When Cultures Clash, Change Management Evolves into Crisis Management

Perhaps one of the major drivers for change management within an organisation is when change is dictated by a merger. Organisations buy and sell others all the time. They expand locally and globally, often with concepts of synergies and cost savings leading to an enlarged organisation which serves its market and customers more adeptly, while simultaneously producing greater profits for its owners and shareholders. However, a great many such mergers fail miserably. Here I look at the cultures clash which caused the world’s biggest merger to fail.

The biggest failed merger in history

Perhaps the most spectacular merger failure on record is that of AOL and Time Warner. At the time the merger was the largest in corporate history, a $170 billion amalgamation of two industry giants fusing distribution and content together in preparation for a new world. This business case for the combining of the two companies since been shown to have been completely valid: one only has to look at companies such as Netflix and Amazon to see the strength of content and distribution.

While the business case was valid, AOL and Time Warner management failed to understand the effect of their clashing cultures, expecting employees to see and accede to the benefits identified as the reasons for the merger.

Underestimate culture clash at your own peril

There were a number of errors of judgement made by the combined management of the merged organisation.

First of these was a failure to recognise the length of time it would take for the merger to gain regulatory approval. Time By the time the merger was finally allowed to proceed. Time Warner executives had all but lost enthusiasm for the deal.

Second, as the new millennium kicked off, it was clear to AOL that dial up connectivity would soon be a tool of the past. In 2001, AOL announced it was going to pursue the production of a co-branded router with Sony. This would allow multiple devices, including television, to be linked. Time Warner didn’t like this deal, believing it would threaten its cable television market.

However, throughout all the many tomes written about the reasons behind the failure of Time Warner/ AOL there is one constant theme: the cultures clash that existed between the two companies, which eventually proved to be a hurdle too high for its change management leadership to tackle, particularly given the rapidly waning executive enthusiasm for the deal.

A cultures clash too far

AOL and Time Warner internal cultures were about as different as they could get. AOL’s employees were each part of a big family. Time Warner had divisions which never spoke to each other. Their compensation structures were completely different, too. AOL’s executives benefitted from stock options, which were decided by reference to the performance of the group as well as the individual. Timer Warner’s compensation package promoted its divisional separation: it paid cold hard cash based on divisional results.

Time Warner’s people had far narrower self-interests. They simply weren’t interested in what others were doing, and when it came to the merged group, all they saw was the integration of expensive operations which they didn’t understand, and had no inclination to.

Those in the loop on the merger proposal from the off never considered this as a factor.

Change Management takes time and enthusiasm

Regulatory approval for the deal took a year to come through. By the time it did, leaders of the merged company had lost their initial enthusiasm for it. The natural human responses of denial and resistance had been concreted into the fabric of the new company.

Instead of engendering a new company wide philosophy, and working with its people toward commitment to the change, time had been lost and executives now found themselves fighting fires. Change management had moved to crisis management, and the new culture emerging was one of blame. This roadway of crisis and blame was undoubtedly a factor which led to the premature departure of Chairman Steve Case in 2003.

This state of crisis was encouraged by a number of poor change management actions:

  • Employees were not engaged in the change
  • Change was only accepted at the very top, with no follow through down the line
  • People were told to change, rather than helped to change
  • People were given no time to discuss and debate, before discovering benefits

In short, AOL/ Time Warner lacked the one thing it needed for its change management to be successful: it lacked control.

10 Steps in the Journey from Crisis to Control

Perhaps if the executives of the merged giant had taken the following ten step change management course of action, then the merger would not have entered the history books as a mega failure:

1 Understand change is a process, which requires all stakeholders to be engaged.

2 Move steadily toward the final goal, with an agile approach to steer round obstacles along the way.

3 Assess risks early, and motivate people to change using persuasion change management techniques.

4 Manage change from the top with sponsors of change ever present in the process, and all singing from the same hymn sheet.

5 Create a vision of change that is shared by all stakeholders and communicated in a variety of ways, not least by the actions of executives and change management leaders.

6 Communicate the need for change and the benefits of change constantly and consistently.

7 Empower stakeholders in the change process, allocating resources effectively and encouraging belief in the change by ownership of it.

8 Plan short-term wins and celebrate successes on the way to the final goal, maintaining momentum by doing so.

9 Consolidate and maintain the momentum of culture change by promoting those committed to change into key influencing roles.

10 Engrain the new behaviours by constant reinforcement until the new culture becomes ‘the way things are done here’.

Why the biggest merger in history failed

There have been millions of words written and vocalised about the failure of the AOL/ Time Warner merger, but Steve Case sums them all when he quoted Thomas Edison:

“Vision without execution is hallucination.”

The vision for the merged company – an industry giant controlling and benefitting from content and distribution – was not only correct, but also foretold of how the media industry would evolve over the next decade.

The vision failed not because of the clash of cultures, but because there was no execution of change management and therefore no way of stopping the damaging cultures clash.

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change management and innovation and leadership

As you can imagine, I spend a fair amount of time keeping up with changes and challenges faced by industry and business in the fields of change management and innovation. So I’m constantly on the lookout for information and news that may impact behaviour and best practice across organisations.

Here’s a pick of what I’ve been attracted to this week:

Change Management

a number of senior management changes in Australia that follow the completion of WHL’s acquisition of David. … More Woolworths Group plc News.

HR Management · HR strategy · HR … Contact Us · Home > HR Management > Change management > News > HR helps Mission Australia tackle big changes …

Any time you are promoting or pushing through a different way of doing things, change management is required to engage with and get all the various key …

Photo: RivMed’s Acting CEO says changes must be made to theorganisation this … Aboriginal medical service in Australia, can’t guarantee anything past 30th of  …

Responsive design is table stakes for organisations and not a long-term … effect across the organisation and requires process and organisational change, … take part in the CMO Australia conversation on LinkedIn: CMO Australia, join us on  .

 Innovation News

They firmly believe that Australia now has a unique opportunity to build on its creative, innovation and technology industries which represent over $90 billion to …

And with this in mind he is now CEO and co-founder of One Million Acts of Innovation Australia (OMAoI) which is a national, not-for-profit incubator aiming to help …

Speaking at a Committee for Economic Development of Australiapanel on how WA could become an innovation leader, Professor Wood said without ideas …

Australian industry leaders have proposed an Australian Innovation & Manufacturing (AIM) Incentive in submissions to the Senate’s inquiry intoAustralia’s …

Where My Words Have Travelled

publish around the place from time to time. Here’s the latest:

Massive Open Online Courses (MOOCs) are the subject of a lot debate in the blogosphere. Will they be a disruptive technology for universities? Will they take over the trainer’s job in corporate organizations?

From a higher education perspective, it’s easy to see the selling point for students

In 1987 Paul O’Neill became the CEO of Alcoa. Taking over the helm of a company usually means making grand statements about finances, about cutting costs, and change the investment priorities. But what O’Neill did at his first investor press conference was a little different.

To improve productivity in organizations you need only get leaders out in the field

The controversial Koch brothers wrote a book called the Science of Success (2007). I don’t recommend you read it as it’s one of those books that successful people write where they think they were successful because of these management techniques, whereas it’s more likely that because they were successful they could try out these management techniques (fads of the day?).

According to the ASTD’s 2013 State of the Industry Report, U.S. organizations spent $164.2 billion on employee learning and development in 2012. The report does a good job of categorizing and classifying expenditure. But what about ROI? How can managers structure training to ensure a positive ROI?

How often have you rolled out a new IT project that failed to deliver the desired benefits? Most projects fail to deliver benefits because of poor change management. Little to no attention is paid to the people side.

From the Vault

Keep in mind these 13 tips when implementing a new initiative in your organisation:

Morten T. Hansen talks about how to embrace and on a blog post at the HBR.

He says to think about it from a zen point of view: Think of life as a flow of luck events. Imagine swimming in a river in which lucky events — good and bad — will flow your way and hit you. It’s neither good nor bad. It just is. When you start having this “luck flow” mindset, you can start managing those events to your advantage, but only then.


Three Phases of Managing Organisational Change in any Business

Change, organisational change, managing organisational change

Whatever the size of your business, and in whichever sector, the need for organisational change is one of the certainties you will face. If you handle this change well your business will prosper from the potential created by the change. If you handle organisational change badly, you will struggle against more agile competition. Here I look at managing organisational change, though the model is equally valid for process change.

A model for managing organisational change

I can’t claim the credit for this organisational change model. That distinction goes to Kurt Lewin who, in the 1950s, produced what he called the Unfreeze-Change-Refreeze change management model. Essentially it requires the change leader to understand what the organisation is currently and what they want it to be, then to break it down into its component parts, reshape it, and finally to set the new shape as the new current state.

How Lewin explained this was by taking the example of a block of ice which is desired to be in the shape of a cone. The first step in the process is to unfreeze the block of ice, before it needs to be reshaped (change), and finally refrozen in the new shape.

The starting point for organisational change – unfreeze the unwanted

Before setting out on any organisational change project, you must understand what your organisation is and what and why it needs to change. This will provide the motivation for change.

When Jack Welch became the CEO of General Electric, he immediately assessed its structure as being the root cause of its problems. He realised that its management structure and corporate culture – qualities that had once made it a great company – were the very things holding it back.

Unfreezing an organisation requires a change leader to challenge its reasons for existence. It requires the communication of a compelling message which provides evidence of no organisational change will eventually lead to no organisation. Such evidence may include declining sales and profits, a reducing customer list, and shareholder dissatisfaction. The need for change will have been established.

To be accepted, however, organisational change must be compelling. Logical reasoning appealing to self-interests, without which any change project will be difficult (particularly in organisations which have been ‘doing it the right way’ for decades). Lower sales leading to lower profits, which in turn produce no more than job cuts and falling wages and salaries is a pretty compelling argument, though employees also respond to questions of environment and value (perhaps social or ecological issues). In short:

  • Assess what needs to change and why
  • Ensure there is management support for change by evidencing the need
  • Compel stakeholders to come on board with the need and benefits of change

Reshaping during organisational change

Even once the need and benefit for organisational change has been established, people will find it hard to change. New cultures, new lines of reporting, new processes, and new structures all need to be communicated.

Specific transitional issues will need to be addressed, and managers will be required to nurture their people through what, for them, may be difficult times. Having identified the need to change, change leaders will need to reinforce the message regularly and empower their people in the ownership of the new way of thinking.

Holding team meetings, or communicating in other open forums, change leaders should guide their people through an organisational change by reiterating the benefits and describing the exact changes and their effects. This is a process which needs to be continued throughout – there is no quick fix.

Problems and rumours should be dealt with quickly, and people empowered in the ownership of change by involvement. Management should look to short-term milestones to reinforce progress, while reviewing employee group needs through negotiation with unions or other employee societies.

Solidifying organisational change

The final part of the process of organisational change is to refreeze. By now people will have embraced the new culture and new processes. Heightened expectations for them as individuals and groups will be counter-balanced by their own heightened expectations for new opportunities and rewards.

To outsiders, the organisation is seen as stable. However, there is still much work to do:

  • Identify the support needed throughout the organisation
  • Provide training, information, and opportunity for discussion
  • Remove barriers to sustainable organisational change
  • Ensure the organisation’s leader remain committed to the change
  • Celebrate short term and long term success, not forgetting to reward that success

The ultimate reward of organisational change

I’ve written often about the need for constant change within an organisation, but even though given this it is still necessary to solidify change as it happens. Without this refreezing process, uncertainty of how things need to be done will remain. Secondly, without this new state in place it will be hard to effectively assess and move forward again.

Remember, when making organisational change it is the change leader’s job to:

  • Make the case for change
  • Motivate the desire to change
  • Empower people to accept and own the change
  • Solidify the change for it to be fully implemented

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