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No Sacred Cows, Small or Large

By setting aside their differences, a new culture has arisen.

September 18, 2003
Related Topics: Mergers and Acquisitions
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Name: Michael Foods
Location: Minneapolis, Minnesota
Business: Diversified food processor and distributor
Employees: 4,200

Michael Foods knows acquisitions. The company is made up of severalautonomous units, each of which was once a small family-owned business. Usually,the company likes to preserve the entrepreneurial spirit of the small companiesit buys while providing them with the benefits of a big corporation, says BradCook, executive vice president of corporate development. But in 1997, when itapproached Papetti's Hygrade Egg Products Inc. in New Jersey, the stakes weredifferent. It was by far the largest acquisition the company had ever made.Papetti's and Michael Foods' Waldbaum division produced similar egg products andhad always competed for the top two standings in the market. "They were intensecompetitors in every category," Cook says.

But the Papetti family was ready to sell, and it was an excellent strategicfit with Michael Foods. Papetti's had plants on the East Coast, Waldbaum waslocated in the Midwest; they had similar customers and products, and togetherthey could achieve market dominance.

Culturally, however, the two companies were vastly different. Papetti's wasrun almost entirely by family members, and not much information was shared withemployees, Cook says. Michael Foods was a big public company with open dialogueand a more corporate atmosphere.

Because of those differences, Michael Foods preserved Papetti's as a uniquedivision for the first three years after the acquisition. Family members stayedon, and little changed within the culture of the company. There was one kickoffmeeting in 1997, at which Papetti's and Waldbaum leaders got together and talkedabout a plan to integrate plant operations, but little happened after everyonewent home, Cook says.

After a few years, however, Michael Foods' executives decided therelationship had to change. In 2000, as Arthur Papetti, the company's presidentand patriarch, prepared to retire, Ken Neishi, VP of operations, was asked totruly integrate the two company's plant operations. "Up until that time, thePapetti's division was considered `those people on the East Coast,"' Neishisays. There was no relationship between the two groups. Papetti's evenmaintained its own sales force and distribution network. "We knew there werebenefits to capture, but they were hard to get to," he says. "Our operationstyles were so different, it was painful."

Neishi turned to the Belgard Group for help. Using the consultancy's highlysuccessful team-training approach, Neishi and Bill Belgard set to work bringingPapetti's into the fold.

"It was difficult," Cook says. "There was a lot of negativity between thetwo divisions. Each thought they were better."

Instead of pitting the two groups against each other, Neishi wanted to createa new business, incorporating the best of both divisions throughrelationship-building and trust. He began by visiting Papetti's plant andgetting to know the division leaders. The visits were purely to network, not tomake changes or evaluate productivity, he says. Papetti's employees appreciatedthe diplomacy of the meetings, and the barriers began to drop. "It's amazinghow well those trips went," he says. "The relationships we began there arestill strong."

After the visits, Neishi and Belgard brought unit leaders from all the plantstogether in a neutral location for a team-building session. When they all walkedinto the room on the first day, the tension was palpable. "It was like a unionnegotiation, with eight guys on one side of the table and eight guys on theother staring each other down," Neishi says. There was a lot of skepticism andsuspicion, but Neishi and Belgard went to great lengths to ease their minds. Tomake the session seem as unbiased as possible, they brought in A.J. Papetti,vice president of the East Coast division, to lead much of the meeting--withNeishi's guidance. They also integrated team-building and dialogue into everyactivity, from setting breakthrough goals to generating ideas on rapidprototyping.

"We made sure everyone knew there were no sacred cows in the group. We werelooking for best practices no matter where they were," Neishi says. Everyonehad a chance to talk, and all ideas were accepted. By the second day,participants' concerns had been largely set aside. "They started to engage inthe process and work to develop cross-functional teams," he says.

Opportunities for improvement were identified at all of the plants, andsuddenly there was a coalition forming, Cook adds. During that session theybuilt an operations council establishing groups across product lines--notdivisions--to work on improvement plans at all facilities.

"It was painful at first, but the relationship-building and show of respectpaid off," Cook says. One of the big successes for the operations council was aredesign at the New Jersey plant that was executed flawlessly by the Papetti'sgroup, saving the company $250,000 in labor costs annually. "Everyone atheadquarters was talking about that victory, which built a lot of pride andconfidence in Papetti's employees."

Neishi made a point of broadcasting the plant's success across the company. "We learned early on that this process isn't just about making improvements;it's about celebrating people."

Today when the team-building meetings are held, there's no way to tell whocame from Papetti's and who came from Waldbaum. In 2001, the company wentprivate and the remaining Papetti's family members retired. Since then, thesales force, human resources, and finance groups have been centralized, and thetwo groups are now one consolidated division.

The improvements they've been able to implement as a result of this meetingof the minds have also been astounding.

At the original 2000 meeting, they set a goal to save $15 million inoperating costs and have long since achieved it. Now they are striving to makefurther process improvements.

"By showing respect for our differences, a new culture has arisen," Cooksays. "Together we are pursuing a vision for the future."

Workforce, February 2003, p. 60 -- Subscribe Now!

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