Problem-Solving ApplicationHBO + TNT + TBS + CNN + ETC = New AT&T

The merger of communications titans AT&T and Time Warner appears to be off to a promising start, following regulatory approval and a series of leadership changes initiated by AT&T executive John Stankey. However, the difficult work of integrating the processes, employees, and brands that make up Time Warner lies ahead. This activity is important because it is critical not to underestimate the size of this task and the planning and work necessary to execute a merger or acquisition of this magnitude.

The goal of this activity is for you to consider the various challenges faced by AT&T to successfully integrate Time Warner and create an new company that maximizes its strategic and organizational potential.

Read about the AT&T/Time Warner merger. Then, using the three-step problem-solving approach, answer the questions that follow.

There are more than 26 characters in the alphabet soup created in the merger between AT&T and Time Warner, given the latter included HBO, TNT, TBS, CNN, Warner Bros. movie studio, and other assets.AT&T finally prevailed in its efforts to acquire Time Warner for over $85 billion, which required it to win a suit filed by the Justice Department seeking to block the merger. AT&T argued that such a marriage would not be anti-competitive and limit choice for consumers, but by combining the companies it was necessary to be competitive in a radically different landscape that blurs the previous lines between content and distribution. This merger says a lot about AT&T's strategy for dealing with these challenges and how it plans to grow in the future.

History and Additional Motives for the Marriage

Telecom companies have historically offered cable, telephone, and mobile services, however now, AT&T not only needs to compete with Verizon and T-Mobile/Sprint, but also the likes of Netflix, Hulu, Amazon, Google, Facebook, and Apple, many of whom create contentandprovide distribution. The future is now, and it requires telecom companies to combat the millions of people who have cut the cable cord while at the same time attracting the millions that sign up for streaming services.

Some experts claim these changes are essential to the survival of a company like AT&T, and as a result the company is expected to be more attractive to investors and consumers. Moreover, if AT&T's larger portfolio attracts more eyeballs it will also attract more advertisers and boost revenues and profits further still.

What Is Required to Realize the Value?

The merger expands the products and customer bases of all of the brands involved in the merger, but this complexity also requires masterful change leadership. Many of these assets, notably HBO, have long and very successful histories. The challenge will be minimizing conflict and fostering collaboration and cohesiveness among employees (nearly 270,000 in the combined company), processes (decision making, HR, technology, and communication), and products (streaming, content, technology, mobile, and cable). This therefore represents an enormous leadership challenge.

Leading the Change Efforts

John Stankey, an AT&T executive who was immediately put in charge of Warner Media, put it simply: "If you don't make a change, you're not going to get any change in the product." In this spirit he quickly made a number of senior leadership moves. He brought in Robert Greenblatt who had a long successful career at NBC and Showtime, and effectively offered him his dream opportunity, as he will now oversee HBO, considered the crown jewel of the acquisition, along with Warner's planned streaming service. Also joining the team is Jeff Zucker (formerly chief at CNN) who will not only oversee larger business than he did at his previous job, but he also leads a portfolio AT&T sees as especially important to its strategy and future. However, the shakeup also includes departures, such as Richard Plepler who worked at HBO for more than two decades and has been its chief executive and face of the company for the past several years, and David Levy the president of Turner Broadcasting. Neither was fired but both left presumably because there were clear signals their roles would be much smaller in the new company, which would mean their previous considerable autonomy and influence would be diminished.

Potential Obstacles

With regulators seemingly out of the way, the new and existing leadership has many things to tend to. For instance, Mr. Stankey's leadership style has been questioned. Critics say he is quite opaque in communicating his thoughts and plans, which has been quite frustrating to many employees. And given the enormity of the task, the skills of many leaders will be put to the test. Among the many challenges will be to reduce conflict, foster collaboration, and integrate cultures. Competitors certainly won't relent and are likely to respond with their own efforts, such as Apple's planned streaming service, alliances between content providers and telcos like Netflix and T-Mobile, and Comcast's acquisition of many 20th Century Fox's assets. Reputations of the brands and their associated leaders will undoubtedly both help and hurt in the merger process, as will employee resistance. Employees that are dissatisfied with their situation in the new company may resist the changes or even quit, while those who are happy and satisfied may see new opportunities and commit.

Assume that you are Mr. Stankey. Apply the 3-Step Problem-Solving Approach to identify the problems, causes, and potential solutions included in the case.

Apply the 3-Step Problem-Solving Approach

• Step 1: Define the problems facing AT&T.
• Step 2: Identify the potential causes.
• Step 3: Make your recommendations.