Objectives und Key Results (OKRs) as guidance for successful post-merger integrations

1. Introduction

Closing, then what? In many M&A projects, the focus is initially on legal and commercial issues, as well as on preparing for the big day: The wedding. A lot of effort and ideas are invested into the joint Day 1, and a well-extended Day 1 triggers euphoria in the project team. The path to a smooth and successful everyday life often begins after the honeymoon. However, a merger is not just about two people who want to spend the rest of their lives together, but about complex organizations that want to be more successful together in the future. Similar to a marriage, a large number of mergers are not considered successful in retrospect.¹ There are many reasons for this. Weak program management is a proven one.

The OKR-based approach to program management of a post-merger integration will be illustrated using the merger of Wintershall and DEA as an example. In September 2018, BASF – the world’s largest chemical company – and LetterOne – an international investment and holding company – signed an agreement to merge their respective gas and oil businesses into a joint venture. LetterOne contributed its DEA shares to Wintershall Holding and in turn received shares in the new company Wintershall Dea. BASF held initially 67 percent and LetterOne 33 percent of ordinary shares of Wintershall Dea. To reflect the value of Wintershall Dea´s gas transportation business, BASF received additional preference shares. This resulted in a total initial shareholding of BASF of 72.7%. These preference shares will be converted into ordinary shares on May 1, 2022 or before IPO.

The merger provided Wintershall Dea with a regionally balanced portfolio and excellent growth opportunities. The next steps after the merger involved a strategic calibration of the business – with more own-operated projects and an optimized portfolio. At the same time, synergies were to be used to create a flexible and strong organization. The goal was to finish the post-merger integration within 18 months after the merger of Wintershall and DEA was completed in May 2019.

2. General conditions and complexity of post-merger integration projects

M&A projects or programs are highly complex, which in turn has an impact on program planning and management. Especially the preparation and implementation of the post-merger integration phase regularly confronts organizations with very specific challenges:

• A post-merger integration is subject to strict time constraints. These are usually contractually fixed and must be adhered to. In addition, the timing of governmental approvals adds to the difficulty of planning the merger and creates uncertainty regarding the ex-act date of Day 1 (see “Legal Due Diligence” in Fig. 1). Negotiations between employee and employer representatives also have an additional influence on project content, at least in Germany. Above all, however, these are cornerstones on which other projects are based. Key implementation topics can only be started once a reconciliation of interests has been concluded.
• Many post-merger integration activities start before, with or after Day 1 and run in parallel. There are large dependencies between the activities or subprojects. For example, the management team of a merged company is not named until the corresponding organizational structure is fully defined.
• An important indicator of success for a merger and post-merger integration is the achievement of the targeted synergies and value creation (see Integration and Synergy Management in Fig. 1). This goal must not be lost sight of during the course of the project. The successful integration of structures, processes and systems is in itself a central challenge of the phase after Day 1. It also implies significant integration costs. However, the merged company must be able to realize one-time and recurring savings, for ex-ample, immediately after Day 1. This field of tension must be mastered.
• One source of synergies is in many cases staff reduction measures due to redundant activ-ities arising after a merger. The resulting personal uncertainty triggers fears among many employees and management, which must be countered with appropriate measures. After all, a positive feeling of a new, joint company should arise shortly after Day 1 (see, for example, “Cultural Due Diligence” in Fig. 1). In addition, a merger situation is the ideal opportunity to introduce new concepts such as “New Work” or OKRs.
• Changing participants, especially in very long-term post-merger integrations, are a challenge for continuity and consistency in M&A projects. In many cases, the project team before Day 1 (planning team) and the implementation team after Day 1 (management team) differ. At the same time, the business continuity of the company must always be maintained.
• During the merger, the company is generally more vulnerable (e.g. due to “hacker at-tacks” from outside or excessive demands on employees). This gives rise to additional risks that can jeopardize the smooth running of business activities before and after Day 1. Consequently, scarce resources must be managed transparently and consistently, both for business continuity on the one hand and for the change process of post-merger integration on the other.

To reduce complexity, it is advisable to structure the individual activities of a post-merger integration along a phase plan. A typical post-merger integration process can be divided into the phases of strategy development, due diligence, analysis, and implementation (see Fig. 1).

Source: Own illustration 

The strategy development phase first lays the foundation and sets the goals for post-merger integration. In the case of Wintershall Dea, the post-merger integration was intended to achieve the following key objectives in addition to a smooth day 1 and subsequent business continuity:

1. Complete merger of the two former companies Wintershall and DEA in their structures, processes, and systems on the basis of a new operating model (Target Operating Model), including a new organizational structure in the first three management levels. The aim here was to create a genuinely new company from two previous ones with a “greenfield approach” instead of exclusively merging „best of both worlds“.
2. Definition and implementation of detailed initiatives for the realization of synergies and value creation potential of more than EUR 200 million annually starting year three after the merger (value capture). All initiatives were to be worked out in sufficient detail so that they could be implemented by the new management immediately starting on day 1.
3. Developing and implementing a new corporate culture for continuous improvement and value creation, including the application of new and agile working methods (Cultural Change and „New Ways of Working“). Even before Day 1, the teamwork of the project staff from both companies was already characterized by the principle of “merging two equals” instead of one taking over the other.

These three core objectives alone indicate that the merger of Wintershall and DEA was characterized by many complexity drivers, which required corresponding measures in program planning and management.

Following the strategy development for the post-merger integration, the due diligence phase is followed by an analysis of the differences between the two companies to be merged with regard to the respective organizational, cultural and IT-related starting situations. Iteratively, adjust-ments in strategy and target setting may be necessary.

The analysis phase then begins to design and plan the various measures with regard to Day 1. Wintershall Dea had set itself the goal of presenting itself as a new company as early as Day 1, both in terms of its external image, including a new brand name, logo or presence in social media, and in terms of its internal impact with intensive communication measures aimed at employees. For a gas and oil company, it was a matter of course to ensure the continuity of operations and a smooth transition to the implementation phase of the integration. Valuable time was also to be saved for the phase after Day 1 through very detailed planning, for example of the organizational structure or synergy measures before Day 1.

In the case of Wintershall Dea, the implementation phase was planned and managed using the OKRs, which will be discussed in more detail below.

3. Addressing complexity with an agile approach

The illustrated complexities must be consistently managed in a post-merger integration. Other-wise, the M&A project as a whole threatens to fail or the desired goals and effects of the merger will be achieved late, to a lesser extent or not at all. However, classic waterfall project manage-ment is often inadequate.

Agile project management approaches offer the possibility to adapt to changing environmental conditions, have the goal of delivering usable results in short intervals and apply a manageable set of rules.

For the planning and implementation of post-merger integration, the project team from Wintershall and DEA decided to use agile program planning based on Objectives and Key Results (OKRs).

OKRs are primarily a management tool to align and focus organizations on objectives (see also info box below). Therefore, they can be well applied to the situation of a merger with the goal of a fast and goal-oriented post-merger integration with all its components (see Fig. 1). OKRs can thus be very useful as a management and control instrument in turbulent times.

3.1 Practical implementation

How exactly OKRs find their way into pre- and post-merger planning is explained in the following chapter. In the case of Wintershall Dea, the merger procedure was visually illustrated with the aid of a bikablos (see Fig. 2) to explain this clearly to employees and management. The objectives and key results were always related to a specific quarter for which a usable result had to be delivered. For the preparation of the post-merger planning, several iterations were run through (see Fig. 2 top left), to be able to hand over the results to the new management team on Day 1.

Source: Own illustration

(1) Planningphase Pre-Merger

Since the timing of Day 1 of the merger is often unclear, this creates a high degree of uncertainty in planning for the post-merger situation. In view of this, post-merger planning is carried out in several separate iterations. Its level of detail increases from iteration to iteration, depending on the current state of knowledge. The goal is to present a ready-to-use post-merger plan after each iteration or month, which can be used for the coming (and not yet fixed) Day 1. This procedure can thus also intercept the postponement of Day 1. The key results of such a plan are the definition of the Target Operating Model – the modus operandi from Day 1, as well as the definition of the synergy targets. The following steps should be considered in the agile planning approach:

1. Drafting a basic project structure for the program plan, to which each (sub)project must adhere
2. Creation of a rough top-down planning by a small group of the planning team, which contains the most important building blocks of the post-merger planning.
3. Implementation of an iterative refinement and updating of the plan. By involving more and more participants and experts, the level of detail in post-merger planning is constantly increasing. At the end of the process the plan is continuously updated as a program plan.

(2) Results to be delivered by the project team on Day 1

In the example two main objectives needed to be planned until Day 1 using the OKRs. On the one hand, the implementation of the designed Target Operating Model (TOM) including the new organizational structure. On the other hand, the implementation of the defined synergy and value creation initiatives (Value Capture) after day 1 (see Fig. 3). Roadmaps of OKRs have been defined for each new organizational unit and many cross-functional processes (time horizon of 18 months). In addition, top-down objectives were developed for all organizational units. These were targets set by management for each department (e.g. conducting the handover workshop, realizing synergies, etc.). In the case of Wintershall Dea, around 1800 OKRs were planned at top management level (Senior Vice President) for the 28 Business Units and Corporate Functions.

Source: Own illustration

(3) Anchoring in the entire organization

Day 1 marks the handover of the post-merger plan to the new management. The OKRs set up serve as a guideline for the new management, which can fine-tune and, if necessary, adjust their roadmaps. In the case of Wintershall Dea the OKRs were documented using the Smartsheet platform and evaluated in real time in the form of a dynamic report using Microsoft Power BI technology. Microsoft Teams served as a communication and collaboration platform in which both Smartsheet and Power BI were embedded. The management was supported by dedicated staff and gradually sensitized to the new processes and tools. The integration planning team was re-duced from 150 to 15 people, but at the same time the resources were expanded to include newly created positions, management, and the change department. These provided support during the planning sessions and continuously tracked progress.

In order to achieve the goals of post-merger integration throughout the company, other corporate management processes were used in addition to the OKRs. The integration goals – such as the implementation of the new Target Operating Model or the realization of synergies – were very prominently anchored in the corporate strategy. The resulting targets for the business units and corporate units were broken down to the management levels by means of target agreements, and concrete measures were included in the operational business plans. The reporting of the progress of the measures via Power BI enabled real-time controlling in the sense of modern performance management.²

(4) Overall management of the post-merger integration

Transparency, responsiveness, and flexibility through quarterly planning are key benefits of the OKR approach.³ This is ensured by centrally documenting all OKRs in one tool that is easily accessible to all. It is vital that the entire company is enabled to view the OKRs of each department. This makes it easier to identify projects and problems, especially across organizational units.

The OKR cycle (see Fig. 4) starts with the planning of OKRs for the coming quarter. Quarterly planning allows a high frequency of target adjustments, depending on the current post-merger integration situation. It is up to the departments to decide how exactly they will achieve their goals during the coming quarter. They can, for example, use either the waterfall model or an iterative or agile approach (as shown by the arrows in Fig. 4). At the end of each quarter, a presentation of the results to the relevant stakeholders/participants takes place (named “demo” in Fig. 4). On the one hand, this procedure ensures good, usable results and avoids classic traffic light reports and committee meetings, which usually provide little benefit. Based on the results presented, the OKRs for the following quarter are again agreed, adjusted, or prioritized.

A Project Management Office (PMO) ensures that the rules for the modus operandi are adhered to and supports the new management and their employees. Particularly at the beginning of the introduction of the OKR, there must be increased support to minimize resistance and ambiguity on the part of the employees and to make the added value visible.

Source: Own illustration 

3.2 1.2 Advantages of an agile (OKR based) program planning

The advantages of OKRs can also be transferred quickly to industries and organizations that do not have a strong background in project management or even agile approaches. They are quickly accepted and above all promote cooperation between organizational units. In special situations, such as a merger, OKRs create the necessary agility to achieve the desired result. If the necessary steps are broken down to the levels and employees of the company, all the advantages of OKRs support the new company on its way to being able to work and handle things again as quickly as possible.

In the case of Wintershall Dea, OKRs ensured that a large number of sub-projects were synchro-nized, and the approach was widely accepted within the organization. In addition, overarching initiatives were better identified by the organizational units.

Finally, there was the opportunity to try out new forms of work throughout the organization and evaluate them for benefits.

4. 2 Conclusion and findings

The high complexity and uncertainty during a merger lead to a need for agile approaches. Since a merger is a strong trigger for the willingness to change, one should use this accordingly. This offers the optimal chance to introduce new concepts such as “New Work” or management systems such as OKRs and thus to promote the desired (cultural) change.

In this case, the approach was one of the key factors contributing to the success of post-merger integration.

Source: Own illustration

5. Infobox: What are OKRs?

5.1 Introduction/History

Objectives and Key Results (OKRs) are a management tool developed at Intel in the 1970s by Andy Grove⁴ and have become through their use by technology and in particular software/Internet companies more widespread since the late 1990s. The consistent use of OKRs has helped these companies to align their organization with their rapid and ambitious growth goals and strategies. The publication of “Measure What Matters” by John Doerr in 2018⁵ has now also made OKRs a much-discussed topic in Germany.⁶

OKRs are a progressive development of “Management by Objectives” (MBO, Peter Drucker, from the mid-1950s)⁷ and the ideas of the “Balanced Scorecard” (BSC; Kaplan & Norton, early 1990s)⁸.

Source: Own illustration

5.2 How do OKRs work?

The OKR approach follows the principle of breaking down the vision and organizational goals of organizations into concrete, usable objectives and formulating several usable and measurable results (key results) or subordinate, finished results. All objectives are pyramidally aligned to the top level of the corporate objectives (see Fig. 7).

Source: Own illustration

In the OKR approach, the objective should provide the answer to what exactly should be achieved by formulating a qualitative final state of a task. The Key Results then address how the objective is to be achieved and are formulated as quantitatively measurable end states. The OKRs can be applied at different levels of the company, related to projects, departments or individual teams. It is important that the objectives are directly aligned with the corporate goals.

The essential core of the OKR methodology is the restriction to the most important OKRs (rec-ommendation is five objectives per quarter and organizational unit) to focus on the important and value-creating activities. Furthermore, the objectives should tend to be generated Bottom-up and be transparently visible throughout the organization. Thus, the intrinsic motivation of the employees is stimulated, as they can directly see on which higher goal their tasks pay off.

According to the agile approach, OKRs are usually agreed upon for a quarter and can therefore always be adjusted to the current situation. Roadmaps (objectives that build on each other) or so-called mid-term goals (MOALS) are agreed for the medium-term achievement of objectives. This is not a direct, continuous cascade, but rather the bottom up OKRs of individual teams and individuals are what make this approach so charming and allow the ideas and efforts of employees to be incorporated. An overview of the extent to which OKRs have been used at Wintershall Dea can be seen in Fig. 8.

Source: Own illustration

5.3 What makes OKRs beneficial?

Similar to the reasons and effects of the introduction of agile methods in project management, OKRs as a control instrument help to compensate for the weaknesses of the Balanced Scorecard and the simple Management by Objectives approaches or to adapt them to current needs in many industries. Compared to the usual annual targets, these include the much tighter time frame of max. one quarter and the catchy concept. Some of the advantages are for example:

• The maximum transparency (compared to the status quo in many organizations) and the resulting accountability have the strongest effect on the culture of cooperation in companies.
• The parallelism of Top-down, Bottom-up and cross-organizational formulation of goals and results.
• The forced view on the future actual state (in contrast to the mostly backward-looking KPIs)
• The possibility of a clear focus/prioritization on the sustainably decided and im-portant topics for a company.

In addition to the “classic” areas of application of OKRs with a focus on growth, innovation and change in tech companies, Campana and Schott also identify great potential in customer projects for the development of their own “Organizational Agility”. This applies in particular to the realignment of business models, the linking of project and non-project worlds in organisations, the coordination of different types of projects, such as post-merger integration or the linking of project portfolios with one another. In many organizations, product development, innovation, IT, organization and digitization portfolios are managed successfully but independently of each other. OKRs can be used to align these portfolios with the company’s objectives across all portfolios. For more information about OKR and how its practical application works, please click on the link to our CS Lighthouse Session.