The recent news of the Microsoft offer to acquire Nokia’s handset business has brought many layers of responses regarding technology, market niche and global footprint. Very few commentators have hit on what I see as the real issue, however: culture clash. With the button-down, northern European hardware culture of the Finns in stark contrast to the software-centric Microsoft team in Seattle, there lies the potential for misunderstanding, indecision and angst – all the while competition is in high gear.
I had a chance to work closely with the Finnish engineering teams in the late 90’s when Nokia was on the rise and experienced first hand the asceticism and attention to detail that propelled them to the top of their industry. Contrast that with the individualistic, software-centric culture of Microsoft, and you have a volatile mix. The maturity of the Microsoft team has led to the buildup of internal cultural issues that will make assimilation a very tricky task indeed.
Add to that the rumor floating that the handset unit president may ascend to the CEO’s chair and challenges will abound.
Can They Work Together?
One of the most under analyzed aspects of these merger and acquisition (M&A) activities is always culture. When these transactions are analyzed with pages of financials, technology roadmaps and HR key executive charts, one of the least analyzed elements is the basic question of: can they work together?
So, what really happens when something like this is announced? Open positions go unfilled as they wait for someone to find talent in the newly-acquired firm, all spending is put on hold to make sure there is no duplication, business strategy projects get a red light and everywhere people are slow walking to avoid backtracking. Also, technology roadmaps are suddenly open for review, all supply chain operations are slipped from high gear to neutral and all commitments and metrics that middle management made are held to go under review and renegotiation.
In short, the firms on both sides of the transactions start to tread water – and the competition goes into overdrive.
When Worlds Collide
We have had many examples in which culture accelerated the demise of what was on paper a reasonable strategic match. Think about the Daimler – Chrysler deal from several years ago. On paper, it was a reasonable synergy for market footprint, product line overlap, supply chains, etc. Once they tried to operate however, it was all friction, all the time. The Daimler culture of strong vertical leadership clashed with the less formal, relational style of senior leadership in Detroit. The outcomes were brutal: after paying nearly $36B for Chrysler in the late 90’s, the market cap of the combined entities was about the same in 2007. After some time, a deal was closed to sell Chrysler to private equity for $7.5B.
Some M&A shops have a solid formula for integrating new acquisitions quickly into the parent group’s culture. Cisco is legendary for having an acquisition fully integrated (including systems in 100 days, with new badges on day one.) The reason this works is because they have a very specific scope of technical alignment, and a size that allows the acquirer to neutralize any latent cultural mismatches quickly; think about a whale swallowing a minnow.
This whole equation changes markedly when the acquisition has enough mass relative to the acquirer that two cultures are inevitable. Think about the Honeywell and Allied Signal merger of the late 90’s – two large-scale organizations, one East coast, one north central Midwest. A decade later, two distinct cultures remain. Mix in the near acquisition by GE, which actually resulted in many GE personnel remaining on board, and you have a third ingredient.
What are the effects of these two cultures? It’s similar to having an Android phone and a Mac computer – they should work together seamlessly, but you are constantly having to nurture the interface to make sure that communication is really happening. In practice, there is a unique way of working that each culture has – slight twists in reporting, metrics, meeting formats and delegation expectations that make it hard for a person to transfer seamlessly from one culture to another. Ultimately, it limits the growth of people and also the company as the resources become bounded in invisible “silos”.
The Silver Lining
One of the paradoxes of culture is that sometimes the friction can move an organization from complacency to vitality. So what actions and tools can we use to make these mismatches productive?
1) Clear vision: The key to this is a clarion vision that draws both organizations to a higher ground. An example of this might be Disney – Pixar. While the two cultures have clashed mightily over the years, it seems like they’re driving each other to higher levels of performance. The clash between the hardware and drawing-based culture at Disney and the animation culture of Pixar appears to be bringing the best to the top. Ultimately the razor focus of animation technology on creating memorable characters for all ages appears to be revitalizing the Disney team at large.
2) Leadership Capabilities: Every leader has a dominant leadership viewpoint, predisposition, and capacity. When building reporting relationships and integration teams it is essential to look at both the competencies required of that role, but also the human physics of how the individual shows up as an individual and on a team. A handful of key relationships make or break the integration and there are predictable patterns of leaders who will bring out the best in one another, and those that will create friction. (For more on leadership capabilities see the post here)
3) Speed of decision-making: There is an old story about five frogs on a log; four decide to jump off, so how many are left? The answer is five, because there is a difference between deciding and doing. In the midst of massive cultural change, the worst decision is none at all, and this is particularly true when integrating two organizations. Having two peers duke it out for one job is dysfunctional and can ultimately create a very bitter and divisive culture. Speed of taking action is key.
These issues are present not only during M&A, but whenever a new cultural boundary is established. This can happen when bringing in a new VP from an outside company, setting up a new partnership, or establishing a new distribution team.
What are your experiences in creating value when cultures collide? Please leave a note in the comments or drop me a line.
