Why mergers fall apart?

An Op-Ed piece published in the Financial Chronicle :http://www.mydigitalfc.com/films/why-mergers-firms-fall-apart-180

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.