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.