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?
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
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.