

Consistent leadership helps the process stay the course and can help bridge the

differences in leadership and management styles among the originating components.

This view is consistent with the views of participants at a recent GAO-sponsored

roundtable where they agreed that it was important to elevate, integrate, and

institutionalize responsibility for transformation and management issues in agencies

across the federal government.1

While the indispensable role of top leadership was cited (in the federal context, the

agency Secretary, Deputy Secretary, and other high-level political appointees), it was

also noted that it is important to have a cadre of champions (such as political and career

executives) from within the organization to work with top leadership to ensure changes

are thoroughly implemented and sustained over time. For example, one participant

mentioned a senior executive council that was particularly useful in developing

leadership’s direction and communicating its position.

 1

 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).
Appendix I

Page 5 GAO-03-293SP Mergers and Transformation Forum

The participants also stressed that while fundamental change in organizations can take

years, it is important to move quickly to both “make a statement” about the importance

of change and top leadership’s conviction to making it, as well as provide early

successes. Thus, participants agreed that speed is critically important and decisions

about matters such as the basic processes and systems to adopt for the new organization

need to be made quickly. For example, an “80/20 approach” was mentioned as a general

guide in quickly making decisions. That is, it is more important to take prudent,

managed risks and make decisions quickly with the expectation that 80 percent of them

will prove to have been the right decision over time, rather than delay decisions in order

to get 100 percent of them right. Thus, while making decisions naturally entails risk to

the organization, the benefits of acting quickly outweigh those of waiting for the “perfect

solution.” The participants also noted that top leadership needs to set clear priorities

and spend the bulk of its time addressing the most critical issues. Too often, it was

noted, top leadership tends to expend unnecessary time and effort on easy and mundane

aspects of the integration rather than directly tackle the difficult cultural issues that will

ultimately determine if the integration is successful.

On the other hand, a successful merger, acquisition, and transformation process will take

years and the pace cannot be forced. (Prior GAO work has noted that the experiences of

successful major change management initiatives in large private and public sector

organizations suggest it can often take at least 5 to 7 years until such initiatives are fully

implemented and the related cultures are transformed in a sustainable manner.) One

participant noted that the speed of the transformation process is an important difference

between the public and private sectors. The private sector is typically thought to be able

to implement change more quickly because there are fewer issues with public policy

implications that arise during the merger, acquisition, or transformation; fewer legal and

political constraints to be addressed; and less transparency to outside parties.

Nevertheless, the public sector needs to find ways to act quickly and better manage risk.

2. Establish a coherent mission and integrated strategic goals to guide the

transformation

The participants agreed that the mission and strategic goals of a transformed

organization must become the focus of the transformation, define the culture, and serve

as a vehicle for employees to unite and rally around. Mission clarity is especially

essential to define the purpose of the transformation to employees, customers, and

stakeholders. In addition, the strategic goals must align with and support the mission

and serve as the continuing, visible guideposts for decisionmaking.

The mission and strategic goals must be clear to employees, customers, and stakeholders

and be seen as the driving force of the changes that are being made. A well-defined

mission and strategic goals also are essential to helping the new organization and its

customers and stakeholders make intelligent trade-offs among short- and long-term

wants, needs, and affordability and to ensuring that program and resource commitments

made early in the transformation process are sustainable over the long run. The mission

and strategic goals are also important because affected organizations and employees

may not at first see a direct personal connection to the transformation or may have other
Appendix I

Page 6 GAO-03-293SP Mergers and Transformation Forum

responsibilities separate from the purpose of 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 be

successful.

Participants noted that in the public sector, the potential of the mission and strategic

goals to unite and motivate the workforce is extraordinary. Patriotism can be an

especially powerful unifying theme for public sector employees. In particular, new DHS

employees can be shown the direct connection between their work and protecting the

security of the American people, making a difference in people’s lives, and being a part of

history.

3. 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 serve as a framework to help the organization create

a new culture and drive employee behaviors. Leadership identifies these principles and

priorities at the outset of the transformation. These principles and priorities range from

the core values that are fundamental to the organization to the color of any uniforms.

Principles are the core values of the new organization and they define the attributes that

are intrinsically important to what the new organization does and how it will do it. They

represent institutional beliefs and boundaries. A set of core values becomes embedded

in every aspect of the 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. For example, a participant cited “success of our customers” as a

core value in a recent merger and acquisition and this value was reflected in the

employees’ work and the culture of the new organization.

In developing priorities, leadership should engage employees to learn about what is

important to them and what should be included in the new organization. For example,

leadership should learn about the symbols that are important to employees. One

participant mentioned that employees might want to retain a style or color of a uniform

that is based on long-standing tradition, but would be willing to accept the new

organization’s badge for all employees to wear.

4. Set implementation goals and a timeline to build momentum and show

progress from day one

The participants stressed that the merger, acquisition, and transformation process is a

substantial commitment that could take years before it is completed and must be

carefully and closely managed. As a result, it is essential to establish over the long term

action-oriented implementation goals and a timeline with milestone dates to track the

organization’s progress towards its intermediate and long-term transformation goals. By
Appendix I

Page 7 GAO-03-293SP Mergers and Transformation Forum

demonstrating progress towards these transformation goals, the organization builds

momentum and demonstrates that real progress is being made. In addition, having

implementation goals and milestone dates helps pinpoint performance shortfalls and

gaps and suggests midcourse corrections, including any needed adjustments to the

organization’s future goals and milestones.

The participants also agreed that as part of developing the implementation goals and the

timeline, it was helpful to think in terms of multiple “Day Ones” for the entire

transformation process. The point of thinking in terms of multiple Day Ones is to

determine—and focus attention squarely on—critical phases and the essential activities

that need to be completed by and on any given date. This is especially true for every

major, publicly evident milestone. For example, on the first day of operation—the most

prominent public milestone—such activities include determining who will speak for the

organization, what information will be provided, and how questions will be addressed.

One participant noted that in the private sector, leadership does not begin a merger and

acquisition until they know clearly how to launch it and have set a timeline for what they

want to accomplish and by when. For private sector mergers and acquisitions, the first

Day One is in the early due diligence stage and subsequent Day Ones include the public

announcement of a planned merger and acquisition, the ratification of a formal

agreement and its effective date, as well as dates that map the key implementation

milestones. At a minimum, successful mergers and acquisitions have careful and

thorough 30-, 60-, and 90-day plans in place well before the effective implementation

date.

Thinking in terms of multiple Day Ones may prove a challenge for the federal

government, where Day One is usually defined as the effective date of the new

organization as specified in statute. While participants offered different perspectives on

what is needed to be accomplished by that Day One—ranging from establishing the

leadership and infrastructure for the organization to installing uniform telephone, E-mail,

and computer systems—there was consensus that the first step is defining the mission of

the transformed organization to communicate a common sense of purpose.

5. Dedicate an implementation team to manage the transformation process

There was widespread acknowledgment among participants that dedicating a strong and

stable implementation 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. A key responsibility of the team is to be able to

answer questions from employees and other stakeholders on the transformation process.

The implementation team is also important to ensuring that various change initiatives are

sequenced and implemented in a coherent and integrated way. Because a transformation

process is a massive undertaking, the team must have direct access and be accountable

to top leadership. In turn, 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. The team leader is a

full-time job and should be dedicated for the duration of the transformation process.
Appendix I

Page 8 GAO-03-293SP Mergers and Transformation Forum

The size of the implementation team needs to be scaled to the size of the merger,

acquisition, or transformation effort. For example, a participant from the private sector

noted that a small merger might require only 20 to 30 team members to implement

whereas a merger of two major corporations might require over 2,000 individuals to be

involved at various points. The composition of the implementation 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

this latter case, the team should consist of a balance of employees from the various

components, rather than just one. This is important to help employees see that they are

being represented and that their views are being considered in the decision-making

process. An implementation team that has a disproportionate number of members from

one of the originating components could convey the unintended impression that that

component is dominating the process. The implementation team is also a visible sign

that top leadership considers team building in itself to be important and values this

approach to carrying out the transformation process and to conducting future business.

In the private sector, an implementation team in some form is ideally already in place

and fully operating well before a merger and acquisition is publicly announced. This

team has a key role in overseeing the due diligence that is part of a successful merger

and acquisition. The due diligence should include not only the key financial matters that

are central to any transaction, but also important organizational and cultural matters that

indicate the forthcoming integration challenges and opportunities.

6. Use the performance management system to define responsibility and assure

accountability for change

Participants agreed that the new organization’s performance management system must

create 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 employees’ roles in the transformation process. It also evaluates

individual performance and contributions to the success of the transformation process

and ultimately, organizational results.

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. These successful efforts

measure individual performance and contributions 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.

In this regard, GAO has reported that agencies in other countries use performance

agreements that articulate specific competencies as a tool to link employees’ roles and

responsibilities to specific organizational initiatives and desired outcomes and then
Appendix I

Page 9 GAO-03-293SP Mergers and Transformation Forum

evaluate employee contributions to those initiatives.2 For example, in the United

Kingdom, executives in the Senior Civil Service are evaluated on and rewarded for their

demonstration of competencies such as “adopting a leadership style to suit different

people, cultures, and situations.” In the Province of Ontario, Canada, senior executives

and some managers link commitments contained in their individual performance plans to

key provincial priorities such as fostering a culture of innovation.

In the United States, GAO has found that there are significant opportunities to use the

performance management system to explicitly link senior executive expectations for

performance to results-oriented organizational goals.3 There is a need to hold senior

executives accountable for demonstrating competencies in leading and facilitating

change and fostering collaboration both within and across organizational boundaries to

achieve results. Expectations such as these will be critical to achieving transformation

changes.

7. Establish a communication strategy to create shared expectations and report

related progress

There was consensus that having an effective and ongoing internal and external

communication strategy is essential to making transformation happen. In fact, given the

importance of an effective communication effort, one participant observed that a

successful communication effort will require twice the time and effort that was at first

planned—no matter how ambitious the original plan was. Communication is most

effective when done early, clearly, often, and is downward, upward, and lateral.

Participants noted that the 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. Communication is not about just

“pushing the message out,” but it should facilitate a two-way honest exchange with and

allow for feedback from the 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.

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 changes from 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 will be affected, what their rights

and protections will be, or how their responsibilities might change with the new

organization. According to one participant, 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

 2

 U.S. General Accounting Office, Results-Oriented Cultures: Insights for U.S. Agencies from Other

Countries’ Performance Management Initiatives, GAO-02-862 (Washington, D.C.: Aug. 2, 2002). 3

 U.S. General Accounting Office, Results-Oriented Cultures: Using Balanced Expectations to Manage

Senior Executive Performance, GAO-02-966 (Washington, D.C.: Sept. 27, 2002).
Appendix I

Page 10 GAO-03-293SP Mergers and Transformation Forum

the loss of needed individuals who leave because they do not see their place in the new

organization.

Communicating 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. Participants suggested ways to keep customers and

stakeholders informed and engaged in the transformation process through satellite

broadcasts, town hall meetings, Internet sites, and newsletters sent out via E-mail to

explain the reasons behind the changes occurring with the transformation. Importantly,

if the organization makes the commitment to communicate with employees, customers,

and stakeholders from the beginning, it must continue to do so or risk losing internal and

external credibility.

A communication strategy is especially crucial in the public sector where policymaking

and program management demands transparency and 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. This demand for transparency

is a fact that needs to be accepted in any public sector transformation.

Leadership can lead by example by creating transparency and engaging in open and twoway communication. One federal participant said that during the transformation he was

leading, he fostered open communication by widely disseminating information on his

plans when still in draft form. This openness gave employees and other stakeholders an

opportunity to provide early input and shape transformation efforts. In addition,

employee anxiety about what changes were occurring and why was reduced. Finally,

this openness helped top leadership provide a context for its plans rather than having

that context be framed by rumors and partial information.

8. Involve employees to obtain their ideas and gain their ownership for the

transformation

There was a general consensus among the participants that the new organization must

involve employees in the merger, acquisition, or transformation process from the

beginning to achieve their ownership for the changes that are occurring in the

organization. Moreover, employee involvement strengthens the transformation process

by including frontline perspectives and experiences. By participating in transformation

task teams, employees have additional opportunities to share their experiences and

shape policies and procedures as they are being developed. While it is an important

investment to involve employees in the transformation process, there are cautions. Dayto-day operations, service quality, and mission accomplishment must continue to take

first priority. Organizations and their employees must guard against being so involved in

implementing their transformation initiatives that they lose sight of the fundamental

reason for the transformation—improved results.

In addition, 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
Appendix I

Page 11 GAO-03-293SP Mergers and Transformation Forum

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. Finally, especially while in the midst

of the transformation process, the organization should not ignore valuable traditional

activities, events, and rituals that are important to employees, such as employee

recognition ceremonies. These activities help to provide a sense that the new

organization, while becoming fundamentally different from what it once was, will

nonetheless retain positive elements of the old organization.

9. Build a world-class organization

Successful change efforts start with a vision of radically improved performance and the

relentless organizationwide pursuit of that vision. Fundamentally, a change of culture is

at the heart of a successful merger, acquisition, and transformation. The importance of

redefining the organizational culture should be not avoided, but rather must be

aggressively addressed at the outset and throughout the transformation process. In

addition, successful mergers, acquisitions, and transformations require enormous

investments in time, leadership commitment, energy, and resources. Participants agreed

that it is therefore critical that the organization not suboptimize in making any needed

personnel, systems, and process changes.

The private sector experience with mergers and acquisitions suggests that success is

more likely when the best individuals are selected for each position based on their

competencies rather than the originating component where they worked. That is, the

new organization needs to avoid a situation where key personnel selections are made on

a basis of an understanding that each of the originating components gets its “turn” in the

selection process. Such an approach not only undermines the quality of the selections,

but also raises questions about top leadership’s ability and commitment to creating a

new, integrated organization.

The participants made a similar point with regard to systems and processes. Successful

private sector mergers and acquisitions 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 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, successful mergers and acquisitions, like
Appendix I

Page 12 GAO-03-293SP Mergers and Transformation Forum

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.

In the federal context, this means that agencies need to ensure that they are maximizing

their use of existing authorities and flexibilities and, as appropriate, making a business

case for targeted additional legislative changes. Any additional changes should provide

reasonable flexibility to help integrate and optimize the economy, efficiency, and

effectiveness of the organization while incorporating appropriate transparency

mechanisms and safeguards to prevent abuse of employees. Further, several

participants observed that the Congress needs to take steps to assure that it can conduct

its oversight, authorizing, and appropriation responsibilities for a new DHS in an efficient

and effective manner. As currently envisioned, DHS would be comprised of over 20

federal agencies or their components with numerous congressional committees of

jurisdiction. Given this significant reorganization of the executive branch, participants

commented that the Congress should be strongly encouraged to explore ways to

facilitate conducting its responsibilities in a more consolidated and integrated manner.

Whether or not the Congress does so will likely have an impact on the timeliness and

effectiveness of DHS’ implementation efforts.

__ __ __ __ __

In summary, as the news in the business press shows each day, the private sector

experience with mergers and acquisitions is mixed. That experience, which suggests

that attention to people and cultural issues is the key to success, provides a valuable set

of lessons for the federal government. In that regard, the participants at the forum

identified a set of broad practices that have been shown to be essential to a successful

merger, acquisition, or transformation effort. Most immediately, the practices provide a

starting point for the Congress and the executive branch in ensuring that a new DHS will

be effectively implemented as quickly as possible. These practices also provide a general

framework that can be used to help other federal government entities transform

themselves to meet the challenges of the 21st century.
Appendix II

Page 13 GAO-03-293SP Mergers and Transformation Forum

Mergers and Transformation Forum: Lessons Learned for a

Department of Homeland Security and Other Federal Agencies

Facilitator

David M. Walker Comptroller General of the United States

U.S. General Accounting Office (GAO)

Participants

Margot Bester Attorney-Advisor

Transportation Security Administration

Jay Bourgeois Professor, Darden Graduate School of Business

Administration

University of Virginia

Anthony Calenda Director of Strategy and Business Development

Citigroup, Inc.

Jay Connor Vice President of Strategies and Marketing, Consulting and

Integration

Hewlett-Packard Company

Amy Donahue Special Assistant to the Administrator on Homeland Security

National Aeronautics and Space Administration

John Hamre President and Chief Executive Officer

Center for Strategic and International Studies

Colleen M. Kelley President

National Treasury Employees Union

Paula Larkin Managing Director, Business Resiliency and Crisis

Management

J.P. Morgan Chase

Wilson Lowery, Jr. Executive Assistant Director for FBI Administration

Federal Bureau of Investigation

Marcia Marsh Vice President, Strategic Human Resources Planning

Partnership for Public Service

Patricia McGinnis President and Chief Executive Officer

Council for Excellence in Government
Appendix II

Page 14 GAO-03-293SP Mergers and Transformation Forum

Bob O’Neill President

National Academy of Public Administration

Donna Richbourg Director of Acquisition Initiatives

Office of the Under Secretary of Defense

Department of Defense

Charles O. Rossotti Commissioner

Internal Revenue Service

Larry Schein Senior Fellow (retired)

The Conference Board

Jeff Shuman Vice President of Human Resources, Information Technology

Northrup Grumman

A.W. Pete Smith President and Chief Executive Officer

Private Sector Council

Max Stier President and Chief Executive Officer

Partnership for Public Service

Molly Tschang Senior Director, Business Development Integration Group

Cisco Systems, Inc.

Kevin P. Varney Director, New Threats Program

Business Executives for National Security

Paul Yingling Director, Finance and Restructuring

Lockheed Martin Corporation

Observers

Mitchell E. Daniels, Jr. Director

Office of Management and Budget

Mark W. Everson Deputy Director for Management

Office of Management and Budget

(450119)