Case Studies
Mergers

MAR MONTE PLANNED PARENTHOOD MERGER CASE STUDY 1997-1999

by La Piana Associates, Inc.
Dwight Cochran and David La Piana

INTRODUCTION

In the Spring of 1997, The James Irvine Foundation provided funding to study a merger in the nonprofit world. The motivation was that while there is a growing body of prescriptive work on the topic, there is still a paucity of descriptive, case-specific information, particularly of a longitudinal nature. It was becoming clear that many nonprofits could better use their meager resources by joining forces. The Mar Monte Planned Parenthood in San Jose, California and the Central California Planned Parenthood agreed to allow the study of their impending merger.

Our methodology consisted of periodic interviews with representative staff members from both merging partners: five senior managers from Mar Monte (including the CEO) and a total of five staff members from all levels at Central California. Interviews were supplemented by document review.

By examining this merger, and previous mergers that Planned Parenthood Mar Monte had been through, a pattern emerges that can be useful to other nonprofits attempting their own mergers. To better understand a merger it can be broken down into separate phases. Each phase brings out different emotions. The process can be facilitated by understanding and planning ahead for the emotions of each phase. Surprises and shocks are generally not good for organizations and by being able to expect what is going to happen the process will be smoothed out.

The following is a graph that approximates the employee outlook (on a scale of negative to positive) toward the merger over the course of the two-year study. Phase one demonstrates the apprehension and hope around the time of the merger. Phase two encompasses the initial letdown after the merger occurs. Phase three is the time that some of the kinks have been worked out and progress is being made. And phase four shows the successful results that can occur once the two organizations become one.

PHASE ONE - August 1997

In the years leading up to the merger, Central California Planned Parenthood was in a downward spiral. Despite the fact that its clinics were offering top-notch services, it was collapsing financially. Revenues were not covering expenses and it had a poor fundraising track record -- so when the crisis hit it had nothing to fall back on. Loans were taken out for operations and payroll, and no money was being set aside for program development.

Over time, more problems arose. Center sites and medical equipment needed repair. Computers and phone systems were inadequate to handle patient loads. There were shortages of key family planning products in the clinics. There were even threats of shutting off power to some clinics if overdue bills were not paid.

When the long term Executive Director left, Elena Love was brought in as the Interim Director to conduct an assessment of the situation. With employee morale at a low and the money supply practically exhausted it was clear that large changes were needed. So in December of 1996 Elena presented the plan to pursue a merger with Mar Monte Planned Parenthood to the Board of Directors. The Board of Directors unanimously approved the idea and negotiations with Mar Monte began.

Mar Monte had completed three mergers during the previous year so staff were initially overwhelmed by the idea. But by March 1997 Mar Monte realized the necessity of the merger and the Board of Directors gave its approval for the merger to occur in July.

The universal reaction of Mar Monte employees was "Oh my God, not another merger." But they also knew that, given Mar Monte's mission imperative, and the state of the health care industry, there was little choice in the matter so they went into action to prepare for the July date. One point that helped Mar Monte was that they had been through the merger process many times in the previous year and felt they knew what they were doing and what to expect. Although this did not help reduce the workload, it did help reduce some of the tension.

This was not the case with the CC staff. They had no idea what they were getting themselves into. But, since it had gotten to the point where many of them had to bring their own pens to work, they knew that something had to change. Most CC employees basically had the attitude of "Merge or Die."

During the time leading up to the merger most of the CC employees felt they were being pretty well kept up to date on developments. Elena circulated weekly memos focussed on the merger. The one key area of stress for the employees was that they knew little about Mar Monte and had minimal contact with the organization and its personnel.

The official day of the merger was very traumatic mostly due to the fact that all of the paperwork (forms, protocols, etc.) changed in the clinics as they adapted those used by Mar Monte. There had been some short, general training sessions in advance, but none with the actual forms. The forms themselves did not arrive until two days before the merger so there was little time to understand them. At the time of the first round of interviews a month later, there were still many misunderstandings and complications concerning the correct use of the forms.

There was also a general feeling of having to do it the "Mar Monte Way" and that there was really no room for discussion. Many former CC employees felt that they were being made to "jump through hoops" while at the same time they were not getting responses to all of their concerns. From Mar Monte's perspective, they had just revamped many systems due to previous mergers, and could not expect their own, much larger group of employees, to once again change their systems, in order to accommodate the Central California group's much smaller staff. Mar Monte's management made this position known early and repeatedly during the merger consideration process. While this stance makes good sense, the emotionality of a merger lead some CC employees to take exception to the approach.

Overall, the CC employees were upbeat about the merger despite the trauma of all the changes. There was a general feeling that once they got over this initial hurdle, things would improve and settle down. Employees in key centers like Fresno had contact with staff from Mar Monte and could see that Mar Monte was making an effort.

Mar Monte staff meanwhile were overworked but unfazed. They felt they knew what to expect and that they would somehow get the job done. They had done it before and they could do it again. To add to their confidence, they were also quite impressed with the CC employees that they had been working with.

PHASE TWO - February 1998
The second round of interviews was conducted six months later in February 1998. Elena Love, who had been the Interim Director of CC left to become Mar Monte's Director of Organizational Integration so she was the point person relating to the merger. She, as well as most of the other Mar Monte managers, felt that things were basically on track with the merger. Mar Monte sensed discontent among the CC region staff but this was not a real cause for alarm. As a matter of fact, this discontent followed a post-merger cycle that they expected. Now that the merger had taken place and the brief honeymoon was over the reality of having to make it work set in: day-to-day life had begun. Having gone through previous mergers, Mar Monte expected this phase after the initial euphoria concerning the merger subsided.

Mar Monte was also experiencing structural problems - mostly in the form of growing pains. The increased number of clinics and staff swamped various departments in Mar Monte - predictably, the problems became particularly acute in departments such as accounting and purchasing. At the time of this round of interviews Mar Monte fully expected that these departments would soon be able to incorporate the increased workload.

There had been a substantial effort by Mar Monte managers in the previous months to travel to Central California to spend as much time as possible with the CC region staff. Most senior managers made many trips a month to establish bonds and ties with their new employees. As effective as the visits were, they also took a toll on the Mar Monte staff. During this time, Mar Monte began to notice some potential problems with the communication structure put in place for the CC region. At times communication was less than perfect. Up to this point, once Elena had moved to the corporate offices, there had been no point person for the CC region staff to link up with Mar Monte. So Mar Monte named Tammie Rutledge, the Site Manager in Bakersfield, to act as the CC region point person. Mar Monte felt this would help to alleviate the feeling of the CC region being isolated.

Six months post-merger, many CC region staff were undergoing what came to be referred to as Post Merger Stress Syndrome: a general downturn in their level of optimism toward the merger. Many changes that had been expected, such as cost-of-living increases, had not occurred, and were not even on the foreseeable horizon. Mar Monte had been viewed as the savior, but that initial glow was now waning.

All the CC region employees interviewed at this point mentioned two positive aspects of the merger. The first was that they felt more financial security - both personally and for their organization. The second was that they felt job security. Since there had been no job security promises before the merger this was a very big concern and people seemed to be feeling more comfortable about it now.

CC region employees also were feeling stresses related to differences between the two organizations' cultures. For many CC employees, especially those not based in key areas like Fresno, Mar Monte signed their checks but remained basically nameless and faceless. The CC employees might not have known the corporate staff's names but they could certainly feel the Mar Monte presence. The CC region clinics' slower pace, with emphasis on the personal touch, was being replaced by Mar Monte's more businesslike culture of judging performance by the numbers. Clinics were compared to one another based on their monthly numbers, a new concept for the CC region employees and one that was going to take a while to get used to.

PHASE THREE - September 1998

In September of 1998 the third round of interviews was conducted. As the merger-savvy folks at Mar Monte had predicted, many of the troubles with the merger were being worked out and morale was noticeably higher. There was still a lot of extra work for the Mar Monte staff but a structure to ease the workload was slowly being put into place. For instance, new supervisor positions were added to the CC region to help cut back on the travel schedules for Mar Monte employees. For the clinics, the new model added Area Supervisors to help with information flow. The next step is to work with the Area Supervisors to develop their problem-solving skills so issues are resolved within the CC region and fewer get sent back to Mar Monte.

Mar Monte was also able to make an investment in Community Education Programs for the CC region. This was an area that had been previously lacking and was in need of improvement. Several new Health Educators were added and it is turning out to be an excellent investment. The Education Department at Mar Monte also held a one day celebration for all the educators in the Mar Monte system. This received an excellent reception and allowed everyone to get to know each other and begin developing bonds.

The CC region staff are still frustrated over the bureaucracy of Mar Monte. Communication has definitely improved to the key CC areas but is still lacking with the outlying clinics. Also, some of the improvements that were expected with the merger - such as computers and Internet access - have not yet happened.

Overall the morale of the CC region employees is up. Despite some of the previously mentioned problems, they are aware that their situation is far superior to the pre-merger days. Also, they are optimistic that things will continue to improve. One key sign that the merger is going well is that there has been very little staff turnover since the implementation date. More staff has been added and that has increased the efficiency of the programs as a whole.

PHASE FOUR - March 1999

Phase four is the final phase of the study. Interviews were conducted in March 1999. As the study is concluded the merger was no longer on the forefront of people's minds. Most staff interviewed had not been thinking about the merger and rather had focused on the day-to-day issues of operating a Planned Parenthood organization.

The Mar Monte staff now view the CC region employees as part of their big happy family. Most people are proud that the merger went so well ("We finally got it right") and that the CC region is flourishing. There are still changes being made to the structure to improve efficiency, and some departments are still behind schedule, but overall Mar Monte has moved on to focus on improving its own internal systems.

The feeling among the CC region staff is that work is far more stable and less chaotic. They are adapting to the more "businesslike" style of Mar Monte and beginning to see improved results. There is still frustration of having to do everything the "Mar Monte Way." Many employees feel that some procedural adaptations are necessary based on the differences of their communities. Also, communication to the outlying areas still needs to be improved. But, the key factor here is that despite the various remaining issues, there is a deep felt loyalty to MM for having kept the CC region afloat.

THE NUMBERS

It is interesting and necessary to examine the merger from the quantitative as well as the qualitative perspective. There are two key indicators that Mar Monte Planned Parenthood uses to determine the efficiency and effectiveness of its clinics. It seems appropriate to examine these indicators for our purposes. The first indicator is the number of monthly visits per clinic. At the CC region clinics there was a 19% increase in visits in the first year after the merger, and a 43% increase over the whole 19-month period. None of the clinics reported a decrease in visits.

Visits

The second key indicator for Mar Monte Planned Parenthood is monthly revenue per clinic. Revenue for all of the CC region clinics improved 34% the first year and after 19 months had nearly doubled at 90%. Once again, none of the clinics reported a decrease in revenue.

Revenues

So, not only are the employees happier and operations running more smoothly, but both service volume and the bottom line have improved dramatically in the 19-month period since the merger occurred.

LESSONS LEARNED

• The emotions of staff going through a merger may tend to follow a pattern such as that seen here. The Preparation/Anticipation Stage, the Letdown Stage, the Learning Stage, and the Successful Integration Stage may be expected in other mergers. Anecdotal evidence from other mergers in the authors' experience would suggest this is the case. Preparing merger participants for these stages may help to ease the transition. The employees at Mar Monte had been through mergers before so they knew what to expect. The CC region employees, on the other hand, were not able to predict these stages, making the whole experience much more stressful for them.

• Open dissemination of all information should be the standard leading up to the merger and every day thereafter. The state of affairs of the organization - both good and bad - needs to be made clear to all employees. Negative information should not be hidden and should not be sugarcoated.

  This merger with CC has been much easier than the previous Planned Parenthood mergers. This is due to the fact that it was obvious to the CC staff that their organization was in serious trouble (when you have to bring your own pens to work it is difficult to feel that things are being well run). When you know that things cannot continue as they currently are, it becomes a little easier to accept change. People do not want to change if they don't have to, but they will in order to survive.

• It is critical to have a point person for the merger at each of the organizations. Often, each division is responsible for keeping its counterparts in the merging organization abreast of current developments. Two problems arise from this approach. First, information falls through the cracks this way - crucial data doesn't always make it to those who need it. And second, there is not someone dedicated to guiding the merger process - rather it is a part of many peoples' jobs. This leads to different, sometimes contradictory, statements being made that can cause confusion and uneasiness within the merging organizations. A point person enhances the dissemination of information and helps ensure that the same message is being sent to all parties.

  Although not always possible, it is beneficial to have an outsider play the role of merger point person. Elena's lack of personal commitments and history with the organization allowed for the merger to be implemented more cleanly and effectively. It is easier in this way to make the difficult, yet necessary, personnel decisions that may accompany a merger.

• Human contact is critical in mergers. The more frequently the partners' faces are seen, the more comfortable people become about the merger. Without that initial human contact, letters, e-mail and phone calls simply reinforce the concept of distance between the two organizations. Visits, on the other hand, were repeatedly mentioned as being helpful and reassuring.

  Throughout the merger process, the CC employees with the most contact with Mar Monte staff were the most optimistic about the merger. Those with less face-to-face communication inevitably had a bleaker outlook. The department meetings that brought employees from all the various Mar Monte regions together were effective in establishing ties as well as allowing a cross-pollination of ideas.

• Constant communication about the merger is critical. Even when there is not news to report, employees should be updated that there have been no new developments. This helps ensure that employees do not feel that they are being left out of the information loop. It is also important to work with employees to develop a proactive approach to seek out information. One way to enable this is by providing them with names and contact numbers of individuals in all of the key departments and to make it clear that all questions and comments are welcome.

• As structural changes and key personnel decisions are made, staff from both organizations should influence the decisions. There are times, however, particularly early on in the merger implementation process, when it is more effective for the lead organization to make certain decisions. There were examples in past Mar Monte mergers where compromises were reached on key decisions and in the end no one was happy. Initial key decisions need to be made at the time of the merger by the lead organization and then as time progresses more and more input should be given to the merging partner.

CONCLUSION

In conclusion, there are many valuable lessons that can be learned from the merger between Mar Monte and Central California. One of the most important, for the field, is that it took months, even years, to see the ultimate positive outcome of this merger. Had the merger study consisted of a snapshot taken at, say, the nine-month mark, it might have reported a negative outcome. Studies such as this must be longitudinal. More study is needed to confirm our suspicions that the four stages of emotionality around a merger, identified here, is somewhat generalizeable to other situations and organizations. It must also be noted that this merger is representative of the "strong absorbs weak" type of merger. Mergers of equals may have different trajectories.