Case: Painful change

Painful merger needs a why and values

This is a case about a merger between two organizations that created a lot of friction until a senior manager could explain why. It is also a story about a merger that ultimately cost a lot of money because of lack of focus on values and culture.

The merger between the two organizations in the same market came about as a result of an acquired company  to be merged with the existing operations on the market. The acquisition was a big win for the international mother company. A respected large player on the market could be acquired through a tough bidding process. The existing operations were smaller, specifically in sales its volume was about a tenth of the acquired company. The existing operation was managed by a group of expatriate managers from the mother company. They represented and performed business with the culture and values of the mother company. On the other hand, the acquired company was a previously state owned business. It was a major player, managed mainly by long term employees. It was well respected on the market, but with a large cultural gap between the existing operations and the newly acquired company.

One of the employees of the existing operation said:

“This is the type of business culture we want (in the existing operation). It is modern and transparent. The former state owned company is a different machine, it feels like 20  years of difference in development of leadership and organization”

The due diligence process focused very much on the technical and financial aspects of the acquisition target. There was a growing concern among the employees of the existing operation of the cultural gap perceived between the two companies. The due diligence was completed and after bidding through a complicated negotiation process, the majority of the acquisition target was acquired. The integration process was launched with a simple message, the acquired company is leading the integration and all operations and assets in the existing operation will be integrated into the acquired company. There was no change of management in the acquired company and the mother company was governing the company only through the board.

The frustration was growing, the management from the mother company responsible for the acquisition and the new operations was not visible and everyone focused for weeks on questions like what will happen now with the project, the people and ultimately the customers. Even more so people where scared about their own jobs and future. The employees received no information that would settle their concerns.

The frustration did not ease until a senior manager from the mother company weeks later came to the office of the existing operation and explained the logics behind the acquisition. It was simple, clear and at the same time few agreed with it. But agreeing or not agreeing was not the main concern. The reasons behind the merger was forwarded to the employees and ultimately released most frustration. Suddenly it became apparent why the acquisition and merger was done the way it was.

The merger continued. It was still painful for many of the employees in the now former existing operation. Non of the employees were transferred to the newly acquired company. As one of the employees summarized it:

“I did not start working for this company to end up in such a old fashioned organization”

The operations were initially very successful and gave a good return on the investment. After some 7 years it was discovered through a number of revelations regarding corruption and illegal business transactions that the culture of the company was quite rotten. The whole management was eventually changed and the company struggled to gain foothold to eventually become successful again. The cost, both financially and for the brand, was huge for the mother company.

Some of the conclusions that can be made are:

• People need a “why”, even if they do not agree. By explaining why a decision is made, there will be greater acceptance.
• Communication is not an add-on in mergers and other change processes, it is the core. Communicating face-to-face and through the senior management to the employees is necessary to create a buy-in.
• The facts need to be on the ground. Finding out what is really going on in an organization is possible by looking behind the facade. But it requires time and contact points on the ground, deep within the operation.
• Values are a deal breaker. The consequences of not dealing with differences in values and the understanding of values will cost a lot. If there is not a match between values or if there is not a plan of how to bridge the gap, do not make the deal.

/Lars