The Geeks & The Traditional – Managing Alliances and Learning for the Future

Research has shown that between 30 and 70% of all alliances fail, for various reasons (Note 1). Last month I did some research around a merger to apply theory around alliance strategy to a real life case. I summarised this particular case in a short, eight slide presentation.


slide1

The story is now a common one: a smaller company with “cool technology” is bought by a bigger one with more traditional technology.

The companies’ management teams, as well as staff, were very different. One was led by a group of 35-40 something entrepreneurs, with staff that had been part of product innovation and business development from the start of the company history (company B). The other company was run by a senior management team, with experience from large industrial groups. Staff mainly consisted of more senior people, who had stayed in the company over time, as other parts of it had been bought by outside corporations  (company A).

slide2

The activities and teams were completely merged. The new executive committee was set up with representatives from both companies, with company A’s former CEO as CEO for the new company. Managers from the larger company A became team leaders of the smaller company B’s team members.

slide3

Considerable frustration erupted among all teams, both at management and working levels. Digging into why, the following causes were easily identified.

slide4

Many alliances fail because the ultimate goals are not shared by the two merging companies. This, however, was not the case here. Instead, the main reasons things got tense, could be found in the cultural differences, and the difficulty both sides had to communicate, and ultimately, understand each other.

Management style, to start with, was very different between the two companies. The entrepreneurial spririt of company B’s staff was more or less stifled by the traditional, hierarchical way of managing in the new company.

Everyday communications on work seemed to flow normally. However, the approach to doing business, was not the same. People in company A feared the fast paced thinking of people from company B, which was necessary for company B’s product to develop and cater to customer needs. As they did not understand the particular customer needs of company B’s products, this led to lowered customer satisfaction in that segment. In addition, company B representatives were very direct, and maybe too pushy, in trying to introduce a more agile and reactive way of working, in a company where products had been allowed to develop more slowly over time.

slide5

Over time, the lack of addressing these root causes in a transparent way, lead to a lack of trust between the different groups of people within the new company, including, to some extent, at the excom level. (The fact that the original representatives of company A do not agree between themselves on the course the company should take after the merger did not help.)

One year later, dialogue has improved and people have gotten to know each other better. However, the teams still do not fully understand how they could work better together, as no clear dialogue has taken place around this. Therefore, trust is still fragile.

slide6

Company A is now more dependent on company B’s added services, and would be in a complicated situation if things were to not work out. In addition to this, new acquisitions are coming up.

The company has decided NOT to integrate the new company into its organisation the same way that was done in the first merger, for fear of repeating the same issues once again. However, this is not necessarily the best solution.

slide7

The executive team certainly possesses the intellectual capacity to overcome these issues. Intelligence, however, is not enough. In order to fully learn from the previous experience, clear dialogue has to be set up, and a clear plan to work with the teams, has to be put in place.

Disney and Pixar worked, among other things, on a type of “prenuptial” contract, setting out things that would not be expected to change at Pixar, in relation to company culture and ways of working, for example. They also seem to have done a good job on change management and communication within their ranks (Note 2). However, things like these are not enough alone, as trust does not come from a contract, it comes from actions.

Research has found that trust is main building block for company profit. For example, Daimler Chrysler’s strategy to maintain trust, albeit with its suppliers not with its merged partners, was directly correlated to its EBIT/vehicle and, when this trust was lost, the EBIT plunged at a closely correlated rate (Note 3). The companies also provide examples of practical measures that can be taken to help deal with these issues, and that can be applied elsewhere.

Drawing from this experience, among other things, here are some measures that can be considered:

  • Have employees from both companies be equally involved in the teams (not one company A manager with five company B team members, for example, and also include members from different functional silos)
  • Work in joint task forces with mixed teams to create shared goals, for example on
    • Ways that the new Company can increase its market share (part of the goals, which in addition everyone seems to agree with
    • Ideas on how to improve customer support strategies (one of the business issues identified)
  • Stop “ego positioning” and make sure the executive committee joins together for the good of the company. Joint development of short but useful “best management practices” is one way to help align the executive committee on the ways chosen to pursue the company management.

However, working actively together on “real business” projects to reach the main business goals, remains the best glue to create cohesion at all levels.

slide8

 

Successfully merging companies is not about forming an “integration committee”. It is about making all teams (horizontally and vertically) work toward common goals.

 

 

Sources
_________________
Note 1:”Managing Strategic Alliances: What Do We Know Now, and Where Do We Go From Here?” by Prashant Kale and Harbir Singh, Academy of Management Perspectives, August 2009

Note 2: “Disney and Pixar: The Power of the Prenup” by Brooks Barnes, New York Times, June 1, 2008

Note 3: “Lost supplier trust, …how Chrysler missed out on $24 billion in profits over the past 12 years”, By John W. Henke, Jr., Thomas T. Stallkamp, and Sengun Yeniyurt, Supply Chain Management Review • May/June 2014

 

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