Question

HISTORY & ENVIRONMENT

Eight years after “Community Hospital” (a pseudonym) was founded in the late nineteenth century, a group of disgruntled physicians left to create “Westbrook Hospital” (also a pseudonym) a mere three miles away. The circumstances surrounding Westbrook’s creation and the proximity of the facilities contributed to spirited competition for over a century.

However, Community and Westbrook now faced the same ominous trends, and executives in both organizations began to see each other as the source of a possible solution to coping with them. “We are projecting a 3% decline in admissions. We also have inflation hitting us hard…Big Medicaid and Medicare cuts are imminent. I heard that 40 hospitals in our state could go out of business over the next five years” (CEO, Community Hospital).

The local situation added additional threats. Rivalry in the area was poised to increase when two regional competitors, Montclair Health and Ridgeway Hospital (both pseudonyms), announced a strategic alliance. Soon, University Medical Center (the largest and most feared local competitor) announced plans to join the Montclair-Ridgeway alliance. “University Medical might buy a building not far from Westbrook and Community and turn it into a premier women’s center, which will put pressure on both of us. We need the merger to help counter these actions.” Overall, as one Community executive said, “Community and Westbrook are basically owned by the same community, have the same market, and the same status, so this merger makes a lot of sense.”

Almost immediately following the merger announcement, a variety of key parties began questioning the proposed union. Concerned that the merged entity would possess too much local market share, the state attorney general initiated informal fact finding and, eventually, an anti-trust investigation. His preference was that the two hospitals locate all activities on one site. Executives worried about the competitive implications: “The attorney general and others are suggesting that a single campus might bring greater cost savings than we are currently proposing. But we always run the risk of selling off one campus and then having a competitor come in and buy it up.

Insurers also contributed to the complexity of the merger context. As one executive noted, the merger initially had their support. However, after Community and Westbrook pondered the possibility of forming their own health maintenance organization (HMO), the region’s largest insurer publicly questioned the merger plan.

INTERNAL RESISTANCE

Doctors as a group were apprehensive about the merger: “All this merger and acquisition activity scares our doctors to death. It causes them to begin second guessing everything.” Two medical areas stood out as most complex: obstetrics and gynecology (OB/GYN) and cardiac care. Fierce rivalry had long existed between the two OB/GYN staffs. As a Westbrook executive noted, “Community and Westbrook OBs are like the Hatfields and McCoys shooting back and forth at each other. Always have been.” According to a Westbrook executive, “Since there are more OB docs at Community, there’s fear that they will dominate things if the merger happens.” Too, a possible compromise wherein the OB staffs would remain physically and structurally separate if the merger happened caused concern among cardiac doctors. An executive wondered, “Why should the cardiologists relocate if the OBs don’t?” Because cardiac care was a prominent area in both hospitals, stakeholders in these units had to be addressed carefully: “It’s an issue for our partnership, an issue for our merger consultants, an issue for the law firms, an issue for the doctors, and if we’re not careful, it will become an issue for the attorney general.” Rumors circulated that the OB/GYNs had retained an attorney to fight the merger (informal conversations). In an overt sign of discontent, small cards reading “Stop the Merger!” were glued to restroom ceilings.

Both teams indicated that surrendering their existing sense of “who we are as an organization” in favor of some new, shared identity was a challenge. A Community executive noted, “We’d like to move ahead looking like good marriage partners, but I’m not sure we’re compatible. We’re different. We take pride in the very differences that distinguish us.” “We have people who want to retain the identity of their own hospital. They have a lot invested in it, you see…Our doctors and nurses, for instance, are happy to be a part of this institution. Their identity is wrapped up in it. Our administrators have put their hearts and souls into making the organization what it is.” A Westbrook executive made it clear that the merger “. . . is a threat to our legacy. We don’t want to scrap the rich tradition of our hospital. We have alumni who are concerned about retaining our old identity.” The possibility that the merger might not materialize also encouraged members to hold onto their old identities.

Doubt was also created as each made comparisons of their team and organization to the other team and organization that cast the partner in negative terms. In fact, in their meetings, both teams discussed their differences nearly five times as often as their similarities.

“We are having problems working with Westbrook because our technology is more streamlined, so we make faster decisions than they do.”

“Community’s administrative model makes a big glob of administrative overhead horribly visible. We’ve been more thoughtful about it.”

“I don’t think Westbrook’s medical staff is as quality as ours. Simply put, their standards are lower. . . I think the public perceives a difference.”

“As for Westbrook’s top management team, I wouldn’t hire any of them.”

An impasse also arose whenever the topic of a name for the merged organization came up. Community executives, especially their CEO, wanted to base the new name on Community’s name: “With our long-standing reputation in the community and the cachet of our brand, I am convinced that ‘Community’ should be in the new name.” There was a logical business rationale for such a move: a consultant’s report revealed that competitors would gain some advantage if Community’s strong brand name were abandoned. Yet any attempt to preserve “Community” while dissolving the Westbrook name could undermine the partnership. As one Westbrook executive pointedly said, “If Community’s name is used, then ours should be, too, or the idea of a merger between equals is a sham.” Community executives were sensitive to the fact that naming the new entity was as much a political as a strategic decision. As one noted, “We don’t want to spend tons of money on naming . . . but we may have to, just to avoid a big fight.”

COMMON GROUND?

A pivotal event occurred in a meeting of the two executive teams when Community’s CEO unexpectedly offered “Newco” as a temporary, generic label for the imagined future organization: “We need some sort of name for the thing we are talking about, even if it’s temporary, so I’m suggesting a generic name.” A discussion about the merger had begun to stall, and the offering of Newco was an attempt to keep it moving. In a follow-up interview, Community’s CEO said that, as this particular discussion stagnated, he realized that the existing attachments held by the executive team members on both sides were so strong that they had to be circumvented before people “could begin to think in terms of surrendering their allegiances and becoming a merged organization with a different identity.”

The Newco concept was quickly adopted by both executive teams as a representation of the future merged organization in their oral and written communications. Newco connoted a general, non-partisan identity with which executives could associate when trying to envision the new organization. A Westbrook executive captured this notion when he said, “Newco focuses everyone’s attention in one place, and that’s what we need right now. Newco helped to encourage a shift away from the prevailing us vs. them to a we mode of understanding the ‘who will we be’ question.”

Although Newco’s attributes were sparse (“lean,” “agile,” “proactive,” and “strategic”), the transitional identity permitted the executive teams to act as if the merger were really going to occur, even though a workable merger was not definite for much of the time that negotiations were taking place. Community’s CFO, for instance, said, “it helps us put all this emotionalism behind us; now we’re starting to think like Newco and talk like this thing can actually work.” The idea of Newco evolved from a “placeholder” used when discussing the merger (months 6–7) to a symbol of the future organization whose features were beginning to be defined, even as debate over a permanent name played out (months 8–9), and then to a common referent and focus of shared interests between the teams during the quiet period (months 10–11). A month after the consent agreement was signed, a new, permanent name was finally selected.

Westbrook’s CEO summarized the situation at a broad level: [The merger] raises so many questions about whose interests are being served. You have the medical staff, consultants, managers, and others making decisions. Then you have to cope with the politics of all these groups interacting. There are so many different influences at play, each with their own agenda. We need to convey a coherent image to all of them. Given this complex milieu, it was vital for the teams to communicate a consistent image to stakeholders, which led the executive teams to further downplay their differences and emphasize their emerging identity as members of Newco.

The communal sense of a Newco organization intensified when the attorney general again said that he favored an alliance between Community and Westbrook instead of a merger (archives; interviews). This stance worried both sets of executives, who reiterated that a merger would create many more efficiencies and more competitiveness for both hospitals. Community and Westbrook executives came to share a belief that, as Newco, they needed to manage meaning for the attorney general. It also helped to unite them against a common “enemy.”

EPILOGUE

After a six-month formal review, the state signed a consent agreement permitting the Community-Westbrook merger; Federal Trade Commission approval followed. With the aid of consultants, a permanent name was chosen: Synergy Health System (another pseudonym). The broadly articulated features of Newco were retained in the new organization - “lean,” “agile,” “proactive,” and “strategic” - although they became more elaborated and specified. In a follow up interview with the Community and Westbrook CEOs several years after the merger, it was noted that although a shared identity emerged, it took some time before the other identities (Community, Westbrook, and Newco) receded. Most importantly, perhaps, they noted that Newco evolved into Synergy, and the identity of Synergy “looks a lot more like Newco than either [Community] or [Westbrook],” suggesting that a relatively lasting identity change had indeed taken place.

Q1: If the merger seems to make strategic sense (synergies), why is there such difficulty in executing the strategic change initially and What ultimately allows the executives to successfully execute the change? Why?

Answer 1

Any merger might face challenges to address cultural and attitude related problems . In this local situation will add many additional threats. Even , Rivalry in the area was poised to increase when two regional competitors, Montclair Health and Ridgeway Hospital (both pseudonyms), announced a strategic alliance and others were trying to be the part of the same. Management of human resources, financial issues, image of the corporation, relationship with key stakeholders etc. might pose problems to a merger.

To successfully execute the change , top executives should analyze those challenging factors. If , possible collaborative training and joint sessions must be given to the employees of each companies. An environmental scanning might be helpful to set strategies and policies to manage the new set of goals to the merged organization. Even , the role of leadership, team development and motivation will be crucial to understand and implement.