SHORTLY after Hewlett-Packard took over rival Compaq in 2002, a senior manager from Compaq told his expanded team he wanted a weekly report from each of them. Former Compaq executives saw it as a way to stay in touch. HPers scented a betrayal of their dearest values. They felt they were ‘being micromanaged and not trusted’, says one former HP manager.
HP and Compaq had already poured hours into due diligence on their contrasting cultures before the deal was complete. According to one study, it involved 127 executives and 138 focus groups with 1,600 staff in 22 countries. Yet still some of their teams rubbed each other up the wrong way, because using such methods to assess cultural fit is a bit like trying to adjudicate a 100m sprint with an egg timer and a pinhole camera.
The potential for cultural mismatch is usually one of the first red flags raised over complex deals. Sceptics waved it when Lafarge and Holcim decided to create a global cement group, to which the French and Swiss are only now acclimatising. It flaps over the planned combination between Deutsche Börse and the London Stock Exchange.
Why then are the tools used to measure cultural ‘fit’ still so crude?
Previous efforts to bring the two together failed, while exchanges Euronext and NYSE were sharp-elbowed bedfellows for seven years until they finally divorced in 2014.
Big companies are better at mergers and acquisitions than they were. Companies such as IBM are peddling algorithms to eliminate human error in deal planning. There is a crying need to improve the supposedly softer side of dealmaking and cut the great financial and psychological cost of finding out too late that two partners do not get on. Why then are the tools used to measure cultural ‘fit’ still so crude?
Discussions of what links or divides cultures are dominated by anecdotes (‘she really exemplifies our culture’) and stereotypes (‘the French will never get along with the Americans’).
Even tried and trusted ways of assessing fit have their flaws. According to Sameer Srivastava of Berkeley’s Haas School of Business, analysis based on observation and interview can be unsystematic or prone to bias. Self-reported surveys go stale quickly or suffer from self-censorship. If your employer boasts about being an innovator, you are bound to be alert to questions, however cunningly phrased, that ask you about how you come up with new ideas.
Prof Srivastava and Amir Goldberg of Stanford University have tried a different approach, by crunching the language in 10.3m internal emails sent over five years by staff at a medium-sized technology company. Comparing the results against personnel records, they were able to map the trajectory of staff as they joined, got used to the culture and stayed, quit or were forced out. Among the findings: the reciprocal use of swear words in emails is one important clue to cultural fit; so are message exchanges about families.
Such studies are valuable not only for those building sweary or homely teams. They could tell managers more about subgroups thriving within supposedly monolithic organisations or help them spark creativity by putting culturally different units together.
The work may even be a step towards measuring culture itself, the lifeblood every chief executive would love to transfuse into unhealthy companies - if only they could work out how to isolate and extract it.
Email analysis could also help dealmakers: in fact, the academics have just agreed to run a study at two merging financial services companies.
Advance study will not bridge all pitfalls. Leaders must be flexible enough to smooth unanticipated friction between new partners.
Where a portfolio of patents or brands is the real prize, people may not even be the principal reason for doing the deal. Such transactions may work financially even if they drive ill-matched staff insane with irritation.
Often, a dominant culture will assert itself anyway. In the case of the agitated HP-Compaq team, it took only a few weeks before the longer-term, people-oriented HP way prevailed.
Finally, some cultural mismatches will always be more important than others. Lafarge and Holcim only averted disaster when the French company’s boss agreed he would not run the merged group. For all the work done at operational level to bring two companies together smoothly, a major personality clash in the boardroom is more likely to scupper success than a little friction on the shop floor.
Twitter: @andrewtghill
Published in Dawn, Business & Finance weekly, March 28th, 2016
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