1. Power of Organizational Mechanisms –
through a study on Adidas/Reebok PMI
March 20, 2013 Group 8
Sec D
2. Key Takeaways
Importance of Formal Mechanisms in an organizationto
implement strategic intent
Also, we look at:
Value based leadership and its positive impact
Importance of stakeholders during decision making
Impact of a decision on organization based on the impact of
stakeholders
3. Agenda
Adidas & Reebok Background
Context for acquisition
Problems in acquisition
Steps taken – Learnings
Post Merger Performance
Analysis
Conclusion
4. Adidas
Founded in 1926
World leader in soccer shoes
#2 behind Nike worldwide - #4 in the US
Three acquisitions before Reebok:
Company Sports Inc in 1993
Salomon in 1997
Arc'Teryxin 2002
Culture of control, engineering, and production
5. Reebok
Founded in 1895
First athletic shoe for woman
#2 in US - #4 in Europe
Unique portfolio of long term league licenses
Creative marketing-driven culture
6. Context for Acquisition
Industry factors
Organizational factors at Adidas
Organizational factors at Reebok
7. Industry Factors
• The market was slowing down in 2004 as a result of slight economic slump
Source: http://www.global-production.com/footwear/trendstudy/index.htm
9. Other Industry Factors
Retail rationalization is important
Global supply chains i.e. manufacturing hubs at
several locations would give better margins
Endorsements with sports clubs, events etc are
important to earn customer base
10. Adidas Specific factors
Adidas- Salomon failure
Access to U.S. markets with a local brand and
retail chain
Reebok Specific factors
Struggling to remain in number 2 in U.S. market
Too many competitors coming up with cost
leadership strategy
11. Strategic aims from the
synergy
Face their biggest competitor – Nike
Achieve economies of scale and scope by
extending their global supply chains
Access to markets
Broader portfolio of products
Worldwide recognition through licenses
Enhanced R & D
12. Context in brief
Economic slowdown
Fierce competition at various segments
Aspiration to be No.1 at adidas
Nature of industry which demands
Global footprint in retail
Global supply chains
Global recognition through endorsements of
sporting clubs, events etc
13. Result
In the above Context top management of both
companies approved acquisition
Announcement was made on 31st Aug
Deal closed on January 2006
Price: $3.52 billion
14. Problems in Acquisition
Differences in Culture
Employees fears about the following:
Layoffs
Major Relocation
Career Growth
Customer Confusion about brand equity
Structural Complexity
15. Decision Dilemma
How to handle the integration process smoothly
How to design a structure and processes that
would create greater benefits than costs
Future of both the brands keeping customers in
mind
16. Steps taken - Learnings
Creation of Clean team
Communication Strategy with employees
Integration Mechanism
Strategies to drive uniform culture
New Structure
17. Creation of Clean team
Appointment of adidas managers at Reebok soon after the
deal
This team (Clean team) analysed top management at
Reebok
This analysis aided decision making of top management
Clean team members were given strong targets by CEO to
immediately leverage the potential of synergy
Learning: the integrative structures should be created from
the day one to avoid unfortunate fireworks during merger
18. Communication Strategy
Hainer visited HQ and personally stated that it wouldn’t be
shifted
A new intranet site was created for employees to know about
the acquisition process immediately
Hainer also stated that there would be no layoffs and adidas is
planning to invest more in reebok
Videoconferences of CEOs of adidas and reebok are made
available for download
Learning: Hainer’s value based leadership created a sense of
belonging for reebok employees and the acquisition was
received positively
19. Mechanisms for Interactive
Communication
Every person involved in acquisition was asked to give his/her
expertise
Pulse check Surveys to understand feelings of employees about
decisions taken
The relevant sample was chosen at various hierarchies
Each employee is given eight questions
The survey was used to determine the overall pulse about the
integration process
BCG was appointed to hire candidates unbiasedly to potential
positions
20. Mechanisms for Interactive
Communication
Dedicated HR answers to interested employees about the
integration process
Global PEP (Performance Evaluation and Planning) was
implemented
Results:
All this created a strong positive mood and a sense of belonging
among employees at every level in the organization about the
adidas group.
21. Learning
Hainer’s team did not stop at communication of ideas
They created strong mechanisms of interactive communication
If the employee morale failed, Reebok performance would
have shattered and the underlying logic of acquisition would
become meaningless
22. Integration Process
Eight “integration teams” were formed with adidas and Reebok
managers in a parity proportion
Teams reflected regional and functional structure of each
company
Task is to develop blueprint about how to leverage the synergy
Verification of these blueprints with subteams at regional levels
A dedicated PMO to steer the implementation of approved
blueprints
23. Result
Managers at various levels felt that they are involved in the
process of integration
This mechanism gave a sense of ownership and created
sustainable business processes
The power of this mechanism is Integration process can be easily
adopted as several subteams were involved
Learnings: A well designed process of Integration that involves its
various stakeholders made the implementation very easy
24. Adoption of Unified Culture
Unified Mission: to be the leading sports brand in the world
Communication about culture: “Diversity is key to success”
Beyond communication, the following processes are adopted
Strong communication mechanism through periodic pulse check
surveys
Managers at adidas were relocated to reebok (ex: clean team) to
adopt the culture
Learning: Creation of an unified mission and implementing strong
mechanisms helped adidas easily adopt its culture in reebok
without deliberation
25. Restructured Organization
Key Decisions:
With Customers in mind, brands were to remain independent
Supply chains are united: To achieve economies of scale and scope
Retail chains are united: To gain access to markets
Keep R & D separated: To design products that appeal to the brand
loyalists
Sales & Marketing is separated: to competitively promote each brand
Integrated Marketing Dept: To clearly position the individual brands
without overlap
26. Learning:
Corporate Umbrella makes sense only when the benefits from
synergy are greater than costs
Adidas would have easily lost to Nike if their R & D or Sales &
Marketing are combined
Customer being an important stakeholder, his perception has
significant influence on the design of organization
27. Redesigned Organization
CEO & Chairman
Adidas AG
Herbert Hainer
Global President & CEO- President & CEO -
Finance
Operations Adidas Reebok Paul
Robin Stalker Harrington
Glenn Bennett Erich Stamminger
R &D R&D
Sales & Marketing Sales & Marketing
28. Post Merger Performance
Financial Performance:
Sales revenue increases by 52 percent i.e. from € 6.636 billion in 2005
to € 10.084 billion
In 2006, representing the highest organic growth of the Adidas group
within last eight years.
It was the first time in the group’s history that it crossed the
benchmark of € 10 billion
29. Post Merger Performance
Establishing Global Footprint:
In 2005 sales from Asia contributed 22.95 percent of the group total
revenue which increased to 24.65 percent in 2008
Sale has increased significantly in Latin America which had
contributed only 4.88 percent of total revenue in 2005, increased to
8.26 percent in 2008
Beat Nike’s rankings: adidas only remained a close competitor
but couldn’t beat its rankings
The major reason for this is reebok’s declined sales revenue
Some views exist that reebok had cannibalization from adidas
30. Analysis
Integration of adidas and reebok is not a overnight process
It takes years for a structure to work and adidas group is
consistently reinventing its organization structure to achieve the
unmet goals
2007 – Reorganized from brand based to product category based
structure
2009 – functional structure at board level by having separate units for
brand and marketing
There was no mass exodus from reebok. It shows the integration
process was efficiently executed
32. Conclusion
Beyond communication, implementation of strong mechanisms
helped the top management to easily implement a complex
process of integration of two global organizations
These mechanisms also helped in inducing culture, values, goals
and strategies of top management within an organization even
in short time
The importance of various stakeholders while implementing
these mechanisms should be considered
The affect on several stakeholders would impact the
organization significantly
