TWO COMPETITORS MERGE IN A DISRUPTED INDUSTRY

The Challenge

Bertelsmann, a German media conglomerate with businesses across the globe, manages a portfolio consisting of companies in print media, out-sourced services, logistics, television, radio, book publishing, and music production. One of their most profitable businesses is a multibillion-dollar book publishing business called Random House that has faced increasing pressure from the emergence of online retailers and an emerging self-publishing model. For the past 30 years the industry has undergone a period of consolidation leaving only a few significant players. The company made the decision to engage in a joint venture with the parent company of a similarly sized book publishing business named Pearson that owns a publishing business named Penguin Publishing (with Bertelsmann owning 51% of the newly formed organization), creating a new business called Penguin Random House with a 34% market share.

In order for this new venture to succeed, the newly formed organization needed to simultaneously integrate their sales teams and leverage their new-found market scale to grow market share. They focused specifically on the sales organization because it is the ‘nerve center’ of the organization. If sales failed, the merger would fail company wide. Penguin Random House U.S. CEO Markus Dohle described a vision where success was “the most boring integration ever,” though that would only occur if their two sales teams came together as a new sales organization faster than anyone thought possible. In other words, they needed a seamless integration completed on time and on budget. They came to Kotter because they knew that beyond just implementing new systems, removing redundancies, and training people, they needed the sales teams to operate as one—going from fierce competitors to teammates, driving their own success despite the hurdles of a merger. The leaders stated from the beginning that they wanted a merger done by their people, not to their people.

A Vision of Success

In addition to “boring,” the CEO established his key indicators of what success would look like. He firmly believed that if these targets could be hit, then 1+1 would truly equal 3.

• Brand Awareness. Each legacy organization had thousands of titles in print, a key challenge was to build sales capability so every sales rep can sell products from both businesses
• Sales Efficiencies. Each organization had different sales processes and best practices that made them the top two companies in the industry. A key priority of the CEO was to understand what each sales team did well and to scale those best practices across the new sales team.
• Shelf Space. A key metric for brick-and-mortar sales is shelf space. There was a risk that with the merger, the new company would lose shelf space because they now represent one publishing house. A true test of would be to not just maintain, but to increase shelf space in each brick-and-mortar account.
• Increase Best-Sellers. New York Times best-selling books are significantly more profitable than any other product. On top of this, nearly a quarter of people read only one leisure book per year. Building a best-seller from a previously undiscovered author is considered to be the purple unicorn of publishing. The ability to do it multiple times in a year is unheard of. The aspirational goal for the merger was to leverage the best supply chain, the biggest and best sales force, and the largest number of books, imprints (trade names under which books are published), and authors to achieve this.

The Approach

The merger closed on July 1, 2013, and Penguin Random House had a small window of time in which they needed to get all of their systems up and running and people trained in order to just maintain their dominating market share, let alone grow it.

The Big Opportunity + The Go Team

Transformations need to start with senior leaders aligned around not just the hurdles facing them, but laser-focused on what the opportunity is. Why did they take this risk? What conditions and disruptions make now the time to act? In this case, you had senior leaders from two legacy organizations. Sure, in the same industry, but with their own perspectives on the conditions and what success could look like. In their very first meeting as a newly formed team, they articulated their Big Opportunity statement (below) – their vision for what they wanted to create.

Penguin Random House’s Big Opportunity

The new Penguin Random House brings together two world class sales organizations with deep passion for connecting the best writers with readers. As the market leader, we will be driven by a culture of constant innovation and customer focus.

Our new sales organization will take advantage of expanded operations and technology services as well as our creativity, professionalism and agility to ensure that we successfully meet the challenges of the marketplace. As we grow the community of readers for today and tomorrow, we will achieve profitable growth for our authors, our customers and Penguin Random House.

The time is NOW for all of us to create the future for Penguin Random House and expand the world.

With the senior leaders aligned on the opportunity and their vision for the future, it was time for Kotter to get to work with the rest of the sales organization.

First up: getting the entire sales organization excited and motivated by the Big Opportunity. This started with the formation of the “Go Team,” who was tasked with generating a sense of urgency. This team comprised of 40 people from all levels of the organization, with representation from each of their sales channels and field sales teams to come together and drive change. They did this through many projects designed around creating a sense of pride in the newly formed team and generating energy about how this Opportunity was going to make this different from any merger that they had been a part of before.

The first indication of future success from this strategy emerged at the end of the Go Team’s launch. As one of the sales leaders reflected on her concerns, she shared, on the verge of tears, that there was so much to do with the integration that she was worried about all of the things that would fall through the cracks. As one example, she wanted to email the entire sales team an update on the integration and realized that she didn’t even have an email distribution list to do this.

The Go Team took this opportunity and ran with it. Within a few days, formal distribution lists had been created so that the sales leadership team could communicate with the entire business – the first of many successes big and small taken to successfully merge the companies.

The team established the goal of getting more than 50% of the organization bought into the vision of being part of the integration “by the people.” Over a period of several months the team undertook many activities to build a grassroots movement.

In addition to conversations with colleagues to hear perspectives and concerns over the integration, the Go Team organized various activities to start building a sense of urgency in the business around the opportunity to drive this integration together. In order to excite the organization about the possibilities they had together, the team created a series of videos with different team members sharing their aspirations for the new Penguin Random House–doubly serving to begin introducing names and faces from the respective organizations.

Another such activity was an event which brought the entire New York based sales team (about 60% of the sales organization) together to hear about the Big Opportunity. Additionally, the Go Team asked each sales rep to bring their favorite book from their legacy business to exchange as part of a massive book swap. The goal of the event was to bring the new team members together, introduce all parties to some of the many new titles under their shared publishing house, and show them their commonalities –often a love of reading, the reason many had entered this business.

The Guiding Coalition: "Changing the World, One Book at a Time"

After urgency had been built, next came turning that generated urgency into action. Kotter worked with Penguin Random House to build their Guiding Coalition (GC). This can happen in many ways, but in this case, an application and selection process made the most sense. The role of the GC is to lead initiatives that achieve the goals of the TBO. Because this was a merger and a system integration, there were many technical and training initiatives to be undertaken, but the senior leaders of the sales team also wanted some initiatives focused just on ‘blue sky’ ideas using the combined new force of talent.

Senior leaders named two big goals they wanted the new company to achieve, and there were five main initiative teams with more than 250 volunteers to support these big goals. First, they had a go-live date they needed to hit for new systems. Any delays in hitting this date would cost $10 million per month in lost revenue. Second, they wanted to focus on growing sales and market share. They didn’t want to simply combine and maintain existing market share, they wanted to grow it.

These initiative teams of volunteers worked tirelessly for six months in order to hit the go-live date for the new systems and simultaneously focus on growth in market share and sales. So, were they successful?

The Results

The merger of Penguin and Random House was a success. They integrated new sales and IT tools on time and under budget and built a culture of innovation and collaboration at the same time. Because of this, they were able to actually grow their presence on the New York Times best seller list from 40% of the list to 50% of the list and grow their combined market share. Through their merger, they were truly able to make 1+1=3.

Penguin Random House also continued to use the Kotter methodology to maintain the culture they had created in the sales organization. They launched the second Guiding Coalition the second year, and the senior leaders refined the Big Opportunity to reflect their new goal of maintaining and growing what they had already built.

Penguin Random House’s (Second) Big Opportunity

We have the unique opportunity to be extraordinary by finding new and improved ways to connect our authors with readers.

As the market leader, we will create new and sustainable competitive advantages by innovating and growing faster than our competitors.

We thrive on change in the face of disruption. We are changing the world one book at a time.