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Interviewer: Do the best due diligence, financial, strategic assessments and post deal plans prevent the failure of alliances?
Kevin S: According to a research study of Chief Financial Officers (CFOs) and senior financial management of Forbes 500 worldwide companies, organizational problems are both more likely and more damaging to a merger, acquisition, or new partnership than financial factors.
I had thought that the acquiring company paying too much for the target company and disappointing returns on investment would be the most important failure factor. Instead researchers found that corporate culture is the bottom line.
Here's a diagram showing likelihood and negative impact measured on a 7 point scale, with 1 meaning unlikely/no negative impact and 7 very likely/very strong negative impact. Bracketed numbers (1) indicate ranking. This comes from American International University, Bureau of Business Research.
| Occurrence | Impact | |
|---|---|---|
| Incompatible corporate culture | 4.85 (1) | 5.61 (1) |
| Clashing mgt styles and/or egos of 2 CEOs | 4.71 (2) | 5.11 (6) |
| Acquiring firm paid too much, resulting in disappointing ROI | 4.34 (3) | 5.00 (7) |
| Acquiring firm must spin off or liquidate too many target firm assets to meet debt obligations | 2.89 (9) | 4.05 (9) |
| Acquiring firm overestimated ability to manage target firm's business | 3.70 (6) | 5.40 (2) |
| Acquiring firm unable to implement organizational/operational transformation needed to achieve synergy | 3.75 (5) | 5.32 (3) |
| Synergy between firms nonexistent and grossly overestimated by senior management | 3.56 (7) | 5.22 (4) |
| Acquiring firm's business too unhealthy or poorly managed to benefit from target firm | 2.58 (10) | 4.50 (8) |
| 2 firms have incompatible mgt control/or other systems | 3.07 (8) | 4.07 (10) |
| Acquiring firm did not forecast unfavorable market events | 4.05 (4) | 5.14 (5) |
Interviewer: Isn't it true that many deals between clashing cultures don't happen in the first place?
Kevin S: During negotiations, both parties focus on trying to unlock the value that would result from their combined resources. Culture is acknowledged as something that will fall into place with the economic incentives and goodwill that both bring to the alliance.
When the cooperation needed is sandbagged in day-to-day details and behaviors, and the economic value doesn't get created fully, it may be due to something as simple as reluctance to increase research and development, decrease operational costs, change procedures or sell or buy assets in the same fashion. These differences reflect organizational and management problems caused by the existing unique and separate corporate cultures.
Our own work cultures often go unnoticed - until we try to implement a new strategy or program that's incompatible with that culture.
Interviewer: Is it difficult to change a culture or bridge culture gaps?
Kevin S: Although tough to change, corporate cultures can be transformed and made more performance enhancing.
A culture is good only if it fits - the objective conditions of the industry, that segment of its industry specified by a firm's strategy, or the business strategy itself. Programs such as Business and Organizational Renewal, Leadership for Results, Lead Scientists and Sustain the Research Organization, and Align Accelerate Transformation have been successfully implemented in whole or in part to bridge culture gaps and shape the shared values that enhance economic success.