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Sunday Jul 29 2001 |
Updated 0009 hrs IST 1339 EST
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By Invitation / Prasad Kaipa
IT
is a well-known fact that 83 per cent of M&As fail to
enhance shareholder value and that culture mismatch has been
at the root of many of these failures.
Mergers across
the Atlantic Ocean fail more often than mergers within the US
and the Daimler-Chrysler case is a recent example. Based on
our 12-year research and consulting experience with Fortune
200 companies, we have developed a process through which we
can map the corporate DNA of organisations and now we are
applying it to companies involved in acquisitions or mergers.
This process also helps identify the gaps, matches and
appropriate steps that would enhance the chance of success for
mergers and acquisitions.
We found that many companies
have one unique DNA and one type of culture. It is somewhat
easier to map the DNA patterns of these companies.
On
the other hand, some companies have different DNA patterns in
different divisions/groups, perhaps due to previous
acquisitions. Bristol-Myers Squibb, for example, has Clairol
hair care products with one kind of DNA, Medical research
company which makes prescription drugs with another DNA
pattern and Mean-Johnson that makes babymilk products with a
third DNA pattern.
In such situations, the 'holding
company' might or might not have a unique corporate DNA
pattern.
You can predict such companies to break up or
sell some of its divisions sooner or later because it is
difficult to manage multiple cultures unless you run them as
independent divisions.
Some companies experimented a
different culture in its research laboratories. IBM, AT&T,
(Bell Labs are now part of Lucent) and Xerox are some examples
of nurturing different culture in their laboratories.
Culture is the core factor that allows for different
DNA patterns to emerge. For example, Xerox PARC has a very
different DNA pattern compared to rest of Xerox.
The
parent company Xerox has its headquarters in the East while
the PARC resides in the West and Xerox had difficulty taking
advantage of their relationship.
According to recent
news reports, Xerox has put its PARC division up for sale.
While we have come up with a way to identify culture DNA and
categorize them, the body of knowledge we are drawing from is
not new to executives. It has been tacit and not explicitly
articulated by others.
Executives with M&A
experience intuitively understand when the DNA patterns
mis-match between companies. Sometimes, they act on it and
sometimes they don't.
For example, in the case of GE
and Honeywell merger, some divisions of Honeywell whose DNA
patterns don't match that of the parent, will be sold if the
merger does go through.
If we can use our DNA approach
to help companies to identify, assess and nurture appropriate
DNA type in their own company and be clear about the DNA type
of the acquired company, we predict, the chances for success
can be altered positively.
While each company has its
own unique DNA, so far, we have found four categories of DNA
(phenotypes). Each category has very different characteristics
which pose special issues and offer advantages and when merger
or acquisition is proposed between companies belonging to
different categories.
The four categories are: 1.
Breakthrough 2. Evolution 3. Experimental 4. Business-focus.
As the research evolves, I am sure we will find other
categories and other patterns.
But for now, we are
developing ways to identify unique characteristics of
companies that belong to each group listed above.
We
believe that leadership, structure, culture and strategy are
the cornerstones of an organization and we represent them
pictorially in the tetrahedron.
A tetrahedron is a
geometrical shape composed of four equilateral triangles. We
believe it is like a 'fractal' and is considered to be a
building block of the universe.
We mapped four
cornerstones of our DNA model onto four corners of the
tetrahedron. Then each face of the tetrahedron has three
cornerstones and one cornerstone is missing from it and is
ideal to represent one of four DNA categories.
In DNA
metaphor, these faces represent phenotypes which make up the
genes and the tetrahedron represents a living organism. Each
tetrahedron represents a DNA map.
This map could be
developed for individual company, division or a business unit.
We create a matrix that becomes the database for further work.
For the purpose of mapping the DNA of a culture, we have
identified six base-pairs (instead of four base-pairs in
biological DNA (because they together describe all essential
elements to take effective action) and they are: vision,
decision-making, execution style, discrimination, will and
motivation. We use these six characteristics as DNA strands to
weave the Culture DNA of the company.
Each strand has
three distinct states and we end up with a 6 X 3 matrix as the
basis for doing the gap analysis. We have found that, based on
these 6 strands, there could be 28 different types of Culture
DNA and those fall into four categories we described earlier.
Once the Culture DNA of a company has been identified,
more reliable predictions can be made about problems it might
face as well as its strengths. These predictions can assist
the company in cloning itself when necessary.
SelfCorp
also uses 'gap analysis' to help the client-company identify
the appropriate steps for successful development beyond where
it currently is. Comparing the DNA of two companies informs
our advice as to the significance of the culture gap.
SelfCorp can work with companies at the
pre-acquisition stage (candidate screening), decision-making
stage (due diligence stage to determine which of the potential
targets fit well), after the deal is signed stage or during
the integration stage.
Obviously the earlier you begin
the DNA analysis and mapping, the more returns the company
realizes from our work.
(Prasad Kaipa is the CEO of
SelfCorp Inc and has been a key researcher behind the concept
of culture DNA and design DNA. This is the concluding part of
his research paper, the first part of which appeared in this
column last week ) -
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