In looking back at the plethora of companies that formed
alliances of one sort or the other in the latter part of the 20th century, future
historians may dub the slew of those that didn't make it as "Generation F."
Over the last 20 years, the percentage rate of failure in
business consolidations has been staggering, ranging anywhere from 50 percent to a
whopping 77 percent -- not particularly good news for investors or employees.
In light of this, let's take a look at the impending
AT&T Corp. and Tele-Communications Inc. arrangement.
While there is a great deal of synergy between telephony
and cable-television operations these days, there are a great many differences in their
corporate cultures. For example, many cable operations are still headed by their founders
-- or, as in the case of TCI's chairman and CEO, John Malone, by the founders'
These operations are a lot closer to their entrepreneurial
roots than telephone companies, the founders of which are relegated to old photos on
Cable-TV operators tend to be risk-takers, and they hire
people who are comfortable with new ideas and with pushing technology to the limit.
While competition has forced telephony companies to become
more creative in selling new products and services, management tends to be fairly
conservative. Making the synergy real between these two companies will take not only a
meeting of executive-level minds, but the full cooperation of middle managers and
This is where the proverbial "rubber meets the
road" when it comes to effective execution of the merger plan.
If AT&T, the nation's largest long-distance
provider, and TCI, the nation's largest cable-TV operator, do successfully run the
gauntlet of regulatory issues and AT&T stockholder concerns and make it to the altar,
the new entity will be a telecommunications powerhouse, indeed.
But what are the chances that these two giants in their
respective fields can increase their odds of success through this merger?
Tremendous, if they're willing to do a little
homework. The financial and legal due diligence currently in process at both companies
sets the stage for success. But more often, it is the lack of cultural blending between
two business parties that strains the relationship and leads to trouble.
It's a major reason why so many companies that join
together fail to meet their corporate objectives.
A major step in the right direction would be for AT&T
and TCI to conduct due-diligence audits on their respective corporate cultures --
analyzing every aspect of "the way that we do things around here."
In this type of review, everything goes under the
microscope -- from dress codes, billing, office layout, budgeting and supervisory and
leadership styles, to taking a hard look at the primary issues that each company believes
are its key business drivers.
Basically, it means taking a comprehensive look at how a
company runs its business -- internally, as well as in the outside marketplace.
Could the fact that AT&T fully expects to be top dog
get in the way of this merger?
It's certainly a possibility, but one simple remedy is
to do some internal and external community-relations work with its employees and with
those of TCI. This way, if there are any negative attitudes surfacing, they can be nipped
in the bud.
A number of high-profile culture clashes illustrate what
happens when companies don't pay attention to internal attitudes and behavior.
When General Motors Corp. acquired Electronic Data Systems,
the auto manufacturer's objective was to enhance its own success by acquiring a
forward-thinking, leading-edge company that was chock-full of talented and aggressive
Instead, faced with the problem of extreme tension between
the two management teams, GM ousted Ross Perot and other key executives who had built EDS
into one of the most successful companies in U.S. history.
This proved to be a costly move for GM. Ultimately, GM shot
itself in the foot, ending up with a company far less valuable than the one that it
Another classic example: Novell Inc.'s acquisition of
At the time when it was purchased, WordPerfect represented
over one-half of the word-processing-software market.
Novell, a computer-software manufacturer, produced a long
list of different types of software packages, but it lacked a word-processing-software
To Novell, the acquisition of WordPerfect presented an
excellent opportunity to position itself more competitively against Microsoft Corp.
What could possibly go wrong? A massive culture clash,
fraught with management infighting that sapped the company's ability to take control
of its business. As a result, the new company failed to gain a competitive edge, and it
was finally sold at a loss of roughly $1 billion.
The good news is that this type of unfortunate situation
can usually be avoided.
By focusing on a plan to blend the two corporate cultures
-- and, thereby, to enhance loyalty, commitment and trust among employees of the two
joining companies -- the odds will greatly favor the new entity's success. The
outcome of the AT&T/TCI merger very much depends on the willingness of both companies
to do the heavy-duty homework that is needed to bring their two separate cultures
J. Robert Carleton is senior partner of Vector Group, an