This post focuses on the challenges of integrating company cultures after an acquisition. M&A failure rates are estimated to be anywhere from 50%-80%. This article from Lakeview Capital does a pretty good job of summarizing the major causes of merger failure including inadequate due diligence, lack of low level management involvement, and recognizing culture synergies/differences. I have been involved in several acquisitions having led three deals and led eight divestitures. I would like to share three stories of how my employers successfully dealt with some aspects of cultural integration.
In 1997 Sterling Software acquired Texas Instruments Software division. About 40 people from Sterling’s Application Development Division based in Atlanta moved to Plano Texas to join the newly merged business. It was a tough deal. Texas Instruments was formed in the mid 1950s and was a mainstay of the Dallas technology scene. It had a strong corporate culture and core values. In 1997 TI began a program of divesting non-core businesses. The Software Division was one of eight divisions TI divested in 1997. Most of the employees of the Software Division had years and decades of experience within TI. As a part of the acquisition, Sterling eliminated over 400 positions out of 1,300. To a certain extent, the employees felt that they had been abandoned by their corporate parent.
Sterling did a lot of things to bring the two organizations together – too many to cover in this post. One thing they did stood out. They retained and expanded Texas Instruments Technical Ladder program. The Tech Ladder recognized that not all employees want to grow in a company by climbing up the management ranks. The Tech Ladder is a parallel growth track for its engineers who get recognized for their technical contributions and receive mentoring and support to grow into technical leadership roles. TI’s technical ladder is not unique, others like Bell Labs, Intel and IBM offer similar career progressions. TI is considered to be one of the best programs in the industry. It is exclusive, no more than 22 per cent of TI employees can be a part of the technical ladder. The distinguishing feature of Tech Ladder is that it is not decided by the management, but is a peer evaluation process. Only members of the Technical Ladder can vote in new members. Regular management is excluded from the process. Candidates were assessed on innovation in products leading to business impact, how the person helps to grow the technical pool in their team, whether they have mentored and helped others grow technically and, how the person has contributed to enhancing TI’s image in external environment like industry and forums.
About nine months after the acquisition Sterling launched the Technical Ladder program. Now the former TI members had to select the next group of inductees into the program, including those employees from Sterling. It was a great way to bridge the old traditions of TI with the new ones from Sterling. Employees that were selected were able to add three magic letters to their job title – MTS Member of Technical Staff. The members of the Tech Ladder were called on when the company ran into serious technical problems and played a key role in extending the company’s product lines to embrace the explosion of the Internet in the late 1990s.
Todd Hill was an account executive with QRS Corporation. He passed away September 11, 2001 when the Towers fell. Todd was staying on the 17th floor of the Marriott Hotel at the World Trade Center when terrorists hijacked and crashed two planes into the towers.
Todd’s parents and friends established a scholarship in his honor at the University of Massachusetts Amherst. His employer, QRS Corporation established an annual employee award called the Todd Hill Award that went to the employee who best exemplified the spirit of QRS. This award was determined by the employees – not management. Folks who were finalists in the prior year’s award process selected who the new winner would be.
In 2004 my employer, Inovis, acquired QRS. As a part of the deal I became the General Manager of QRS’ New York City EDI Service bureau. Inovis continued the annual Todd Hill award. The conference room in NYC was named after Todd and a beautiful portrait in oil paint was featured in it. In 2005 the Service Bureau was divested and relocated to Georgia. Before the sale was completed, my CEO directed me to have a high quality copy made of Todd’s portrait while the original was shipped to Todd’s parents in Boston. Inovis continued the tradition of the annual Todd Hill award. In 2010 Inovis was acquired by GXS. GXS continued the tradition with the GXS Humanitarian and Todd Hill Award for the outstanding community service efforts of one employee with a cash award and a matching contribution to the non-profit charity of the award winner’s choice.
In 2010 I joined a small systems management firm in Georgia. Within three months I had been promoted to Chief Operating Officer after leading the company through a painful restructuring process that sunset a new product that failed to achieve market traction. It was a tough blow for the employees. It was a small company and the employees who were let go were good people. To cancel the product they believed was going to save the company was hard. Later that year we completed a small acquisition to enter into an adjacent, but growing market. To help people focus on the positives of the future, I instituted a new employee award – the Uwe Stieber award. It was a recognition of the employee who best embodied the spirit of the company. Uwe was a beloved pre-sales consultant in the Hannover Germany office. He was very popular, a bon vivant, and very effective with customers. He died suddenly from a heart attack years before I joined the company. Like the Todd Hill award and the Tech Ladder, management was not involved in the selection process. Employees nominated candidates and that team met to determine the winner. It provided a welcome boost and a reminder of the heritage of the company.
Mergers and acquisitions in the tech market are tough. Cultures often clash. As Ross Perot, the CEO of EDS noted “Revitalizing General Motors is like teaching an elephant to tap-dance.” There are a lot of strategies and tactics that can be used to bring disparate corporate cultures together. Hopefully these ideas are something you can use to conquer your own culture wars.