Mergers & Acquisitions: A Petri Dish for Chocolate Conversations
Hanging on to a business model that is no longer relevant—and that can’t scale beyond where it is today—is a recipe for slow growth and perpetual cost cutting. These environments are ripe for Chocolate Conversations among employees and customers—people know when a company is standing still. Employees want to work for successful companies and customers want to do business with successful companies.
Figuring out what needs to change means taking a hard look at your company culture and owning up to “how things get done around here.” It’s important to understand what you need to let go of—that model, culture, or “sameness” that no longer serves your future is the first step.
So, how do you do that and transform your company?
Many companies do this with mergers and acquisitions (M&As). It is a fast way to add what you need. The rationale goes like this: “We have products and a distribution system that company X wants, and company X has a technology and a delivery system that we need to grow. Let’s get our companies together and we will dominate the market.” This is a 1 + 1 = 3 deal —the whole is greater than the sum of its parts. The capabilities that each company has are critical to both companies’ long-term growth beyond what either of the companies could have achieved on its own.
The reality is, for two out of every three mergers, the story usually ends with 1 + 1 = 1. The merged companies perform way below expectations. On a people level, synergies fail to develop, key people leave, customers complain about dislocations in delivery, and value is lost. On a company level, scale fails to materialize, productivity falters, and companies shrink instead of grow.
Sometimes, companies lose their identity in mergers and their relevance evaporates right along with it. Why? It falls right back to the Chocolate Conversation. The companies came together because they bought into a common worldview. Once the deal is closed and the euphoria of the newly formed entity is behind them, they find that the culture and the standards are different, and they don’t know how to get value out of the new company. Figure 2-1 outlines why two companies came together and where the two companies often disconnect after the merger.
Figure 2–1: Company DNA
Both companies want the capabilities of the other to enhance their own. They wanting to retain what is best about both of them, and they want to add new capacities to create that synergistic “greater whole.” Both companies want to retain their own customers and both companies want to add new ones so that the new company grows beyond what either could have done alone. These two pieces are where everyone agrees.
But —and this is a big “but”—their cultures are different, and culture begets language and “how we do things around here,” so basically the two companies don’t understand each other from the get-go. And, that “different culture” hired talent that blended with its own culture and standards, so each company finds that it doesn’t like or appreciate the talent that the other company brings to the table. Yet it is this very talent that has created the value for each of the companies in the first place.
In the two examples we’ll highlight in this chapter, I’ll talk about what happens when different cultures with conflicting standards come up against each other and we’ll look at how to navigate through that phase. I’ll show you how to discover what you need to change and how you can drive that change across your entire company, even if your company spans the globe.
Estée Lauder Companies was fassforward’s first client. I met and worked with Harvey Gideon when he was the head of R&D at Revlon, and reconnected with him when he took over R&D at Estée Lauder. He brought me in and laid out the company’s dilemma.
The strategy for the company was to acquire popular brands that attracted a broader, younger consumer so it could fill the void left open by its own customers growing up. One of those brands was a hot, new, Canadian line, MAC cosmetics. MAC, or Makeup Artist Cosmetics, had been founded in Toronto in 1984 to supply professional makeup artists. As a pleasant and profitable surprise, the company found a consumer base—and opened its first store in New York in 1991.
Estée Lauder Companies acquired MAC only seven years after that. It seemed the perfect product line to appeal to a younger demographic—MAC was famous for its dramatic color line and popularity among hip urbanites. It was miles away from the traditional upscale department store brands, the greatest of which was Estée Lauder.
My first meeting was with Gideon, Lauder’s head of R&D, and his chief scientist, Shahan Nazar. Nazar talked to me about the challenges he faced mixing MAC’s young, “first to market” culture with Lauder’s long-standing, world-renowned, scientifically based way of doing things. Nazar wanted to bring the best of both companies together. MAC would bring speed and innovation to Lauder, and Lauder would bring scale and a global presence to MAC.
One thing immediately caught my attention. I was having these conversations with Gideon and Nazar in 2001 and the MAC acquisition had been completed in 1998. We were talking about the things the companies would do for each other, which made it clear to me that the integration of the two companies hadn’t happened yet.
When I met with the Canadian team at MAC and subsequently with the Long Island team at Lauder, it was clear they both bought into their marriage at the worldview level. Both companies were committed to broadening reach in the younger demographic and both were confident they had the products to do it.
However, their standards for how they would work together were not in sync. MAC described itself as a “bad girl” company—fast moving, not tied down, edgy, breaking the rules. Lauder, on the other hand, prided itself on being the “good girl” company—dependable, sophisticated, delivering consistently year after year, and playing by the rules. The team at MAC felt unappreciated and, in some cases, trivialized for not being a long-standing brand with a world-class research team. The team at Lauder felt that MAC saw them as outdated and rule-bound. The Lauder team chafed at the idea that MAC did not respect their years of experience and groundbreaking scientific innovations.
I could see that these two groups were having a classic Chocolate Conversation.
The more I talked with both teams, the more I could see the common worldview. It was understood that MAC would bring relevance and new growth. Lauder would scale the brand globally and introduce cost-effective research practices that would improve productivity. Both teams shared and agreed with this worldview. This was the basis for the two companies coming together.
Things broke down when each company realized it had different standards for how it would bring products to market. The companies also had different work practices and compliance standards. Having the same worldview and yet being unable to deal with different standards led to frustration on both sides. This happens frequently when merged companies are as clear on the worldview as MAC and Estée Lauder were—both sides wind up questioning the other’s commitment to the shared foundation because the different standards come across as roadblocks and people lose patience with one another.
So what do you do when you reach this point? You do the same thing inside the organization that you would do outside if you were having a Chocolate Conversation with your customers. You find out what’s going on with people by talking to them and hearing their concerns. Remember, behind every concern is an unmet need. When you lead a company in this kind of situation, your first priority is to uncover those unmet needs and figure out how to address them. Those unmet needs will tell you what part of the picture is missing or is distorted in people’s minds. You’ll get all the clues you need to stop this Chocolate Conversation from going any further—if you talk to people and find out what is really going on with them.
We met with the head of MAC Research and key members of his team to better understand their operation, current practices, and business model. Next, we met with Nazar and others on the R&D side of Estée Lauder. From our interviews, we produced a themed synthesis we refer to as rapid insight. A themed synthesis comes from taking the raw feedback received in the interviews and categorizing common responses under a topic for discussion such as innovation methods. The themes are category headings and the feedback is synthesized under those headings. Providing the synthesis to the leaders and their teams gives them rapid insight into what’s on the hearts and minds of the team and its members. These interviews were conducted by fassforward’s anthropologist, Doctor Susan Anderson. They uncovered the standards and concerns of both groups and provided the foundation for the work we needed to do with the teams.
A two-day workshop conducted with both teams let us work through the issues both companies were having with leveraging each other’s expertise. First, we put together a “go forward plan,” outlining a few well-focused actions to execute the plan. After breaking the team up into cross-company pairs, we had them read through the synthesis point by point. Then we asked them to highlight what was hurting their progress and what could advance their progress if each side made some concessions. The most important part of this workshop was that both teams came together to understand their standards and figure out what they were going to do about them—without sacrificing the value of MAC’s “bad girl” image or Estée Lauder’s “good girl” image.
That was eleven years ago, and this is what Nazar had to say in a recent conversation:
Recently, our CEO hired former Proctor & Gamble VP Carl Haney to be Harvey’s successor. He is working alongside of Harvey and with me to eventually take over the operation. I brought him to MAC in Canada for a visit, and he was very impressed with their operation and integration into Estée Lauder. He saw how smoothly things were running, how well people from MAC R&D and Lauder were working together and bringing innovative products to market. He asked me what the secret to the success of this acquisition was over some of the others he’s experienced. I told him the three big insights we uncovered and acted on as a result of our work with fassforward Consulting Group:
1. The two brands are like two people who come together to form a relationship and become a couple. Each has their individual identities and personalities and then there is the identity and personality of the couple. They needed to establish that third identity and personality without diminishing each other.
2. If they were willing to acknowledge and adopt the best of what both companies brought to the table, “all boats would lift.”
3. Lastly, we recognized that we needed a well-respected integration manager who would be a liaison between the two brands. It took me a while to convince Harvey that this was a needed and a viable full-time position that would more than pay for itself. It did.
The first point—establishing a “third identity . . . without diminishing each other”—is exactly where merger integrations go wrong. I see one company swallow another all the time. I also see companies limp along with different teams pulling in different directions because legacy cultures are still alive years after the merger. Creating a third identity is what gets you to 1 + 1 = 3. The third identity is what makes more out of the partnership; a merger is more than just the two companies now appearing on the same P&L. Newly merged companies need to do three things in order to make this happen:
1. Get the people who shared a common worldview when the companies merged to talk about their cultural differences and address their standards head on. You can’t let different standards simmer and turn into serious concerns.
2. Have teams work together to identify and work through focused actions that will embrace each other’s standards and help create the third identity.
3. Appoint an integration manager and give that person the resources she needs to do the job.
As a note here, I have seen some companies employ a full-time integration manager and a small, effective integration team with members drawn from key stakeholders across the company. These groups worked together productively for two years, which is a great investment in the future of the combined company. When you think of the cost of a failed merger, every dollar spent on these teams is a sound investment.
Always remember where the information to make things work comes from: talk to your people. Listen to their concerns. Behind their concerns are the answers that will help you clear up confusion and get things back on track.
Several years ago, while working with the executive team at Interpublic Group of Companies, IPG, fassforward collaborated on a multi-agency project referred to as New Realities. The findings from the project were gathered into a white paper that was made available to the holding company’s agencies and their clients. The research centered on the new realities facing marketing and media companies in the digital age.
During this time, IPG was looking to bring the best of its portfolio to current and potential clients. One consideration was the merger of Draft Direct and Foote Cone Belding, FCB. Draft Direct Worldwide was a successful direct marketing company founded in 1978. Draft was acquired by the Interpublic Group of Companies in 2000 along with several other well-known agencies. FCB, also an acquisition of the holding company, is the world’s third oldest advertising agency, dating back to 1873.
One of our executive sponsors was the CMO for IPG. Bruce Nelson introduced me to Draft Direct Worldwide, and Laurence Boschetto, then President of the company, currently the CEO of Draftfcb.
When we met with Boschetto, he and the Chairman of Draft Direct were discussing the benefits of a merger with FCB. They came to the realization that the two companies would be better together. The opportunity to completely redefine the way agencies engaged clients was very appealing and Boschetto was keenly aware that clients were asking more from their agencies. Clients wanted a business partner that could help them solve their business problems. They wanted to understand consumer behavior, how and why consumers identified with their brand, and the influence of social media on their consumers. Clients also wanted to measure the return they were getting on their investment with their agencies. The newly formed Draftfcb later addressed this client expectation as the Return on Ideas. Boschetto saw how Draft, a direct marketer that was consumer-focused, and FCB, an ad agency that understood and promoted brands, could bring together the right capabilities to achieve what they referred to as “a new breed of agency.” The new merged “Draftfcb” would address the new realities of a digital age.
Traditional Advertising agencies were referred to as “above the line” and direct marketers were referred to as “below the line.” In advertising, “above the line” companies use media that are broadcast and published to mass audiences, while “below the line” companies use media that are more narrowly focused, tailoring messages to a niche audience. Draft Worldwide was a successful “below the line” agency, and FCB was a well-regarded “above the line” agency. Creating this “new breed agency” would completely redefine theses lines, eliminating the distinction for both the agency and the clients. fassforward described this as the merger that dared to cross the line.
The change involved addressing two big cultural norms: the “below/above the line” distinction, and the walls between agency and client disciplines. The merger that created Draftfcb was predicated on the idea that an agency could work through the lines and offer marketing solutions that solved business problems. These solutions could be fully integrated or discipline specific depending on the needs of the client. In a collaborative and productive way the agency could bring its full capabilities working with each other on behalf of their clients.
Breaking down the divisions between Draft and FCB and between the disciplines in each company was critical to the success of the new model. Breaking down the walls between the disciplines in the marketing functions of their clients was another big hurdle. Everyone had to buy-in to make this work—all while the two companies were merging. This was a Chocolate Conversation waiting to happen!
Boschetto brought fassforward in to facilitate and collaborate with selected taskforce teams to flesh out the new business model and map out the strategy for making it happen. One of the outcomes of the work we did on behalf of Boschetto and the teams became affectionately known as the Blue Board. This was a visual illustration of the consumer and market realities and how the new agency model would address them. Boschetto was so adept at taking people through the Blue Board that it became widely received and posted in every office around the world.
Another key output from the taskforce was the formation of the Wheel. The wheel was a symbol of eliminating lines and fostering “round table” collaboration. It brought all the disciplines in the new Draftfcb together. The wheel was designed to “. . . bring together the art and the science of marketing.”
We worked with a cross section of leaders to identify challenges in implementing this new way of working. Socializing the new Draftfcb model had to take place for 10,000 employees in ninety-six offices spread across six continents. We worked with Boschetto, his senior team, and the taskforce leaders to develop and deliver a custom workshop that would fully explain and demonstrate the new business model, the wheel team design, and new ways of working to every merged Draftfcb agency across the globe.
We built the chocolate exercise into the wheel workshop. In this exercise, we started by asking participants to conjure up the picture in their minds that appeared when they heard the word “chocolate.” Next, we asked people to write on a Post-It note the first image that came into their minds. After everyone wrote something down, we asked for volunteers to read their responses. People would always smile as they heard what others said. Through hundreds of these sessions over the years, I’ve heard responses that range from M&Ms to gourmet Belgian chocolate to a Chocolate Labrador retriever.
As they shared results, people laughed at some of the associations made in the group. The next question we asked was the clincher: if a simple concept like “chocolate” can evoke so many interpretations, how did the group think something like the “wheel” would be interpreted by the ten thousand people who had to work together to make it happen? This was a great icebreaker for these meetings, and it helped surface the standards and concerns quickly. Boschetto was then able to address these concerns on the spot.
People around the globe would call out a chocolate conversation when they heard one. It became code in the company for, “we are not on the same page.” We would hear people at all levels say “we’re having a Chocolate Conversation.”
The wheel workshops were followed up by webinars, supporting materials on the company intranet site, and quarterly visits to support—and case studies to show—proof points. All this was implemented to translate the message in as many different ways as was needed to unbundle chocolate conversations and reinforce standards and address concerns.
The essence of the model and how to work with it was consistently communicated and practiced on in all ninety-six offices around the world. And, the application was tailored to be relevant to the local market. Boschetto used the metaphor of the Chocolate Conversation in his presentations all over the world. It was amazing how different the standards for chocolate were in cities like New York, Chicago, Rio, Dubai, Johannesburg, Mumbai, and Shanghai.
Boschetto understood cultural nuance and was not rigid about applying the U.S. standard for implementing the new model. In his words:
“You don’t want to dumb it down, but you don’t need an exact translation either. You are looking for the essence—a platform and philosophy for how we work that is balanced with what is appropriate to each region globally.”
Boschetto got the metaphor of the Chocolate Conversation when he first heard it, and why the concept of the chocolate conversation resonated across the globe. Everywhere we went—in multiple languages—people were breaking down worldviews, standards, and concerns. We established global standards with local flavor.
Speaking with Boschetto recently about this book and discussing our experiences together, he said to me:
“When you understand the subtleties of Chocolate, you get the dilemma that any company involved in a transformation faces. The nuance of language brings different views, and these views can undermine everything we are trying to do. Understanding standards and concerns and dealing with them right, at the outset are vital to successful change.”
Within a year of the merger Draftfcb won Kmart, the new client saying that Draftfcb was uniquely qualified to meet their needs. We had the opportunity to facilitate a working session with the Draftfcb client team and the Kmart marketing team, led by Boschetto and their CMO. We used the chocolate conversation as an icebreaker and were able to establish a common worldview for the relationship, standards for how the teams would work together, and an approach for how the teams would address concerns as they arose.
In October 2008, Ad Age focused on the state of the agency two years after the merger, saying:
“In the two years since the Chicago-rooted agencies Draft and FCB merged, the agency has won more than 250 pieces of business around the globe, including Kmart, Beiersdorf, Discover, SeaWorld and the U.S. Census Bureau.”
People in other agencies began clamoring for Draftfcb’s playbook.1
Though that’s a great compliment to get from peers, Boschetto understood what we’ve talked about in this book. It’s less about the playbook and more about the unique challenges you face, the way you talk with your people—inside and outside—to find the path that works for that unique set of issues. I come back to what Boschetto said earlier: “When you understand the nuances of Chocolate, you get the dilemma that any company needs to change.”
I have shared two examples from two very different companies that made change happen. Both companies had strong, committed leaders who understood that change is never easy, that it happens in the conversation, and you have to be the one to lead people through it.