Mergers and acquisitions are more common than ever in today’s business climate. Chances are, if you haven’t yet worked at a company going through some sort of integration, you will. Yet studies show that many—if not most—mergers are doomed to fail. The failures result in poor shareholder results, layoffs and in some cases a complete dissolution of the merger.
Why? Sometimes, as with MCI WorldCom and Sprint, they fall apart due to regulatory pressure before they ever take place. Sometimes, as with Quaker and Snapple, it is because one company overestimated the worth of the other—and overpaid. Sometimes, as with Kmart and Sears, it is simply poor product, market or resource synergy.
When mergers come up, these are the causes often discussed. But culture, in part because it is so difficult to measure or manage, is all-too-often overlooked. Yet according to SHRM, over 30% of mergers fail because of simple culture incompatibility. Let’s consider a few well-known cases of spectacular culture clash:
New York Central and Pennsylvania Railroad
In 1968, two longtime railway rivals, New York Central Railroad and Pennsylvania Railroad merged to become Penn Central, the sixth largest corporation in America. What Penn Central did not expect was that years of fierce competition made it impossible for the two companies to work cooperatively together. The company filed for bankruptcy after only two years.
Daimler and Chrysler
When German Daimler (the makers of Mercedes-Benz) merged with American company Chrysler in the late 1990s, it was called a “merger of equals.” A few years later it was being called a “fiasco.” Discordant company cultures had the two divisions at war as soon as they merged. Differences between the companies included their level of formality, philosophy on issues such as pay and expenses, and operating styles. The German culture became dominant and employee satisfaction levels at Chrysler dropped off the map. One unhappy joke circulating at Chrysler at the time was “How do you pronounce DaimlerChrysler?… ‘Daimler’—the ‘Chrysler’ is silent.” By 2000, major losses were projected and, a year later, layoffs began. In 2007, Daimler sold Chrysler to Cerberus Capital Management for $6 billion.
Novell and WordPerfect
In 1986, WordPerfect was the nation’s best-selling word processing software. For the next few years the private software company grew steadily, despite being locked in a battle with rival Microsoft for market share. In March 1994, WordPerfect signed a merger agreement with Novell, Inc. It should have been a match made in heaven, but the management of the two companies were in conflict from the start. The merger was followed by layoffs at both companies and a steep drop in share value. With the focus on internal discord, WordPerfect lost its market leadership. Two years later, Novell sold WordPerfect to Corell for $1 billion less than they had paid.
AOL/Time Warner
In January of 2000, Time Warner stock sold for $71.88. By 2008 you could buy a share of Time Warner for less than $15. What happened to the media giant? A failed $350 billion merger with AOL. Culture clash was widely blamed for the failure of the joint venture. Said Richard Parsons, president of Time Warner: “I remember saying at a vital board meeting where we approved this, that life was going to be different going forward because they’re very different cultures, but I have to tell you, I underestimated how different… It was beyond certainly my abilities to figure out how to blend the old media and the new media culture.”
Sprint/Nextel
In 2005, in a bid to keep pace with industry giants like Verizon & AT&T, Sprint acquired rival Nextel for $35 billion. By 2008, the company had written down 80% of the value of the Nextel, confirming the widely held belief that the merger had been a failure. That failure is widely attributed to a culture clash between the entrepreneurial, khaki culture of Nextel and the buttoned-down formality of bureaucratic Sprint. AWashington Post article written two years into the merger stated: “The two sharply different cultures have resulted in clashes in everything from advertising strategy to cellphone technologies.” In early 2012 Sprint announced it would be ridding itself of the Nextel network, marking what CNET calls “a concluding chapter in one of the worst mergers in history.”
HP and Compaq
And finally, a story of hope. In 2001, struggling computing giant Hewlett Packard announced it would acquire similarly struggling competitor Compaq. The merger was ill-fated from the start, as critics pointed out how the HP engineering-driven culture was based on consensus and the sales-driven Compaq culture on rapid decision making. This poor cultural fit resulted in years of bitter infighting in the new company, and resulted in a loss of an estimated 13 billion dollars in market capitalization. Though the merger itself was widely regarded as a failure, the company has hung on, and has been able to make significant cultural and leadership changes that have resulted in long-term success.
Not every factor in a merger is within your control. But a great, synergized culture can certainly help protect your company against many merger bumps and bruises. So how can you create a culture that will help ensure the success of your merger or acquisition? Here are a few pointers:
Emphasize your core values According to experts: “an organization that reinforces its core values is more likely to reach the kind of growth and success that nearly all businesses seek.” (Gallagher, 2003) Values which are simply imposed will not thrive. Values must be practicable and absorbable.
Turn the blame game into the praise game Help turn the negativity that can accompany change into positivity by encouraging employees to catch each other doing something right.
Stop the brain drain One of the leading indicators of a coming failure is the departure of key leaders and managers from the company. This destabilizes the lower ranks and drains confidence—opening the door further for an exodus of your top talent. Make sure you are listening and responding to the concerns of this important bellwether group, and communicating those issues up the chain of command.
Find your biggest influencers and encourage their buy-in Learn to identify those employees who are your most influential workers and managers, (Hint: peer-to-peer recognition data is a great way to do this) and spend extra time educating them, increasing their confidence and earning their enthusiasm. Their attitude will cause a ripple effect.
Facilitate communication across groups and divisions Encourage the forging of relationships across the boundaries of the merger. Make it possible for employees to recognize and appreciate their counterparts in other buildings and countries and watch those bonds begin to strengthen—and with them, your merger.
http://www.globoforce.com/gfblog/2012/6-big-mergers-that-were-killed-by-culture/
Mergers and acquisitions are more common than ever in today’s business climate. Chances are, if you haven’t yet worked at a company going through some sort of integration, you will. Yet studies show that many—if not most—mergers are doomed to fail. The failures result in poor shareholder results, layoffs and in some cases a complete dissolution of the merger.
Why? Sometimes, as with MCI WorldCom and Sprint, they fall apart due to regulatory pressure before they ever take place. Sometimes, as with Quaker and Snapple, it is because one company overestimated the worth of the other—and overpaid. Sometimes, as with Kmart and Sears, it is simply poor product, market or resource synergy.
When mergers come up, these are the causes often discussed. But culture, in part because it is so difficult to measure or manage, is all-too-often overlooked. Yet according to SHRM, over 30% of mergers fail because of simple culture incompatibility. Let’s consider a few well-known cases of spectacular culture clash:
New York Central and Pennsylvania Railroad
In 1968, two longtime railway rivals, New York Central Railroad and Pennsylvania Railroad merged to become Penn Central, the sixth largest corporation in America. What Penn Central did not expect was that years of fierce competition made it impossible for the two companies to work cooperatively together. The company filed for bankruptcy after only two years.
Daimler and Chrysler
When German Daimler (the makers of Mercedes-Benz) merged with American company Chrysler in the late 1990s, it was called a “merger of equals.” A few years later it was being called a “fiasco.” Discordant company cultures had the two divisions at war as soon as they merged. Differences between the companies included their level of formality, philosophy on issues such as pay and expenses, and operating styles. The German culture became dominant and employee satisfaction levels at Chrysler dropped off the map. One unhappy joke circulating at Chrysler at the time was “How do you pronounce DaimlerChrysler?… ‘Daimler’—the ‘Chrysler’ is silent.” By 2000, major losses were projected and, a year later, layoffs began. In 2007, Daimler sold Chrysler to Cerberus Capital Management for $6 billion.
Novell and WordPerfect
In 1986, WordPerfect was the nation’s best-selling word processing software. For the next few years the private software company grew steadily, despite being locked in a battle with rival Microsoft for market share. In March 1994, WordPerfect signed a merger agreement with Novell, Inc. It should have been a match made in heaven, but the management of the two companies were in conflict from the start. The merger was followed by layoffs at both companies and a steep drop in share value. With the focus on internal discord, WordPerfect lost its market leadership. Two years later, Novell sold WordPerfect to Corell for $1 billion less than they had paid.
AOL/Time Warner
In January of 2000, Time Warner stock sold for $71.88. By 2008 you could buy a share of Time Warner for less than $15. What happened to the media giant? A failed $350 billion merger with AOL. Culture clash was widely blamed for the failure of the joint venture. Said Richard Parsons, president of Time Warner: “I remember saying at a vital board meeting where we approved this, that life was going to be different going forward because they’re very different cultures, but I have to tell you, I underestimated how different… It was beyond certainly my abilities to figure out how to blend the old media and the new media culture.”
Sprint/Nextel
In 2005, in a bid to keep pace with industry giants like Verizon & AT&T, Sprint acquired rival Nextel for $35 billion. By 2008, the company had written down 80% of the value of the Nextel, confirming the widely held belief that the merger had been a failure. That failure is widely attributed to a culture clash between the entrepreneurial, khaki culture of Nextel and the buttoned-down formality of bureaucratic Sprint. AWashington Post article written two years into the merger stated: “The two sharply different cultures have resulted in clashes in everything from advertising strategy to cellphone technologies.” In early 2012 Sprint announced it would be ridding itself of the Nextel network, marking what CNET calls “a concluding chapter in one of the worst mergers in history.”
HP and Compaq
And finally, a story of hope. In 2001, struggling computing giant Hewlett Packard announced it would acquire similarly struggling competitor Compaq. The merger was ill-fated from the start, as critics pointed out how the HP engineering-driven culture was based on consensus and the sales-driven Compaq culture on rapid decision making. This poor cultural fit resulted in years of bitter infighting in the new company, and resulted in a loss of an estimated 13 billion dollars in market capitalization. Though the merger itself was widely regarded as a failure, the company has hung on, and has been able to make significant cultural and leadership changes that have resulted in long-term success.
Not every factor in a merger is within your control. But a great, synergized culture can certainly help protect your company against many merger bumps and bruises. So how can you create a culture that will help ensure the success of your merger or acquisition? Here are a few pointers:
Emphasize your core values According to experts: “an organization that reinforces its core values is more likely to reach the kind of growth and success that nearly all businesses seek.” (Gallagher, 2003) Values which are simply imposed will not thrive. Values must be practicable and absorbable.
Turn the blame game into the praise game Help turn the negativity that can accompany change into positivity by encouraging employees to catch each other doing something right.
Stop the brain drain One of the leading indicators of a coming failure is the departure of key leaders and managers from the company. This destabilizes the lower ranks and drains confidence—opening the door further for an exodus of your top talent. Make sure you are listening and responding to the concerns of this important bellwether group, and communicating those issues up the chain of command.
Find your biggest influencers and encourage their buy-in Learn to identify those employees who are your most influential workers and managers, (Hint: peer-to-peer recognition data is a great way to do this) and spend extra time educating them, increasing their confidence and earning their enthusiasm. Their attitude will cause a ripple effect.
Facilitate communication across groups and divisions Encourage the forging of relationships across the boundaries of the merger. Make it possible for employees to recognize and appreciate their counterparts in other buildings and countries and watch those bonds begin to strengthen—and with them, your merger.
http://www.globoforce.com/gfblog/2012/6-big-mergers-that-were-killed-by-culture/
