Consider Cultural Differences in Acquisitions

Acquisitions are always interesting to evaluate. One of the most commonly overlooked areas of an acquisition are the differences in the cultures of the two organizations.

When I was at WordPerfect running product management and product marketing, the two founders asked the management team to sell the company. This was not widely known, and I didn't even find out for a while. But shortly after the charge, we were in discussion with Lotus Development to merge the two companies, and I was asked to participate in the discussions. From a product standpoint, this would have made for a great marriage to create a suite that could have competed pretty well with Microsoft Office—with WordPerfect and 1-2-3. What a combination that would have been!

One concern, however, was the culture differences between the two companies. Lotus was deep in Cambridge, Mass with Harvard and MIT at its back, and WordPerfect was located in the secluded, uniform-thinking Utah valley. Would it be possible to mix these two cultures?

Before I joined WordPerfect, I had spent six years at Novell running product marketing and product management for the NetWare division, which represented about 90% of the company's revenues. So I knew the company and the management team really well. Anyway, while we in the last stages of merger talks with Lotus, the WordPerfect CEO called the Novell CEO to let them know what we were doing, and that we wanted to continue working together closely with Novell after we merged with Lotus. During that call, the Novell CEO asked the WordPerfect CEO, “Why don't you consider merging with us?' This had never been a real consideration, for the product lines don't mesh very well with one exception—WordPerfect Office, a very robust email and group scheduling product, needed a VAR channel desperately.

During the merger discussions with Lotus, to dispel any question of antitrust or other legal issues, Lotus suggested that we eliminate the weaker of the similar products between the two companies. This meant Lotus would shed AmiPro, the word processor it had acquired through acquisition a few years earlier, in favor of WordPerfect (the product), and WordPerfect (the company) would shed WordPerfect Office in favor of Lotus Notes, which had garnered considerable more success than WordPerfect's groupware product. Logically this made a lot of sense. However, unbeknownst to the Lotus management team, WordPerfect Office was perceived by the WordPerfect management team as its future, not realizing that the best future was saving its desktop applications through a merger with Lotus.

Anyway, when the Novell CEO suggested to the WordPerfect CEO that they merge instead of with Lotus, the idea took hold. This was the perfect solution for WordPerfect Office, to leverage the mighty Novell channel (although it would prove devastating for their business applications).

Back to culture. Another thing that seemed appealing to the WordPerfect management team was that Novell HQ was located only a few miles away from WordPerfect's. A lot of people at the two companies knew each other because in many cases they were neighbors. Therefore, the culture of the two companies should be the same, right?

This was a very flawed assumption on the part of the WordPerfect management team. I tried to point this out when I was told we were going to pursuing a merger with Novell and not with Lotus. Novell was primarily a cut-throat, eat-your-young, quarterly-revenue-results-rule company, while WordPerfect was more of a feel-good, make-everyone-happy (including your customers) company. No two companies could be more different.

Novell had grown in headcount through a bunch of acquisitions with Silicon Valley companies and a few others outside of California. (Ironically, its revenue had not grown significantly through any of these acquisitions.) These acquisitions had had a major impact on the culture of Novell. There had been a lot of infighting and backstabbing to get ahead within the management teams across the acquisitions, and it had taken its toll on the company. (This is the main reason I left Novell.) Novell was also a public traded company, which made it subject to the rule of quarterly numbers.

After the merger, the WordPerfect nice guys were cut to shreds by the Novell sharks. As I mentioned in another blog, the WordPerfect channel was nearly destroyed. This was exacerbated in every group where the two companies' teams were merged, such as the sales organization. WordPerfect lost many of its sales people, so the WordPerfect desktop applications division ended up with a sales organization and a channel that largely didn't know its products.

The culture class was enormous between these two companies. WordPerfect would have been much better off merging with Lotus, even with some cultural differences. At least they would have had a common goal to create the killer suite, and the Lotus and WordPerfect distribution channels for desktop applications would have been the same. (WordPerfect could have sold WordPerfect Office to Novell, which would have made good sense.)

If the Novell merger could have led to a merge of the two extreme business styles of being profic-centric vs. employee and customer-centric, it could have been a great culture. I believe companies need to strive to find a balance between these two extremes, which Novell and WordPerfect represented. But it was not meant to be.

What's the lesson? Make sure you take into account the culture when you are thinking about acquiring or merging with another company (along with product integration, product mix and distribution channels).

I wonder if Google thought about that when bought Motorola this week. Check out the WSJ take on this merger—note the comments about culture.


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