This is a case study emphasizing the importance of CULTURE in the
process of integrating companies. In an earlier Mercer/BW study post-merger failures are attributed mostly to
inadequate due diligence, lack of a compelling strategy, overly optimistic
expectations of possible synergies and, increasingly so, conflicting corporate cultures. Another recent piece of
research lists these integration/merger failures: cultural incompatibility, clashing management styles and egos,
inability to implement change, inability to forecast and excessive optimism
with regard to synergies. An earlier McKinsey analysis of some 150 acquisitions
showed that more than 60% failed to earn back equity capital invested within
three years and the average ROA was about 75% below the NYSE average. Pretty
dismal numbers. Doesn’t really make you feel good at a time when you are tasked
with incepting a big integration chore.
The task looked pretty straight forward and eminently doable. On the
one side: the local Swiss daughter [company X] of the leading global firm in
the industry (Business and Financial Services, Receivables Management, Database
Marketing, Credit Ratings, Risk Management). The acquired local company [company Y] was about equal in
size (revenues, employees) but more profitable. For the local press it was a
foreign “behemoth” raiding a tiny Swiss firm, evoking Asterix and Obelix
notions, William Tell-like comments…. Company X’s parent was of course
American: language, processes, structure, reporting, culture. And the task of
managing the post- acquisition integration was given to a bunch of … Germans. A
potentially lethal mix. A recipe for disaster if not carefully handled and with
all due sensitivities…
Now, this acquisition was earmarked to focus equally on combining resources – human, financial - while also looking to achieve pretty massive
synergies – such as technologies and innovation. Or, putting it differently:
both -2-2 = -3 as well as 2+2 = 5. This
thing looked easy (albeit from a few hundred miles away): two companies
seemingly doing the same business, selling pretty much the same range of
products and services to customers that
basically didn’t overlap, i.e. one aiming more at enterprise and global firms,
the other one essentially focusing on KMUs, small to medium size local
companies. And possessing two very valuable, complimentary databases. Both were
headquartered in Zürich and hence spoke the same Swiss-German idiom. My reaction
was: piece of cake. Slam dunk. Right?
WRONG!!
What wasn’t so apparent (and woefully neglected in the due diligence
process) and hence not on my list of concerns and hence not part of my
integration plan were all the questions/issues around CULTURE. Culture, the sum
total of all the meaning, nuance and ways of doing business- the DNA of a
company, as opposed to reporting patterns and structure. The former is
complicated and difficult if not impossible to integrate while the latter can
be changed/managed quite easily and quickly. The overriding concern for me was
primarily in relation to the acquired company and the quintessential need to
retain key talents (from both companies) and then merging them on all levels.
From the Board to the front line of sales.
Here’s where things got really complicated (not the IT issues, nothing
really in the area of data collection, collation, mining, storage etc). The
acquired company, we found out, was essentially an anti- X company, founded by
someone who was unceremoniously let go some 15 years earlier when he was
heading the Geneva office of company X. The lingua franca of company Y was
Swiss German and…French. Ours was Swiss German and English and German. Talking about an odd couple….. There
was mistrust, contempt if not hate in the air in the acquired company; we were seen
as unwelcomed raiders, standing for everything they detested. All of a sudden
things didn’t look so easy anymore….
We thought we had done our full due diligence. It was basically
numbers- and process oriented; customer-lists focused and with expected synergies that looked massive (but
so were the bonus potentials). We equipped ourselves with a master integration
plan/integration checklist for post-merger success. We sounded and felt…. very
professional. And we opted for a rapid pace of integration (at least as far as
the basics were concerned, based on
Coopers & Lybrand’s program called Accelerated Transition that sets a
100-day target for the big part of the entire integration process; it did take,
however, almost two years for the full integration to be consummated). Enough
studies found a correlation between a slow pace of post-merger
integration/transition and low levels of revenue, cash flow and profitability.
We also decided against naming a
designated chief planner or resorting to any kind of interim manager(s) or outside advisors (there was
enough credible literature around on this subject, arguing in favor of our
decisions).
Heck, that wasn’t to be my first such integration job. A few years
earlier I had successfully lead a team that was tasked with merging and
integrating Gillette’s disposable
lighters business (Cricket) into the requisite Swedish Match portfolio in the
U.S.. A propos culture: I forgot to mention that company Y was very much
CEO/OWNER-oriented: “patron”-fixated. Pretty flat hierarchy; quick
decision-making. “Mittelstand”. The old
school. Company X and its parent was, well, different. American:
hierarchical, pretty much top down/vertical, given to bureaucracy, slower
decision-making, a bit like running an army. Neither good nor bad. Just
different.
No need here to go into the specific modus operandi as to how we worked
the integration plan (structure, pace, reporting, communication,
implementation). I responded to all of these challenges by naming an
integration oversight committee chaired by myself and staffed by three senior
managers from the (vastly bigger) German company of which I was the CEO (along
with running Switzerland as well as
Austria; the latter was in the
midst of a massive restructuring chore which was on my watch as well). They
were “old” hands in the business with a
combined 60 yrs+ of experience and expertise in this field:
mature, wise, steady, dependable and with a history of delivering results. And,
very importantly, they had no aspirations of playing any executive role in the
new Swiss entity- they weren’t about to take someone’s job there. No threat to
the locals! And they left the “elbows” and the in-your-face approach, so often
encountered with German executives, at home. Besides, they had a good command
of English and…. French. They had earlier earned their “sensitivity” stripes
when we were building a state-of-the-art technology center for Europe in
Neubrandenburg in the former East Germany, almost entirely premised on local
knowledge and staffed primarily by East Germans. Talking about mastering a
cultural divide!
And yes, what certainly helped, was that I grew up in Switzerland,
spoke the local dialect, knew the local norms and culture, and hence was
accepted as one of “them”, lived and worked for many years in Germany and the
U.S. and as an EVP Europe I was a member of the European Executive Committee
based in the U.K.I had some cloud and standing. That helped.
This short case study focused entirely on the human side of enterprise,
the cultural idiosyncrasies involved in integration chores, “soft” factors that
are all too often neglected and overlooked and hence the chief culprit for
integration failures. As Bill Clinton said back in 1994: it’s the economy,
stupid. Probably so. It’s the people, stupid. Most definitely so. What has to
be an integral part of any integration plan, if not already part of the due
diligence phase of every acquisition and subsequent merger, is the respect for the
integrity of local cultures: countries and companies alike.
And, yes, we were pretty successful. Hardly any people attrition;
reputations and images remained intact. Customers reacted positively and
affirmatively. And the bonuses felt real good…..
Mr. Reinhard Bockstette
Berlin, Germany
