6 Examples of Merger Failures Owing to Cultural Incompatibility


Top organizations have entered promising mergers and acquisitions, hoping to shake the market with their new product offerings. But a lot of them have failed to integrate their cultures seamlessly, leading to merger failures.

Recently, SAP announced Opens a new window that it would spin out its Qualtrics unit, with an IPO. This is a surprising move since it has been less than two years since it acquired the experience management company for $8 billion. While SAP will have majority ownership of Qualtrics, the Qualtrics’ leadership team will remain the same. Founder Ryan Smith will be the largest individual shareholder. Qualtrics’ EmployeeXM gathers continuous feedback from every employee experience to guide organizations on how to take the right actions to impact engagement.

While multiple reasons present themselves as causes of the spinoff, one of them is cultural incompatibility. SAP is an older company that may not have been able to combine cultures or adapt to the new cultural elements of Qualtrics, a much younger company. This could have resulted in an integration failure.

Cultural incompatibility can have serious business implications. “Creating and implementing a strategy to successfully blend cultures is core to merger and acquisition success. Forcing one culture on another never works. Organizations can avoid falling into a cultural chasm by factoring the people aspect into M&A criteria well before the deal is signed,” says Michele HamillOpens a new window , CHRO at JAGGAEROpens a new window , a spend management solution.

We discuss some other popular examples of merger failures because of cultural incompatibility, with Hamill’s tips to overcome these cultural integration challenges.

Learn More: What Is Company Culture? Definition, Types, Importance, and Best Practices

6 Instances When Cultural Incompatibility Led to Merger Failure

With culture playing such an essential role in a merger or acquisition, could cultural incompatibility be the big reason for its failure?

There have been many such instances, particularly in the tech world, that resulted in challenges on the business front. Most companies tend to merge cultures by picking up the positives from both work cultures. However, that might be superficial because it does not address the negatives from both cultures and how they will be amplified. Here are six instances of merger failure because of cultural incompatibility.

1. Amazon and Whole Foods

The Amazon-Whole Foods merger in 2017 was a vertical integration that would allow Amazon to grow beyond the e-commerce space and sell groceries in hundreds of stores that belonged to Whole Foods. The core incompatibility of the cultures of Amazon and Whole FoodsOpens a new window led to the suboptimal results from the merged organization. Amazon’s culture is rooted in efficiency, technology, and not being highly personalized. Whole Foods is more driven by a more idealistic set of values and approaches. Stories of Whole Foods’ processes being made more “efficient” and affecting employee moraleOpens a new window are also common.

Hamill suggests that a mismatch of values can be a significant cause of merger failure. “Establish your core values as a combined organization. Look at your end company objectives and mission and create values that directly drive them forward,” she recommends. “For example, at JAGGAER, passion and transparency are two of our core values and inform all our processes, decisions, and behavior. When growing through M&A, a set of guiding principles is especially critical for employees as they navigate a new environment.”

2. WordPerfect and Novell, Inc.

More than two decades ago, WordPerfectOpens a new window , a leading word processing software, signed a merger agreement with Novell, Inc. This merger was supposed to result in a powerful entity that could overtake Microsoft in market share. Unfortunately, the merger resulted in massive layoffs from both companies and a declining share price. Cultural differences led to internal disconnect, and finally, Novell had to sell WordPerfect to Corell for $1 billion, which was less than what they had paid for it.

Novell’s management team created plans to absorb WordPerfect’s different products, service lines, and culture. This became the cause of severe culture clashes that impacted the overall business. David Bradford, senior vice president and legal counsel for Novell Inc., at an address at the Utah Information Technologies Association summit conference, shared that all acquisitions don’t necessarily work. Companies need to be careful in their choices. Seeking out a win-win situation is essential.

Hamill asserts that organizations should “Recognize and reiterate to employees the value of the cultures both companies came from, and the role they each play in the success of the combined organization. It’s no longer one versus the other – you are creating something entirely new. This can be hard for some people to see.”

3. AOL and Time Warner

The failed acquisition of Time Warner by AOLOpens a new window can be attributed to cultural incompatibility. The internal issues between the old and new meant they missed out on crucial opportunities in internet search-based advertising. Time Warner also continued to market its own products and services even in areas where AOL was the leader. The two corporate cultures hardly had any similarities. Richard Parsons, president of Time Warner said, “It was beyond certainly my abilities to figure out how to blend the old media and the new media culture.”

Hamill suggests stressing on communication as an essential developer of trust across newly merged or acquired organizations. “One approach I’ve found work is to ensure there are multiple channels for both formal and informal communication, and to provide opportunities for teams to collaborate cross functionally,” she says. “At JAGGAER, we developed a communication cadence, so people knew what to expect and when, that included regular Town Halls where employees could learn about the organization and each other. This is a great way to model values-based behavior and most importantly, celebrate successes.”

Learn More: Toxic Work Culture: 8 Signs for Detection and Steps for Improvement

4. Sprint and Nextel

One more example that has become a case study is the integration between Sprint and NextelOpens a new window in 2005. It is believed that the cultural concern stemmed from instances such as Nextel employees feeling stifled by Sprint’s leaders and processes due to a lack of trust. In addition, managers and employees were always focusing on (unsuccessfully) integrating cultures, which took away time from actual business-related innovation.

To avoid such situations, Hamill says, “Clearly communicate and model your values and vision to the team every single day. Employees are much less anxious and more inclined to support the integration if they understand both the role it plays in the future state of the business, and their own role in the journey. It’s also critical to create a supportive environment where employees feel heard. Mergers and acquisitions naturally create some hiccups. Empowering the broader team to raise concerns and share ideas, especially in those early days, helps leadership identify and resolve cultural and organizational issues faster. It also tends to create a more engaged workforce inclined to deliver their best work.”

5. Hewlett-Packard and Compaq

The Hewlett-Packard and Compaq mergerOpens a new window in 2001 also failed. This was unusual since both the companies had great and well-known products. The reasons are believed to be a difference in the way they were driven. HP has an engineering-driven culture that was more aligned to looking at a consensus for decisions, whereas Compaq had a sales-driven culture that emphasized rapid decision-making. The revenues dropped drastically after the merger, thus making it a failure.

“Sometimes, the original integration plan simply doesn’t work,” says Hamill. “In that case, re-evaluate the strategy and identify areas for compromise. Could elements of culture A be brought out more in a specific division, department, or area of the business to resolve some of the conflict? What if aspects of culture B were made more prevalent within a specific organizational process or approach? Small tweaks like this can reduce friction and make various stakeholders happy.”

6. Google and Nest

Google acquired NestOpens a new window , a smart-home startup, for its automation capabilities and innovation in 2014. Given Nest’s history with Apple, it was more structured in its approach, whereas Google’s approach was informal. With the CEO of Nest, Tony Fadell, moving out due to his different approach and leadership style compared to Alphabet (Google’s parent company), many other employees also left. The vision and purpose of Nest was driven by the CEO and was different from that of Google. Nest was a company with a transparent top-down approach, whereas Google was more engineer-driven and had a bottom-up culture.

Hamill advises that “It can be helpful to proactively examine each of the cultural characteristics and develop a common language and understanding of perceptions. Focus on identifying the areas where the most commonality exists and building appreciation for the value of the differences that each organization brings. It’s important to apply this assessment across the organization, including the differences in strategic orientation, leadership styles, norms, communication, decision-making, risk-taking, communication, protocols, training approaches, technology, and more.”

Learn More: Company Cultures Likely to Change as Physical Workplaces Reduce and Remote Work Reigns

Cultural Incompatibility Needs a People-Centric Solution

A focus on people as much as on other business aspects is essential in mergers or acquisitions. And if the incompatibility starts showing immediately, “Deal with the incompatibility right away,” advises Hamill. “The longer cultural issues linger, the more they can permeate the organization, frustrate employees, and lead to disengagement or retention risk.”

Sharing steps JAGGAER has taken to successfully blend cultures into one cohesive and high-performing organization, she says, “With every acquisition JAGGAER has made over the years – BravoSolution (2017), Pool4Tool (2017), CombineNet (2013), Spend Radar (2012) – we’ve made a conscious effort to factor cultural and people synergies into our M&A due diligence process. That one step makes integrating multiple teams much more seamless.”

And while considering the negative aspects of both cultures is essential, so is factoring in the positives. As Hamill says, “You already have the foundation. From there, it’s about taking the strongest cultural elements from each company and blending them into one powerful culture that furthers the organizational goals the acquisition or merger was designed to achieve.”

What do you think is a robust solution for cultural incompatibility occurring as a result of a merger or acquisition? Share your thoughts with us on LinkedInOpens a new window , TwitterOpens a new window , or FacebookOpens a new window .