Restructuring & Growth

1. Restructuring & Growth

2. Agenda • Guest Lecturer: Dick Strayer of Strayer Consulting • Organizational Lifecycle Perspective • Start-ups • Mergers & Acquisitions

3. Integration Issues Culture Clash • Start up vs. 20 yr. established company Retention of: • CEO / CTO • Key technical staff • Marketing Team • Technical Sales Team Integration / Structure • Leadership team – corporate • R&D organization – corporate • Marketing organization – corporate • Sales Team – different customer base Acquired Company Morale Issues • Loss of independence • Fear of “Big Company” mentality • Loss of unique identity / brand • Loss of influence, power and control Acquiring Company Diversion • New Market / different sales capability • Diversion from profitable business

4. Start Up Life Cycles: Organization Transition Issues and Interventions Richard Strayer. Ph.D., MBA

5. Overview SCGI / who I am • Personal background / training • Company situations and services offered • Typical companies and consulting projects Life Cycle Analysis – A systems Approach • Why use a Life Cycle framework? • Overview of Growing Pains readings Start Up Life Cycles – Transition Issues and Interventions • Startup Life Cycles – key stages and drivers • Transition issues by stage • Stages of team development • Interventions – a systems perspective Case Study - Company “Y-Change” - A case overview of “Y-Change” life cycle and presenting issues - Small group discussion and intervention planning - B case – my strategy and candid evaluation of it (+/-).

6. Dick Strayer • Co-founder and CEO Strayer Consulting Group – over 25 years in Silicon Valley • CEO Advisor – over 100 companies • Special Limited Partner – 5 Venture Groups • Ph.D. – Psychology, Claremont University • Post Doc – Organization Consultation - UCLA • MBA – Marketing, Boston University

7. Strayer Consulting Leading organization development consultants for companies managing significant change • 30 years in Silicon Valley, affiliate offices in Seattle, Portland, and Southern California • Professional relationship with over 40 Venture and Private Equity Firms • Served more than 400 client companies, including high technology, life sciences, finance, manufacturing, healthcare • Over 300 Pre-IPO Start-ups • 50+ Acquisition/Merger engagements

8. Our Services Team Building New Teams Teams in Conflict Matrix Management Team Restructuring Board Development Acquisition Integration Integration Model Team Consolidation Culture Integration Acquisition Integration Organization Change Management Organization Change Planning Strategic Planning Facilitation Organization Change Road Map ORGANIZATION DEVELOPMENT Executive Development Self-assessment Feedback Development Plan Coaching

9. Flamholtz: Organization Life Cycles Professionalization stage Consolidation Expansion New venture Growth / Size

10. Stages of Organization Evolution Growing Pains: Transitioning from an Entrepreneurship to a Professionally Managed Firmby Eric G Flamholtz Manage the Corporate Culture Develop Management Systems Develop Operational Systems Acquire Resources Develop Products and Services Identify and Define a Market

11. Start Up Life Cycle Boredom! Early professionalization stage • IPO able leader • Strategy of the quarter • 90 day task implementation roadmap • Roles stabilizing • Processes / systems more defined • Internal coordination and linkage evolving • Culture defined by team Later entrepreneurial stage • Oozing Strategy-no functional objectives • Chaotic-overwhelmed • Resource squeeze • Constant change in roles • Rebellion against beginning structure • Culture derived from Founders Early entrepreneurial stage • Lots of grandiose vision / no real strategy • No processes/ systems/ structure/ little role delineation • Founder Group dominance

12. Start Up Transitions / Issues Early professionalization stage • Leadership Transition COO or new CEO • Upgrade functional capability • Functional alignment thru documented objectives and key processes • New leadership structure / style - tension • Team “Storming” between old and new • Requires prioritization and tighter task alignment • Define 1 year strategy functional goals and 2 qtr task roadmap • Need for management growth of early executives • Key processes / systems introduced • “Cowboys” rebel • Silo mentality / communication breakdown • Functional alignment thru hallway conversations Later entrepreneurial stage • Founder / leader hub management • Potential “new team / old team” conflicts • Marketing / engineering power struggle • Emerging push to change decision process from hub to team decision • Resentment at beginning process and structure controls • Expand beyond Founder Team • Power shift from technology to commercial side • Founding team beginning to turn over - role transition Early entrepreneurial stage • Unrealistic business models explored and discarded • Founding team fall out • Technologists beginning to struggle with embryonic marketing • Neat technology to commercialize, but unclear how

13. Stages of Team Development Start Over Again Performing • Effective decision making • Collaborative • Respect for skills and styles • Efficient problem solving Norming • Negotiated agreements • Team norms jelling • Increase in candor • Silos break down Storming • Establish “pecking order” • Turf definition & protection • Competition & infighting over roles & opportunities • Resistance to leadership style • Defining purpose of team • Defining structure of the group • Selecting members • Hesitant participation • Cautious/anxious about new environment Forming

14. Start Up Intervention Areas Right team • Effective • Aligned Individual executives • Right skills • Development Plan Founders • Evolving roles • Transition out Leadership • Right leader • Development Plan Stage of Life Cycle Board • New Board • Chairman role Venture group funding • New investors • Different incentives outcome Strayer Consulting Group, Inc

15. Managing Change: Partnering • Partnership types: Mergers, Acquisitions, Joint Ventures • Partnership Aims: To achieve the objectives of growth, diversification, economics of scale, synergy or a global presence

16. Barrier to Successful Partnerships: • Geographic distance • Language barriers • Cultural Differences • Understanding why employees behave the way that they do on the job from day to day (Gibbon, 2002) • Understanding shared beliefs, traditions, and expectations about how individuals behave and accomplish tasks (Cartright & Cooper, 1993). • Aligning structure, politics and emotion (Clemente & Greenspan, 1999)

17. Historical Perspective • 1960-1970: Conglomerate type that involved partnering with an organization in an unrelated field. • Often the focus was on financial and planning systems at the corporate level with operations being conducted separately. • Need for cultural integration: Low

18. Historical Perspective (Cont’d) • 1980-1990’s: Greater number of partnerships between organizations in the same field of business activity or industry • e.g. Time Warner & AOL • Need for cultural integration: High

19. Steps for Successful Partnership • Prospect search and identification • Due diligence • Negotiations • Transition management • Operation as an integrated unit

20. M & A Lessons • No partnership of equals. Avoid arrogance. • Change is inevitable. • Culture matters! • Two-way and open communication. • View employees as assets, not liabilities. • Employee involvement. • Overestimate timing.