The business pages lately have been filled with announcements of
heavily monied mergers--from MCI and British Telecom to aerospace
giant Lockheed Martin-Northrop Grumman. Massive,
multibillion-dollar corporations are becoming the norm, leaving an
entrepreneur to wonder whether a merger ought to be in his or her
plans, too.
But be warned: For every merger that works, there are others
that fail, and the entrepreneur who rushes into a merger may just
be stepping into despair. Software company Novell Inc., for
instance, never successfully digested WordPerfect (it was spun out
last year to Corel Corp., another software firm); The Quaker Oats
Co. couldn't swallow Snapple (which was divested earlier this
year); and Japanese electronics giant Matsushita Electronics Corp.
threw up its hands after several years and disposed of Hollywood
entertainment giant MCA Inc.
Why do mergers go wrong? A large but rarely discussed reason is
that when business marriages are hurried into, sometimes the result
is a loud clash of styles, say corporate culture experts Jacalyn
Sherriton and Jim Stern. "[Business owners] focus on the
financials and usually ignore the potential cultural
incompatibilities when considering a merger," says Sherriton.
"But when troubles arise, often the root is in culture
clashes."
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The good news is that when the importance of culture is
recognized--and steps are taken to avoid clashes--"even
companies with very different cultures can successfully
merge," says Stern. President and vice president,
respectively, of two management consulting firms--Corporate
Management Developers in Reston, Virginia, and Health Management
Consultants in Hollywood, Florida--Sherriton and Stern are also the
authors of Corporate Culture/Team Culture (Amacom Books). Their
consulting clients include IBM, Bristol-Myers Squibb Ltd. and Mobil
Corp.
Entrepreneur: Why do companies consider embarking on
mergers?
Jacalyn Sherriton: Many companies see merging as a way to
compete. In today's global business environment, companies may
have to grow to survive, and one of the best ways to grow is by
merging with another company or acquiring other companies.
Jim Stern: But the problem is that as good an idea as
merging may be, most business owners typically don't consider
culture as a reason not to merge. In looking at potential merger
partners, you've got to weigh potential culture clashes along
with the financial aspects of any proposed deal. When cultures
clash, you may not enjoy all--or even most--of the benefits
you'd hoped for in a merger. Look at failed mergers, and
you'll see the companies never reached a point where they could
work well together--that is, the cultures clashed and nobody found
a way to get them to mesh.
Entrepreneur: What are examples of mergers that failed
because of culture clashes?
Stern: The Matsushita and MCA merger clearly shows the
clash of cultures. On the one hand, [Matsushita] was a staid,
nonrisk-taking Japanese company. MCA, by contrast, was
entrepreneurial and Joe Hollywood in its mindset. And the merger
didn't work. Matsushita divested itself of MCA, which was
picked up by Seagram Co., and, so far, that seems to be a better
fit.
Entrepreneur: Let's back up a step. Exactly what is
corporate culture?
Sherriton: People think it's esoteric, but it's
quite concrete.Corporate culture means the values, beliefs and
patterns of behavior that are ingrained in an organization. It
amounts to the norms about how things are done. The corporate
culture is the personality, so to speak, of the company, and
different companies have very different personalities and
cultures.
Entrepreneur: Do business owners realize how deeply
ingrained a business's culture is and how hard it is to
change?
Stern: We've administered a survey to top executives
for the past several years. It shows that they have heard about
culture but are not doing anything to manage it. In fact, 75
percent admit they have no plan to manage cultural change
associated with mergers and acquisitions. Seventy percent say their
business has not assessed its culture. As much as the majority felt
that mergers and acquisitions were viable strategies, they also
admit they don't have a plan for addressing cultural issues
that might arise in a merger. This is very troubling data.
Entrepreneur: How can a business owner get a feel for a
potential merger partner's culture and where troubles might
crop up?
Sherriton: You can sense the culture when you first walk
in the door.Is there tight security, or are things loosey-goosey?
Do people smile at you?
Another tactic is to ask employees questions:
- What are employees held accountable for?
- What are people rewarded for?
By asking questions, gradually you determine the
organization's culture.For many [business owners], doing this
is revelatory. They have never dissected their culture--the
underlying beliefs and values--in the ways we're
describing.
Entrepreneur: Culture can doom a merger, but can
potential clashes be anticipated and addressed before they hurt the
new business?
Stern: We're engaged now in a real success story. Our
client is Universal Health Services (UHS) Inc., a hospital
management company.They recently acquired George Washington
University (GWU) hospital in Washington, DC. GWU had been a
not-for-profit hospital in a university setting, while UHS is a
for-profit management company. From the start, UHS recognized the
potential for culture clashes and has taken steps to prevent it. As
I speak, there are training classes for all GWU employees to
acclimate them to the new corporate culture. All companies involved
in mergers should be taking the same steps--conducting culture
audits, anticipating where clashes may arise and training
employees.
Sherriton: But they're not. We'd be hard pressed
to give you the names of more than a handful of companies that are
tackling these issues. Many companies seem to think that just by
being next to each other, the cultures will get together. They
won't--not without a vision and a plan to pull the two cultures
together.
Entrepreneur: What are the steps for creating successful
cultural change in relation to mergers?
Stern: Our program follows these steps:
1. Conduct a culture audit on both businesses. Ask
questions.Discover the companies' personalities.
2. Assess the differences--in terms of systems and processes,
management style, and values.
3. Identify where potential clashes will occur.
4. "Assess and agree"--as we call it in our
program--where you get the two parties together and ask "Can
this work?" If the answer is yes, the companies move toward
integrating the cultures. That means addressing the changes--what
parts of the old cultures need to be discarded?--that may be
necessary to make the new, merged company viable.
Sherriton: You also want to get a feel for the
cultures' flexibility. The Japanese management style, for
instance, is so different from a Hollywood studio's. So ask
"How much flexibility is there on each side? How much can they
change to avoid major clashes?" If the answer is not much,
maybe that's when you decide to walk away from the deal.
Stern: This process forces the powers that be to confront
their cultures and to recognize the potential blocks to making the
new business work. If companies can recognize and agree on the
front end that there are issues that need addressing in regard to
cultural differences, they can be successful.It's when they
don't recognize they have culture issues or they see them but
feel they can force through change anyway that these mergers are
unsuccessful.
Entrepreneur: What are the components of a plan for
changing a business's culture so that a merger will work?
Sherriton: There are six areas that need to be addressed
here:
- Clear direction from the senior-most leaders: Why are we doing
this? What do we expect to achieve?
- What is the new culture we're striving for? What do we want
to be?
- What systems, procedures and policies need to be changed?
- How will we roll out all of these changes? What's our
plan?
- How do we get everybody in the company involved and
action-planning to achieve these changes?
Stern: At GWU, for example, every employee has put
together a personal plan about the behaviors and styles they need
to change to integrate into the new culture. And they will be held
accountable for meeting those action plans.
Sherriton: The opposite example, if press reports are
accurate, is Disney-ABC, where the senior-most executives are
coming together to plan how to create synergy between the
companies. But they haven't, according to the press, gotten
lower-level employees actively involved in creating synergy.And the
merger may not be producing all the hoped-for results.
Entrepreneur: Isn't resistance to a merger usually
centered in mid- and lower-level employees who want to know
what's in it for them but aren't getting answers?
Sherriton: Employees often have strong emotional
reactions to mergers and proposed mergers. There are anxieties, and
misinformation can spread.A case in point: When the proposed Office
Depot and Staples merger fell through, Office Depot employees held
a celebration. Why? They had heard about distinct differences--real
or not--between their culture and Staples'. You want to manage
these human impacts and emotions.Remember, too, that your best
employees are the most marketable, and if they don't feel
secure that their needs will be addressed in the merger, you are
likely to lose them.
Entrepreneur: An issue in the minds of many entrepreneurs
contemplating mergers is "How do we build in safeguards for
our present employees? Can we?"
Sherriton: Yes and no. The first step is not to get
blinded by the financial upside; look at the cultures, and see
what's realistic and workable. Make an informed decision about
whether to go forward. Beyond that, safeguard your employees by
preparing them for the cultural changes that will occur after the
merger. It's very important that you tell them there is no
guarantee that things will stay the same and help them develop a
new frame of mind about what will be expected of them.
Stern: You want to get them to participate in this
cultural alignment. The way to do this is to involve your employees
in meetings with employees of the other company. Help them feel
they have input in the changes that will occur. Another step you
need to consider for some employees is discipline and termination.
And, frankly, there typically is a small percentage of employees
who feel they cannot be compatible with the new culture, and they
need to find positions in other companies where they will be
happier.
Sherriton: You cannot safeguard your employees'
future. But you can prepare them mentally for the changes that are
coming.
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