MERGERS AND HOW TO SURVIVE THEM

1
MERGERS AND HOW TO SURVIVE THEM

• John Smith
• Director of Finance
• NHS Business Services Authority

2
NHS Business Services Authority (NHSBSA)

• Merger rose from NHS Arms Length Body review
• Report published July 2004
• 42 bodies to reduce to 21
• 25 reduction in cost by 2008/09 (plus no
  inflation and no growth funding)
• 25 reduction in manpower by 2008/09
• Back office costs - 40 million savings across
  sector
• 250 million savings in influence spend

3
NHSBSA MergerNHSBSA merger related to five
bodiesPrescription Pricing Authority

• Calculates and pays reimbursements to 10,000
  pharmacists and 1,600 dispensing doctors in
  England
• Other functions include NHS Low Income Scheme,
  EHIC cards
• 2,800 staff
• Revenue resource limit 75 million
• Pays out 7.5 billion

4
NHSBSA MergerNHSBSA merger related to five
bodiesDental Practice Board

• Calculates and pays 20,000 dentists remuneration
  in England and Wales
• 600 staff
• Revenue resource limit 20 million
• Pays out 2 billion

5
NHSBSA MergerNHSBSA merger related to five
bodiesNHS Pensions Agency

• Collects contributions from 11,000 employing
  authorities
• 1.2 million active members
• 0.4 million members with preserved rights
• 0.5 million pensioners
• Revenue resource limit 20 million
• Contributions income 6.5 billion
• Pays out 4 billion

6
NHSBSA MergerNHSBSA merger related to five
bodiesNHS Counter Fraud and Security
Management Services

• Network of counter fraud specialists throughout
  England
• Security management advice/training
• 250 staff
• Revenue resource limit 15 million

7
NHSBSA MergerNHSBSA merger related to five
bodiesNHS Logistics

• Supply chain management of 80 of all high volume
  low value goods supplied to NHS trusts
• 1,500 staff
• Revenue requirement 70 million
• Turnover 1 billion

8
Transition Team

• Commenced 1 July 2005
• Transitional Acting Chief Executive appointed (DH
  secondee)
• Representation from each of the merging bodies
• Representation covering
• Finance
• HR
• Procurement
• Governance
• Communications
• PWC appointed to advise on management model and
  top-level structure

9
NHSBSA Organisational Structure
6 x Non Executive Directors 4 x Executive
Directors
MAIN BOARD
EXECUTIVE BOARD CEO NICK SCHOLTE
CORPORATE SECRETARY MARK DIBBLE
COMMERCIAL DIRECTOR JIM ORR
DIRECTOR OF HUMAN RESOURCES MIKE SISWICK
CHIEF OPERATING OFFICER ALISTAIR MCDONALD
FINANCIAL DIRECTOR JOHN SMITH
CORPORATE FINANCE (41.43 wte)
CORPORATE HR (40.63 wte)
DPD
PD
PPD
SCMD
CFSMS
10
NHSBSA Creation

• NHSBSA created in October 2005
• Chair appointed 1 November 2005, Non Executive
  Directors 1 December 2005
• Co-existed with existing bodies for six months
  October 2005 March 2006 (transition period)
• Chief Executive, Finance Director and HR Director
  appointed 1 February 2006
• Old Bodies ceased to exist 31 March 2006
• NHSBSA became the residuary body for all five
  organisations
• Chief Operating Officer appointed 1 May 2006
• Commercial Director appointed 1 July 2006
• One Executive Director vacancy (Business
  Development)

11
Early key issues to be addressed

• 5 different bodies set up for different purposes
• 5 separate cultures
• 5 specialist functions with different expertise
• 5 different Senior Departmental Sponsors with DH
• Different Terms and Conditions of service
• 5 separate financial accounting systems, payroll
  etc
• Geographical distances Newcastle, Fleetwood,
  Derby, London, Eastbourne
• No pro-active management of merger in early days
• Geographical location of new NHSBSA

12
How are we doing? (1)

• Starting point of the self-assessment is the main
  reasons for the merger
• A) EFFICIENCY/EFFECTIVENESS
• Elimination of excess capacity Yes/No?
• Ability to be a substantial player in the
  market Yes/No?
• Redressing previous management failure Yes/No?
• Increased accountability Yes/No?
• Increased professionalism Yes/No?
• Increased competitiveness Yes/No?
• Improved service delivery Yes/No?

13
How are we doing? (2)

• B) ECONOMY
• Cost reductions Yes/No?
• Reduced management costs Yes/No?
• Economies of scale Yes/No?
• Economies of scope Yes/No?

14
Preparing for Merger (1)

• 1) FIRST STEPS
• Identify the benefits of the merger beyond cost
  savings
• Secure full support from key players and
  stakeholders (eg politicians, civil servants etc)
• Identify the potential barriers to a successful
  merger and develop a response

15
Preparing for Merger (2)

• 2) PLANNING AND IMPLEMENTION - DOs
• Establish from the outset the mission and desired
  results
• Use a recognised project methodology (eg Prince2)
• Establish a champion as project manager with full
  empowerment
• Timely delivery of components more important than
  comprehensiveness
• Make full use of the talent available to you
• Meetings should be focused, and brief with clear
  action points recorded
• Identify 8020 position and avoid 2080
• Use management consultants wisely by clear
  direction
• Ensure there is a clear communication strategy
  especially with staff and trade unions

16
Preparing for Merger (3)

• 3) PLANNING AND IMPLEMENTATION DONTs
• Dont delay the start of the process
• Avoid immersion in detail use executive
  summaries
• Dont let the project slip without a recovery
  plan
• Dont copy everything to everyone and ask for
  comments
• Dont assume 100 project completion by the day
  of merger
• Dont avoid the issues and risk logs
• Dont indulge time-wasters and non-deliverers

17
Preparing for Merger (4)

• 4) FOLLOW UP
• Keep the focus on the customer/stakeholder
• Allow for potentially high transaction costs
  arising from the merger
• Allow for the fact that it takes time before
  cultural consolidation happens
• Pay attention to all the KPIs and assess the
  extent to which they can be standardised
• Be prepared to adjust the business strategy and
  business plans in the light of experience

18
CONCLUSION

• Successful organisational mergers require focus
  on two critical elements
• the clarity of the goals of the merger
• how the process itself is managed and
  communicated
• Useful publication
• Hitting the fast lane (HFMA 2006, 29.50)
• Email john.smith at nhsbsa.nhs.uk