'One Plus One Equals One'

BOSTON (05/08/2000) - As Bill Sanders and Jack Arnold walk out of a company information technology meeting in Phoenix, they seem at ease with each other - like old friends or classmates who have known each other for years. But less than a year ago, they never dreamed they would someday work together.

Sanders was CIO at Minneapolis-based Honeywell Inc., a global provider of industrial controls, facilities systems controls and avionics. Arnold was a senior IT executive at AlliedSignal Inc. in Morristown, New Jersey, a manufacturer of flight safety products, automotive products, specialty chemicals and performance fibers, plastics and advanced materials.

Now they both work for the new Honeywell International Inc., a global conglomerate created when the two companies merged last year. Sanders is a corporate vice president and worldwide CIO at the new Honeywell. Arnold is corporate vice president for common and companywide systems, reporting to Sanders.

Mergers happen every day, but not usually on this scale. The new company has 126,000 employees worldwide, and the combined IT departments account for more than 3,000 of them.

Even the business integration team had 1,200 members, according to Ray Stark, who was put in charge of the team after the merger was announced last summer.

He's now corporate vice president of Six Sigma (a quality assurance program) and productivity at the Morristown-based company.

Stark said he had known the merger was in the works. He had been asked by now-retired AlliedSignal President and CEO Larry Bossidy to be the business integration leader. But he said he didn't hear that it was "a go" until "around 10 p.m. on Sunday," June 6, 1999. The merger was announced on June 7.

Stark had his work cut out for him. He was determined to combine the companies in a way that would minimize expense and maximize revenue.

And then there was the urgency. "We were on a 90-day time line," Stark said.

"From the time of the announcement to the time the merger closed, I had no life. It was the summer that wasn't."

The Promise

The foundation for integrating the IT departments grew from the basic strengths that both companies identified at the time of the merger announcement, Sanders said.

On the AlliedSignal side, "there was a very strong set of operating disciplines," he said, "including an advanced Six Sigma culture, a broad business portfolio, a lot of capital and cash-generation mechanisms, and a focus on product engineering and manufacturing." AlliedSignal also had a "superb internal focus on product improvement," he added.

Honeywell was more of a systems- and solutions-based company, Sanders explained. Moreover, "a very high percentage of Honeywell's business was global," he said, and was built around the Baldridge quality-criteria model.

The model's balanced orientation brought a strong external customer focus to the merger table, Sanders said.

The Challenge

There were also several overarching business challenges that affected IT integration, Sanders said.

For example, there were two business structures. Honeywell was more decentralized than AlliedSignal. And AlliedSignal's business unit structure was often based on global regions, whereas Honeywell had more of a regional matrix structure.

Then there was the matter of bringing together people from different corporate cultures. "It's one thing to say that you're going to bring these people together, but it's another to mesh them together and get a good balance," Sanders said.

Fortunately, AlliedSignal "had a fair amount of experience of acquiring and integrating companies," Arnold noted. "We decided to use the processes that Allied businesses and IT had used in the past."

The sophisticated process and control mechanisms used for Y2k were applied to IT integration, Arnold explained. And fortunately, "most of the [business units in Honeywell and AlliedSignal] had already fixed their [Y2k] stuff before the merger happened."

Speed was one of the prime guidelines for integrating the two IT organizations, according to Sanders. He was convinced that speed would provide intense focus on the tasks at hand and help minimize the natural anxiety that comes with change. So he set a goal of three months for planning and another three months for implementation.

Merger of Equals

In many large mergers, one company often dominates. But Sanders said there was no room for such thinking in the Honeywell and AlliedSignal merger.

"Going in, we held to the principle that this was going to be a merger of equals and that we were going to retain the very best people wherever they came from," Sanders said.

The same was true for IT processes. Establishing the concept of equality from the beginning defused any negative ruminations, Sanders said.

And although there was a broad focus on controlling cost structure and not just head count, Sanders said, the companies started with the simple concept of "one plus one equals one" - meaning that the final IT organization could be no larger than the sum of IT personnel in the two companies.

"We made sure we had a blend of people on every team, from both Honeywell and Allied. We also mixed up leadership of teams between the two companies," Arnold explained.

Sanders didn't specify how many IT staffers left as a result of the integration. But he did say that a senior IT manager left to take a higher-level position at another company.

Some of Honeywell's IT workers in Minneapolis "didn't want to be relocated," Sanders said. The company had an excellent severance plan, he added, and some people in that city had two or three years of salary coming to them. With only a 2 percent unemployment rate in Minneapolis, some could easily "switch directions", others simply decided to retire, he explained.

‘Tough Guys'

Still, there's always some anxiety in the air when different cultures come together, Sanders said. The Honeywell employees came from a fairly decentralized organization, whereas AlliedSignal was more structured.

The Honeywell IT staff may have thought, "I don't want to work for a bunch of tough guys," Sanders said. And the AlliedSignal staff may well have imagined, "We'll lose our edge by mixing in with these Honeywell people," he added.

But, according to Arnold, when the two IT project teams started meeting, people from both sides discovered more similarities than differences.

There were 20 IT integration teams in all, Arnold said. Each had a well-defined scope, deliverables, target dates and communication and reporting processes.

The teams covered six major areas: infrastructure, which included telecommunications and computing platforms; global operations; finance; applications; e-commerce; and organizational strategy. The latter team was aimed at putting people in the right places within the merged corporation.

Sanders continued to preach the melding of business strategies, so it followed that he would opt for a consolidated IT operating plan that retained the strengths of each company's separate plans.

"We focused a lot on resolving differences," Sanders said. "There was no ripping things apart. We didn't want to disrupt business and spend money just to get sameness."

For example, Honeywell preferred SAP AG's enterprise resource planning (ERP) software, whereas AlliedSignal used Oracle Corp.'s products. But Sanders insisted that the two companies not quibble over it.

The result was a blended ERP, Sanders said. The merged corporation's aerospace, automotive and chemicals businesses use SAP, and the industrial businesses run on Oracle.

The companies also elected to maintain what Arnold described as a dual-technology strategy for e-commerce.

"Sun/Netscape was Allied's basic strategy," he said. "Honeywell's was Microsoft. We decided it didn't make sense to throw one out for the other. The advantage of Sun/Netscape is openness. The strength of Microsoft is a large installed user base."

Overcoming Obstacles

In the middle of project planning, the European Union threw the IT integration teams a curveball. The company would have to divest some of its aerospace holdings before the merger could move forward because the EU felt the duplication of aerospace elements in the two organizations could raise antitrust issues.

To minimize disruption, Sanders decided to stop integration work on aerospace systems but to proceed full bore with the integration of the other businesses.

Aerospace wasn't outside his consciousness, he said. "We just had to keep it to the side of the table" and in some cases "extrapolate what we would do once the divestiture issues were resolved," he explained.

"Once aerospace was ready to go," Sanders said, "we were able to get through integrating it in 30 days."

Europe also presented another problem: AlliedSignal had a data center in Scotland, and Honeywell had one in France. "Neither was willing to fall on its sword," Sanders said.

"We had to back away and look into the high-level economics," he added, explaining that he decided to keep both open for the time being but will look into the long-term option of outsourcing the infrastructure.

"As leases on facilities expire, the economics of this approach make sense [globally]," Sanders said.

The Honeywell and AlliedSignal merger was finalized Dec. 1. Honeywell Chairman and CEO Michael Bonsignore said the new company is well positioned to realize $250 million in merger-related savings this year against its three-year target of $750 million.

"It's still a little too early to tell," said aerospace analyst Paul Nisbet at JSA Research Inc. in Newport, Rhode Island. "But the merger appears to have gone very well. I don't think you're going to see [Honeywell and AlliedSignal] stumble like Lockheed and Raytheon did."

Wall Street seems equally pleased with the outcome of the merger. "The new company is off to a good start," said Phua Young, an analyst at Merrill Lynch & Co. in New York. "So far, so good. We're happy with earnings and growth."

Merging IT

To create the new 126,000-employee Honeywell, representatives fromAlliedSignal and Honeywell formed 20 integration teams that focused on blending the best from each company's IT department and scrapping the worst. They concentrated on the following major categories:

- Infrastructure

- Global operations

- Finance

- Applications

- E-commerce

- Organizational strategy.

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