Most acquisitions fail because of a cultural clash. But Conzerv Systems and Schneider Electric managed this thorny issue successfully. Hema Hattangady & Ashish Sen throw light on what worked for the two companies in their book. Excerpts:
Acquisitions and mergers are a tricky business. It is one thing to make them happen and quite another to make them work with results sometimes being downright messy.
A long-time friend and Bangalore angel investor P G Ponnapa was Managing Director of AOL India from 2006 to 2010. He says, “Acquisitions often fail because of a cultural mismatch. As Managing Director of AOL India, I saw at close hand what has become one of the world’s biggest collapses of a big-ticket merger: The $350 billion merger of AOL and Time Warner in 2000. At AOL you had thirty-year old guys wearing t-shirts and jeans, and at Time Warner you had fifty-year olds who were running billion-dollar businesses who were now compelled to say: ‘Time to listen to these guys!’”
Much has been written over the years about the role of culture in the failure of the AOL Time Warner merger. On the tenth anniversary of the merger, an article in The New York Times by Tim Arango “How the AOL Time Warner Merger went so wrong” quoted Richard Parsons, President of Time Warner as admitting, “I remember saying at a vital board meeting where we approved this, that life was going to be different going forward because they’re very different cultures, but I have to tell you, I underestimated how different.’
In a commentary in Fortune magazine on 10 January 2015, fifteen years after the merger, Rita Gunther McGrath wrote, “Merging the cultures of the combined companies was problematic from the get-go. Certainly, the lawyers and professionals involved with the merger did the conventional due diligence on the numbers. What also needed to happen, and evidently didn’t, was due diligence on the culture. The aggressive and, many said, arrogant AOL people “horrified” the more staid and corporate Time Warner side. Cooperation and promised synergies failed to materialise as mutual disrespect came to colour their relationships.’
Business leader, consultant and journalist Georg Bradt says in the June 2015 issue of the Forbes magazine “When you merge cultures well, value is created. When you don’t, value is destroyed…The game is won or lost on the field of cultural integration. Get that wrong and nothing else matters.”
Lift Off: The Story of Conzerv Authors: Hema Hattangady & Ashish Sen Publisher: Westland Price: Rs 441
In stark contrast, the senior leadership team at both Conzerv and Schneider Electric spent a lot of time on, and paid much attention to, the compatibility of cultures. We were moved by the utmost professionalism, empathy and sensitivity of the global leadership team at Schneider Electric led by Jean-Pascal Tricoire. They have honoured every commitment they made, they were empathetic when Ashok and I expressed a desire to remain in the business for one year and not three, that too in a non-operational role, and they made that year of transition completely trouble-free.The underlying theme has been mutual respect.
Anil Chaudhary, Country President and Managing Director at Schneider Electric, India, adds the role of leadership into the integration brew, “Hema made sure that there was good people integration happening. She was part of our Advisory Board even after the acquisition till 2011. That also helped to achieve very good integration of Conzerv within Schneider Electric.”
The integration was not just in terms of people but also many of the programmes which underlined not just synergy but an equitable relationship between both organisations.
Managing Director of Eco-Crystal (a water purification solutions company in Bangalore), Dr Bhattacharya says wryly, “It is very rare for an Indian company or for that matter any company in the world to ask its acquirer “please maintain my social programmes”. Usually when the company is gone you forget about those programmes.”
We managed to do that and more.
Lessons from the integration
There are four key lessons to be learnt:
Are both parties clear on the logic of the acquisition?
This is an important element and one which probably gets overlooked in the zeal to do the deal. Both sides need to be realistic about the logic for the deal and also understand why the other party wants to merge/acquire and be comfortable with the reasons. In this case, both companies went to great lengths to articulate the logic to each other as well as internally and get a buy-in in their respective companies.
The devil IS in the details
Thinking things through beyond the actual acquisition/merger was the hallmark of this acquisition. Integration of people and products got as much attention as percentage points increase in profits.
Olivier Blum, then heading Schneider Electric in India, was patience personified in listening to our assessment of our people and product portfolio. He spent time with each key manager in Conzerv to understand their aspirations and concerns. He travelled with me to meet the regional sales teams and dealers across India and spent time meeting the manufacturing and design teams.
Olivier also did something else that was unique, given that Schneider Electric was a global giant acquiring a much smaller company: He made sure he got engaged in our thought-leadership initiatives:
AEEE: In 2008, I had co-founded AEEE (Alliance for an Energy Efficient Economy) as a national not-for-profit for energy efficiency in India (see ‘On Thought Leadership’)
Conserve my Campus: I had also created Conzerv’s social initiative to teach school children how to conserve energy at home and school. We called it ‘Conserve my Campus’ (more in ‘On Thought Leadership’). Schneider not only continued but also scaled this programme calling it ‘Conserve My Planet’ and has expanded it to many cities across the country. Anil Chaudhary, current Managing Director and Country President, Schneider Electric India says, ‘Even today it is one of those very important initiatives which we have carried on in Schneider and it remains a signature programme for us.
Digging your heels in
The resilience of both parties turned out to be an important factor. In our case the global financial crisis could have been a good reason to postpone, even call off the deal. Schneider Electric didn’t but chose instead to reach out and discuss the changed circumstances and the effect on financial projections. A mutually acceptable rework later, the process of due diligence continued. A critical role was played by Russell Stocker (then EVP at Schneider Electric, Asia Pacific) in taking ownership and steering the acquisition at the highest level.
Check for vision alignment
From all that has been written on the lessons from the AOL-Time Warner merger, we saw culture as key to the success of integration. Both our companies had similar values, culture, a passion for technology and innovation and a similar vision for energy efficiency. Chairman and CEO of Schneider Electric, Jean Paul Tricoire sums up all these lessons neatly in his statement in November 2016, seven years after the acquisition: “Energy efficiency and innovation are the core of Schneider. Therefore, I always felt it was logical for Conzerv and Schneider to join forces… Most importantly, our company cultures were highly compatible and complementary, cemented by similar vision of the future of energy, the same passion for technology and same values… I made my decision based on the personality and drive of Hema Hattangady, who personified Conzerv culture.”
The proof of the pudding, eight years later
Almost all the original employees of Conzerv continue to be part of Schneider Electric. Many have reached high positions in the senior team in India and overseas. Olivier Blum, now the Chief HR Officer, Schneider Electric says, “I am glad today that most of the historical employees continue to work for Schneider.”
Anil Chaudhary says, “Conzerv’s metering products continue to be an important part of the strategic offer of Schneider Electric. The brand name Conzerv is still used for certain categories of meters.”
Even though the contractual relationship ended one year after the acquisition, the engagement continued. Hema continued her role on the Advisory Board in India till 2011 and Ashok continued his consulting role with one of their global design teams for seven years. Anil sums up the success of the integration from Schneider’s point of view neatly: “I came back to India from France in 2013 by which time Conzerv was already fully integrated into Schneider Electric. At Schneider Electric we are very happy to have Conzerv as part of our portfolio. In terms of the people, it is a very strong culture they have built there…a very respected professional team and this is aligned with the people strategy of Schneider Electric as well. We appreciate and take care of our teams-encourage them to innovate and take risks and try to do business in an innovative way so that they can create maximum value for our customers. This was already a culture which was very much present in Conzerv They were very close to the customer, very professional, proud of the technology they were bringing and the values they were bringing to the customer.
We have been able to accelerate some of the development and innovation work which we were doing in the domain of energy efficiency and energy management. This has really created a strong portfolio for us today. We are not only one of the leaders in India, but we are putting these (Conzerv) products into the global market with global customers. More recently, we have created a centre of excellence for power measurement-this is located in Bangalore where a lot of people from erstwhile Conzerv have taken on very important roles in this organisation as well as in other parts of the world and some mature economies like Canada, Middle East etc.
Another asset has been Conzerv’s very strong, loyal network of distributors and partners. We have been able to expand their portfolio from energy metering to the full range of our products. Many of the larger distributors working with us today came to us with Conzerv as a family of partners …. That is part of the very strong work done by Hema and Ashok and team to create that kind of network.’
Excerpted with permission from Westland