the ceo magazine, culture,
Kathy Bloomgarden, CEO, Ruder Finn

As companies seek a new strategic vision in a digital age, mergers are on the rise. Many of the mergers on the table are driven by the urgency to transform business strategy and gain scale. This is leading to the combination of companies with widely varying cultures. In this context, it’s no longer enough for company leaders to focus solely on the combination of finances and operations; they need to know how to best combine two (often very different) cultures, all while maintaining a strong company internal spirit in the wake of major changes. In fact, cultural integration was the second most common direct factor cited for deal failure by companies in Aon Hewitt’s Global Survey and has increasingly become recognized as a top issue in deal-making.

Mega Mergers Are Shaping the Way We Live and Remaking Business Strategy for Well-known Companies

Global mergers and acquisitions (M&A) had their strongest start ever in the first quarter of 2018, totaling $1.2 trillion in value. And 2017 had a record number of M&A deals according to Thomson Reuters, hitting a value of $3.5 trillion (the fourth consecutive year to surpass $3 trillion.) The average size of mergers will likely increase; according to Deloitte, it is expected that merger sizes in the next 12 months will exceed those in the past year.

Companies are pursuing deals to disrupt markets, and this subsequently is affecting many aspects of our lives and industry change.  Newly merged companies will redefine how our health is managed (the CVS-Aetna deal), what we watch and how we watch it (AT&T-Time Warner deal), how we purchase goods (Amazon-Whole Foods deal), and both our technology infrastructure and our online social connections (Dell-EMC and Microsoft-LinkedIn), to name a few. 

These deals are bringing together companies with a common strategic vision, but widely divergent cultures. How much will culture impact the capability of the merged company to deliver on the vision?    

The short answer: a lot.

Culture is everything today. Studies have linked corporate culture with company performance – more specifically, that a positive corporate culture helps a company’s bottom line. And factors such as fewer sick days, lower turnover, and commitment to success have all been linked to company culture. Most important in today’s fast changing landscape, employee engagement associated with a strong culture is critical to competitiveness and to creating new markets.

Time Warner and AT&T: A Tale of Two Cultures?

In June, AT&T closed its takeover of Time Warner, after fighting for almost 2 years to close the deal.  AT&T CEO Randall Stephenson articulated his vision for the combined company as an entertainment giant, with Time Warner owning the content of HBO, CNN, the “Harry Potter” films and much more. With the potential to challenge Netflix and Amazon, Stephenson stated, “We’re going to bring a fresh approach to how the media and entertainment industry works for consumers, content creators, distributors and advertisers.”(Bloomberg)

But to succeed, Stephenson will have to manage the culture integration. And there’s no doubt that Time Warner and AT&T have a lot of differences when it comes to their cultures. Time Warner has been known for being more creative and innovative internally, and often spent a lot of money on talent to keep them happy, with major personalities and strong egos demanding attention and special care. AT&T, on the other hand, based in Dallas, is far more low-key and cost-conscious. Stephenson has said that the telecommunications giant isn’t looking to bring a “telephone company culture” to Time Warner Inc. and “really screw it up” after it closes its pending $85 billion acquisition of the media company. In fact, one of his first actions was sending an email to all employees. In it he wrote, “As different as our businesses are, I think you’ll find we have a lot in common. We’re big fans of your talent and creativity. And you have my word that you will continue to have the creative freedom and resources to keep doing what you do best.”

In a CNBC interview, he said he reassured them that the management team would not pull back on investment or step on creativity. These signs all point in a positive direction, but what about the longer term? How can a tale of two varied cultures co-exist together and yet realize the vision of breaking boundaries and creating new markets?

Let’s Get Together

To be successful, companies involved in transformative mergers should follow these three guidelines:

  • Define new strategic imperative and shared vision: Amazon recently announced the acquisition of PillPack, making the long-anticipated step into the prescription drug industry. The founders of PillPack, TJ Parker, a pharmacist, and Elliot Cohen, an engineer, brings a mix of skills. They met at a MIT healthcare innovation program and share both the start-up mentality and a vision to disrupt healthcare.  Yet, despite big financial and business goals, every employee at PillPack knows their day’s efforts are being spent helping seniors live more independent lives and helping young people manage chronic conditions without limitation. Amazon has embraced this mission with excitement and taken a collaborative, unified approach: “PillPack’s visionary team has a combination of deep pharmacy experience and a focus on technology,” Jeff Wilke, Amazon’s CEO of consumer business, said in a statement. “We’re excited to see what we can do together.”
  • Break the mold, change operations, create a new business model: When Aetna and CVS merged this year, they identified a new goal to pursue together, to change the way they deliver healthcare to customers. As The New York Times predicts, the merger could potentially “transform CVS’s 10,000 pharmacy and clinic locations into community-based sites of care that would be far less expensive for patients.” The retail pharmacy chain’s nation-wide locations will allow Aetna to provide direct care to patients, making both one-stop shops and giving them a giant step toward a new business model that would greatly impact the healthcare sector.  
  • Make culture a priority from the start: When Keurig Green Mountain and Dr Pepper Snapple Group merged in 2018, they announced their integration plan at their investor day webcast, and introduced Derek Hopkins, who would serve as the Chief Integration Officer during the transition. They also put together a full transition team, who would focus 100% of their time on integration, allowing other business leaders to spend time on delivering their day-to-day business. Ideally, a cultural integration strategy should be defined at the onset, making culture communications and management an integral part of the overall integration, not an isolated afterthought.

With 70% of American workers disengaged today, creating a culture that engages and energizes employees is a competitive advantage.  Although AT&T is more than 120 years old, it’s a mix of heritage and service, but the Time Warner acquisition shows the company is also forward-thinking and ready to evolve and transform in a fast-paced, digital world.  AT&T is determined do what it takes to stay ahead. As Bill Blase, AT&T’s senior executive vice president of human resources, said: “We could go out and try to hire all these software and engineering people and probably pay through the nose to get them, but even that wouldn't have been adequate, or we could try to reskill our existing workforce so they could be competent in the technology and the skills required to run the business going forward."

AT&T now faces the task of integrating a media company into its operations as it seeks to rival Netflix,, and other technology companies providing entertainment directly to customers. To achieve the necessary scale, units like HBO will need to expand and be more like a “streaming giant.”  This will no doubt mean changes and bumps in the road for HBO. But if AT&T and Time Warner focus on combining both a shared vision with a respect for each other’s heritage and working style, there’s a good chance they could just take on the media darlings of Silicon Valley.

About the Author

Kathy Bloomgarden is the CEO of Ruder Finn, one of the largest global communications agencies.


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