The Big Three Blind Spots in Mergers and Acquisitions

If there is a “Big Three” of anything, it never feels good to always be number three.

That was Chrysler’s role in the mid-90’s. It had been their position for decades. Even after the unlikely revival in the 80’s with Lee Iacocca, the auto company was the perennial also-ran behind General Motors and Ford. And they were tired of it. So tired.

This exhaustion festered into a kind of restlessness. And that restlessness catalyzed into bold action — a merger in 1998 with Daimler-Benz. At the time, it was the world’s largest ever cross-border deal. Both parties characterized the arrangement as a “merger of equals.” The idea was that the two organizations would be able to leverage a singular global brand (like Toyota), and the sales would follow. The then Daimler-Benz CEO and architect of the deal, Jurgen Schrempp, even hyperbolized this world domination vision as a “marriage made in heaven.”

The result was far from what anyone would characterize as a healthy marriage. Spoiler alert: The 36-billion-dollar merger was dissolved in 2007 for 2.7 billion dollars.

Why Did the “Merger” Fail?

With such lofty visions and so many smart, capable strategists at the helm, how could they have gone wrong? A lot of analysis has been performed post-mortem with everything from deal manipulation to 9/11 cited as a cause.

What most analysis falls short of revealing are the seeds of underlying failure that were present in the deal from the start.

The two organizations were victims of the big three most common blind spots in mergers and acquisitions. They are the same ones we have seen lead organizations of all sizes headlong into failure. These blind spots are pervasive because they are, indeed, hidden from immediate view for even the most seasoned, intelligent, thoughtful executives.

Blind Spot One: Lack of an understood identity

When analyzing a merger, it is necessary look at how each independent company creates value in the marketplace.

We’re not talking about just the sum of your logo and messaging here. We’re talking about the real, fundamental identity of who you are and what problems you solve at a deep, human level. That’s your brand. In merger and acquisition deals, it’s not just business systems that merge to create a new entity. The respective brands also bring positive and negative attributes to the marriage.

Key question: Each company’s brand identity represents what problems they solve at a deep, human level. What will the new company’s combined brand look like?

The Daimler-Chrysler deal was lacking in an understanding of how the two companies would be understood at a brand identity level. The same organization that brought you the functional Dodge sedan would also be providing the luxury Mercedes Benz coupe. While it is, of course, possible to have an identity that can contain a wide range of product brands, the deal did not make obvious what the new identity would be.

These questions appear to have been unanswered: What is the posture of this new brand we are creating? How do we create experiences that are in alignment with that brand for ourselves and our audiences? What is the level of equity that our entities have with our audiences?

RED FLAG: Any conversation about brand turns into how to shoehorn two logos or names together.

This blind spot may be one of the most challenging and, at the same time, one of the most rewarding to take on. A deep, meaningful brand investigation can create clarity for the culture of the organizations, and for the brand architecture or system that will be used for multiple product or service brands.

Take heart, though. There is a place you can begin, no matter where you are in your merger or acquisition process. Start with these four simple questions.

A deep look at the underlying form or identity of the joint organizations will reveal answers when nothing else can. It can also help to save you time and energy if you find that, at a fundamental brand level, there is a lack of alignment between the two brands.

A deep look at the underlying form or identity of the joint organizations will reveal answers when nothing else can.

Blind Spot Two: Unexamined long-term vision

No one gets into the merger and acquisitions game to lose money. There is an obvious need for business to increase its market advantage and make a profit. Those are table stakes. However, in our experiences with business leaders, that can be where the work of establishing a purpose or vision for the deal ends. Long-term implications, clarity of vision, the deeper purpose the merger serves in the marketplace — those things remain obscure.

That obscurity of vision led, in part, to the demise of the Daimler-Chrysler deal. Both parties saw the need to gain access to overseas markets. However, what does that mean for production? How would the merger serve to solve for those unmet market needs? Answering those questions in an honest and courageous manner were not part of the deal.

RED FLAG: Both parties are overly optimistic and highly single-minded on making the deal happen.

When every executive is overly optimistic and singular in focus, it creates blinders that block out new information. Like Daimler-Chrysler, you can suddenly be blindsided by issues that, in retrospect, were obvious challenges. Through leveraging strategic foresight, you can remain optimistic while revealing the potential challenges of the vision.

An example of this kind of approach is encapsulated in tools like a Futures Wheel. By allowing a diversity of inputs from the stakeholders with the greatest influence, you can foresee potential challenges and bake them into your strategy.

Blind Spot Three: Lack of cultural alignment

The prevailing business wisdom would have you believe you ought to craft vision, create strategies, then “get buy-in.” Often this buy-in is really code for: How can we make this seem like it is in everyone’s best interest this deal goes through? This would work perfectly if humans were cogs. You could plug them into the new organization, and they would behave or else.

Anyone who has spent time in leadership knows the fallacy of this thinking. However, when it comes to mergers and acquisitions, the impact of culture becomes more pronounced. Usually due in part to a lack of an aligned, long-term vision, leaders forget that culture is what drives the governance and systems. Not the other way around.

RED FLAG: Any conversation about the people in your respective organizations centers on how to get them on board or sell them on the idea.

In the case of Daimler-Chrysler, the lack of forethought into the cultural implications of the deal created a trust gap almost immediately. Chrysler’s lack of formality and focus on socializing ideas met Daimler-Benz’s process-oriented, highly deferential culture. As a backstop, the merger team scrambled to create a cultural alignment strategy that was, of course, not fully implemented. It was simply seen as inefficient. The proverbial ship had sailed.

As we have seen with the organizations we have walked through mergers and acquisitions, once the deal-focused narratives about culture are in place (what the implications of the deal will be for employees), they are exceedingly difficult to undo.

The antidote to this situation is to address the cultural implications at the front of the deal. Take the time to examine what values, behaviors, and norms exist within the present-day culture. Having a values basis for understanding the culture will allow for the alignment of any new initiatives. You can start with this model for values exploration.

The work of aligning to values is an ongoing commitment. However, by making culture a priority in the form of well-articulated values, you can create a more resilient organization that is poised for growth opportunities — especially in the form of acquisitions.

Optimism, critical to leadership success, can also lead to unintended narrow vision when there is a merger or acquisition opportunity.

Your eyes are now open, so no more blind-spot failures

Executing on a growth strategy through acquisition is one of the most involved processes in business. Much like any worthwhile change, it can be draining and rewarding. By being on the lookout for these blind spots, you can make sure you are making the most of every investment decision. As a futurist friend of mine, Jake Dunagan says, “It is better to be surprised in a simulation than blindsided by the future.” It’s far better to face challenges in establishing your identity, vision, and culture than it is to contend with an unforeseen crisis like Daimler-Chrysler.

If you read this far and you are curious how you could start to make these blind spots more visible, please send us a request for a free 60-minute consultation on your growth strategy. Together, we can talk about what hard questions you have yet to ask yourself and your executive leadership team, and how we can help you work through the answers.