I’ve given a variety of case interviews that include evaluating a merger or acquisition. The question usually takes some form of “is this acquisition a good idea or not?” Nearly every candidate includes “culture” as a factor to consider, and they all list it as some form of “risk.”
Candidates don’t often give culture any additional thought. They have often just heard of mergers going poorly because the “cultures didn’t mesh”. What it means for a culture not to “mesh” rarely matters for a case interview, so they say little more about it.
The culture risk is real
The “risk” factor with culture is very real. Since most of my work is in Aerospace and Defense, Boeing’s acquisition of McDonnel Douglas stands as the poster-child of cultural peril.
In short, Boeing bought McDonnel Douglas in 1997. The story goes that until this point, Boeing’s culture put engineering first. McDonnel Douglas on the other hand put greater emphasis on financial targets.
Many former McDonnel Douglas executives landed in Boeing’s C-suite after the acquisition. This helped the old McDonnel Douglas culture engulf the new firm. So much so that many joked that “McDonnel Douglas bought Boeing using Boeing’s money.“
Analysts often blame the new culture for many of Boeing’s recent struggles. Engineers no longer have the power to perfect their designs. Executives no longer have sufficient appreciation of engineering to make either visionary or balanced decisions.
All of this climaxed with the high-profile crashes of two 737 MAX aircraft and the grounding of the entire 737 MAX fleet for more than a year.
The culture opportunity is also real
But is culture really only a “risk” when it comes to mergers & acquisitions? Clearly not, but until you acknowledge the question you’re unlikely to recognize its obvious answer.
So how can culture be an opportunity? Well consider what might have happened with Boeing if Boeing’s culture had stayed in control. Obviously, they may have avoided the mistakes that caused the 737 MAX accidents. They may also have avoided quality issues in the KC-46.
But beyond just avoiding today’s problems, perhaps they could have made more inroads with other products. The various forms of the F-15 and F/A-18 have done very well, but Boeing notably hasn’t led a winning contract to develop a serious low-observable aircraft. Boeing recently won the contract to develop a trainer aircraft for the Air Force, but relied heavily on SAAB’s digital capabilities. Perhaps a firm driven by an engineer’s passion to make something great could have put Boeing in better control of its military outcomes.
To be fair, it’s possible that everyone has the story backwards. Maybe Boeing would have driven itself to financial ruin if not for McDonnel Douglas’ cultural focus on business outcomes. Either way, if culture can plausibly play a positive role in the outcome, it’s not only a risk.
Watch for culture in upcoming downturn acquisitions
COVID-19 is rocking many sectors of the economy. However, some companies may be able to take advantage of one of the best times for mergers and acquisitions. Aerospace in particular will need to consolidate to survive.
As you monitor upcoming M&A, keep an eye out for which culture seems dominant. I would bet that a company culture that results in the foresight and discipline to take advantage of growth in a downturn is a good one. With luck, the acquired culture won’t overcome that of the buyer’s.
Keep seeking truth.
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