Merge ahead: before you go full-speed into a merger, read this

Entrepreneur, Oct, 1997 by Robert McGarvey

But be warned: For every merger that works, there are others that fail, and the entrepreneur who rushes into a merger may just be stepping into despair. Software company Novell Inc., for instance, never successfully digested WordPerfect (it was spun out last year to Corel Corp., another software firm); The Quaker Oats Co. couldn't swallow Snapple (which was divested earlier this year); and Japanese electronics giant Matsushita Electronics Corp. threw up its hands after several years and disposed of Hollywood entertainment giant MCA Inc.

Why do mergers go wrong? A large but rarely discussed reason is that when business marriages are hurried into, sometimes the result is a loud dash of styles, say corporate culture experts Jacalyn Sherriton and Jim Stern. "[Business owners] focus on the financials and usually ignore the potential cultural incompatibilities when considering a merger," says Sheraton. "But when troubles arise, often the root is in culture clashes."

The good news is that when the importance of culture is recognized - and steps are taken to avoid clashes - "even companies with very different cultures can successfully merge," says Stem. President and vice president, respectively, of two management consulting firms - Corporate Management Developers in Reston, Virginia, and Health Management Consultants in Hollywood, Florida - Sherriton and Stem are also the authors of Corporate Culture/Team Culture (Amacom Books). Their consulting clients include IBM, Bristol-Myers Squibb Ltd. and Mobil Corp.

Entrepreneur: Why do companies consider embarking on mergers?

Jacalyn Sherriton: Many companies see merging as a way to compete. In today's global business environment, companies may have to grow to survive, and one of the best ways to grow is by merging with another company or acquiring other companies.

Jim Stern: But the problem is that as good an idea as merging may be, most business owners typically don't consider culture as a reason not to merge. In looking at potential merger partners, you've got to weigh potential culture clashes along with the financial aspects of any proposed deal. When cultures clash, you may not enjoy all - or even most - of the benefits you'd hoped for in a merger. Look at failed mergers, and you'll see the companies never reached a point where they could work well together - that is, the cultures clashed and nobody found a way to get them to mesh.

Entrepreneur: What are examples of mergers that failed because of culture clashes?

Stern: The Matsushita and MCA merger clearly shows the dash of cultures. On the one hand, [Matsushita] was a staid, nonrisk-taking Japanese company. MCA, by contrast, was entrepreneurial and Joe Hollywood in its mindset. And the merger didn't work. Matsushita divested itself of MCA, which was picked up by Seagram Co., and, so far, that seems to be a better fit.

Entrepreneur: Let's back up a step. Exactly what is corporate culture?

Sherriton: People think it's esoteric, but it's quite concrete. Corporate culture means the values, beliefs and patterns of behavior that are ingrained in an organization. It amounts to the norms about how things are done. The corporate culture is the personality, so to speak, of the company, and different companies have very different personalities and cultures.

Entrepreneur: Do business owners realize how deeply ingrained a business's culture is and how hard it is to change?

Stern: We've administered a survey to top executives for the past several years. It shows that they have heard about culture but are not doing anything to manage it. In fact, 75 percent admit they have no plan to manage cultural change associated with mergers and acquisitions. Seventy percent say their business has not assessed its culture. As much as the majority felt that mergers and acquisitions were viable strategies, they also admit they don't have a plan for addressing cultural issues that might arise in a merger. This is very troubling data.

Entrepreneur: How can a business owner get a feel far a potential merger partner's culture and where troubles might crop up?

Sherriton: You can sense the culture when you first walk in the door. Is there tight security, or are things loosey-goosey? Do people smile at you?

Another tactic is to ask employees questions:

* What's encouraged here?

* What's forbidden?

* What's really valued?

* What are employees held accountable for?

* What are people rewarded for?

By asking questions, gradually you determine the organization's culture. For many [business owners], doing this is revelatory. They have never dissected their culture - the underlying beliefs and values - in the ways we're describing.

Entrepreneur: Culture can doom a merger, but can potential clashes be anticipated and addressed &fore they hurt the new business?

Stern: We're engaged now in a real success story. Our client is Universal Health Services (UHS) Inc., a hospital management company. They recently acquired George Washington University (GWU) hospital in Washington, DC. GWU had been a not-for-profit hospital in a university setting, while UHS is a for-profit management company. From the start, UHS recognized the potential for culture clashes and has taken steps to prevent it. As I speak, there are training classes for all GWU employees to acclimate them to the new corporate culture. All companies involved in mergers should be taking the same steps - conducting culture audits, anticipating where dashes may arise and training employees.