Jacob Shriar
Joining two companies together sounds like an amazing idea in theory, but in practice it’s not always perfect.
How do you ensure that the integration of the two organizations goes smoothly?
Many mergers and acquisitions go on to create amazing companies, but there have been quite a few mergers that failed.
Company culture is one of the main reasons why mergers fail. One study found that culture was the cause of 30% of failed mergers.
So why don’t companies look at culture when they merge?
One of the biggest reasons why is because of time.
Companies, just looking to get the deal pushed through as quickly as possible, don’t have the time to do a full due diligence on the culture.
Since culture is so directly related to profits, it seems silly to ignore that part of the process.
A merger is a huge deal, and a massive undertaking by any of the managers responsible for integrating the new companies. In my post about the neuroscience of why organizational change fails, I talked about how much we all hate change.
We’re naturally meant to resist change, making the creation of a new culture extra hard. A question that’s also worth asking is whether or not culture can be built.
The short answer is no, culture happens naturally, but you can work to create an environment where employees are happy and want to come in every day.
The success of the merger relies on the employees from both organizations making a smooth transition to the new way of working.
Look At Culture Before You Merge
Of course, this is easier said than done, but it’s worth mentioning.
Before a merger can be considered a done deal, it’s worth it for the acquirer to assess the culture of the company they’re buying.
This takes time and is much more complex than doing financial due diligence, but it’s so worth it.
Integrating two companies after the merger requires serious planning and effort.
But if you know the strengths and weaknesses of the other company, your integration planning becomes so much easier.
The acquirer should be conducting interviews with multiple employees from the company they’re about to buy to discover their strengths and weaknesses.
The whole integration is easier to execute and can be done faster.
Financials only tell you so much. You want to be prepared for what you’re about to get yourself into.
CEOs and boards are just increasing the likelihood that the merger will fail if they don’t take a serious look at culture before.
Things To Keep In Mind When Merging Cultures
In order to ensure a smooth merger, here are three things you should do.
Talk To Employees
You should be talking to employees both from your company and new the new company. Ask them what they think, ask them how it could go smooth, ask them what they’re worried about. The more you involve employees from both companies, the more chance you’ll have of success.
Keep The Best Of Both
Another reason why doing a culture due diligence is so important is that you’ll want to keep (and merge) the best of both companies and get rid of the rest.
This includes everything you can think of:
- Core values
- Employees
- Processes
- Tools
- Structure (hierarchy)
- Compensation
- And more
You have to optimize this new company to be the best it can be.
- Core values
Communicate Like Crazy
There is no such thing as too much communication.
Communicate like crazy with managers and employees about what they should expect. Naturally, they’ll have many concerns, so a Q&A is a good idea.
The CEO should send a company-wide email alleviating any concerns and inviting employees to email them directly with any questions.
This email from Zappos CEO Tony Hsieh that he sent to all employees before they merged with Amazon is a great example of how it should look.
Examples Of Failed Mergers
Let’s look at a few examples of mergers that went wrong.
AOL And Time Warner
One of the most famous examples of a failed merger is the AOL/Time Warner merger.
In January of 2000, Time Warner stock sold for $ 71.88. Just 8 years later, you could buy a share of Time Warner for less than $ 15.
It was a deal valued at $ 350 billion, making it the largest merger in American business history.
At the time of the eventual collapse, Ted Turner was the biggest shareholder in the joint company. In an interview with the New York Times, he says:
The Time Warner-AOL merger should pass into history like the Vietnam War and the Iraq and Afghanistan wars. It’s one of the biggest disasters that have occurred to our country.
I lost 80 percent of my worth and subsequently lost my job.
Daimler And Chrysler
Daimler (maker of Mercedes-Benz) merged with Chrysler, and the merger ended up failing, again because of culture issues.
The way people work in Germany is quite different than the way people work in America. They’re two different societies with different cultural norms.
What was once thought of as an incredible merger between two powerful brands was later called a fiasco.
From the beginning, the high command in Stuttgart issued orders to Detroit about everything from where the headquarters would be located (Germany) to what kind of business cards would be used.
Sprint And Nextel
When Sprint and Nextel joined forces, they were about to become one of the world’s biggest telecom companies. Sprint acquired Nextel for $ 35 Billion in 2005, and just three years later Sprint had written down 80% of the value of the Nextel.
From an article in the Washington Post called No Cultural Merger At Sprint Nextel:
Nextel employees typically proposed acting quickly and recall becoming frustrated when their ideas were shot down by their Sprint counterparts.
It wasn’t that they didn’t like the ideas, Sprint people said at the time. They just needed to consult their superiors before agreeing on a plan.
Many such meetings ended with Nextel employees storming out, leaving the Sprint side baffled. Sprint people thought Nextel made reckless decisions and spent money impulsively. Nextel people felt stifled by Sprint’s process-oriented pace.
Examples Of Great Mergers
Now, let’s look at two examples of mergers that went well.
Zappos And Amazon
The first, is when Zappos sold to Amazon. One of the major reasons why this was a successful merger was because Amazon allowed Zappos to run independently.
Even though Amazon has gotten some negative press lately, one of the things they do best is think long-term. For years, Wall Street used to hate on Amazon for not making profit.
They think long-term, and so they understand the value of Zappos’s culture and gave them the right to maintain that independence, knowing it would be good for them long-term.
US Airways And American Airlines
When US Airways merged into American Airlines, CEO Doug Parker made sure that the transition went smooth. He focused much more on employee engagement, and made sure to listen to his employees and opened up his private office to them.
Align Around Shared Goals
One of the best ways to align the two companies together is to align everyone around a shared goal. The concept of Objectives and Key Results (OKRs) are our personal favorite (we’ve talked about this many times on the blog).
For those that are unfamiliar, the company creates a high-level objective with 2-3 key results that they can use to measure their success.
Departments and individuals then create their own OKRs, which are linked to the company’s.
It cascades down from the company-level, making it an amazing way to align everyone around a shared vision.
Using this as one of the first steps when merging two companies can help create a smoother transition, where everyone is on the same team.
Plan The Merger Properly
Take the time to plan through your merger properly to avoid as many issues as possible. There will inevitably be issues, so as many as you can avoid the better.
For example, Office Depot and OfficeMax announced their intended merger without an agreement of which CEO would run the company, and without deciding on a location for their headquarters.
Some important questions to think about:
- How will performance reviews be handled?
- How will meetings be handled?
- How much autonomy will employees now have?
- What are the core values of the new company?
- What tools do we use to communicate and collaborate?
- Will compensation change at all?
Any Tips To Share?
Do you have any tips to share about how to handle changing an organizational culture? Have you ever been part of a merger? Share your story with us in the comments!
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