Several times a month, I find myself in an in-depth conversation about company culture.
There are compelling reasons why a company’s culture must be healthy. In fact, it’s hard to argue the counter point when talking about long term value of a company.
The most interesting part of the culture discussion is not whether you need a healthy one, it’s when do you work on improving it? When is that right moment to create a healthy culture? I will answer these questions soon.
First, when do most companies attempt to evolve to the right culture? Based on my observations, the most popular time seems to be during a merger or major acquisition. In this case, most popular aligns with worst time to change.
To illustrate my point, let’s talk about a major acquisition first.
For clarity, we’ll call the company being acquired as the “selling company” and the company doing the acquisition as the “buying company”.
In a successful major acquisition, the buying company will have the culture that remains for the combined company. Please note that I am only talking about successful acquisitions.
There are examples of failed acquisitions where the culture was expected to change for everyone. The important word here is “failed”. Think AOL and Time Warner, where AOL was expected to culturally reinvigorate the stodgy media giant, and Time Warner was expected to provide AOL with some maturity. It was described as “transformative”, which means “we’re messing with the culture at both companies.” Post-acquisition, the total value of AOL stock declined from $226 billion to about $20 billion.
In fact, a leading indicator of a successful, major acquisition is that the buying company culture is supported to win, quickly. This doesn’t mean that the buying company always has a better culture, it is simply the one that is chosen.
Why does this make sense? Because major acquisitions are about great change on a compressed schedule. It’s expected that the selling company will have significant adjustments to make.
If cultural changes are also made at the buying company, then the combined entity will see significant upheaval – and that’s not the point of an acquisition.
An acquisition is about creating competitive advantage in the market through the addition or strengthening of a team, product or service. Integration synergies are needed quickly so that the buying company maintains its growth momentum.
Now what about a merger? Isn’t that about two equal companies coming together?
Yes, and no.
Yes, there are two companies coming together. No, it is NOT equal, even if announced as such.
Winners and losers exist in mergers too, in fact they’re not much different than an acquisition.
The only difference I’ve seen between a merger and an acquisition is that the employees of one of the merged companies think they have as much leverage as the other, and it takes them longer to figure out that they don’t.
In late 2013, the largest optical distributor in the US merged with the 2nd largest. It was billed as a merger of equals, taking the “best-of” both companies to create a stronger whole. Sounds like a nice story, huh?
The team started with the intention of creating “best-of” processes, documenting them with detailed spreadsheets and flowcharts. Then, as a systemic and practical integration plan developed, most of the detailed changes were value engineered out of the process. Exactness was correctly replaced by expediency.
By the end of 2014, the culture, IT systems and management team of the largest optical distributor were in place for the combined company, displacing all of what the 2nd largest brought to the party.
Ok, I promised I’d get back to the right time for culture change. Ready for it? If you’re a company not in the midst of a major merger or acquisition, the time is now.
Now? You might respond:
- “But we’re all working virtually, what about COVID-19?”
- “Sounds good, we will start when things calm down.”
- “Our culture is just fine, in fact it’s been fine for many years.”
My typical answer to this is “What market conditions do you need to see for you to start culture change?”
You’ll give me a list of requirements.
My next question, “When in the last twenty years have you seen these requirements occur?”
After a pause, a one-word response, “Never”.
Get started now evolving your culture. Be the healthy company that acquires sick competitors, knowing that your culture is the right one to support scaling to the next level of growth.
Please let me know how you’re doing evolving your culture.
Jeff@COOForYou.com
888-588-0357