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Home > Mergers and Acquisitions Best Practice > Cultural Alignment and Risk Management: Developing the Right Culture

Mergers and Acquisitions Best Practice

Cultural Alignment and Risk Management: Developing the Right Culture

by R. Brayton Bowen

Executive Summary

  • Organization culture may vary in definition from country to country, but it is essentially the sum total of the behaviors and styles of the people who drive the system.

  • Organizations that properly align organization culture with business goals and objectives can realize up to 40% improvement in performance compared to peer and competitor organizations.

  • Generally, 80% of acquisitions and mergers fail to perform to management’s expectations, in most instances, because of a failure to understand and manage organization culture.

  • Organizational members have an innate knowledge of what is and is not working within the culture of the organization and, therefore, must be engaged in the process of building the right culture.

  • Culture changes within an organization require total mastery of the change management process.

  • Organization culture ultimately impacts the financial performance and long-term success of an enterprise.

Introduction

The goal was to beat Microsoft at its own game. After rebuffing a takeover attempt by the giant corporation, Novell Nouveau went on an acquisition binge of its own. The strategy was to acquire a premier word-processing company that could rival Microsoft, and Microsoft’s “Microsoft Word” in particular. So, in 1994, Raymond Noorda, CEO for the then second-largest software company, acquired WordPerfect Corp. for US$1.4 billion in stock. Novell was to become a “software powerhouse,” delivering “stand-alone, software suites, groupware, and network applications that were to define new capabilities for information systems”, according to WordPerfect’s leading executive. Two years later, WordPerfect was sold for less than one-seventh of its original purchase price. The reason for the failed strategy: “The cultures were very, very different,” as reported by Novell’s successor CEO, Robert Frankenberg (The Wall Street Journal, 1996).

Taking the role of the dominator, management of Novell Nouveau assumed their ways and methods to be superior to those of WordPerfect. They eliminated the sales force, assuming the Novell Nouveau organization could assume the sales and marketing function, and went on to make a host of other mistakes. Indeed, their experience was similar to those of the majority of acquiring firms. Generally, 80% of acquisitions and mergers fail to perform to management’s expectations, and the overarching factor in most instances is a failure to understand and manage organization culture.

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Further reading

Books:

  • Bowen, R. B. Recognizing and Rewarding Employees. New York: McGraw-Hill, 2000.
  • Cameron, K. S., and R. E. Quinn. Diagnosing and Changing Organizational Culture: Based on the Competing Values Framework. San Francisco, CA: Jossey-Bass, 2005.
  • Driskill, G. W., and A. L. Brenton. Organizational Culture in Action: A Cultural Analysis Workbook. Thousand Oaks, CA: Sage Publications, 2005.
  • Gerstner, L. V. Who Says Elephants Can’t Dance: Leading a Great Enterprise Through Dramatic Change. New York: HarperCollins, 2002.
  • Hennig-Thurau, T., and U. Hansen (eds). Relationship Marketing: Gaining Competitive Advantage Through Customer Satisfaction and Customer Retention. New York: McGraw-Hill/Irwin, 2000.
  • Pfeffer, J. The Human Equation: Building Profits by Putting People First. Boston, MA: Harvard Business School Press, 1998.
  • Schein, E. H. Organizational Culture and Leadership. 3rd ed. San Francisco, CA: Jossey-Bass, 2004.

Articles:

  • Barriere, M. T., B. R. Anson, R. S. Ording, and E. Rogers. “Culture transformation in a health care organization: A process for building adaptive capabilities through leadership development.” Consulting Psychology Journal: Practice and Research 54:2 (2008): 116–130.
  • Clark, D. “Novell nouveau: Software firm fights to remake business after ill-fated merger.” Wall Street Journal (Midwest ed) 76:62 (January 12, 1996): A1, A6.
  • Kavita, S. “Predicting organizational commitment through organization culture: A study of automobile industry in India.” Journal of Business Economics & Management 8:1 (2007): 29–37.

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