Culture Clash or Cash
By George Anderson
It’s safe to say that Ralph Waldo Emerson’s observation that “culture, with us, ends in headache” had nothing to do with large retailer merger and acquisition activity.
It does, however, speak to the condition many executives find themselves in when trying to take previously autonomous groups and forge them into a new organization with a single,
shared mission and a strategy to achieve it.
The cultural aspects of mergers are often overlooked, say experts, and in many cases that proves problematic if not fatal when attempting to bring companies together.
According to Mitchell Marks, an industrial-organizational psychologist and a professor at San Francisco State University, “CEOs who have made acquisitions say that, with 20-20
hindsight, what they would manage more aggressively is culture.”
A St. Louis Post-Dispatch report on the Federated/May merger asked industry experts about the cultures of the two companies and what it would take for a single new identity
to be created.
Howard Davidowitz, chairman of Davidowitz & Associates, said the two company’s cultures going into the merger were “totally different.”
“I think the challenge is going to be astronomical,” he added. “But I think at the end of the day, Federated is as good at this as anybody you are going to get.”
Prof. Marks believes Federated’s CEO Terry Lundgren and the rest of management need to, “Give people a compelling vision. Why is working for the new Federated going to be better
than the old May? On a business level, what’s in it for me as an employee?”
Jim Sluzewski, a spokesperson Federated Department Stores, said, “It’s not so much May does it this way or Federated does it this way. It’s more what’s the Macy’s way. What we
have said all along is this is a company coming together, and when a company doubles in size, there is going to be change.”
Moderator’s Comment: How important is corporate culture in a company’s business performance? What are the keys to creating a single culture in merger
scenarios? –
George Anderson – Moderator
I have experienced and been involved in both very small M&A’s and what I would call a medium-sized M&A. To me, both were huge, but to most here, they both would be small. Nevertheless, the factors to success in both of them as I review them in my mind were both the same. One had substantially more success than the other. Unfortunately, it was the smaller one and, in the medium-sized one, more people were hurt by the mistakes at the top.
What I have seen and would suspect most have seen is that, like anything else, the dominant culture tries to shove itself down the throat of the other culture. It’s never a success. True, in many M&A’s it’s not a merger of equals. Even in the case where it’s fairly equal, one will emerge as dominant.
Truth is, that in my experience, there is much to be learned that could benefit either side and, in the end, the larger organization as a whole. This occurs when open minds are willing to look at opportunities where things can be learned. Sadly, in many cases (likely 50%), egos get in the way.
Culture is important. It’s better, however, when it’s an evolving culture and a learning culture. One that is dominant for the sake of dominance will never be successful. Consider that this may be even the case for Wal-Mart today. Their previous and current culture may have been what was needed to get them here, but staying may require evolution. The same may be the case in this merger. If evolution is the guide, the success may be in the offing. It certainly holds the cards from my vantage point.
I have been involved in a merger, a takeover disguised as a merger, and a “reverse” takeover, where the acquired company ended up dominating the resultant corporation. From my own experience culture is an absolutely critical determinant.
In one case, I clearly remember a Friday afternoon in the new headquarters about six months after “my” company became absorbed, when the executive team of my former company spontaneously met in the hallway of our offices – we realized that all of “us” were still working and all of “them” had gone home or left early to play golf or whatever. Needless to say, within a few more months, most of “us” lost whatever special abilities or concerns we had originally brought to the combination. Most of “us” were gone within the year – and the acquiring company lost most of the advantages (and the business) that they had tried to acquire in the first place.
Well, we’ve analyzed the spit out of this question, haven’t we? If only as much energy were spent on integrating cultures as documenting their failures.
We, the outside observers, chroniclers, and record-keepers, need to get more involved. Yes, I recognize that many of today’s commentators are hip-deep in implementation, and my hat is off to them. But, how do we overcome the touchy-feely image of culture integration and escalate it to Objective #1?
The solution lies in understanding and dealing with the brainbuckets of the top guy(s). Think about it – the top folks in developing, implementing, and managing M&A are not members of the culture club (with apologies to Boy George). They’re Huns (as in Attila The). Touchy-feely is someone else’s job farther on down the line – but not today when they’re negotiating, preening, intimidating, and signing papers. Greed is good. How do culture concerns intrude into this heady atmosphere? They don’t, plain and simple.
How about including extensive culture studies, plans, and integration into the pre-nups? Just as corporations build “poison pills” into their articles of incorporation to discourage hostile takeover, why can’t they also insert “culture conditions” that require aggressive integration plans to be in place the day the deal is done? Seems a bit more positive and productive than poison pills, don’t you think?
Companies are like fingerprints. Each is unique, and the culture they embrace identifies their goals, history, vision and mission. This not only attracts their human resources, but also drives their innovation, corporate experience and many times their success. Invariably, mergers start because the sum of the parts appears to be greater than whole. However, many mergers fail or are less than successful because they don’t take into account the Human Resource portion of a company. This is critical when the foundation of a company is based upon employee (and ultimately customer) satisfaction. Great mergers identify this culture, and allow it to thrive despite the merger. This places people first, and the merger second, instead of the other way around.
Most people, in their private life, have at least 2 ways of presenting themselves: what they are like with their family and other long-term intimates; and what they are like with someone they’ve never met before (“family” versus “company”). How you present yourself on a first date is often quite different from the way you present yourself after being married. Corporate culture is rarely what’s presented to the outside world by press releases, investor meetings, etc. This outside observer (so I could easily be wrong, and I hope I’m wrong) believes that the Federated culture is based on “What does the boss want today?” and “How can we make a good number today?”
The phrase “corporate culture” is a catch-all developed to encompass the wide set of beliefs, behaviors, fears, and dreams which form the interstitial spaces between processes, technology, and metrics.
How important is it? Envision an organization as essentially energy flows. Each person, function, group or team consumes energy and releases it back into the organization. Energy flows along pathways usually defined as meetings, reports, conversations, and work product. The Corporate Culture is what defines how efficient these energy flows are. Dysfunctional cultures result in energy blocks, accumulations (think in terms of silo’s and territoriality), and inappropriate releases.
Functional cultures make the work effort easier. The sum of the parts, in an organization with a functional culture, do not equal the whole. The whole is far greater. The sum of the parts do not equal the whole is a dysfunctional culture either….the whole is far smaller.
If you, as a leader, find yourself asking “why do we always seem to grasp every opportunity to make mistakes” or questions like that….look to your culture.
As to the question of integrating two….the dominant culture will prevail. Members of the subordinate culture will try to hold onto what they know, what they are comfortable with, despite the obvious benefits of joining the dominant culture. Education, demonstration, and clear conviction around the dominant culture will accelerate the transition.
The pre-question should have been, for Terry Lundgren…”is my culture secure, functional, complete enough to sustain the inevitable trials that subsuming May will cause?”. Because aspects of May will insinuate themselves into Federated. It WILL happen. Lundgren needs to identify which aspects he wants, and support, encourage, reward and cultivate that.
In 1992, Kotter and Heskett (Harvard Business School) published their analysis of the role of corporate culture in over 200 companies. They found that culture has more to do with the success or failure of a company than any other factor, because it determines the critical operational characteristics (for example, strategy and how strategies are implemented).
Our own study of over 2100 companies confirms this, and goes even further. Whereas Kotter and Heskett concluded that strong, adaptive cultures perform an average of four times better than those that aren’t (strong, adaptive cultures are those that are built to continually monitor and serve all constituencies — customers, shareholders, suppliers, communities, and workers), our data has shown that there is an underlying information processing system that itself controls not only culture, but also areas usually thought to be outside culture, such as IT systems.
Several well-known studies over the past ten years (most notably, those released by James Collins) have tried to document instances of how executives have successfully re-shaped an organization’s culture. Our study has shown that these efforts have been much less successful in the long term than in the short term. Our data shows that the reasons executives fail to successfully shape culture are the same ones over and over; one of the biggest problems every organization has is that its hierarchical structure demands that cultural change be initiated from the top, and yet to do so automatically means that lower levels will resist these efforts, and usually succeed in undermining them.
Our data further shows that 93% of executives do not believe that culture matters; even if it were possible for an executive to re-shape their organization’s culture, which our data suggests it isn’t (it can be done, but not in this way), if an executive doesn’t think it matters, then the point is moot.
I have been involved in two major mergers, including ADG-May Company, and would advise that Federated very clearly state their goals and objectives, and for former May Company execs to toe the line. Quickly. This is a merger in name only; this is an acquisition.