Please read the case and answer the 2 questions at the end of the case as thoroughly as possible.

MMI Merger case:

On an early, crisp March morning in 2017, Nicolaas Kruger, group CEO of MMI Holdings Ltd, was reminded of Charles Dickens book "A Tale of Two Cities," when he arrived at the company's Parc du Cap office complex in Cape Town. MMI Holdings Ltd employed 14,697 people in South Africa and 2,863 internationally. In 2016, its return on embedded value, a widely used industry measure of value creation, was 13% compared to the industry average of 10.2%, and the new business present value of future premiums was 1 billion.

Like the stark contrast between the strained Parisian lifestyle and the relaxed London setting of the 17th century, Cape Town had been the headquarters of Metropolitan, one of the two companies who merged to form MMI Holdings. Metropolitans culture had been characterized by a more formal, traditional management style with top-down decision-making. Momentum, the other firm in the merger, had been headquartered in the capital city of Pretoria and its proximity to the heart of South Africa's financial district influenced its culture. The Momentum culture was considered modern and more informal, with empowered high-performing employees and less power distance between staff and management.

With Table Mountain in the background and several cyclists and runners on the road, Kruger reflected on the different locations and rich history of each organization as well as the merger's progress. For example, he noticed that there were no longer designated parking bays for executives in the Metropolitan building and inside, MMI and Metropolitan logos shared wall space. Before the merger, the top floor had been for the exclusive use of executives, but had been transformed into a staff cafeteria so that everyone could enjoy the view of Cape Town. To Kruger, this was significant progress towards aligning the two cultures around a common set of values. The question was, "How could they capitalize on their progress to derive even more value from the merger?"

PRELUDE TO A MERGER

Metropolitan and Momentum were two of South Africa's top financial services companies. Metropolitan began as African Homes Trust in 1898 to help low income earners build their own homes, and few companies had a history that so closely mirrored the progress of South Africa and its people. In 1912, African Homes Trust took over an insurance company and in 1985 changed its name to Metropolitan Life. Life insurance was its primary product, sold through mass-market agents to primarily entry-level and middle-income markets. It was highly efficient at processing new business accounts, serving clients, processing claims, and generally administering its policies. Metropolitan had sufficient scale in terms of the number of public and private sector clients in retirement fund administration to provide them with scale benefits and thus the ability to price competitively. It was also the leading player in private (closed) healthcare solutions administration. Metropolitan was proud of its special emphasis on designing products for those who had previously, especially during the Apartheid years, been unable to participate in long-term savings. In the nineties, Metropolitan expanded to Namibia, Lesotho, and Botswana, and in 2006 they acquired a 60% stake in a Ghana insurer. In 2010, Metropolitan had 5,500 people and a market capitalization of R9 billion. Momentum, on the other hand, was a progressive company established in 1966 as "Afrikaanse Verbond Lewens" (meaning "Afrikaanse Life Bonds" in Afrikaanse, one of South Africa's official languages). It acquired Monument Assurance in 1973 to form Momentum Life. Rand Merchant Bank Holdings (RMBH) invested in Momentum in 1992 and its growth benefited from a strong focus on middle and affluent market segments. In 1998, RMBH created FirstRand Limited, the largest financial services company on the JSE. Momentum had 9,000 people and a market capitalization of R16 billion. It had strong products in open healthcare solutions administration and umbrella retirement funds, both distributed through a strong broker channel. Momentum's life insurance product, Myriad, was a market leader in the industry due to its comprehensive coverage.

In 2010, Metropolitan and Momentum faced similar challenges. Looking for growth, each firm had developed insurance products aimed at the markets where the other was strong, and each had struggled to gain share. Momentum's Aspire product struggled to penetrate the lower income market while Metropolitan's Odyssey Life Insurance product for the upper income market was unable to gain traction. Both organizations started looking for corporate transactions as solutions to bridge these gaps. When Metropolitan's CEO Wilhelm van Zyl and Momentum's CEO Nicholas Kruger talked about their respective challenges, they began to discuss whether a merger between them might solve both companies' challenges. On its face, their products and markets were complimentary, and the operational risks from a merger were also lessened because there was little overlap in the broker and agency forces of the two companies. Over the next three months, various discreet meetings with selected board members tested opinions about a possible merger. These meetings led to the formation of a merger committee.

The Case for Change

The merger committee consisted of balanced representation of executive and non-executive members from both companies, including the CEOs of both companies, the Chief Financial Officer of Metropolitan, the Chief Operating Officer of Momentum, and so on. The merger committee's mandate was to formulate a clear business case for the boards. It became an important reference point in directing decision-making. Whenever there was a question or choice, the team would invoke "The business case must prevail" rule. In a time of great uncertainty, it offered direction and clarity.

The core of the business case recognized the complementary product lines and markets served. In addition, there were revenue and expense synergies to gain by integrating certain back office functions. For example, Metropolitan ran a lower cost health care insurance administration business than Momentum. On the other hand, Momentum had access to FirstRand's Rand Merchant Bank (RMB) asset management business, which had a much stronger third-party client franchise and could improve efficiencies in Metropolitan's business. Finally, Momentum's health insurance business and Metropolitan's life insurance business were well represented throughout Africa. Any regional expansion strategies into Africa would thus be complementary. The business case also helped the merger committee to focus on MMI's long-term strategic direction, especially in the face of the immediate pressures for cost-savings. An organization development consultant, Dr. Francois Hugo, facilitated some of the discussions to resolve differing views and offered input on building trust under conditions of uncertainty and conflicting perspectives. During several important decision points, the team members had to put the envisaged company's combined interest ahead of their own company's interest or their own individual interest. Nonetheless, there were still a number of occasions when the two parties had dissimilar views that could prevent the deal from going through. An important point of contention early in the process was deciding on the combined entity's brand. Design consultants, for example, suggested names that combined parts of the two client-facing brands, like Metrum, Magma, Meridium, and Emminent. Eventually, an agreement was reached with the name MMI. MMI was positioned as the investor brand, while the strong and trusted brands of Momentum and Metropolitan would be used in client-facing businesses. This decision reflected the strong belief that the financial value of the merger would be maximized by leveraging the Metropolitan and Momentum brand names.

Competition Tribunal Ruling

The merger application to South Africa's Competition Commission included the rationale of cost savings due to synergies from shared information technology platforms, combined locations, and approximately 1,500 (out of 13,000 positions) job redundancies. The transaction had to adhere to South Africa's rigorous company competition laws and regulations prescribed in the Competition Act, No. 18 of 1998. The high unemployment rate in South Africa created sensitivity to layoffs, known as retrenchments in the South African environment. They were governed by strict labour laws, such as the Basic Conditions of Employment Act, No. 75 of 1997 and the Labour Relations Act, No. 66 of 1995. The Competition Tribunal ruled that the merger between the two companies would be approved on the condition that, during the first 3 years, there would be no employee retrenchments, except for senior managers. From a legal point of view, MMI could have appealed the ruling. However, the two boards decided not to challenge the decision in part due to the negative publicity this would cause. Kruger recalled:

"We decided to choose our battles. Instead, we focused on cost-savings through consolidating our business units and used natural attrition to reduce staff numbers."

On March 31, 2010, Metropolitan issued 950 million new shares to FirstRand, in exchange for Momentum shares, aiming to list MMI Holdings Ltd. on the JSE later in the year when agreement had been reached on the final terms of the merger transaction. Following implementation of the merger, FirstRand unbundled all its shares in Metropolitan and MMI was listed on the JSE on December 1, 2010. The combined entity was 15.6% black owned and given South Africa's Broad Based Black Economic Empowerment Act No. 53 of 2003, it became one of the most empowered insurance companies in the country.

THE INTEGRATION PROCESS

The positioning of the transaction as a merger rather than a takeover was important in retaining key customer groups and talented employees from both organizations. However, while Momentum had more experience acquiring other companies, such as Lifegro, Southern Life, and Sage Life, this was its first true merger. The idea of balancing representation on the board, as well as the executive committee and merger committees, made the process significantly more complex, and seeking consensus between the parties led to several iterations of decisions. Momentum's slightly larger embedded value resulted in 11 board members compared to Metropolitan's nine MMI board members. The chairperson was initially from Momentum, but there was an agreement that after one year, he would step down and the Metropolitan chairperson, J.J. Njeke, would become chairperson of the combined entity. Despite these efforts, some financial analysts, such as Tim Cohen of Business Day, questioned whether a true merger was possible. He insisted on calling it a "soft takeover." Early in 2011, the two companies' executive teams were combined to form a new structure. The different cultural approaches in Metropolitan and Momentum became even more apparent during this time and required rigorous debate to reach compromises. The intent of achieving cost-savings through synergies, while retaining the best of both organizations, required consultations and meticulous attention to creating space for both organizations to be heard. At times, the extensive consultation to ensure fairness in decision-making solved the integration process down. Kruger commented:

"We learned early in this merger process that the soft people issues were actually the hardest to deal with. There were a few months just prior to the merger where the senior executive roles in the new structure were not yet final. This difficult time experienced by executives gave us more empathy with what our staff were going through during the merger process."

As Nicolass Kruger, Momentum's former CEO, was appointed to the group CEO position, Metropolitan's former CEO, Wilhelm van Zyl, was appointed as deputy group CEO. Kruger was responsible for Momentum's and Metropolitan's retail businesses as well as the group-wide support functions. Van Zyl was accountable for Metropolitan Health, Momentum Investments, Metropolitan International, and Momentum Employee Benefits. The rationale for the new structure was to offer equal representation for both companies, and this structure purposefully balanced power between the two former CEOs. Moreover, a divisional structure made sense because the combined entity was too large for a functional structure and a matrix structure would have been too complex in the early days of the combined entity. All executives were strong proponents of the long-term envisioned benefits of the merger and repeated the benefits to staff regularly. Leadership purposefully demonstrated their commitment to the merger by being highly visible and accessible during this period of uncertainty.

Formulating Integration Plans

Following the merger's approval, the merger committee became responsible for finalizing the due diligence process and establishing an integration program to manage the transition with a project approach. The composition of the merger committee was adjusted and comprised two non-executive board members from each company, including the CEOs. Johan Burger, representing Momentum's board, served as the committee's chair.The merger committee had several debates to make a clear and common picture of the future that resulted in a jointly formulated vision: "We will be a leader in meeting financial services needs. We will meet clients needs by providing a range of appropriate, value-for-money financial solutions in our market segments." The finalization date of the MMI Group strategy was February 2011. The merger committee, in turn, appointed working groups to flesh out the details of the merger process. Danie Botes was appointed as the MMI chief integration officer to coordinate this process, based on his first-hand change management experience in the Sage and Southern Life integrations. One group, for example, focused on the integration of people processes and IT platforms. Other working groups paid attention to the combined organizational structures for the investments business unit, the international businesses, employee benefits, and the health care administration business units. Structures for the lower income market life insurance business, called the emerging market retail division, and the upper income market life insurance retail division were also developed with equal representation from both organizations. Using working groups comprising both Metropolitan and Momentum employees increased understanding of each company's realities and aspirations.

The merger committee also retained a strategy consultancy that had worked in both organizations. The consultancy had central oversight and was ideally positioned to facilitate the working groups which utilized an inclusive bottoms-up involvement process to formulate the implementation plans. Together, they developed strategies and integrations plans that were presented to the merger committee for approval. Following approval by the merger committee, the working groups proceeded to implement their plans, taking into account top-down guidance from the merger committee. Another important role of the merger committee was coordinating the communication of integration plans. For example, the two CEOs would formulate their communication messages and confirm consistency of messaging with each other prior to sending out combined media releases or external communications to shareholders, as prescribed by the JSE. Internal communications were also sent out by both CEOs, making sure the employees of both organizations received the communications at the same time. This enabled consistency in communication and prevented, to some extent, rumors in both the Gauteng and Western Cape provinces. These communications were out weekly to instill trust in leadership. When there was lack of progress, the CEOs gave honest feedback about unresolved issues and planned corrective actions. In one of the first coordinated communications efforts, the newly formed executive committee in 2011 acknowledged that it would take a couple of years to bridge the vast differences in culture between the two organizations. As a result, they decided to focus on developing a common set of core values. The process commenced with an initial values assessment where all employees were invited to participate in a vote for the values they preferred. The assessment revealed that there were many similar preferred values across the two organizations. Behaviors associated with these values might differ, but the commonalities formed a strong foundation for the integration and alignment process, despite the different cultures. Six values emerged from this process, including integrity, accountability, diversity, innovation, teamwork, and excellence. The executive team also held country-wide road shoes, where as many staff as possible attended to hear first-hand what was planned for the merged entity. During these road shows, the former CEOs acknowledged the past, offered updates on merger progress, shared success stories and reinforced the vision of the combined entity. Finally, the merger committee initiated a Redeployment Centre (RDC) for those staff members whose jobs became redundant through the integration process. As jobs became available through natural attrition in the two organizations, employees are transferred back into these jobs. The RDC optimized resource redeployment and removed the need for layoffs. It further contributed towards MMI ultimately exceeding its annual cost savings target of R500 million on completion of the merger integration.

Strategy Reformulation

By 2014, the initial vision of the combined entity needed updating. It had revolved around meeting financial services needs and the strategy included such statements as, "We will use our insight into the needs of our clients, our strong client-facing brands, product innovation, and service excellence. Our game-changing strategy will establish MMI as a leader and enable us to deliver superior shareholder returns on a sustainable basis." The executive team embarked on a reformulation of their strategy with client-centricity as its driving force. They created a purpose, instead of a vision and mission, namely "to enhance the lifetime financial wellness" was a continuous process of planning and managing clients money so that they could handle everyday expenses and still reach their goals over a lifetime. As part of the strategy reformulation, MMI explicitly wanted to enhance the financial wellness of a broad range of clients, including individuals as well as small and medium businesses, large companies, and public enterprises. They also confirmed the earlier strategic focus on South Africa, the rest of Africa, and selected international countries. MMI had strong capabilities in the full range of long and short term insurance for individuals and corporate clients, asset management, property management, investment and savings, healthcare insurance administration as well as health risk management. They summarized their strategic focus areas as client-centricity, growth, and excellence. They defined their aspirations in both financial as well as client terms.

A Client-Centric Design

The executive committee introduced a major organizational redesign to support MMI's client-centric strategy in 2014. The reformulated strategy demonstrated a significant move away from a product focused and sioled set of businesses. To support the new strategy, the executive committee proposed an operating model with a new client engagement solutions group at the centre of the design. With the support of the centres of excellence, the client engagement solutions group supported all segments and channels by developing engagement tools to enhance client experiences. This operating model was designed to optimize the execution of MMI's client-centric strategy. Segment and channel businesses used their intimate understanding of clients to build financial wellness client value propositions. The value propositions would use client engagement and experience tools designed by the client engagement solutions business, as well as products by MMI's centres of excellence. Group-wide functions supported the entire organization. The MMI executive team consciously followed a phased approach to the merger integration. They wanted to take employees with them on the journey and sometimes had to wait for the right time and opportunity to integrate a further aspect of the organization. For example, the structural integrations kicked off in 2011 with the complete back office integrations of employee benefits, asset management, and health insurance administration divisions. However, the retail divisions were largely untouched. The new client centric operating model with the client engagement solutions group in the center was not envisaged in 2011. The restructuring initiated in 2014 was thus a next phase.

Cultural Integration Interventions

By 2015, Dr. Marlene Dippenaar, an internal organization development consultant, was asked to head up to the cultural integration process. She realized that the Group CEO and executive committee were invaluable in understanding the requirements of cultural change and demonstrating their commitment to the process. During an executive team two-day breakaway, the executive committee acknowledged the cultural heritages of the original organizations and considered which aspects they wanted to retain. It was important for the executives that the aspired MMI culture would support the strategic direction of the organization. They confirmed that the six values created earlier would be important enablers of living MMI's financial wellness purpose going forward and formulated specific behaviors that would characterize each value. They created a unifying narrative called The MMI Way to explain examples of the behaviors associated with each value. The executive committee asked Blueprint Consultants from Canada to conduct a values assessment to establish the gap between the current and desired observed behaviors. The feedback revealed each business unit's performance on these values and action plans were formulated to bridge the gap in each area. In some instances, they initiated leadership development or team-building interventions.

A highlight of this journey was a leadership summit for the top 200 leaders from all business units in September 2016. Participants were divided into focus groups and they discussed the organizational enablers that supported living the values as well as the challenges. This facilitated process assisted leaders in taking ownership of the process towards culture change. In addition, Dippenarr and her cultural integration team followed up the summit activities with facilitated sessions that involved each business unit executive team. Team members offered each other feedback on whether they practically lived the values, for example, holding others accountable. Each executive team identified its limiting beliefs and what prevented its members from living the values. Throughout the organization, storytelling sessions were held, during which employees shared how they were living the MMI values. These illustrations assisted in bringing the values alive. As part of the cultural intervention, Dippenaar and her team undertook an extensive project to align Human Resources (HR) practices to the MMI values. There were vast differences across the former Metropolitan and Momentum companies and Dippenaar relied on the support of the MMI executive team because the actions created intense resistance. Their implementation required several iterative consultation processes with employees.

First, Dippenaar's team redesigned the on-boarding process for new employees, exposing them to the purpose, strategy, and MMI way of conducting business. New employees received a document explaining each value with its associated behaviors. The team also audited whether HR policies, such as recruitment, selection, and promotion, were aligned to the MMI values. Second, in terms of talent management, the team ensured that MMI's Employee Value Proposition (EVP) was aligned to the values. For example, the Multiply wellness and rewards programme-a fast growing product that educated, engaged, empowered, and encouraged clients to improve their physical wellness, education, safety, and financial wellness-was made available to employees. It encouraged employees to make healthy changes through appropriate incentives. These actions contributed to establishing MMI's employee brand rather than Metropolitan and Momentum client-facing brands. In addition, employees could be nominated for excellent performance and living MMI's values, and winners received an overseas vacation. The team also reviewed the bonus structure to ensure that employees were not awarded when they performed at the cost of others, as teamwork was one of the values. Employees were thus measured on task performance as well as value-aligned behavior to influence promotion processes.Third, the project team redesigned and renamed the MMI performance management system. The new "performance excellence system" indicated that the approach was to inspire employees towards excellence, and leaders were trained to explain how individual employees' performance was aligned with MMI's purpose and strategy. Finally, an important intervention at this time helped leaders assess their level of self-deception. The program asked if there were times when they knew they were not doing the right thing but justified their behavior. All managers had to attend the training, presented by Arbinger, to move from a default mode of "self-focus" to the results-oriented and outward mindset found in a service leader culture. Another leadership development initiative, "Enabling Change," was created to build a continuous change management capability in the organization. Kruger believed that although corporate culture was driven by leadership, it was the actions and interactions of every MMI employee that shaped the shared culture.

Reflections, Updates, and Observations

In 2016 and 2017, MMI began to see additional benefits and results from the merger, and it continued to make adjustments. For example, 2016 was a year of several awards. Metropolitan Retail was rated the number one life insurer in the South African Consumer Satisfaction Index. Momentum Retail was rated second in this index. The Corporate and Public sector business won the Financial Intermediates Association of South Africa (FIA) 2016 award for Product Supplier of the Year in the Employee Benefits category. MMI was the winner in the Media24 competition for financial results reporting, and its Corporate Social Investment spend reached R33 million in 2016. MMI's financial performance showed steady improvement between 2012 and 2016. The value of new business was R*%) million. The total dividend paid during the 2016 financial year was R2,519 million. Diluted core headline earnings were up compared to 2012, but down by 16% to R3,206 million from their 2015 peak. The contribution of each business to the diluted core headline earnings was as follows: Momentum Retail contributed 50% and Metropolitan Retail, 21%. The Corporate and Public sector contributed 19%, while International contributed a small percentage at 1%. Finally, shareholder capital contributed 9% to diluted core headline earnings. MMI's diluted embedded value increased to R42,989 million at the end of 2016 financial year. The new operating model described above offered significant optimization opportunities, and a number of group-wide optimization projects supported the expense savings target of R750 million by 2019. Annual cost savings of R104 million was achieved during 2016.Finally, the composition of the 2017 executive committee was again adjusted. It demonstrated the progress of the merger integration and pointed to MMI's subsequent development. For example, where the previous structure had separate executives for the Momentum and Metropolitan Retail Channels, the new design combined these positions.MMI achieved a Level 2 status on South Africa's B-BBEE labor relations scorecard, and MMI's executive committee of 2017 reflected the transformation efforts of the last couple of years. For example, Nicolaas Kruger's team includes four women, one of which, Mary Vilakazi, is the Deputy Group CEO. In addition, more than half of the executive committee is now from previously disadvantaged groups.

Strategic Choices Going Forward

MMI believed that it was critical to embrace the advances in digitalization and future-proof the organization. An important strategy in this regard was the launch of MMI's "Exponential Ventures'' business in 2016. Partnering with leading Fintech players, they invested in innovative young businesses that held the potential to transform the life insurance industry by profitably reaching new markets, meeting new needs, or leveraging new technologies and business models. Other African regions provided opportunities with respect to innovative technology-enabled micro-insurance products. For example, MMI entered into a joint venture (JV) with MTN, a South African-based multinational mobile telecommunications company, to offer innovative insurance solutions through MTN's significant telco distribution network on the continent. The JV was called "aYo," which means Joy in Yoruba, a Nigerian language. MMI brought health, insurance systems, and expertise to the venture. As well, India's large population and economic growth rates were attractive and MMI received regulatory approval for its Health and Wellness JV with Aditya Birla Group, launching its first offering to a particular market segment in India. MMI will probably exit selected African countries, namely Zambia, Tanzania, Mauritius, Swaziland, and Mozambique. The rationale for exiting these countries is to focus attention on more profitable countries in southern Africa with more attractive growth trajectories. MMI will also most likely scale down its presence in the United Kingdom. Going forward, MMI aimed to increase its focus on the organization's large existing businesses in South Africa, as well as high potential growth initiatives in the country.

Answer the following questions as thoroughly as possible:

1) Considering all the factors that drive successful merger integrations, what aspects of the MMI merger were effective and why? Be as specific as you can.

2) Was there anything ineffective about the merger?