Why mergers fall apart?
Roopen Roy
Mergers in professional services firms have failed in the past and will fail in the future. What really causes mergers to fall apart? Much too often firms are driven by the immediate desire to boost the financial performance: to increase the top line and improve profitability. Leaders of service organizations do not pay sufficient attention to the strategic and cultural fit. They do not focus enough on synergies and challenges of a combination. The inability to integrate and culturally assimilate destroy combinations To achieve success, one must carefully study the role of organizational culture in a combination. Charles Handy in his famous book “Gods of Management” categorized organization cultures into four buckets and he named them after four Greek gods: Zeus, Apollo, Athena and Dionysus. “Zeus” is characterized by a Club Culture. Most power is concentrated in the hands of one individual. The organization web shakes with each move of the “spider” who is at the front and centre of every initiative. Proximity to the boss is vitally important as he frequently uses his network of friendships and old boys. Owner-owned businesses, start-ups, investment banks and brokerage firms usually reflect a dominant club culture. “Apollo” is known for its strong role culture which focuses on structures, order and efficiency. Power is hierarchical and clearly defined in the company's job descriptions. Decision-making occurs at the top of the organization hierarchy. Manufacturing companies usually reflect an Apollonian organization. “Athena” represents the Task Culture. Power is derived from the skills and expertise required to complete a task or project. Decision making occurs through meritocracies. People move frequently from one project or group to another. Task culture fosters a high level of adaptation by focusing on talent, youth, creativity, diversity, innovation and problem-solving ---in a team mode. Professional services organizations, consultancies and ad agencies reflect a dominant Athenian culture. “Dionysus” embraces an Existential Culture. Organizations exist for individuals to achieve their goals. Employees see themselves as independent experts. Decision making occurs by consent of the professionals. Universities and research institutions reflect a dominant Dionysian culture. In reality, no organization has a “pure” culture that is exclusively one of the four. Handy himself was quick to point out that usually you would see the co-existence of multiple cultures within the same organization but typically there would be one dominant culture. The ancient Greeks themselves worshipped all four Gods simultaneously. A professional services organization embraces the Athena culture. Imposing a Zeus culture in a professional services organization is likely to spell disaster, although certain parts of of a consulting firm may benefit from an “Apollo” way of bringing in some structure and processes. In mergers,the cultural assimilation is a subtle exercise which orchestrates the multiple aspirations of human talent and unleashes innovation, creativity and problem solving. It is the delicate art of a goldsmith and not the heavy-handed craft of a blacksmith. Little things matter. When Andersen Consulting changed its name to Accenture and floated its shares on the market, it did not change one thing that was close to the heart of its leaders –the title of “Partner”. It did not make any legal sense to call a consulting leader of a listed company a “partner” but that is exactly what it did. The pride and entrepreneurship that are at the heart of a partnership culture was sought to be preserved by Accenture. In a more extreme case, when IBM whose dominant culture is Apollo, acquired a global consulting business, it not only preserved the title of partner in the acquired business, IBM even embraced an Athena culture in their consulting outfit, although their overarching corporate culture continued to be Apollonian. IBM’s merger integration was arguably one of the most successful combinations in the professional services business in recent memory. Respect for diversity and the nurturing of a global, mobile talent pool are critical to the success of international combinations. Unilever was one of the pioneers which sowed cultural diversity and has richly harvested its fruits. Often, their territory CEOs came from another country. But equally, managers from developing countries like India not only had the opportunity but actually joined Unilever’s global management team. At consulting firms that embrace meritocracy and celebrate diversity, many Indians have reached the top. Rajat Gupta led McKinsey globally in a very distinguished manner, Shumeet Banerji is the CEO of Booze & Company and the US CEO of Deloitte Consulting is Punit Renjen. In organizations where a Zeus culture predominates, diversity is difficult to celebrate. A single hazardous, “black swan event” causes panic and triggers the infamous Zeus “huddle”. True to its “club culture” Zeus implements a predictable set of actions. It quickly implements a “regime change”, brings in trusted “old boys” from the headquarters and it ignores the local talent in choosing the successor. Trust and loyalty are more important to Zeus than merit and competence. Professional organizations in India with a Zeus culture will witness an unprecedented flight of talent and their combinations will fall apart at the hinges. To preserve the value of combinations, it is critical to walk the talk. If a professional services organization is unable to practice successfully what it preaches, its credibility will be severely dented. If a pharmacist with no hair vends magic potions as a cure for male baldness, he will not be taken seriously. Imagine, if a marriage counselor himself has a series of messy divorces ---how many patients will go to him to save their own marriages. Finally, will you as a client , seek out a firm which cannot preserve its own combination to advise you on how to acquire and merge successfully? You are in safer hands with a voodoo man who teaches birds to fly. |
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