Stork pmt poultry processing systems

Merger, Culture, and HRM: The Marel and Stork Case

Ingi Runar Edvardsson and Gudrun Berta Danielsdottir

Introduction

This case focuses on the merger of Marel and Stork in 2008 and its effects on human resources. The two companies had different organizational structures, in addition to which their organizational cultures and HRM policies were quite dissimilar. Moreover, the two companies grew out of different national contexts. Marel developed in Iceland in an environment characterized by liberal labor legislation, strong optimism, informality and short-term orientation. Stork grew out of the Netherlands, with stricter labor legislation, more formality and a long-term orientation. How does one integrate such different traditions? This is the great dilemma facing the managers of the newly merged company. Which HRM policy should rule in the merged company? That of Marel or Stork? Or is there a need for an entirely new HRM policy in the united company? How will the merger affect recruitment processes, training of personnel, decision-making and the implementation of incentive schemes?

The integration of the two companies did not start immediately in May 2008. At the beginning both companies were run separately. Preparation work for the integration started soon after the acquisition, but it was delayed due to the financial crisis in October 2008. The integration work started in late 2009.

Marel is a private global market leader of advanced equipment and systems for the food processing industry. Marel is proud of its multinational heritage. The company traces its roots as far back as the 1930s and across several countries, including Iceland, Denmark, France, Germany, the Netherlands, United Kingdom and United States. The Icelandic part of the company, from which the Marel name originates, was established in Iceland in 1983 and has grown rapidly on the basis of a dynamic organizational culture and simple hierarchy. Marel has escalated its sales and revenues through the acquisition of three rival companies since 2006, one each in Denmark, the Netherlands and the UK. The focus of this case will be on the May 2008 acquisition of the Dutch company Stork Food Systems, which had been part of Stork B.V., a 132-year-old Dutch conglomerate. Both Marel and Stork were highly successful companies but the different cultures and national backgrounds made the merger challenging in many respects. The aim of Marel is to fully harness the potential synergies from the integration of the two companies and to present one common “face” to the customer.

Comparison of the Two Organizational Settings

Both companies operated in the same industry before Marel acquired Stork in May 2008. The external environment of the two companies differed due to different regulations, labor markets and national cultures. Marel’s organization was based on a decentralized matrix structure where teamwork was emphasized, while Stork was more centralized with an organizational structure based on process flow. Both companies had extensive global sales networks. Marel operated subsidiaries overseas and also had a network of agents, whereas Stork operated with a network of agents.

Historical Background of Marel in Iceland

Marel was formally established in Reykjavik, Iceland, on March 17, 1983 by a group of 22 companies, mainly Icelandic fish processors. The history of Marel goes back even further, to 1977, when two engineers at the University of Iceland began to explore the possibility of developing and manufacturing scales intended to improve weighing accuracy and efficiency in the fish processing industry.1 In the beginning, the company employed fewer than ten employees. Most came from one of the founding companies, Framleiðni hf, and from the Faculty of Science at the University of Iceland. In 1987, the number of employees had risen to around 50 but was subsequently decreased to 30 and stayed that way until 1990 when Marel began to recruit again.2

Early on it was recognized that the Icelandic fish industry would not suffice as the primary market for the company’s products. Management therefore looked to Norway, mainly because the processing procedures there were similar to those employed in the Icelandic market. In 1983, the first Marel scale was sold to Norway through an agent and in 1985 a sales office in Canada was established. At the same time, a new product was launched—a marine scale that made on-board processing more accurate. The company also added Russia to the list of countries it sold to. Until 1992, the marine scale and graders were the main source of income for Marel but the company was close to stagnating in terms of growth. In 1992, Marel began selling flow lines to the fish industry, which revolutionized the handling of fish products.

In the late 1980s, Marel began to transfer knowledge accumulated in the fish industry to the poultry industry with the development of a concept similar to the fish industry flow lines. The research and development required for this transfer of knowledge took a few years and in 1995 the company was ready to establish a subsidiary in the US, which, at the time, was the largest market for poultry in the world. In 1996, the company took another major step when it began to sell equipment to the red meat industry. In 1997, Marel acquired the Danish company Carnitech A/S, which was comparable in size and turnover to Marel. The numbers of employees doubled to approximately 250.

Today, Marel’s main product categories include weighing, grading, batching, portioning, inspection, processing lines and integrated software solutions. From early on, it was recognized that innovation and teamwork would be the driving force for Marel. The organizational matrix structure that the company has built on through the years has been characterized by a minimum level of hierarchy combined with a dynamic and creative work culture.

Historical Background of Stork

The history of Stork spans more than a century. Its formal founding date is said to be September 4, 1868 when Charles Theodor Stork moved his textile manufacturing business to Hengelo to combine the many activities under his own name. Charles Theodor Stork was an entrepreneur in more than one sense of the word. He still holds the record as the youngest entrepreneur in the Netherlands in the Guinness Book of Records. His ambition was to be a textile manufacturer and at the age of 13 he borrowed money from his father to buy three looms and established Weefgoederenfabriek C.T. Stork & Co.3 In this case, we are focusing on Stork Food Systems, which was acquired by Marel in 2008.4 There are three major brands within Stork Food Systems: Stork PMT, Stork Titan and Townsend.

Stork PMT

Stork became involved in the poultry processing industry back in 1963. At that time, when the company was expanding its existing production facilities in Boxmeer, it acquired a local engineering company called De Wiericke. The acquisition meant that Stork now owned this company’s activities, which included poultry processing installations. This was around the time that the European poultry processing industry was on the brink of automation, so Stork seized the opportunity and a poultry division was born. The poultry sector grew rapidly. In 1975, the subsidiary became independent and was named Stork PMT (Poultry processing Machinery and Technology). A year later, Stork PMT decided to expand into the US market, by acquiring Gainesville Machine Company, which it then renamed Stork Gamco.

Stork Titan

Stork Titan’s story begins at the end of the 1950s at Machinefabriek Kruijer in Amsterdam. This is where the so-called Titan machines were made for the production of meatballs. Ownership of these machines moved around in a series of acquisitions and finally ended up at Gebroeders Nijhuis, which renamed the company Titan International. By 1988, Stork had been involved in the poultry processing industry for several years and knew that there was more to poultry processing than killing, eviscerating and portioning. It acquired Titan International in order to gain an entrance into the attractive convenience food market.

All the activities of the renamed Stork Titan were transferred to Boxmeer in the Netherlands. To be able to properly accommodate Stork Titan there, Stork had to build the necessary facilities, including a production shop and a fully equipped test center. The new space was used by Stork Titan to expand its product range into the current range of forming machines, coating systems and ovens.

Before the merger, Stork PMT was a global market leader and a trend-setting company in poultry processing equipment and systems. Stork Titan is a relatively small player; however, the company has been very busy marking out a distinct profile for itself. Stork PMT and Stork Titan share the Boxmeer premises. Stork PMT also has a second site, in Dongen, where it manufactures specific parts.

Stork Townsend

Townsend, originally an American company, was founded in 1946 by Ray Townsend, who built the world’s first pork skinner. The 1950s saw the introduction of the membrane skinner and the automated pork belly skinner, as well as the expansion of sales into Europe. In the 1960s, business in Europe prospered. Offices were opened in the UK and the Netherlands. The organization developed further and expansion continued in Europe, with offices being opened in Germany, France, Italy and Spain. In the 1980s, Townsend expanded its network of agents into 35 countries in Asia, Africa and Latin America. In the 1990s, Townsend moved into Russia. Townsend Engineering was acquired by Stork Food Systems in 2006.

Historical Background to the Case

At the beginning of 2006, Marel in Iceland introduced a two-phased growth strategy designed to establish the company as the market leader over a period of 3–5 years. The goal was to first triple turnover to €500 million through strategic acquisitions. In phase two, a turnover of €1 billion was to be reached by 2015 through strong organic growth and smaller bolt-on acquisitions. When the strategy was presented at a meeting of Board of Directors in February 2006, the market was defined by a large number of competitors, none of whom had a dominant position. It was Marel’s view that there would inevitably be consolidation in the industry, a natural step in the development of any industry. There were two alternative ways of achieving results: on the one hand, through economies of scale, and on the other hand, through specialization and a niche position. It was decided to aim for growth and a large market share. Economies of scale were considered necessary in order to be able to provide customers with the service they need and to be able to follow them into emerging markets in Eastern Europe, South America and Asia. Economies of scale and increased market share were achieved through strategic acquisitions of three companies: AEW Delford in UK in 2006; Scanvaegt in Denmark in 2006; and Stork Food Systems in the Netherlands in 2008. With support from shareholders, Marel completely transformed the landscape in the industry and the company’s market share grew from 4 percent to 15 percent over the next four years (Marel, Advance with Marel, n.d.).

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Figure 8.1 Marel expected growth

At the time that the new strategy was announced, the industry was expected to grow at an average annual rate of 5.6 percent between 2006 and 2011. The growth of Marel has been substantially higher than that and is expected to continue to exceed the growth of the market for the next few years (see Figure 8.1, Thordarson, 2006).

HRM in Iceland and the Netherlands: Historical Perspective and Current State

Labour Markets and Regulation

The Netherlands adheres to the so-called “Rhineland” model, characterized by a regulated market economy with a comprehensive system of social security. Iceland is more closely linked to the Nordic welfare model. In Europe, a corporatist cooperation between the state, employers’ organizations and labor unions is common in order to secure stable economic growth and harmonization of interests. As well as being substantial employers in their own right, the European states take an active part on the labor market in the form of unemployment benefits or active labor market policies. Another core feature of European states is the legislative status and influence of unions. Most European countries have legislation requiring employers over a certain size to recognize unions for consultative purposes (Gooderham, Morley, Brewster and Mayrhofer, 2004).

There are some notable differences between the HRM practices of Iceland and the Netherlands. First, the union density in Iceland is far higher than in the Netherlands. In 2012, 82.6 percent of employees in Iceland were union members, compared to 17.7 percent in the Netherlands (OECD labor force statistics, 2015). However, the bargaining coverage (the numbers of workers that the unions negotiate for) is far higher in Holland, or 88 percent (Gooderham et al., 2004). Second, employee involvement is much more widespread in the Netherlands where 91 percent of firms have works councils present (Dietz, Hoogendoorn, Kabst and Schmelter, 2004). Such employee involvement is absent in Iceland (Edvardsson, 1992). Third, the labor legislation in Iceland is far less restrictive than in the Netherlands. On a comparable scale ranging from 0–6, the “strictness of employment protection” in Iceland was 1.73 in 2013, compared to 2.82 in the Netherlands (it was 3.08 until 1998). The “strict-ness of employment protection” rating measures the procedures and costs involved in dismissing individuals or groups of workers and the procedures involved in hiring workers on fixed-term or temporary work agency contracts.5 Iceland was close to the United Kingdom, which is among the lowest countries, while Indonesia was the highest in 2008 with a score of 4.24 (OECD labor force statistics, 2015).

The Netherlands is a founding member of the European Union, while Iceland has belonged to the European Economic Area since 1994. Many aspects of HRM are affected by the Social Chapter of the Maastricht Treaty, such as working hours, working conditions, consultation, equal opportunity, social security, dismissals, employee representation, etc. (European Union, 2010).

The labor markets in Iceland and the Netherlands function in many respects quite well. The employment rate, or the percentage of people between the ages of 15–64 who are employed, was 84.1 percent in Iceland in 2015 and 74.1 percent in Holland. Both are close to the high end of the spectrum in an international context. Similarly, the unemployment rate was rather low in Iceland and the Netherlands in 2015, or 4.1 percent and 6.8 percent respectively, and it grew somewhat after the financial crisis in late 2008. Part-time employment is far higher in the Netherlands than in Iceland, 57.9 percent compared to 33.6 percent (OECD labor statistics, 2015).

National HRM Practices

In general, HRM practices in Icelandic and Dutch firms are similar, according to the 2003 Cranet survey (see Table 8.1). The table reveals that the majority of firms in the survey have a written HRM policy, and HRM managers sit on the board of management and are involved in the development of corporate strategy. The only difference is that performance-related pay is far less common in Icelandic firms than in other European firms.

National Culture

National culture, or the “software of the mind” (Hofstede, 2003), affects how people relate to each other, their sense of power and equality, how they feel about competition or cooperation, and so on. National culture has, then, a direct impact on organizational cultures and management. Hofstede (2003) has identified four dimensions of culture, and his standardized measurement shows that the Netherlands and the Scandinavian countries scores similarly on these dimensions; they score low on “power distance”, they score quite high on “indi-vidualism”, low on “masculinity” and moderate or low on “uncertainty avoidance”.

Iceland was not included in Hofstede’s study, but Eyjolfsdottir and Smith (1997) did use his concepts in their analysis of Icelandic management culture. They conclude that Icelandic culture is characterized by egalitarianism, low power distance, individualism, femininity, and low uncertainty avoidance. Moreover, they argue that Icelanders have developed a strong optimism as a reaction to the adverse natural conditions of the country; they have a positive outlook, which is reflected in their happiness and lack of reliance on rules in decision-making. Eyjolfsdottir and Smith also mention the “action-poet” mentality in Iceland, a mixture of a strong intuitive or artistic inclination and a tendency to be independent, stubborn and action-oriented.

Table 8.1 HRM practices in firms in Britain, Denmark, the Netherlands, and Iceland in 2003 (%)

Britain

Denmark

Netherlands

Iceland

Written HR policy

61.2

68.0

59.4

69.3

HR managers on the main board of management

46.0

53.0

61.0

58.0

HR managers involved in development of corporate strategy …

• from the outset

48.7

52.3

48.3

42.6

• through consultation

30.5

28.7

36.6

28.7

• on implementation

9.0

9.5

11.1

11.7

• not consulted

11.8

9.5

4.0

17.0

Performance-related pay

Management

45

58

45

21

Professional/technical

37

42

42

15

Clerical

32

32

35

11

Manual

25

33

36

18

Source: Bjarnadottir, Oddson, Bragason, Jonsdottir, and Bjarnason, 2004

From the above, it is clear that the Icelandic and Dutch cultures resemble each other in many respects. The main differences are probably related to the unique features of the Icelandic culture, namely the strong optimism, the “action-poet” and “fisherman” mentalities, the focus on entrepreneurship, informality in communications and short-term orientation.

The Operational Context at Marel

Marel is today the global provider of advanced equipment, systems and services to the fish, meat, poultry and further processing industries. One of the cornerstones of Marel’s success is its devotion to innovation and research and development. The company invests an average of 5–7 percent of revenues annually, approximately €25 million, in R&D (Marel, n.d., Advance with Marel).

When Marel in Iceland was established in 1983, a divisional structure was put in place. It wasn’t until 1997 that the matrix structure, which is still in place (until the new organizational structure that has been decided upon is implemented), was introduced. On the basis of socio-technical theories such as organizational theory, Stork Food Systems has been transformed from a functional organization into a process-oriented organization, using so-called Entire Task Groups. At Stork PMT, this transformation took place from 1988 to 1991.

Both organizations have increased in size and complexity over the years. After the acquisition of Stork Food Systems, the organizational structure of Marel needed to be changed. The strategic decision was made to follow the market and to base the new structure on the four industry segments that the company specializes in – fish, meat, poultry and further processing. The new structure is based on the model of a network organization where a Board of Management has the highest authority. The Board of Management constituted three members after the merger: Theo Hoen, CEO; Erik Kaman, CFO; and Sigsteinn Gretarsson, Managing Director of Marel ehf in Iceland. In 2013 a change was made in the management of Marel and Arni Oddur Thordarson became CEO (Marel n.d.a).

The HRM Context at Marel and Stork

From the beginning, the CEO and Managing Directors of Marel in Iceland took care of all HRM issues related to their respective divisions. In early 1999, one of the directors took on the role of HRM Manager but within a few months, Marel recruited an HRM Manager from outside the organization. It was not until then that Marel introduced a formal HRM strategy, appraisal interviews and formal recruitment procedures.6 It can be said that until 1999, Marel defined HRM issues as hiring and firing, salary processing and vacation scheduling.

Human Resources

The employees of Marel have been steadily growing in number since 1990, especially following the three acquisitions since 2006. Today, the “new” Marel employs approximately 4,000 employees worldwide, the majority of whom are located in Europe (see Figure 8.2).7

HRM Policy

The first formal HRM policy at Marel Iceland was introduced in late 1999. At present, its human resource mission states: “We employ competent employees and provide a supportive, ambitious work environment that motivates initiative and encourages employees to make the company vision their own.”

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Figure 8.2 Number of Marel employees 2005–2009

Marel’s strategic HRM goals and overall objectives are the following:

· We recruit competent employees, provide excellent training and offer opportunities for further education and job development.

· We maintain excellent cooperation and teamwork throughout the company.

· We respect different cultures while strengthening shared values.

· We maintain a good information flow throughout the organization, ensuring open and honest communication.

· We enable employees to have a healthy work-life balance.

· We support a creative and innovative work environment.

· Our leaders walk the talk, lead by example and are capable of guiding employees in fulfilling the corporate vision.

The objectives are very descriptive of the company culture and management style at Marel.

At Stork, a formal HRM mission statement was not defined. The company defined a set of values and issued a brochure called “Rules of conduct” which described the ethical principles that form the basis for the business conduct of all units of the company and employees. The values were: openness, trust, freedom, involvement, equality, knowledge, pleasure, dynamics and respect.

Social benefits for the employees of Stork were a precious topic for the founder, Charles Stork. In the nineteenth century, he put a social benefit structure in place. At the beginning, the focus was on benefits for industrial accidents but was soon expanded to include a cooperative society for the purchase of groceries, a health care fund, a widows’ fund and a pension fund. These funds were financed by contributions from the members of the association and the company. Today, the Stork pension is still in operation and is one the oldest pension funds in the world (Stork, n.d., Social Benefits).

Organizational Culture

From the beginning, Marel has been defi ned as an entrepreneurial organization. This is reflected in different aspects of its organizational culture, such as risk-taking. A lot of time and capital is spent on research and development without knowing the return on investment (ROI). The acquisitions of companies that are equal or even larger in size can also be considered to be an indication of risk-taking.

The entrepreneurial nature is also reflected in another aspect of the organization culture, namely in the devotion to innovation that has made Marel into a global leader in its field. The structure implemented in the manufacturing process in 1997 was very innovative; it was based on dividing manufacturing into individual production cells. This structure is still in place at company headquarters in Gardabaer, Iceland. Still another relevant feature of Marel’s culture is its competitive aggressiveness, manifested among other things in the growth strategy presented in 2006 and the acquisitions that followed after a careful analysis of about 130 companies. Finally, autonomy is highly encouraged at Marel and managers have the freedom to take independent decisions. This feature is especially encouraged among teams developing new solutions in cooperation with customers (Ólafsson and Hermannsdóttir, 2009).

Marel’s employees say that the workplace atmosphere is dynamic and that they are encouraged to take the initiative and develop their ideas. In September 1999, a new project was launched at Stork Food Systems – “Chaos, Dialogue and Dolphin”. The project was prompted by the feeling that although ten years of organizational restructuring in line with socio-technical theory had brought about a huge numbers of improvements, there was still a lack of initiative among employees. It was also felt that employees were too overloaded with day-to-day work and that management did not delegate enough, was too controlling, did not allow people to make mistakes and could not let go at busy times. In other words, a lot had been achieved in terms of structure but the corporate culture had not kept pace.

Socio-technical theory had brought about changes to the external aspects of the organization (structures, tasks and competences). The aim of the new project was therefore to focus on the internal aspects – people and the organization – and thus to make up for the inadequacies of the socio-technical theory introduced and to improve inefficient behavioral patterns.

This organizational modernization was ushered in using chaos theory as the basis and dialogue as the means. The aim with these two methods was to develop the culture and to obtain a joint reference framework within which ideas are given a greater chance of success, and initiative and creativity are put to better use. The organizational modernization process consisted of workshops in chaos theory, dialogue and dolphin training, and vision conferences. The ultimate aim was to stimulate a transformation of the organization, a fundamental modernization.

In short, over the past few years, Stork Food Systems invested a lot of time and energy in the process-oriented design of the departments on the basis of profit-center sectors.

The Outcomes for the Comparison Case

On HRM matters it was decided by the managers to retain management development and performance appraisal in the two companies, while other aspects of HRM should be integrated. The HRM managers of Marel – Friso Luimes, HRM Manager in Boxmeer, and Hrund Rudolfsdóttir, Corporate Director of Human Resources – are struggling with this formidable challenge. They have drawn up the HRM house in four layers to explain the practical dilemma they are facing and what is needed to complete each layer and move up to the next level. Using a house as a metaphor helps in prioritizing activities and providing internal and external stakeholders a clear overview of what needs to be done and what should be avoided (Figure 8.3).

According to the HRM managers of Marel, the foundation is the most important layer but a global market leader like Marel needs the complete house. Both Marel and Stork had moved up the different layers of the HRM house and were close to reaching the top layer when the companies were merged into one. With the merger, the “new” company found itself back in the foundation of the HRM house. Even though they needed to start building the foundation again, the HRM managers decided that the company would keep two important features of the previous HRM houses, namely management development and performance appraisal.

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Figure 8.3 Prioritizing activities at Marel

The HRM house for the merged company has been defined and in general is as follows:

Foundation: Personnel Administration & Secretariat

· General support of HRM

· Personnel administration

· Time registration

· Organization of education programs

· Personnel care

· Requests and needs of subsidiaries

· HRM reporting (employee statistics, such as number of employees, temporary workers, sickness, etc.)

· Transition process

· Orientation

First layer: Compensation & Benefits

· Salary administration

· Salary house, reward systems and policies

· Pension

· Health insurance

· Other compensation and benefits issues

Second layer: Personnel Instruments

· Recruitment (including: trainees, internship, graduates) and labor market communications

· Purchasing temps together with purchasing department

· Personnel care (individual issues, jubilee)

· Processing appraisal policies (implementation of DEBbie)

· Competitive salary house

· Processing internal transitions

· Career and management development policy, including education policy

· Exit procedures of employees

· Health and illness management

· Contacts and meetings with working councils and unions

· Internal communications (staff newsletter, intranet, etc.)

· Top layer: Organizational development

· HRM is a part of the management and process teams (innovation, sales, service and manufacturing)

· Training role vis-á-vis management

· Facilitator of team development

· Organizational development process (based on time, quality and cost); culture change and development

As can be seen from above, the practical challenges for HRM are enormous and it will undoubtedly take a few years for Marel to get to the top layer. The work has already begun and good progress has been made. HRM is optimistic that good results will be achieved within the next 36 months.