• Skip to content
  • Skip to primary sidebar

Right Attitudes

Ideas for Impact

Why Mergers Tend to Fail

August 31, 2010 By Nagesh Belludi 1 Comment

Corporate mergers tend to fail because of conflicting corporate cultures

Many corporate mergers and acquisitions (M&As) fail to realize their wished-for synergies, and eventually fall short of producing value to the stakeholders. Some years ago, a KPMG survey estimated that 83 percent of all mergers fail to create value and half may actually destroy value.

M&As invariably produce disappointing results because of a variety of reasons. One of the principal reasons has to do with the failure of management to integrate successfully the operating cultures of the individual companies. During M&A deals, the due diligence processes tend to focus more on the corporate matters (market synergies, product or service offerings, financial projections, legal and regulatory matters, etc.) and overlook the organizational and cultural challenges.

Integrating Conflicting Corporate Cultures

Undoubtedly, the biggest barrier of post-merger integration is the conflicting corporate cultures of the individual companies. Management consultant Rick Maurer likens corporate mergers to the marriage of two single parents each with their own children—“just because mom and dad are so in love, they fail to see that the kids don’t get along.”

During a merger, two organizations with unique cultures cease to exist and a new organization is supposed to establish. The erstwhile individual organizations simply will not let go of the past and move on. In time, when the “stronger” partner tries to thrust its culture on the new combined organization, employees of the “weaker” partner resist change. This impairs cooperation among employees, as was case with AT&T’s unsuccessful acquisition of NCR in the early ’90s.

Forcing Employees to Mesh

Ill-fated Daimler-Chrysler merger suffered from cultural differences If cultural differences are far apart, the merged companies often fail to compromise and stick to a middle ground. The ill-fated Daimler-Chrysler merger suffered immensely from differences in the engineering and corporate cultures of the supposedly equal partners, Daimler-Benz and Chrysler Corporation, as well from differences in the national cultures of Germany and the United States. Within years of the merger, the dominance of the Daimler culture did not go well with employees in the United States. In December 2001, DaimlerChrysler CEO Jürgen Schrempp exclaimed, “What happened to the dynamic, can-do cowboy culture I bought”

Conflicting corporate cultures between US Airways and America West Combining two individual cultures and intricate administrative processes is very difficult to execute and manage successfully. Forcing employees to mesh behind the scenes is often ineffective because differences in organizational cultures are indiscernible to the top management. Take, for example, the merger of the Phoenix-based America West and Washington, D.C area-based US Airways in 2005. Many years into the merger, US Airways’s managers spoke of the “east side” (referring to the former US Airways) and the “west side” (referring to America West.) The unions continued to squabble over pilot seniority. Even though the company obtained a single operating certificate, two distinct cultures functioned internally resulting in poor employee morale, unhappy customers, and unpredictable financial performance.

Retaining Key Talent

Sagging morale and employee disorientation about job insecurity, company structure, seniority, decision-making processes, and promotion and growth opportunities often constitute another barrier to successful post-merger integration. Employees of the “weaker” partner or the acquired company tend to distrust the management of the “stronger” partner or the acquiring company. Fears of layoffs and new power equations in the merged entities often result in the exodus of key talent from the acquired company.

Forcing employees to mesh » why mergers fail

Engaging the Rank-and-file

“Human due diligence is every bit as important as financial due diligence. Ultimately, every deal will succeed or fail based on the collective efforts of the individuals who make it up.”
* David Harding

The success or failure of a merger results not from what happens at the top management level, but from what happens at the rank-and-file level. The importance of engaging the rank-and-file employees in the merger process and retaining key talent during the initial transition period cannot be overstated.

Recommended Resources

  • Bain consultant David Harding offers insights into M&A best practices in his book, “Mastering the Merger: Four Critical Decisions That Make or Break the Deal”
  • Wally Bock illustrates the importance of integrating corporate cultures with case studies from Chevron + Gulf Oil and HP + EDS
  • Carol Hymowitz’s WSJ article “In Deal-Making, Keep People in Mind” lists cultural problems that plagued other mergers

Share this:

  • Click to share on Facebook (Opens in new window)
  • Click to share on Twitter (Opens in new window)
  • Click to share on Pinterest (Opens in new window)
  • Click to share on LinkedIn (Opens in new window)
  • Click to share on Tumblr (Opens in new window)
  • Click to share on Reddit (Opens in new window)
  • Click to share on Pocket (Opens in new window)
  • Click to email this to a friend (Opens in new window)

Related

Wondering what to read next?

  1. The Key to Reinvention is Getting Back to the Basics
  2. Leadership is Being Visible at Times of Crises
  3. Lessons from Peter Drucker: Quit What You Suck At
  4. A Sense of Urgency
  5. Make Friends Now with the People You’ll Need Later

Filed Under: Leadership, Leading Teams Tagged With: Conflict, Leadership Lessons, Strategy

Reader Interactions

Comments

  1. Jay Chatzkel says

    September 1, 2010 at 2:27 AM

    Now that companies are committing to making the significant acquisitions, they face the other side of the coin: What do we do next? This article very nicely articulates that bringing the resources together to do the deal does not mean that the company has the capabilities at hand to leverage the new opportunities that come with the acquisition.
    Some firms have developed some degree of the core set of acquisition capabilities but many will find that they are not prepared to move through the complex process of an effective integration, especially in a way that they can position themselves for the quantum leap gains that they may envision – and are possible in this unique window of opportunity. It will be very interesting, for example to see if HP or Dell has the wherewithall to make the most of its run on 3Par. The emphasis on cost cutting at both of these companies may have whittled the kind of innovative thinking, dedication to building custodial capabilities and the disciplined processes that are necessary to meet this transformational challenge. For more information on an approach to accomplishing this, visit: http://www.beyondthedeal.net. That can give you an idea of what the array of issues are and how to work through them for significant gains.
    Jay Chatzkel

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar

Popular Now

Anxiety Assertiveness Attitudes Balance Biases Books Coaching Conflict Conversations Creativity Critical Thinking Decision-Making Discipline Emotions Entrepreneurs Etiquette Feedback Getting Along Getting Things Done Goals Great Manager Leadership Leadership Lessons Likeability Mental Models Mentoring Mindfulness Motivation Networking Parables Performance Management Persuasion Philosophy Problem Solving Procrastination Relationships Simple Living Social Skills Stress Thinking Tools Thought Process Time Management Winning on the Job Wisdom Worry

About: Nagesh Belludi [hire] is a St. Petersburg, Florida-based freethinker, investor, and leadership coach. He specializes in helping executives and companies ensure that the overall quality of their decision-making benefits isn’t compromised by a lack of a big-picture understanding.

Get Updates

Signup for emails

Subscribe via RSS

Contact Nagesh Belludi

RECOMMENDED BOOK:
How Will You Measure Your Life

How Will You Measure Your Life: Clayton Christensen

Harvard business strategy professor Clayton Christensen's exceptional book of inspiration and wisdom for achieving a purpose-filled, fulfilling life.

Explore

  • Announcements
  • Belief and Spirituality
  • Business Stories
  • Career Development
  • Effective Communication
  • Great Personalities
  • Health and Well-being
  • Ideas and Insights
  • Inspirational Quotations
  • Leadership
  • Leadership Reading
  • Leading Teams
  • Living the Good Life
  • Managing Business Functions
  • Managing People
  • MBA in a Nutshell
  • Mental Models
  • News Analysis
  • Personal Finance
  • Podcasts
  • Project Management
  • Proverbs & Maxims
  • Sharpening Your Skills
  • The Great Innovators
  • Uncategorized

Recently,

  • How to … Deal with Meetings That Get Derailed
  • How to … Plan in a Time of Uncertainty
  • How to … Rethink Work-Life Balance
  • How to … Pop the Filter Bubble
  • Inspirational Quotations #981
  • How to Be Happy, per Cicero
  • Serve the ‘Lazy Grapefruit’

Unless otherwise stated in the individual document, the works above are © Nagesh Belludi under a Creative Commons BY-NC-ND license. You may quote, copy and share them freely, as long as you link back to RightAttitudes.com, don't make money with them, and don't modify the content. Enjoy!

loading Cancel
Post was not sent - check your email addresses!
Email check failed, please try again
Sorry, your blog cannot share posts by email.