Merger Mess

articles Business

Ilya Adler

Are you working for a company that recently merged with another one, or was bought out?

You are not alone. The record number of mergers and acquisitions in the last five years has brought renewed attention to the challenges that these kind of alliances present to both companies.

Many mergers are a result of the new demands that globalization presents to companies around the world. Often the easiest way to become an international company is to merge with or buy another company that either covers new territories or offers new products and services.

Although some mergers are successful, the majority go through very long and painful periods of adjustment and readjustment, while others simply fail. There are usually many financial or administrative factors that determine why a merger succeeds or fails, but one of the biggest obstacles – and one most often overlooked – is how to combine the organizational cultures of the two merging companies. This becomes more complicated when the companies come from two different countries, given the cultural differences. For example, when a large multinational corporation buys a Mexican family-run company, you have a company that relies on rules and procedures working together with a company that relies on certain people and the concentrated power of family members working in it. In the case of Mexico, most businesses are family-owned and run as family-oriented operations.

In too many cases, the larger of the two partners simply tries to impose its business culture on the other, and equally typical, the members of the smaller organization resist this imposition. In both cases, the result is a loss of productivity. In one particular case I am familiar with, sales of the smaller company dropped more than 50% in the first year after the merger. Only after five years did sales recuperate to their original levels.

Ideally, or at least theoretically, a successful merger should not imply an imposition of one organizational culture over another. Rather, it should create a new culture that brings together the best elements of each one. This is what is known as “synergy,” a buzz word used a lot these days, but rarely practiced. It is rarely practiced because mergers are often viewed solely from a financial perspective, leaving the human resource issue as something to be dealt with later and hopefully without a great deal of effort. When it is considered, most people assume that the smaller, weaker company is the one that has the obligation to change. In any case, efforts for creating a new culture are put on the back burner.

This is a mistake; no matter how good the financial prospects of the merger look, if the employees are not happy or comfortable, productivity will fall.

By no means am I suggesting that it is easy to find this “synergy.” In order to find it, companies have to be willing to invest time and resources to create this new, and hopefully, better culture. This requires the participation of employees at all levels, the use of outside experts, and the commitment from top management to accomplish this change. The creation of a new culture involves operations, sales, human resources, technology, hiring and firing practices, among many other issues.

In some cases, the solution might be to keep alive two different organizational cultures within one company. There is no magic recipe, but success depends on how much participation employees have in making these crucial decisions. Imposing a new way of doing things is attractive to management, because it is quicker. But imposition almost always brings about low morale and even active resistance.

Undoubtedly, it is expensive and time-consuming to create a synergy between two merging companies. But in the end, the result is not just a profitable new company, but one where the employees are content and productive.

Published or Updated on: January 1, 2001 by Ilya Adler © 2008
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