Merging Cultures

March 14, 2015

Hand Mixer with Eggs in a Glass Bowl on a Reflective White Background.When there is a merger, acquisition or other major organizational change, the different cultures must be blended into a coherent new culture. Managers often assume this will happen naturally over time, so they do not focus on this aspect when planning the merger.

WRONG! Achieving a stable culture where people are at least supportive if not enthusiastically driving a singular mindset is the most significant challenge for most change efforts. Do not assume things will work out; instead, take a highly proactive approach to defining a new culture.

In every case, even when the action is described as a merger of equals, one group will feel they have been “taken over” by the other. Curiously, in many instances, both groups feel they have been taken over because employees in each former group will need to modify procedures to accomplish the union.

Usually, one of the parties is assumed to be in the driver’s seat, so it is the other party that needs to endure the bulk of changing systems. Lack of trust and genuine animosity lead to resistance when it comes to blending the two groups into one.

It is common to have the conflict occur as passive resistive behavior. People will have the appearance of agreeing, but subversively undermine the other group however possible. This kind of “we – they” thinking can go on for years if allowed. So what actions can management take to mitigate the schism and promote unity? Here are a dozen ideas that can help.

1. Start early – Do not let the inevitable seeds of doubt and suspicion grow in the dark. Work quickly after the merger is announced to have teambuilding activities.

Openly promote good team spirit and put some money into developing a mutually supportive culture. Good teamwork is not rocket science, but it does not occur naturally. There must be investments to accomplish unity.

2. Have zero tolerance for silo thinking – This is hard to accomplish because human beings will polarize if given the opportunity. Set the expectation that people will at least try at all times to get along.

Monitor the wording in notes and conversations carefully and call people out when they put down the other group. This monitoring needs to include body language. Often rolling eyes or other expressions give away underlying mistrust.

3. Blend the populations as much as possible – Transplant key individuals from Group A with counterparts from Group B. If this is done with care, it will not take long for the individual cultures to be hard to tell apart. Sometimes the transplanting process is unpopular, but it is an important part of the integration process.

4. Use the Strategic Process – It is important to have a common set of goals and a common vision. If the former groups have goals that are not perfectly aligned, then behaviors are going to support parochial thinking. When conflicts arise, check to see if the goals are really common or if there is just lip service on this point.

5. Reward good teamwork – Seek out examples of selfless behavior from one group toward the other and promote these as bellwether activities. Verbal and written reinforcement from the top will help a lot. You might consider some kind of  award for outstanding integration behavior.

6. Model integrated behavior at the top – Often we see animosity and lack of trust at the highest levels, so it is only natural for the lower echelon to be bickering. People have the ability to pick up on the tiny clues in wording and body language. The leaders need to walk the talk on mutual respect.

7. Co-locate groups where possible – Remote geography always tends to build polarization in any organization. If merged groups can be at least partially located under one roof, it will help to reduce suspicion by lack of contact. If cohabitation is cost prohibitive, it is helpful to have frequent joint meetings, especially at the start of the integration process.

8. Benchmark other organizations – Select one or two companies who have done a great job of blending cultures and send a fact finding team made up of representatives from each group to identify best practices. This team can be the nucleus of cooperation attitudes that can allow unity to spread through the entire population.

9. Make celebrations include both groups – Avoid letting one group celebrate milestones along the way while the other group is struggling. Make sure the celebrations are for progress toward the ultimate culture instead of sub-unit performance.

10. Align measures with joint behavior – Make sure the measures are not contributing to silo thinking. If the goals are aligned for joint performance, have the measures reinforce behaviors toward those goals. Often, well intentioned measures actually drive activity that is directly opposite to the intended result.

One way to test for this potential is to ask, “what if someone pushes this measure to the extreme – will that still produce the result we want”?

11. Weed out people who cannot adjust – A certain percentage of the population in either group are going to find it difficult to get over the grieving process. Identify these individuals and help them find roles in some other organization. It will help both the merger process and the individual.

On the flip side, identify the champions of integration early and reward them with more exposure and more span of control.

12. Create incentives for the desired behavior – People should be encouraged in every way to act and think in an integrated way. This can be encouraged by having the incentive plans pay out only if the joined entity performs seamlessly.

The road to a fully functioning integrated culture can be long and frustrating. By following the ideas given above, an organization can hasten the day when there are few vestiges of the old cultures, and people feel a sense of belonging to a single new order.

Merger Problems

January 23, 2015

M&A or Merger and Acquisition text on blockNumerous studies have found over 50% of mergers and acquisitions fall short of expected results, primarily due to the failure of the cultures to integrate well. Why, then are CEOs so cheerful when they head into one of these major restructuring activities?


In my book, Trust in Transition: Navigating Organizational Change, I discuss 30 different systemic problems with making mergers work and give antidotes to each of them. In this brief article I will describe what I believe are the five most serious problems and suggest ways to mitigate them.

1. Relying too much on the mechanical process

When MBA students learn about M&As, the content usually is focused on the financial and legal details of setting up a combined entity from two unique groups.

Topics covered include asset valuation, due diligence, negotiation, legal aspects, management structure, and numerous other organizational things that must be considered. Few programs give equal attention to the cultural part of the equation.

Students are left to assume that the culture simply “sorts out” by itself over time. That oversight is huge because cultural issues are usually the root cause of merger problems.

For example, the Daimler-Chrysler merger in 1998 was a classic debacle that cost Daimler nearly $36 billion over a decade. The magnitude of a loss that large, was almost $10 million per day for 10 years! The major reason for the breakup was the failure of the two cultures to integrate.

To improve the M&A process, it would be helpful to give the cultural integration equal footing with the legal and financial aspects of the activities from the start.

2. Loss of objectivity leads to inadequate planning

Top leaders can easily see the benefits, and they look seductively attractive. The costs and hassles seem to be manageable, so not much energy is spent on internal culture issues or potential external problems for customers.

The upside of the deal is championed, while challenges are pushed aside. Objectivity gives way to passion for the deal.

Anyone who questions the validity of an assumption or brings up a potential problem is labeled as “not a team player,” so reasonable dissent is extinguished.

Here are three antidotes for this situation:

1) have a trusted Devil’s Advocate on the senior team who will prevent myopic optimism,

2) explore potential problem areas and design solutions that mitigate risk, and

3) calculate the ROI based on the best guess of the benefits, but inflate estimated costs and problems, because real costs will surface later and often be larger than anticipated.

3. Lack of adequate training

Leadership training is crucial during any kind of reorganization. Many organizations back off on training for leaders because there is so much chaos during the integration that most leaders are “too busy to sit in the classroom.”

Antidote: Bring the classroom to the chaos. What better time is there to do leadership development than right there in the middle of the crucible? Skilled L&D professionals can leverage the urgent need for solutions into pragmatic problem solving and motivational skills.

Supervisors are also in urgent need of leadership training during a reorganization. Reason: they form the critical trust link between the management layers and the workers. Changes faced by each supervisor are stressful personally, yet this individual is vital in creating order for the other people.

Weak or bully supervisors often come unglued due to the pressures of a merger. They need training and assistance in order to perform their function when it matters most.

4. “We Versus They” Thinking

From day one, the leaders must not only preach the avoidance of “we versus they” thinking, they must model it and insist on it.

I often hear language that indicates lack of full integration years after a merger has been supposedly completed. It is essential to replace parochial thinking with “us” type language and actions.

One way to help speed the integration is to co-locate the groups. That is often impossible in the short term, so transplanting some key resources from one group to the other is another way to make it harder to tell who “we” are and who “they” are.

5. Loss of Trust

In the anticipation of a merger or acquisition, adrenaline drives expectations of what the merged entity can accomplish. It is easy to assume the individual needs will be resolved and team cohesion will somehow settle in quickly.

That is usually not the case, and often bitter feelings linger on, hurting the integrated organization for years.

Candid and frequent communication is needed to keep people informed and allow top managers to feel the angst of workers. It is in these interfaces that trust is either maintained or destroyed by the behaviors, words, and body language of senior leaders.

Ten Best Practices

Anticipate a bumpy ride, and expect that significant psychological calming is going to be needed at times. Here are some additional ideas that may be helpful:

1. Be clear and transparent throughout the process.

2. Create design teams early to help people connect with the future more quickly.

3. Include the customer in every decision, especially during the chaos phase.

4. Assume the risk of setbacks willingly, and do not let unexpected issues spoil the overall process.

5. Invest in some Emotional Intelligence training for people in the organization, especially management.

6. Celebrate positive movement in an integrated way to model the spirit of the merged culture.

7. Bring in a grief counselor to help people cope with the loss and the transition.

8. Train leaders to model the integrated behaviors, and do not tolerate silo thinking.

9. Consider cross-locating or co-locating people, where possible.

10. Prune redundant resources delicately with a sharp scalpel rather than a long line of guillotines.

There can be times of joy and accomplishment during any merger or acquisition. It is possible to maintain trust, even amidst the chaos. After all, the vision for the whole activity is a brighter future.

The wise leader will recognize that changes of this magnitude require extraordinary effort and patience to achieve the anticipated result.

By focusing the same level of effort on establishing the right kind of culture as they do on the financial and legal aspects of reorganization, leaders can ensure they meet or exceed their goals.

Falling in Love With a Merger

September 6, 2014

two padlocks as concept for eternal loveWhen executives consider doing a merger, acquisition, or major reorganization, it is a time of great peril for their organizations. Reason: many of these efforts result in eventual loss of value and failure to reach the goals envisioned at the start.

There have been many studies that present a variety of statistics on failure rates all the way from 50% to 80%. The precise number depends on the parameters of the study and how performance is measured. I do not want to debate the statistic, just recognize that the failure rate is way too high given that these decisions are choices consciously made, and they sometimes turn out to be disastrous for the organization.

In this article, I want to highlight what I believe is one root cause of the problem.

Executives become obsessed with the idea of the merger or acquisition and become blinded like a motorist driving east at 7AM. At the precise moment the sun comes up over the horizon, even if you have your visor down, it becomes extremely difficult to see the dangers around you.
The benefits of the merger are easy to see clearly upfront, but the problems and hassles are foggy.

For example, it is easy to quantify how much more market share will result from a merger. By inheriting a whole new product line and sales territory, the benefits of scope can be very tempting.

Working with a larger base will allow efficiencies due to staff reductions. Consolidation of equipment and inventory will also benefit the merged entity. All these factors, plus many more, are easy to identify and calculate with reasonable accuracy.

As the executives focus in on the benefits, some of them begin to act like people in love. Reality about the dangers gets swept aside as the potential benefits become the topic of most conversations. If there is a dissenting voice in the management ranks, it is quickly extinguished as the euphoria builds. “This is going to be wonderful!”

On the negative side, there are going to be costs and negative impacts for sure, and it is going to take time and energy to accomplish the merger. The problem here is that the specific costs and amount of time to resolve problems are extremely hard to quantify.

Overzealous executives can easily wave away the hassles with a statement like,  “This is no place for the faint at heart; we will just have to tough it out and figure out how to operate as we go along.”

One problem often under estimated is the impact of a merger on customers. Before the merger you have two organizations focusing on two sets of customers and set up to serve them rather well. Eventually, you will have one entity serving a larger pool of customers, with perhaps even better service.

The problem occurs in the middle when all the chaos happens. IT systems will be in limbo for some time as the customer service teams integrate. Phone numbers of who to call will be changing. People will have evolving roles and may not even know who is covering a particular customer.

When you consider that the integration of two corporate entities can take years to accomplish, the impact on customers is often devastating.

Reason: customers do not care about the merger.

They see very little benefit. All they see is a bunch of hassles, confusion, and lower service than they had before. During the integration period, it is easy to lose the valuable customer base that made the merger attractive in the first place.

Another huge issue is the lack of worker engagement in every part of both entities. During the integration, the majority of people lose motivation for a variety of reasons and often act in uncooperative ways as they wrestle with how things are going to sort out. Both quality and productivity take huge hits when this happens, and trust in management is usually a casualty.

In this environment, the most talented people become so disillusioned that they seek employment elsewhere. Thus, during the transition it is common to see the people who are most needed in the organization quit and leave, while the people who are the deadwood quit and stay. The impact of this on costs is devastating.

These are just a few of the consequences of going into a merger or acquisition without some ballast to bring reality into the ROI equation. In my book Trust in Transition: Navigating Organizational Change, I address these symptoms as well as others and offer antidotes to reduce the sun glare and make the trip safer.

Book Released This Week

August 22, 2014

Trust in Transition Cover060To my friends and associates:

I announced the existence of my new book on this blog a couple months ago and have written a few posts about some of the key points since then. This week was the official launch of the book. YEA!

Info at

When organizations go through major changes such as mergers, acquisitions, or other large-scale reorganizations, trust is often lost, and as a result most transitions do not live up to expectations. My book offers a multitude of ideas to prevent the problems or repair the fragile trust that has been damaged. It is the result of five years of writing and extensive research coupled with my 40+ years of practical experience

Here is a link to a brief (two minute) video about the book.

If you are involved in a transition of any kind — or are likely to experience change — you will find this book quite useful, regardless of your position in the organization. I will be doing international programs, keynotes, and workshops on the ideas over the next few years, so if you are interested, just contact me.

Merger Double Duty

August 9, 2014

small babies twins on parental hands isolated on white backgrounThe announcement of a merger can send people scurrying to their offices to begin piling up sandbags of defense against the flood of change.

Many mergers are handled with all the sensitivity of a Gestapo raid. The story below may seem extreme, but it literally goes on in many organizations that rush into a takeover.

In the planning phase of the merger, top management has a gag rule on information because they are afraid people would panic if they knew what was going to happen.

They are convinced that to avoid sabotage, and other problems, it is best to keep things “under wraps” until the merger is ready.

Rumors start as a result of all the secret meetings. Layoffs are expected, because one primary result of a merger is to consolidate staff positions.

People are aware of this and hope they will be one of the survivors. In reality, some people are smart enough to hope they do not survive.

Top brass announces the merger, but it is really not a shock to the people in the organization. They are just glad to have the news out in the open. Being held in the dark is a most uncomfortable feeling. Now, at least people will know if they are “impacted” or not.

The dreaded day approaches and finally arrives. The boss calls the impacted people in one by one to tell them the bad news.

Guards walk them back to their area to get belongings and escort them out the gate. A quick handshake and the exchange of the employee pass is all it takes to complete the deal.

Oh sure, there is the promise of support from HR: “Go to a place off company property over the next week, and we will help you network in the community for another job.”

A packet arrives in the mail to sign up for COBRA Insurance to tide over the family. I would have thought they would call it BOA CONSTRICTOR Insurance rather than COBRA Insurance. At least that title would fit the reality.

A remaining employee, let’s say Mary, breathes a sigh of relief until the boss calls her into the office and says,

“As you know, we have let Jake go, so you will now cover his responsibilities.”

Mary says, “But I already have a full workload of customers, and I don’t know anything about Jake’s job.”

The insensitive Boss says, “Just do the best you can, and remember, as one of our most talented people, you still have a job here.”

In a daze, Mary wanders into Jake’s empty office. She looks around and shakes her head. “Well, I might as well dig in here and see what Jake’s job entails.”

She looks halfheartedly into Jake’s desk drawers, throws out an old can of shoe polish, and starts trying to make sense of the mess. She looks at the 4-drawer file of Jake’s former customers, now her responsibility.

Think about this scene. Have you ever tried to decipher someone else’s files with no crossover? It is impossible.

The sound of the phone ringing in her office wakes Mary up. She runs down the hall and grabs the phone in time.

It is the familiar voice of one of her own customers. Thankfully, she is able to answer the question and satisfy the concern. She does a double take and realizes that there are 14 messages on her answering machine from the past two hours.

She starts clearing out her backlog and becomes totally engaged in her old job – the one she knows and can handle.

Every day for the next several weeks, Mary goes to Jake’s office for a couple hours (usually including her lunchtime) in a feeble attempt to keep the most vocal customers in Jake’s area from blowing up.

There is little understanding or history to back up her actions, so she is not very effective. It is impossible to keep up with Jake’s workload in a couple hours a day, so Mary focuses most of her attention on the job she understands.

Customers eventually write nasty e-mails to the top manager who jumps all over the area manager. Customers are taking their business elsewhere because there is no service being rendered.

The boss rushes into Mary’s office and says, “Mary, you are not performing like your usual self. We have customers that are your responsibility who are defecting. I know you are super busy, but you simply cannot afford to ignore customers who are in need.”

Mary says, “You are right, Bill. I cannot. Another thing I cannot afford is to work here for you any longer. My family and my doctor tell me I am heading for a stroke, and I am simply unable to perform what is expected. Therefore, I am handing in my two week’s notice.”

Note the simple but inevitable consequence of a decision by top management to ignore transparency out of fear. The old saying, “penny wise and pound foolish” applies in this case.

The company lost valuable customers and one of its most valuable employees. In addition, this situation is going on multiple times in the work unit, because Mary was not the only one whose work load doubled with no training.

There is no way to make up for this damage. It is a major blow to the business; in many cases it is fatal.

The fault here is not the merger itself. It is the veil of secrecy around the planning that was the major culprit. That is silly because holding back information really did not prevent it from becoming common knowledge.

Limiting transparency made the damage much worse than it could have been.

I am not saying that mergers are a picnic if people are informed ahead of time, and there are legal restrictions on how much information can be shared.

Many of the problems will occur no matter how the disclosure is handled, but if we contrast the above scenario with a slightly modified one, the result has the potential of a brighter outcome.

The area manager calls all employees together on day one. He says, “We are contemplating a transition, and we are probably going to need a layoff in the next few months.

None of us are happy about this, but it will probably happen. The best thing you can do now is focus on your job. As we plan for how many people will need to leave, I will keep you informed and be available for questions.”

During the next couple of weeks, the need for a layoff becomes clear. The boss calls Jake into the office and says, “Jake, as you know we are projecting a layoff. It looks like you will be impacted and either be let go or have to assume a different role.

I would like to work with you to find the best option for you and see if we can keep you in the company in a different role. I will do my best.

You should begin networking now, both inside the company and outside. In the meantime, can you please work with Mary to introduce her to your customer base?

I will tell her that we are combining her job with yours, but we will reduce her report writing duties to allow her more time to accomplish the combined area.”

In the discussion with Mary, the boss stresses that she is a highly valued employee being called on to stretch her influence with the customer base. A reduction in paperwork will provide some relief in order to allow her more face time with customers.

She will also receive a modest bump in pay as a result of the increased responsibility. She will inherit Jake’s accounts and should get up to speed on them over the next two weeks.

I grant that this second scenario is far from easy or painless for all parties, but the consequences are far less debilitating for the business.

By treating all employees like adults from the start and leveling with them, many of the problems in the first scenario were prevented.

The most significant reason for the difference between the two cases is that the top boss or HR function allowed the local manager to operate with transparency.

Why M&As Fail

June 24, 2014

HindenbergAccording to one study, (Selden & Colvin, 2003, Harvard Business Review) nearly 80% of mergers or acquisitions fail to reach their initial performance targets.

Not all of those crash and burn, but the results are none-the-less disappointing.

The reasons for these failures are as numerous as leaves on a tree. I believe there are some conditions that align to stack the odds in the direction of failure rather dramatically. Here are ten examples:

1. Perspective Problem

When first contemplating a merger, the benefits are rather easy to see and to quantify.

The problems or impediments are far more numerous, yet most of them are hidden from view, like bats in a cave. They will eventually come out and swirl around us, but at the start we do not know the magnitude of the problems.

If we are lucky, and we picked the right cave, the problems will be small and manageable, but if we are unlucky, the sky can turn black with a swarm of issues, and our safety nets are woefully inadequate.

2. Over Enthusiasm

The senior leader “falls in love” with the concept of the merger and loses a sense of reality.

If anyone dares to question the sanity of what is being contemplated, that person is dubbed a non-team-player and sent off to the minor leagues.

Just as love can be blind, managers can ignore the symptoms of problems until it is far too late. Then, all that can be done is to mitigate the damage.

3. Focus on Financials

The deal is conjured up as a financial arrangement having to do with ownership of property, technology, and processes.

The cultural aspects of getting people to work together effectively is assumed until the deal is struck.

The polarization between groups and the interpersonal hassles metastasize throughout the organization and become untreatable very quickly.

4. Wrong People on the Bus

During the run up to a merger, people are aware of what is going on, even though there is a laughable charade of secrecy.

The highest performers recognize the risk and have their alternate landing spot already selected. By the time of the announcement, some of the best people already have job offers elsewhere.

The poorer performers hunker down in the trenches and become problems to deal with after the news is announced.

5. Lack of Trust

The games played during the due diligence and negotiation end up destroying trust within both organizations, and neither group has much trust in the other entity.

Building up a culture of high trust is a daunting task under the best of conditions, and trying to do it amid the chaos of a whole new organization is about as likely as the sun turning blue.

6. Stiffing the Customer

The customers of both organizations don’t care a whit about the integration. They just want seamless service and excellent quality products on time.

When both organizations are urgently focused on stamping out internal problems and redefining their processes, there is little focus on satisfying the established customer base.

In hundreds of ways the poor customer’s needs get shoved to the back burner every day. Since there are alternatives, it does not take long for smart customers to turn elsewhere.

7. Uncertain Environment

People at all levels are petrified. They really do not know their future, and they just hang on until the dust settles.

Teamwork is pretty rare, and everyone is looking out for number one. Meanwhile the work is not getting done as before because people are not getting clear marching orders.

8. Spotty Communication

Since a good portion of the discussions are supposed to be secret (which is a true sham since everyone in both organizations knows what is going on) little credible communication is coming out of the top level.

This environment is a perfect incubator for rumors and gossip that only add more instability to an already fragile system.

9. Faulty Assumptions

Many of the procedures must be recast with both groups having to change in some ways. It is common for both groups to feel they have been “taken over” and forced to revamp their culture to accommodate the other entity.

Bitter feelings arise as people would rather live in the world that existed before. Of course that is not possible, so there is a grieving process going on, just when the organization needs people to be at their best.

10. Chaos

You can observe true chaos in one of these situations. It is as if a major earthquake just hit off the coast, and people on the island are scrambling because of the tsunami to follow. Not much constructive work is happening during this time.

These are just ten of the conditions that make the M&A process so chancy. There are dozens of other negative things going on as well. It is no wonder the track record of success against the goals is so low.

My new book, Trust in Transition: Navigating Organizational Change, explains how to improve the odds dramatically by focusing equal energy on the cultural parts of the integration as the mechanical process. Doing this mitigates all of the problems listed above and gives a fighting chance for success, despite the issues.

Trust in Transition Cover060The book will be launched on August 18, 2014 by ASTD Press and is currently available for preorder. The book is about how organizations must do a better job of preserving and enhancing trust when they go through changes such as reorganizations, mergers, acquisitions, or other restructurings. Your purchase of the book includes access to a set of videos that enhance several of the key points. For a video introduction to the book, click here.

New Book: Trust in Transition

June 21, 2014

Trust in Transition Cover060Is it possible to make major organizational transitions without catastrophic loss of trust?  I think there is, but the odds are against you unless you change the conventional thinking process. What is required is a new approach toward navigating organizational change.

My new book, Trust in Transition: Navigating Organizational Change, will be launched on August 18, 2014 by ASTD Press and is currently available for preorder.

The book is about how organizations must do a better job of preserving and enhancing trust when they go through changes such as reorganizations, mergers, acquisitions, or other restructurings.

Your purchase of the book includes access to a set of videos that enhance several of the key points.

There are numerous books on managing change, and many books and articles on M&As. My book is unique in that it focuses on the actions and behaviors needed to maintain the vital trust between people and organizational layers during the process of change.

A link between trust and organizational performance has been demonstrated in numerous studies. The correlation is strong, and the leverage offered by high trust is impressive. Most studies show a two to five times productivity benefit in high trust groups over low trust groups.

Can you name any other single factor that can offer a 200% improvement in productivity?

When organizations contemplate changes, the manner in which the effort is planned, organized, announced, managed, and led has everything to do with the impact on trust.

Unfortunately, in the vast majority of cases, the changes end up having a profound negative impact on the culture just when trust is needed the most. This condition ends up undermining the change effort and leads to a documented dismal track record of almost 80% of transitions not living up to expectations.

Thankfully, failure can be avoided by taking steps right from the start of a change process to act differently and prevent problems from occurring. The old adage of “an ounce of prevention is worth a pound of cure” holds true for this situation.

If some changes in mindset can be accomplished from the earliest plans for a change, the ability to retain or even grow trust during change is possible.

My book is about how to break the cycle of change failure by focusing as much effort on the cultural integration as on the mechanical parts of the change process.

Unfortunately many leaders have had professional training in the MBA schools that emphasizes the mechanical aspects of the change process such as negotiation, due diligence, financial valuation, or legal implications.

These subjects are critical in transitions, but they should not squeeze out the considerations of how to get people to work well together during and after the transition.

The focus on the financial and legal implications of a change are forced on center stage, and what ends up back in the wings is the fragile culture of trust between people in the organization. That is a problem, because the end result is a change effort that works well on paper but often fails to meet expectations in the real world.

The book contains dozens of areas where leaders unwittingly make errors in judgment which undermine the changes all along the way. By following a parallel path that works just as hard on the culture as the deal, leaders can greatly improve the odds of success.

I will provide a series of articles on this blog over the next few months that look at different aspects of the change process to suggest pragmatic antidotes to common problems.

Investing more leadership attention to the culture early in the change process will have a profound positive impact on the success rate.

I hope you find the tips I offer in the book and in future articles to be helpful at preserving trust in your organization. Nothing could be more vital for your ultimate success.

Murders and Apparitions

March 9, 2013

Knife in handMost business people call them Mergers and Acquisitions (M&As), but my wife calls them Murders and Apparitions. M&As are supposed to make things better, but far too often they create ghosts that spirit away trust or lead to outright “companycide.”

For those who have not studied the subject, the failure rate of M&As typically runs between 50% and 80%. Don’t believe me? Look it up! Of course that statistic depends on how you define failure. A “failure” does not always mean the merger needs to be broken up or the acquisition resold. Generally, people refer to an M&A failure when organizations have preconceived expectations from a merger or acquisition that are not realized within 2-3 years after the event.

M&A failures are common, but it is not because the lawyers, accountants, and managers of the entities do a poor job with the mechanical parts of the action. The negotiations, due diligence, formal papers, tax considerations, asset valuation, and other tangible things are taught in the business schools and are normally pretty well done. What invariably destroys an M&A is a failure to merge the cultures of the two entities into a reasonable blended culture.


Many things get killed off in a typical merger or acquisition. First, the culture of both groups is lost. What emerges often is unsatisfactory to both groups of people. It is amazing to interview people in the throes of an M&A, because often people in both groups believe they got the shaft and the other group received the lion’s share of benefits. Motivation is squandered when a culture is murdered. People are lost, walking around like zombies, not knowing if they even have a job, let alone exactly what that job might be.

Another fatality is customer service. While most people in both groups are in disarray, and this can take years to fix, the customer assumes second place. Survival for each individual becomes paramount. The customers do not care at all about the merger or its success; the customers just want high quality products on time and at the expected price. They expect rapid and friendly service if something goes wrong, but they find it hard to even contact people, let alone get swift answers to technical problems.

Death also comes swiftly to teamwork. In most situations there will be future job cuts. This realization pits people against each other. One can observe all kinds of backstabbing activities or even outright sabotage. Sometimes cliques will emerge where groups are openly combative in the mad scramble for ultimate survival.


There are numerous factors that, while not deathlike, will seem to be ghostly or somehow haunted. A good example is the development of people. Prior to the merger or acquisition, both entities have concrete development plans for most employees. During the transition, these plans are usually put on hold because nobody knows who the survivors are going to be. It takes a long time after the full integration happens to get back to a documented and well-understood plan for developing people.

Another apparition is communications. It turns out that during normal times, poor communication is the number one or number two complaint for most employees. Imagine how communication suffers when managers are totally preoccupied with putting out fires and there are no real answers to logical questions. The lack of solid information generally tends to add both time and cost to the process, which lowers the chances of success.

A third apparition is the spirit of the employees. Since the ultimate blended culture is going to be somewhat different than either of the two initial cultures, people quickly become discouraged. Therefore, during an extended period, there really is no definable culture for the organization. This exacerbates the problems.

A final example of an apparition is the role of HR. The HR departments of both the pre-merged entities were functioning as highly taxed groups struggling to keep up. In the merged configuration, HR is burdened with about three times the load of critical work at a time when many of the HR staff do not know if their own jobs are secure. The service level of HR appears ghostly to most employees because HR is in no condition to provide basic service, let alone meet the significantly enhanced challenges.

During a time of trying to integrate two entities into one, there are a multitude of problems and issues. A large percentage of these issues were not anticipated by the well-intended mangers who dreamed up the wonderful new configuration. With all the problems outlined above, it is no wonder people are extremely wary of mergers and acquisitions. It takes exceptional leadership to prevent chaos and loss of market share when organizations go through these major upheavals. The fact that some M&As do succeed is a testament to the skill and fortitude of the people involved in the successful ventures.

Strategic Fossils

June 10, 2012

In current courses on “Competitive Advantage” in business schools, many of the texts used are more than a decade old. For example the “Father” of competitive theory is Michael Porter, who was a professor at Harvard University back in the 1980s. His book, Competitive Advantage came out in 1985. It is from that work that most of the theories students study today were derived. I have a copy of his original book in my library, and I even read quite a bit of it before falling asleep.

One thing that struck me in going through the MBA reading list was that the world changes so quickly that in just a few years theories can become obsolete. The world of today is a vastly different place than the early 2000s when many business texts were written. Many of the companies analyzed in the examples are now extinct – the result of failed strategic choices or mergers.

For example, The Strategy Process by Mintzberg came out in 2003. It gives examples of personal computer makers as AT&T, IBM, Apple, and Compaq. In intervening years, as the market changed, as technology changed, as the decisions got more complicated, only the strong survived.

AT&T has gotten out of the computer business completely, choosing to focus on the growing cellular market.

Apple has made a name for itself selling iPads, and iPhones, changing the landscape of computing. Their mobile media device sales dwarf their computer sales.

While you can still buy something called a “Think Pad” which looks like an IBM product, it is made and sold by a company called Lenovo. How many of us heard of Lenovo ten years ago? Although IBM still sells refurbished computers, their main products are networking and information management now: servers, cloud computing, network security, and custom client solutions.

Compaq was bought out by HP and still limps along – at least for the moment – but it is far from the powerhouse it used to be. Each company coped with change in its own way and came up with vastly different strategies and results.

Today the world is far more fluid and “flat,” meaning that many of the strategies that proved successful in the early 2000s would now fail. So, the number one rule of strategic thinking is to be current. That means getting out in the world to understand how it really operates today.

Far too many strategic planners become fossilized by parochial thinking and models that have existed in ancient history – like anything more than 2 years old is good for historical purposes but not for generating brilliant winning strategies today. You cannot survive simply by studying the theories of the past. You must be thinking ahead of the power curve so you at least have an accurate view of the environment in which you are trying to survive.

So, what is the benefit of reading books that outline great details about models for strategic planning? The benefit is that the process of strategic thinking and the mental steps you take are fixed and really do apply even in vastly different environments.

Let me illustrate with an example. There is a concept called “Segmentation Strategy.” This is where an organization slices and dices the market into chunks that can be addressed with slightly different tactics depending on the characteristics of each chunk. This segmentation idea could be applied whether you were making and selling wood stoves in 1900 or some kind of personal vapor heating body envelope concept in the year 2040. Even though the world is vastly different over time, the fundamental thinking process in trying to laser-focus marketing efforts on the precise segment you are trying to reach is a good one.

As you read and think about the various strategic tools, try to not get caught up on the specific examples the authors use, because the logic in examples is illustrative of the time when they occurred. Rather, think about the overarching principles involved in the techniques. These will not change much regardless of the current world and technological conditions.

The artistic part of strategic thinking is that you get the chance to paint a new picture every day. The canvas is there for you, and you can select not only the brush and colors to use, but also the subject you wish to paint. The only stipulation is that you need to produce a viable idea out of your effort. It reminds me of the story of the coal miner. Someone asked him if he got bored down in the mine. He said, “Bored? No way! I enjoy being down in the mine. I like the lack of restrictions. I have absolute freedom to do anything I want down in the mine, provided I get hold of two tons of coal every day.”

M&A Courses – What’s Missing

July 29, 2011

Many educational institutions run courses on Mergers and Acquisitions. Typically these training events run several days and cost thousands of dollars to attend. I was looking at a catalog of courses by one prestigious training group today and read about a course offering. It was striking how all the technical and financial details of the process were dealt with in the course, but the people side of the equation was essentially ignored, at least in the description of the program.

Let’s take a look at the items listed in the catalog for this course on Mergers and Acquisitions:

Benefits of the course

1. Learn how to evaluate prospects
2. Find out what the other company is worth
3. Set the starting offer for the negotiation
4. Learn the legal, tax, and accounting implications of a merger
5. Find out how to structure the deal and negotiate to the best advantage

Items you will learn

1. How to conduct due diligence
2. Anti-trust, legal, and accounting conventions
3. Why select a diversification strategy in the first place
4. Understanding the contracting process
5. How to negotiate
6. Screening candidate organizations for acquisition
7. Financial evaluation

On paper, this sounds like a good course, but wait a minute. Where is the culture mentioned? Where are the PEOPLE? Getting disparate organizational cultures to work well together is the single biggest hurdle in any M&A situation. This is not a “soft” topic. Lost productivity during a M&A process can, and often does, cripple the merged entity.

There have been numerous studies on the failure rates of mergers. For example a 2005 study by Caxton Growth Partners came up with a range of 50% to 80% failures. Most historical studies peg the failure rate in excess of 50%. The common reason given for failure is the inability of the two cultures to form a seamless entity, thereby undermining the viability of the merged unit. Yet in this expensive multi-day course by a highly respected training organization, the issue of culture does not even make it onto the agenda. It baffles me.

The disconnect between what is needed for successful M&A efforts versus what organizations focus their time and energy on is the reason for the low success rate. How about revising the course line up to read something like this?

1. Legal, analytical, and financial elements of M&As
2. Valuation and due diligence processes
3. The negotiation process and confidentiality issues
4. Identifying cultural differences and creating strategies to unify the groups
5. Dealing with the human trauma of M&As so that the best people do not walk
6. Having a realistic integration plan that takes human acceptance into account
7. Evaluating the progress of cultural integration
8. Leadership issues in managing a joined entity

A course like that would be getting at the true success factors for a merger or acquisition. I suppose there are some courses that do have a balanced view, but I think the omissions in this one high-profile course are indicative of a blind spot some respected training organizations have on the nature of merged groups.