June/July 2010 / Cover Story
The Culture Factor in Mergers and Acquisitions
Using the failed AOL-Time Warner deal as an example, the author discusses the “culture factor” in M&A and how cultural incompatibility can doom a merger, and the consequent importance of “cultural due diligence.”
The author and colleagues have identified 30 major categories or traits for purposes of analyzing a corporate culture. By way of panel research they narrow this field to some of those most critical and note five in particular that, had they had been scrutinized in advance, would have suggested problems for AOL-Time Warner.
The five are (1) the nature of the organization structure in terms of centralized v. decentralized management, (2) the degree of employee empowerment and “ownership,” (3) the degree to which employees are encouraged to take risks, (4) the degree of interdepartmental organization and (5) the extent to which the organization engages in formal and detailed planning. In the case of AOL-Time Warner, it should have been noted, for example, that AOL was far more entrepreneurial and willing to take risk.
“Other high-stakes business events, such as joint ventures, strategic alliances, and large-scale outsourcing partnerships, also require an evaluation of divergent cultures,” the author writes. The major goal is to avoid culture clashes, but short of that, he says, understanding the cultures will also help to optimize the effectiveness of the new structure.
