Dr B K Mukhopadhyay
(The author is a Professor of Management and Economics, formerly at IIBM (RBI) Guwahati. He can be contacted at m.bibhas@gmail.com)
Dr. Boidurjo Rick Mukhopadhyay
(The author, international award-winning development and management economist, formerly a Gold Medalist in Economics at Gauhati University)
A leader signals what they value. Twitter has been in the news for the past few weeks after the takeover was operationalized and the organization is now led by Elon Musk instead of former CEO/ founder Jack Dorsey. Around 3700 employees were fired on November 5 followed by several thousands in the following days given the company's severe financial woes. In addition, the new leader made sure to communicate to the remaining employees to say goodbyes to 'days to rest' and it's time to work relentlessly 'hardcore' if they are to keep their jobs secure. Employees have said 'used to have an amazing culture… and now, unsure of the future'. "One of the Twitter's core values is — or was — transparency. All of our calendars were open. You could look at our former head of engineering's calendar and see where he was having lunch that day. Documents were usually open and viewable". Culture is after all, as widely defined, 'the way we do things around here'.
The CEO of Purposeful Culture Group added something responding to this ongoing situation with Twitter, "It goes back to what's the strategy? What are you promoting? How are you communicating this saying this is our reason for being and here's how these changes are going to help us get there? It doesn't seem as if there has been a formalized strategy."
Ordinarily, when companies go through strategic Mergers and Acquisition (M&A), they make a continuum of promises – from rapid growth, eliminating competition, building new resource capabilities, to accessing to new markets (locally or internationally). At the same time, a strategic move such as M&A have also demonstrated an opportunity where organizations could potentially unite talents, build new efficiencies and boost growth.
Leadership, Values, Takeovers: Examples from Amazon and Disney
A report by McKinsey shows that 70% to 90% of mergers and acquisitions eventually fall apart. Cultural factors and organizational alignment are absolutely critical to effectiveness of mergers. Though one of the expected gains from such strategic moves is meant to unite talents and build new capabilities, only 8% of organizations actually put talent retention on the agenda while evaluating M&A possibilities. This is true in majority of the sectors today, from banking, IT, media, to airlines, and beverages. When things go right, particularly when both the companies start aligning to a commonly agreed culture, they create the synergy that a M&A promises (i.e., 2+2 = 5).
Some examples would be Disney and Pixar, Google and Android, IBM and Compaq, in addition to Disney and Marvel. However, in a recent report by PWC, 65% of business leaders attribute culture issues to negative effects on value creation in alliances such as M&A. Forbes reports that about 95 percent of executives describe cultural fit as critical to the success of integration. Yet 25 percent cite a lack of cultural cohesion and alignment as the primary reason integration efforts fail.
Again, the matter of cultural compatibility is critical. For example, the merger of Amazon and Whole Food provides useful insights. While Amazon's culture is tightly controlled using structure and precision, which is firmly rooted in the manufacturing industry, Whole Food on the other hand had an egalitarian structure focusing on self-managed teams. The organizational system that Amazon follows is built to maximize its efficiency where employees operate within a hierarchy and their behaviour is guided and monitored strictly by guidelines; on the other hand, Whole Food's structure (before the merger) empowered individual employees with significant decision-making power. Face-to-face interactions between workers, vendors, and customers were the norm. Branch managers had full autonomy of their units and had the liberty to tailor products to customer preferences.
Surely, given the global success and scale, the leaders at Amazon are expected to maintain the highest of standards and performance is subject to constant measurement and review (including the riders and delivery tracks whose every move is tracked at all times during work hours). One could argue that while this tightly controlled surveillance also ensures that employees are constantly reminded of company's objectives, it also at the same time creates high level of dissatisfaction due to the inability to customize or localize some services where it may be necessary. If a 'tight' culture works well for the company's bottom-line, it can also create a culture of fear and lack of empathy which contributes to high employee turnover. At the same time, with a relatively 'loose' culture, Whole Food (again, a company that relies on supply chain and procurement channels on a daily basis) also managed to secure high profit margins, fast growth, along with a good name by earning the first certified organic national supermarket in the US. Decentralisation and lack of rigorous structure worked well for this company though subsequently led to high product prices and internal inefficiencies. Resultantly, the woes of the merger between the two companies soared with time and employee turnover and staff dissatisfaction reached record level high. The differences in company culture are huge. A tight culture merging with a loose culture.
On the other hands, when Disney bought Pixar in 2006, the then CEO Robert Iger agreed to, at the very outset, a set of ground rules to ensure Pixar's 'looser' (relative to Disney's) culture does not experience a blow from the new acquisition. One example was that Pixar employees weren't required to sign employment contracts with Disney, they were A) at liberty to decide on the titles on their business cards, B) free to have their own cubicles and offices which they could decorate as they wished, and C) they were free to continue their annual paper airplane contest. Culture at its core consists of the long-standing, largely implicit shared values, beliefs, and assumptions that influence behaviour, attitudes, and meaning in a company, which needs careful investigation by a company taking it over or going through a merger prior to imposing a new culture that is different/ misfit.
Understanding Culture and Organizational Emotions
Culture is what an organization stands for and how work gets done. Culture can also be seen as the outcome of the vision or mission that drives a company, in addition to the values that guide the behaviour of its people, management practices, working norms, and mindsets that guide how work gets done. Therefore, at some level culture becomes implicit by its nature. Therefore, the most insightful cultural observers often are outsiders, because cultural givens are not implicit to them. Culture is also resilient, and therefore friction occurs almost immediately when there is a sudden change is introduced at the core (The case of Amazon and Whole Food, as shared above).
When there are inevitable cultural differences between the two merging companies it must be investigated with time before imposing immediate solutions to resolve the emerging challenges. It could be more visible issues such as attitudes toward the work-life balance and employee empowerment, to less noticeable ones such as feedback styles, directness, punctuality at a meeting. Strategic choices, alliances such as mergers could create significant organisational anxiety about the future. And upon completion of the alliance, the working culture subsequently starts changing for at least one of the two companies which do fundamentally affect an organization's identity, purpose, and ways of doing things.
Therefore, understanding 'organizational emotions' is important before even small changes are introduced. While mergers and acquisitions could unite talent and help enhance internal capabilities and performance, equally there could be a loss of talents, and leakage of synergies if not managed well. For example, a McKinsey survey reports that M&A executives show that organizational issues like cultural differences and changed operating models account for almost 50 per cent of the failure of mergers to meet expectations.
There is no magic bullet in this scenario to get 'how to get the culture right' during M&A, but certainly some suggestions would be- A) Leaders need to investigate and truly capture the essence of how the work gets done in the new company that they are merging with or taking over. Most importantly, what makes the target company tick which in the first place attracted a merger or parent company. B) Set tactical priorities that would benefit employees and key talents of the companies involved; C) Support changes with the right understanding and necessary resources; and most importantly, D) Execute and drive the necessary change that does not compromise on the integrity and purpose of the organisation.
It is always wise to have people with culture change knowledge and also experience (having been a part of stories of the organization) on the teams who are better positioned to define the key interfaces in the revised organizational model. In scenarios where cultures are different, a thorough assessment could help evidence which elements could be integrated. The purpose of integrating the cultural components that go well together by bringing the core purpose and values to life. When such integration seems problematic, the focus would be on the relationship between cultural assumptions and business results.