Business Decision Making ADMN 2167
Assignment 1
This situation is based on one that I was directly involved in. Again, I’ve disguised the companies involved by changing their names and some of the factors, but the spirit and essence of this scenario has been captured.
Introduction
Acquisitions have been a staple for organizations for many years-it is one way to fuel growth. In the technology market, where I have spent my career, this is a given. From a strategic perspective, acquisitions can address one or more of a firm’s needs: increased revenues; access to products and technologies; acquiring human resource talent (known also as ‘acquihires’); access to different markets, or; access to potential new partners. There are some rare instances where human resources are not a factor in the acquisition (i.e. to acquire intellectual property or patents), so generally speaking, the acquiring company will have to develop a people strategy, which is one of the key functional strategies.
Scenario
Crown Corporation, a multi-national firm with revenues of approximately $50 billion USD and 150,000 employees globally, decided to acquire Formation Software, a firm with 2,500 employees and revenues approaching a billion dollar (USD) annually. The acquisition price was a billion dollars (USD) cash, and considering that the annual support/maintenance renewal contracts totaled approximately $500 million annually, the acquisition price could be covered very quickly from the support contract renewals alone, not including revenues from the sale of Formation’s products, which was approaching a half a billion dollars (USD) annually on its own.
Business Decision Making ADMN 2167
As a Silicon Valley-based firm, Formation offered generous compensation packages to their employees, especially the sales team. This acted as an incentive for them to drive and close business. Crown Corporation, on the other hand, was an industry stalwart and a blue chip firm on the stock market. Its long and successful history provided a very stable work environment, one not usually seen with technology firms, and this made it an attractive workplace for many who wanted to have a long career with one employer. Crown actively promoted their stability and career longevity with new hires and employees. They also offered a varied career path, as employees could shift their career into different product groups, different functional areas (Sales, Marketing, Operations, etc.). This offered employees a rich and diverse career within one organization. With this in mind, their compensation for the sales team was substantially less than what was offered by other technology companies, and in particular those in Silicon Valley like Formation Software.
It was several months from the acquisition announcement until the acquisition was finalized, but once it was complete, immediate integration of Formation into Crown began. As part of this, Formation was rolled into one of the five major Crown business units, and the former Formation sales and sales management teams, although they remained intact, began to report into the formal Crown sales.
structure at the middle executive level. Quickly, it became clear that there was a significant discrepancy between what a salesperson or sales manager at Formation was paid versus a Crown salesperson or sales manager with comparable experience and objectives (quotas). As an example, where a Formation salesperson would have a base salary of $100,000 and a bonus/commission bucket of another $100,000-totalling potential on-target-earnings (OTE)1 of $200,000-the Crown salesperson had a $70,000 base salary and a bonus/commission bucket of $60,000-totalling potential OTE of
$130,000. This situation was so evident that Crown salespeople made comments to their Formation counterparts, stating that they hoped the integration of Formation into the Crown organization would sway Crown into making the Crown sales compensation plans richer . Just as the salespeople were aware of this situation, so were the Crown executives who learned about this during the due diligence process prior to finalizing the acquisition. APA FORMAT
Your Task
Considering the information presented above, you need to provide your perspective on this situation, taking into account questions such as:
- What would you do if you were an executive at Crown Corporation? How would you handle the variance in compensation between the Crown and Formation sales teams?
- What factors would you take into account before you made your decision regarding this compensation scenario?
- How would you implement any change, if there were changes to be made?
- Should you have considered not acquiring Formation Software because of this?
- Using these questions as a guide, state your position and explain.