All your Business Processes are Belong to Us: The Culture Clash that Ensues when ‘Equals’ Merge

In the corporate world, a merger or a takeover is never a dull event, whether it is benign or hostile. Cultures clash, systems migrate, and people displaced. To synchronize all these moving parts is a Herculean task, and very few companies (merged entities) are able to pull it off successfully. It should come as no surprise to anyone that over 50% of all mergers fail.

Cisco, the takeover powerhouse of the 90’s has a well defined and structured process complete with regular milestones and targets for “on-boarding” acquired companies. Over the course of the ten years from 1990 through 1998, Cisco’s market value surged over several hundred times, owing mostly to its growth by acquisition. Barring StrataCom, which had revenues of over $400 million when it was acquired, most of its other acquisitions were small, startup companies. Cisco largely avoided culture clashes with its acquisitions as most startups have little or no defined business processes, and readily adopted the “Cisco way”.

But what happens when two established and ‘equal’ entities merge? Do one company’s business processes prevail over the other? Or do they form ‘synergies’ (that much maligned word) that make the merged entity greater than the sum of the two merging companies?

In the auto industry, when Daimler and Chrysler merged in 1998, they were looking to combine their respective offerings to form a complete suite of vehicles. Less than ten years later, the merger collapsed, and the two companies parted ways.

What happened?

Daimler tried to bring its disciplined approach of doing business while hoping to leverage Chrysler’s innovative design methodology. While this was a sensible strategy on paper, it didn’t quite work out in reality. Industry experts’ opinions on the cause of the debacle ranged from the group’s failure to fix quality issues to their inability to reign in costs. While these definitely may have been contributing reasons, they do not usually cause demise of companies (case in point: GM).

The reason for the failure of the merger can be boiled down to one word: culture. Successful cross-border mergers have taken place before, but ironically it failed in this case because of the strengths of the two companies involved, not their weaknesses. Both companies are icons of the auto industry, and played prime roles in shaping the industry landscape in their respective countries from its inception. When it came to adopting a common, shared culture, there was significant resistance from both sides, making the joint entity a headless chicken. Indeed, the most surprising aspect of this merger is how long it lasted, not how soon it collapsed.

One of the most fundamental follies of a merger is that once executives sign on the dotted line, the role of managing the new entity is generally passed on to middle management, who tend to be operations-minded. Though it could be termed micro-management, the need of the hour is for executive management to remain deeply vested in the operations. This way, the CEO learns about problems first-hand, and not from sterilized dashboards carefully prepared to appease.

Carlos Ghosn, the CEO of Nissan-Renault, is a prime example of how the CEO should retain hands-on control on the merged entity. Nissan is Japanese, Renault is French, and Ghosn is Brazilian. But Ghosn stayed engaged and understood the culture of the two companies and hand-held the new entity until he rectified cultural issues.

While there is no secret recipe for making mergers of equals work, companies would do well to learn the following from past successful mergers:

1. Executive management should remain committed to the new entity
2. Ensure that neither company enforces its culture on the other
3. Experiment often, and quickly discard strategies that are not working
4. Keep shareholders informed of company decisions
5. Focus on growth first, costs second