Lean Six Sigma Application in Acquisition Integration

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Lean Six Sigma Application in Acquisition
Integration

• How Lean Six Sigma supplied the focus, structure,
  and discipline to deliver the promised benefits
  of acquired businesses

Mike Kingzett June 25, 2009
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Contents
Orica Snapshot
Acquisition Integration Defined
How Can Lean Six Sigma Help?
Who is Involved and How to Organize the Team
Critical Success Factors
QA
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Orica Snapshot

• Australian owned publicly listed company trading
  on the Australian Stock Exchange (ORI)
• Market capitalization of approximately AU5.2B
  (US3.38B)
• Ranked in the top 50 Australian companies based
  on market capitalization
• Inception over 130 year ago as a small explosives
  company supplying explosives to the Victorian
  goldfields in Australia
• Orica became an independent corporation in 1998
  when ICI Plc divested its major shareholding

As of March 2009
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A Global Company. . . Major Operating Facilities
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Orica Business Platforms

• Mining Services
• Worlds leading supplier of commercial
  explosives and blasting systems
• Minova
• Global leader in tunnelling and underground mine
  support products
• Chemicals
• Major supplier and trader of chemicals, services
  and technology to
• the water treatment, mining chemicals and
  industrial chemical markets
• Consumer Products
• Leading premium brands supported by world class
  innovation capability

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Orica Culture
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Orica Growth Strategy
Bolt on acquisitions and geographic expansion
Mergers Acquisitions
Capital Expenditure
Plant expansions that meet IRR 15 and 18 RONA
minimum

Growth in earnings
Productivity Improvements
Organic growth and productivity gains will
generate significant free cash
Industry Growth
Free cash applied to fund growth
Lean Six Sigma Enables Oricas Growth Strategy
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Oricas Lean Six Sigma Journey To Date
Orica Lean Six Sigma Launch (Corporate-
Australia)
1st Black Belt wave in North America deployed
Expanded platform from Lean Six Sigma to Business
Process Improvement
1st joint BPI Orica mining customer project
underway
1st promotion within Orica of a Black Belt to
Master Belt Belt
Lean Six Sigma Launch in North America
Hired Master Black Belt to lead North American
deployment
Orica executive bench-marking tour of external
companies
START
27 M in Savingsover 3 years in North America
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Orica USA Inc. / Orica Canada Inc.s Return on
Investment

• Business Process Improvement
• Deployed throughout all functions and business
  units
• Organized as a central BPI team (2 MBBs, 8 BBs)
• Governed by council - members of senior
  management team
• Project selection linked to strategy as well as
  bottom up ideas

Grass Roots Engagement
Selective Projects
Testingthe Water
Trained Resources 15 Black Belts 65 Green
Belts 200 Awareness Trained
Investment
Benefits
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Contents
Orica Snapshot
Acquisition Integration Defined
How Can Lean Six Sigma Help?
Who is Involved and How to Organize the Team
Critical Success Factors
QA
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Creating a Shared Urgency
Problem
Opportunity
Goals
Multiple acquisitions
Heavy cross-functionaleffort

• Deliver business case
• Implement core process procedures
• Develop repeatable process for acquisition
  integration

Employ Lean Six Sigma methodologies Assemble
cross-functional team to drive change
Shortfalls on prior acquisitions
Acquired Businesses
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Acquisition Integration

• Process of assimilating a newly acquired company
  into Orica

• Preparing the business to deliver on the
  objectives which motivated the purchase
• Developing a vision strategy for the companys
  future
• Inspiring the combined management workforce to
  deliver on that vision strategy
• Transferring technology, systems management
  practices
• Rationalizing the acquired corporate culture
  values with Oricas
• Preserving the best attributes of the acquired
  company transferring Oricas value-add

A Complex Challenge With Many Factors Critical to
Success
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Integration Runs from Origination to Steady State
Operations
Post-Signing / Pre-Closing
Deal Announcement
Origination
Due Diligence
DealNegotiation
Integration Cornerstones

• Deploy tools to mitigate threats to productivity

• Include HR in earliest phase of transaction

• Collect integration and valuation information

• Negotiate pre-closing access for integration team

• Develop begin to implement key integration
  plans

Normal Operations
Closure
Closing
IntegrationMode
Transition
Integration Cornerstones

• Measure integration success reward team members

• Activate staffed integration team to drive
  planning, execution monitoring of integration
  activities

• Hand-off integration results open items to
  business

• Resource efforts focused on on-going operations

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Why is Acquisition Integration Important?

• Deliver returns shareholder value
• Integration allows Orica to transfer key business
  values practices to the new acquisition
• Leverage Oricas global network of resources
  adopt acquirees best practices
• Teach Oricas language and procedures of Orica to
  acquired business
• Builds trust that will encourage Orica to invest
  in growing the newly acquired business
• Do it right the first time
• Examples of businesses left to their own devices
  have not delivered on due diligence
  expectations. . .a drain on resources require
  more work to correct

Integration Ensures Both the Acquiree and Orica
Maximize the Potential of Their Organizations
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Key Guidelines for Developing the Integration
Process

• Integration Framework should encompass every
  acquisition Scalability
• Any level of consolidation (leadership,
  resources, systems, processes) in
  scopeGenerally, bolt-on acquisitions (Joint
  Ventures) NOT in scope
• DMAIC model as base
• Integration leader is a dedicated role for each
  integration (no other day job)
• Integration lead is at minimum a Black Belt
• Project leads are part time

Structured Approach Focus to Deliver Expected
Value
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Measuring Integration Success
Quantitative Measurements
Qualitative Measurements

• Strength of relationships
• Frequent, open communication
• Feels like Orica
• Employees identify themselves as Orica
• Orica language concepts applied
• Positive morale
• Promotion of employees outside the business
• Customer sees the business as Orica
• Orica DTP1 values reflected in all
  businesspractices

• Safety performance to Orica standards
• Achieving targeted financial results
• Growth, EBIT, etc.
• Realization of projected synergies
• Effective consolidation
• Operating cost reduction
• Employee measurements
• Employee satisfaction survey results
• Attrition turnover rates
• Customer measurements
• Customer satisfaction survey results
• Loyalty retention rates
• Execution against project plan

Integration Success Can Be Difficult to Measure .
. . Need to Baseline at the Beginning of an
Integration
1DTP Deliver The Promise
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Contents
Orica Snapshot
Acquisition Integration Defined
How Can Lean Six Sigma Help?
Who is Involved and How to Organize the Team
Critical Success Factors
QA
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How Does Lean Six Sigma Help an Integration?

• Pushes for a customer focus in integration
  planning
• Adds structure to an unstructured environment
• Demands a strategic linkage for each execution
  priority
• Forces rigor to complex execution challenges
  reduces execution risk
• Helps the business balance time constraint
  pressure through data based decision making
• Bolsters execution success by anticipating
  managing people change considerations
• Provides a common language approach

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DMAIC Rigor
Phase
Deliverables
Timing
D
(1) Project Charter (2) Project Scope (3)
Resources Milestone Plan (4) 100-Day Goals
(phase 1)
(5) Success Monitoring (6) Communication Plan (7)
As Is Organizations (8) VOC1 Translation(Stakeho
lders)
Signing Close Planning First 100
Days Post 100 Days
Define
M
(1) ACT2 / Stakeholder Communication (2) Data
Collection Plan (3) 100 Day Goals (phase 2) (4)
Stakeholder Requirements (Critical To Quality
Requirements)
(5) Risk Mitigants (6) Orica
Non-Negotiables (7) Integration Measurement
Framework
Measure
A
(1) To Be Organization Structure (2) 100 Day
Goals (phase 3 - Finalized in line with business
strategy) (3) Develop Detailed 100 Day
Plans (4) Determine Execution Risks
Analyze
I
(1) Implementation of 100 Day Plan (2)
Finalize/Execute on Business Organization
Structure
Improve
C
(1) Steady-State Operations (2) Key Business
Measures Monitored (3) Business Process
Management Systems (BPMS) Environment
Control
Lean Six Sigma Rigor to Guide the Process
1VOC Voice of Customer 2ACT Accelerating
Change and Transitions model
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Y Flow Down Demonstrate Y X Linkage
Y f (X1, X2, X3, . . .Xn)
Y Successful Integration
Y1
Y2
Y3
Y4
Y5
Big Ys
Critical Xs 100 Day Goals
X1
X3
X2
Xn
100 Day Project Plans
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Linkage to Strategic Goals
Y Critical to Quality Requirement (includes
requirements of customers, the business,
shareholders, regulators)
Y SUCCESSFUL INTEGRATION Base Case EBIT
Synergy Benefits





Y1 Growth
Y2 Cost Out Synergies
Y3 Staff Retention
Y4 Compliance Risk Mitigation
Y5 Business Performance Maintained
X3.1 Retention Strategy X3.2 Cultural
Harmony X3.3 Leadership Development X3.4
Communication
X4.1 Regulatory Requirements X4.2 Site
Remediation
X5.1 Integrated business strategies X5.2
Integrated Business Model X5.3
Non-Negotiables implemented
X2.1 Plant Consolidation X2.2 Office
Consolidation X2.3 Supply Chain
Consolidation X2.4 Procurement Opportunities
X1.1 Product Rationalization X1.2 New
Product Development X1.3 New Market
Development X1.4 New Channel Development
Ys Xs for illustrative purposes Each is
measurable has target
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Driving Change - Guiding Principle
The Effectiveness of any initiative in achieving
results is a function of the Quality of the
technical solution times its Acceptance within
the culture.
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Oricas Expectations The Non-Negotiables

• Orica Deliver The Promise values
• SHE1 regulatory compliance
• Induction integration with Oricas culture
  including performance management process
• Orica reporting, forecasting, controls
• Growth EBIT2 commitments
• Oricas Information Technology platform SOE3
• SCOR4 Level 1 (Plan, Source, Make, Deliver,
  Return) Processes
• Alignment with Oricas Operational Standards
• Oricas customer relationship management
• Rationalization conversion of product offering

Orica Activities Processes which Must Be
Implemented
1SHE Safety, Health, Environment 2EBIT
Earnings Before Income Taxes 3SOE Standard
Operating Equipment 4SCOR Supply-Chain
Operations Reference-model
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Translating Non-Negotiables from Principles to
Actions
Principles from Voice of Business
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Key Process Steps
Critical to Quality factors (CTQs)
Activities Deliverables
195
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Non-Negotiable Example
Key for Risk Status
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Contents
Orica Snapshot
Acquisition Integration Defined
How Can Lean Six Sigma Help?
Who is Involved and How to Organize the Team
Critical Success Factors
QA
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Who is Involved in Integration?
Involved Parties
Affected Parties
Sr. business leaders (each side) Acquired
business managers Integration leader Cross-functio
nal integration team Employees Partners
Customers Suppliers
Stakeholder Management is Critical to Mobilizing
Commitment
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Integration Team Structure
Acquisition Integration Steering Committee
IT
Finance
SHEincl. Compliance
Legal
Commercial
Supply Chain
Operations incl. Manufacturing
Human Resources
Engineering Technology
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Role of the Integration Manager

• Key Responsibilities
• Delivery of financial results (100 day outcome)
• Execute 100 day plan
• Handover to normal ops

Integration Manager is the Head Coach . . .Leads
Acquiree through Cultural and Business
Integration Process
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Contents
Orica Snapshot
Acquisition Integration Defined
How Can Lean Six Sigma Help?
Who is Involved and How to Organize the Team
Critical Success Factors
QA
31
Integration Critical Success Factors
Management Commitment
Dedicated Integration Leader

• Full-time, dedicated leader
• Involved throughout deal process
• Provide leadership motivate employees
• Structure monitor integration progress

• Commitment of acquiring
• management and acquired CEO
• Active promotion support
• of integration activities
• Common vision, strategy and
• goals of acquisition
• Shared need for change

Cross-Functional Participation
Orica Support Resources
Focused Integration Plan

• Functional leader participation
• Communication across
• functional areas
• People involved to execute
• change
• Integration team members from
• both Orica acquired company

• Resources to help acquiree
• understand Orica implement
• integration projects
• Money to pay for resources,
• materials, consultants, etc.
• Access to tools, best practices
• Orica global network

• Structured plan based on
• business vision goals
• Plan of actionable tasks
• Visual management tools
• highlighting key milestones
• Process mechanisms to
• to monitor reward progress

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Lessons Learned from Using Lean Six Sigma in
Integration

• Exceeded expectations on synergy delivery through
  structured approach
• Ensured balanced set of success metrics -
  financial non-financial
• Provided career developmental opportunity for
  Black Belts
• Demonstrated power of Lean Six Sigma. . . has
  strong commercial applicability

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Mike Kingzett Mike.Kingzett_at_Orica.com Phone
303-268-5012