I was talking to Mary Walker, a Silicon Valley-based anthropologist, about the proposed (now improbable) deal between Microsoft and Yahoo, and we were wondering how such a deal would work itself out.
Mergers and acquisitions are fraught with difficulty and Mary was pointing out that the failure rate is sometimes as high as 60%. And this is after tough minded MBAs have examined the deal with their own particularly sophisticated, sighted, numerate version of due diligence.
When things go bad in a merger or an acquisition, the problem is sometimes not with the mechanics, not with the infrastructure of the deal. The problem is with the superstructure of the deal, the ideas, practices and cultures that must now be brought together for things to work. We are still inclined to suppose that mergers and acquisitions are straight forward, that the individuals who must now work together need merely resort to an instrumental logic to find common cause and a shared modus operandi.
But of course the truth is often otherwise. Corporations are cultural, drawing their answer to the Levittian question (what business are we in), and the Druckerian one (what customer are we for) from the vision of the founder, the history of the enterprise, the region of the country. Even the business school that supplies the C suite can make a difference here. I think it’s safe to say Microsoft and Yahoo see the world differently and that a rapprochement would have been challenging.
The business to business relationship is always richer and more complicated than the transactional model we have of it. But the business in business relationship is still more challenging. Now a start-up must figure out a way to fit itself into the massive processes that organize and run the larger corporation. For someone who is accustomed to creating policy and building consensus over beers after work, the ways of the acquiring corporation can seem mysterious indeed. Mysterious and deeply gratuitous. Process run wild. System for the sake of system.
But the problem is not just large acquiring small. The merger of two roughly comparable operations will be tricky. Much of what makes the corporation make sense and run smoothly resides in a shared set of assumptions and because these are assumptions they are most submerged. They operate a lot like the rules of language. They operate more powerfully for the fact that they operate invisibly. The company that has to sit down and negotiate its assumptions each day would end up looking quite a lot like an undergraduate philosophy class and it would be out of business by the end of the quarter.
But submerged assumptions are hard to detect or communicate. This means that those who will be absorbed by the merger or acquisition have no clear play book to follow. They are obliged at first to guess at the new culture. Their best hope finally is to reverse engineer from the behavior they encounter on the job, and build up the assumptions that must be operating in other heads. One thing they CAN take for granted, that no one in the acquiring corporation is going to do the same for them.
This is, finally, not a very complicated anthropological problem. But for some reason it appears to be a very real M&A one. Hmmm. Now I wonder if this could be a merger opportunity.
References
Walker, Mary. 2008. Mergers and acquisitions: when corporate cultures collide. Open range anthropologist. February 11, 2008. here.
Acknowledgements
Thanks to Richard C. Moeur for the image which comes from his Manual of Traffic Signs at http://www.trafficsign.us.
Of course, Grant, for there to be a successful merger between the M&A business and the anthropology business, the quant-jocks who run M&A would first have to take seriously the idea of culture. In my experience, most of these folks, trained as they are by reductionist economists and finance theory professors, and unable to appreciate anything they cannot directly measure, do not recognize any other force in society besides individual monetary self-interest. Culture and society simply do not exist for these folk, alas.
I would point out that a lot of the “due diligence” that allegedly gets done in mergers turns out to have been poorly done. With internal pressures to make the merger look good, those doing the due diligence will generally be rewarded more for saying “Yes” than for saying “Wait a minute.” So those objective, flinty MBAs may not provide real impediments to bad mergers.
Not to mention the ridiculousness and personal conflict that make the deal itself difficult to strike. You might like Barbarians At The Gate by Bryan Burrough. One of the guys describes the process of two potentially merged companies through the analogy of a teenage relationship that everyone knows should end but can’t stop going back to each other.
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Over the decades, I’ve found it astounding that billions and billions of dollars have been lost while M&A teams steadfastly “run the numbers” while arrogantly refusing to “run the cultures.” In my way of thinking, not figuring out how to make sure these factors are accounted for and managed should be grounds for managerial malpractice.
The literature hints that “merger of equals” deals, where the two companies are of similar size, go wrong more frequently than the big swallowing the small. I suspect that this is due to the coordinated expectation that the small will assimilate to the large, which simplifies things considerably.
Cisco famously developed a whole SOP for rapidly integrating small acquisitions, of which they have done a great many. Part of it, of course, is knowing what to leave alone.
Kaplan, Mitchell, and Wruck did a clinical study back in the 1990s looking at the Cooper Industries acquisition of Cameron Iron Works in 1989 and the Premarkis acquisition of Florida Tile in 1990. Neither went well. They found that the acquirers tended to overestimate the transferability of their expertise to the acquired firms’ domains, that they incorrectly applied their standard organizational designs to the new firms, and that they applied inappropriate incentive schemes to the acquired firms. Maybe there were culture issues in there as well, but I’m pretty impressed that a bunch of finance folks assessed the management issues in depth.