This paper presents a case study of “Bancolombia: Talent, Culture and Value Creation Management in Mergers” with a view to appraise the historical information and evaluate performance.
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The management made several decisions regarding organizational cultural transformation over the merger period, some of which may have been wrong. The paper also makes recommendations to management about the organizational cultural transformation during takeovers.
Historical Information and Performance of Bancolombia
Bancolombia is a financial institution established through acquisitions. Jorge Londono was the chief executive officer of the institution for 15 years. During his tenure, the bank achieved considerable milestones, which positioned the institution as the market leader in Colombia with cross border operations.
At the time of his retirement, Bancolombia had a preferred market share price of US$59.20 and controlled 19.2 percent of the assets market. Bancolombia also controlled 21.7 percent of Colombia’s total loans market share. The management strategy employed by Londono and his workforce focused on value creation, augmenting market share and efficiency in operations.
The establishment of Bancolombia started in 1995 when Londono joined Banco Industrial Colombiano (BIC). The institution focused on acquisitions and mergers as a strategy for expansion in order to consolidate a financial organization under a universal banking strategy.
BIC focused its activities on investment banking and high-income individuals. The company listed its stock in the New York Stock Market (NYSM) as a strategy to strengthen its competitiveness in the marketplace.
The bank later acquired Banco de Colombia realizing an immediate performance improvement. The acquisition presented massive cultural challenges due to the organizational differences. However, they developed a new cultural slogan “United for an Ideal Bank” and organized several cultural transformation workshops to induct the team to the new bank’s culture.
The new Bancolombia also focused on acquiring Conavi and Confinsura, which operated as a mortgage bank and banking services for large corporate clients respectively. These acquisitions expanded the new Bancolombia’s merchandise portfolio to about 40 products. A meeting held by the board of directors resolved to transform the vision, mission, and values of the latest bank.
Management Decisions and Cultural Transformation Process during the Mergers
First, it is crucial to appreciate the management for making valuable decisions during the period. For instance, the management of the old Bancolombia established a robust organizational cultural transformation program to ensure a smooth process. This program aimed at integrating employees from the old Bancolombia, Corfinsura and Conavi into one culture, while bringing out the best synergies from the three banks.
By creating this program, senior management team displayed their commitment to the long-term process. However, it is notable that senior management lacked excellent communication skills. For instance, the merger indicated that the philosophy of the project was “a merger of equals.”
This would mean that each of the three financial institutions obtained an equal position in the deal. Yet, the proportion of employees obtained from each organization differed extensively (75.5 per cent employees from the old Bancolombia, 12.7 per cent employees from Corfinsura and 11.8 per cent employees from Conavi). To justify this move, the management replaced the word “a merger of equals” with “integration.”
They justified this change through arguing that their intention was to take the best out of every institution in order to develop one bank that had characteristics of all the three as well as to avoid imposition of culture, procedures and systems. Apparently, the aspect of equality as stipulated thereof is not synonymous with the word integration, and the justification offered for the change of terms was not sufficient.
Thus, the senior leadership used poor skills in communication. Communication, a core duty of management in every organization, is vital in the course of a merger due to the apparent qualms experienced by both workers. The senior leadership at the merger offered inconsistent information about restructuring of the organization and this was likely to undermine the entire process of culture transformation.
The management also recognized that the merging of three financial institutions into new Bancolombia meant the integration of three different organizational cultures. Working together with T & P consultants, the new Bancolombia created a cultural intervention plan to guide cultural management in the new setup.
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The intervention was implemented through the “Cultural Transformation Process: United for an Ideal Bank” strategy. This approach required all top managers from the banks to participate in the “Cultural Transformation Workshop.” They received training on facilitation skills.
The workshop provided opportunities to build a new vision of the integrated bank and communicate the information to other workers under their leadership. The workshops had objectives of ensuring that workers comprehend the bank’s unique approach and internalize the relevant organizational values.
It was momentous for the workforce to comprehend the vision, mission, and strategy of the bank to enhance their ability to implement change towards value creation.
The training team for the Covani and Confinsura merger majorly came from the new Bancolombia and people who had undergone this training before. The group started by focusing on the bank’s unique vision, mission, and organizational values according to the Golden Rules of the Merger. The team developed and validated a model of organizational cultural management, which they argued would facilitate the integration process.
Executive workshops are efficient when it comes to introducing a new business culture in a merger. Such workshops offer a vital arena where members of all executive groups can discuss fields of cultural incongruity and find the best ways of dealing with them. Generally, mergers that hold executive workshops experience minimal conflicts as well as high revenues.
I suggest that there was need to discover cultural features of integrating banks to increase comprehension of previous worker environments. The analysis has indicated that the merger process did not fully understand the organizational cultures of the previous institutions. For example, they did not identify how workers interacted with one another, accountability and reward systems, and communication flows, among others.
Therefore, the implementation of cultural transformation program lacked proper understanding of diverse cultures. Understanding of different cultures could have been possible through incorporating cultural assessment methods into their general framework for evaluating potential goals.
To implement this step, the management team of the old Bancolombia would have performed a self-evaluation before the initiation of the deal. Self-evaluation would involve filling in a questionnaire formulated to capture organizational information surrounding the areas of communication, governance, business activities, reward systems and leadership.
After completing this self-evaluation, senior leadership at the old Bancolombia would have asked for responses to similar questions from Conavi and Corfinsura. This march would have been essential since discourse with management teams from potential partners can give more cultural information than just spreadsheets and past records.
Next would have been the creation of a cultural compatibility profile, derivied from the information collected from the three institutions. The cultural compatibility profile would have highlighted cultural similarities and differences among the three organizations in reference to communication, leadership, governance, reward systems and business activities.
Apart from showing areas of differences, such a profile would have identified potential business risks of leaving incompatibilities unaddressed. Possible risks would have included turnover from senior leadership, loss of customer relationships and poor management practices.
Main findings from this cultural evaluation would have been incorporated into the due diligence report and distributed among executive members of the old Bancolombia.
There was also a need to devote an execution team to take charge of the cultural transformation process. It is evident that the Bancolombia appointed an individual to lead the process. However, they needed a sizable team involving people with diverse expertise from all the merging banks to lead the process.
The team shall be in charge of all aspects of organizational transformation such as workers management, company resources and legal issues, among others. The team can employ Appreciative Inquiry in managing the process to ensure collective realization of a positive future. Furthermore, the team would have documented business-wide knowledge and skills to exchange information among merging banks.
Lastly, there was a need to incorporate performance management and reward systems into the cultural transformation program. It is obvious that employees in institutions joined together in a merger would abhor a situation whereby their colleagues in similar positions, but from other organizations receive higher pay or rewards than them.
Disparities in how the parent and target institutions appraise and reward worker performance are significant and, when ignored, can cause problems such as low turnover, poor performance, lack of motivation and a reduction in overall employee output.
Hence, the cultural transformation program should have incorporated ways of synchronizing performance measures and systems of rewards, while illuminating chief differences where needed. The applications should also have aimed at enabling employees realize that their particular reward systems are fair, even though they may not have been identical across the institution.
This would have minimized the possibilities of turnovers from employees, such as in the department of sales. Institutions should pay employees in the sales department well to retain them since they form the link between customers and the institution. As such, losing key salespersons may destroy customer relationships and thus, destroying the value of the institution.
In conclusion, senior management teams responsible for creation of the merger displayed their commitment through creating and participating in the cultural transformation program. However, the program had several gaps, as mentioned above. I suggest that there was the need to discover cultural features of integrating banks to increase comprehension of previous worker environments.
Discovery of these features would have been possible through creating a cultural compatibility profile that highlighted cultural similarities and differences among the three organizations in reference to communication, leadership, governance, reward systems and business activities.
Senior leadership at the old Bancolombia would have then worked with their colleagues from Covani and Confinsura to create cultural transformation strategies that would help all the three institutions to resolve their key differences efficiently, thus decreasing employee turnover and other business risks.