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|In: Career Management|Last Updated:

For employees, a merger or acquisition is a lot like The Brady Bunch:

  • In The Brady Bunch, the kids had to get used to a new parent having authority. In a merger or acquisition, managers from the other company now have authority.
  • In The Brady Bunch, kids who didn’t used to be brothers and sisters were suddenly siblings. In a merger or acquisition, people who used to be competitors are now fellow employees.
  • Every household has its ways of doing things. In The Brady Bunch everyone had to figure out the ways of doing things for the new, combined household. In a merger or acquisition, the unwritten rules of how things get done around here aren’t the unwritten rules any more. Or else they are, but just for employees of one of the two companies involved.
  • In The Brady Bunch, a laugh track told everyone what was supposed to be funny, even when it wasn’t. In a merger or acquisition, employees are supposed to pretend everything is great even when it isn’t.

Okay, it’s a reach. You try coming up with a brilliant lead every week. It’s a lot like having to write a new sitcom script … oh, never mind.

When it comes to mergers and acquisitions, the easiest approach is to operate a holding company, as was mentioned last week. In the extreme case this looks a lot like a mutual fund: The parent company owns a portfolio of businesses, which it mostly leaves alone.

Warren Buffet’s Berkshire Hathaway operates like this. It works. It just isn’t very interesting. In Brady terms, it’s sort of like the backstory of when Mike Brady and Carol Tyler were dating — the Bradys and Tylers were separate households, with all that implies (or implied in the late 1960s and early ’70s).

So let’s skip that part and go to the sort of merger or acquisition that serves a strategic, competitive purpose — one that fills out a product line, provides access to a new set of customers, adds production capacity … that sort of thing. What factors, beyond the usual textbook stuff, determine the success or failure of this sort of merger or acquisition?

One of the most important is both the easiest to understand and the hardest to accomplish: Changing what “we” means. Interestingly enough, the better-led the pre-M&A company, the harder this is.

In companies with excellent leadership, employees feel a strong sense of attachment to their employer. They have an equally strong sense that they personally own the company’s brand, defined as the expectation customers have regarding what it’s like to do business with the company in question.

Imagine a fine company like this … being brand mavens we’ll give it the snappy name Tyler, Inc. … is acquired by the marketplace behemoth The Brady Company.

Brady being what it is, and this being an acquisition, the combined businesses will retain the Brady monicker. Think Tyler’s employees will celebrate their new corporate affiliation?

Of course not. Their loyalty is to the Tyler brand. They identify with it. They live it. And it isn’t the same brand that Brady has — a difference that goes well beyond the name change.

See, Tyler prided itself in the tailored, customized service it gave all of its customers. It encouraged its employees to innovate — to improvise if that’s what made the most sense, so long as the result was something the customer in question would value, and so long as it was profitable, too.

That was the essence of Tyler’s brand, and its customers were happy to pay a premium price for the they-take-great-care-of-me sense of security that went with it.

Brady, in contrast, is all about finely tuned, highly efficient processes built to support standardized products and services. It also encourages employees to innovate — it has an Innovation Committee, in fact, to which its employees are encouraged to submit their ideas, which the IC screens, assesses, ranks, and prioritizes in its quarterly Innovation Planning Meetings.

Think the Tylers will all be happy about becoming Bradys? Of course not.

The sad thing about our mythical scenario is that Brady’s executives acquired Tyler specifically to gain its ability to provide premium service to its customers. What they haven’t done is figure out how exactly they’re going to accomplish this within their signature high-efficiency, product/service standardization practices.

And it gets worse as we look beyond the executive suite, because with increasing distance from the whole point of the acquisition comes an entirely natural attitude:

“We bought them, so of course they have to adapt to our way of doing things.”

* * *

In case you have a suspicious nature and think I’m writing about Dell’s coming acquisition of EMC, or NTT DATA’s coming acquisition of Dell Services, nothing could be further from the truth.

Among the reasons: I have no involvement in the former and as far as the latter is concerned I’m just a passenger on that train — I don’t know anything more about either transaction than you do.

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|In: Industry Commentary|Last Updated:

Go figure.

The success rate for mergers and acquisitions is now below 20%. And yet, they’re more popular than ever.

Why might that be? Speaking, as a spectator and occasional supporting consultant, it’s because, superficially, they appear to be a way for companies to:

  • Buy customers instead of having to win them.
  • Add new, complementary products without having to undertake the risky business of developing them.
  • Gain access to new regions with different rules of engagement without having to build the abilities needed to do business there.
  • Fool unwary investors by posting year-over-year revenue gains without having actually increased revenue.

Superficially, that is, acquisitions look like a lower-risk alternative to organic growth.

And so, in spite of overwhelming evidence that this has nothing to do with How Things Work Here on Earth, mergers and acquisitions continue to be one of the most popular business growth strategies.

This is a big, complex topic, surrounded by plenty of AFG. Over the next few weeks we’ll talk about some of the practicalities of achieving M&A success … or at least, avoiding M&A failure … that don’t get a lot of attention from the standard sources of business wisdom.

Starting with this one, which should be tattooed on the foreheads of everyone involved: Above all, do no harm.

Or, if you prefer Aesop to Hippocrates, Don’t Kill the Golden Goose!

Take, for example, this common mistake:

An enterprise-scale company acquires a small entrepreneurship to add its products to the enterprise portfolio.

The small and profitable entrepreneurship succeeds, it turns out, in part by running lean, doing without much of the bulletproofing needed by large enterprises but not entrepreneurships.

But in the pursuit of fairness, the enterprise loads up the entrepreneurship — now a separate business unit — with all that bulletproofing and the general and administrative overhead charges that go with it.

Superficially (there’s that word again) this is reasonable: Instead of running its own email system, for example, the newly acquired business unit gets to use the enterprise unified communication system.

Except that the entrepreneurship didn’t run a unified communication system. It used Slack, which might or might not scale to enterprise proportions but which is dirt cheap and was very good at supporting the collaboration that made the entrepreneurship work.

The result: Disruption during the transition, and less-effective collaboration paid for by higher overhead costs once the transition is done.

Acquiring companies make this sort of mistake all the time, usually by failing to think through the most basic element of enterprise business architecture — the desired level of unification.EnterpriseArchitectureQuadrantChart
As shown in the diagram, when an enterprise acquires a business it has three types of decision to attend to: What to standardize, what to integrate, and what to leave alone.

A company standardizes when all business units have to use the same (as examples) core accounting software, chart of accounts, and office supplies provider. Standardization usually results in nicer discounts for the standardized items. Theoretically it should reduce support costs as well — an Integration benefit that’s a frequent source of intense disappointment.

Unlike standardization, where everyone gets their own copy of the standardized item, with integration everyone shares the same copy. “Copy,” by the way includes such things as shared IT support staff, which is why expectations of lower support costs so often end up unfulfilled.

Here’s why. Imagine the entire enterprise standardizes on the Microsoft suite of productivity and collaboration tools — MS Office, Exchange, Outlook, SharePoint, and Skype for Business. In theory this means IT support staff only need to learn how to support this one collection of products instead of needing, say, Slack expertise as well.

The disappointment arrives when it turns out staffing ratios depend on the number of people needing support, not the number of products needing support. If IT needs 50 support staff if it’s standardized on the Microsoft product line, needing 45 to support the Microsoft products and 5 to support something else is no more expensive.

Back to the big picture: Whether you should standardize an acquisition, integrate it, some of each, and to what extent all depend on how the enterprise plans to operate them in the future. If it wants to own and run the same successful business it just bought, the best solution is to mostly leave it alone — to run as a holding company so as not to kill the golden goose.

But it’s all contextual: If an enterprise buys a failing business with promising products or access to promising markets, it should arrive at a completely different business architecture.

* * *

In case you have a suspicious nature and think I’m writing about Dell’s coming acquisition of EMC, or NTT DATA’s coming acquisition of Dell Services, nothing could be further from the truth.

Among the reasons: I have no involvement in the former and as far as the latter is concerned I’m just a passenger on that train — I don’t know anything more about either transaction than you do.

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