Business and Culture
Rene Carayol
21-Jun-07
Ask any small start up company what their top priority is and time and again the resounding answer is to get profitable and grow quickly. The hardest thing any new business has to overcome is their lack of established brand and a non-existent track record; two things that makes getting new customers highly problematic.
Through a rigorous investment in marketing and a crucial focus on sales, organic growth slowly follows on for some businesses, but for many the lack of generation of revenue in the early days simply drains resources to breaking point. The smart entrepreneurs look instead to acquiring a competitor – a rival business ready for the picking that first offers salvation, then survival and finally success. In one swoop it removes a competitor from the market place; providing new talent, new thinking and critically new customers. This joining of forces can be the making of the new combined businesses. The crucial thing that is often overlooked is that acquisitions, when thought through properly are rarely as expensive as it seems. Sometimes a company can be bought for shares within the newer, bigger company instead of a straight cash deal. Sometimes it can all be about striking at the right time when conditions are favourable. The secret is that it’s rarely anything to do with size.
It’s more about ambition and appetite.
And to REALLY accelerate growth a business may eat up bigger fishes than themselves, instead of the safe option of snapping up the minnows.
Take the Royal Bank of Scotland. When it acquired Nat West, it did so despite Nat West being much bigger than RBS. It now ranks as one of the UK’s biggest banks and a global player with substantial financial clout.
What is for sure is that nearly every successful big business around today has got there not through organic growth alone, but by also acquiring competitors. And yet recent surveys have shown that 90% of acquisitions and mergers never achieve their stated objectives.
Why? Simple.
Culture.
Whilst the deal may make perfect sense on paper (different customers, different locations, complementary products and services), a clash of cultures is the surest way to 1 + 1 not equalling 2.
The first indication that something might be wrong is when the newly formed organisation starts losing its star players. Far too many senior figures in ANY business are used to having things done on their own terms and after a merger a new outlook can lead to disharmony in the ranks.
Collaboration is the key skill in these circumstances, not single minded leadership; proving that yet again it always comes back to leadership. Only with good leadership can big ventures such as these really succeed.
This month there has been a lot in the press about two huge potential acquisitions; Thomson looking to snare Reuters and Barclays battling it out with Royal Bank of Scotland over ABN Amro.
Both throw up some valuable lessons.
When the Thomson deal goes ahead, it will be the Reuters CEO Tom Glocer that will take the reigns of the bigger and better company, and not Richard Harrington, CEO of Thompson. It is far more common to have the head of the company doing the acquiring that takes the lead of the merged organisations.
And yet Harrington has made a decision to retire and leave the running of the new company to someone more in step with the internet age. It takes a truly great leader to step aside for the good of the business and not cling to power when the right decision is to leave or at least move out of the leadership seat.
The ABN Amro deal is an entirely different beast all together.
Barclays are looking to act as a ‘white knight to save ABN Amro’ and keep the various facets of the business together and grow the new company significantly.
Royal Bank of Scotland (with their two partners Santander and Fortis) are looking to do the exact opposite and break ABN up; selling off the profitable parts and divvying up the spoils amongst the three partners in the deal.
It’s of little surprise that ABN Amro would prefer the seemingly closer fit to their existing culture and not break up the Netherlands’ biggest bank, despite, on the face of it, the deal from the RBS consortium appearing financially more attractive.
This goes to show that it’s rarely the most lucrative offer that wins through. In fact, it’s not even the best strategy that often wins the day.
It’s those who understand the cultures of the businesses that they are trying to combine that will win in the long run.
After all, culture is more powerful than strategy.
To find out more visit http://www.carayol.com
