Industry Standard
Fostering a creative work culture is tricky. When USWeb (USWB) /CKS bought 700-person consulting firm Mitchell Madison Group in September, CEO Robert Shaw went around the country and met each and every one of the "acquired hires" in the U.S. in person. Needless to say, he felt strongly about making sure the integration went smoothly. It was important to him that employees bought into the idea of the acquisition, ensuring "vision-lock," as he calls it. Shaw wanted the MMG folks to support the buy because, as he says, "people are our most valuable asset. It's embarrassing on Wall Street if people leave." And when people leave a company, it's often because they don't share its leaders' vision of the future.
While two CEOs may feel like Romeo and Juliet in the period leading up to an acquisition or merger, employees can feel like Capulets and Montagues, unwilling participants in a romance they never supported. Among I-Builders, consolidation is so prevalent because a firm's bottom line is contingent on the work it can squeeze out of employees. The more employees, the more profits. That's precisely why I-Builders are especially vulnerable if they don't handle their employees with kid gloves. In this hot employment market, valuable staffers can easily find another job.
USWeb has taken the acquisition route, snapping up more than 40 firms in its three-and-half-year lifetime. To integrate its many acquired firms, the company used to follow a 310-step process that covered everything from new business cards to payroll. This process was famously touted by former CEO Joe Firmage, but USWeb has lately abandoned it.
USWeb's biggest acquisition to date was last year's strategic merger with CKS Group, a high-profile marriage that resulted in its new name. MMG was another noteworthy catch. Started by McKinsey & Co. alumni, MMG had tons of management experience, but was eager to apply its consulting know-how in the dot-com world. It clearly needed to partner with a company with creative and technical capabilities to implement its recommendations to Internet companies.
Shaw says the integration process with MMG began by setting the tone in pre-acquisition meetings. In order to illustrate the benefits of joining forces, Shaw talked to key MMG managers, taking a look at what the companies had accomplished individually and what a united company would be capable of doing. While the CEO couldn't go to every MMG office - some are in Australia - he made sure each got at least a videotaped introduction to USWeb. "Everyone had to buy the idea of participating in our cutting-edge business," says Shaw. He hoped the videotape would help achieve that. Shaw concedes that USWeb lost a few people in the CKS merger, but says the company has learned a lot from its numerous acquisitions. "The hardest part is convincing people that integration doesn't mean you are building a charm bracelet," says Shaw. "You aren't buying software products. You are acquiring people."
The acquisition terms gave MMG 50 percent of the deal's 14.4 million shares of USWeb/CKS stock upon the deal's close and 25 percent on each of the first and second anniversaries, subject to retention of MMG partners. USWeb also made sure each employee had equity participation (the old golden handcuffs). MMG general partner Tom Steiner was made president and COO of USWeb, which helped to make MMG staffers feel their group was important to the company. USWeb execs also pointed out to employees that the larger entity meant more career opportunities for all.
The completed acquisition resulted in an empire that is 4,500-people strong. Ian Small, USWeb's chief strategy and knowledge officer, says the three key parts of smooth integration are communicating to employees about the company's direction, sharing equity, and giving employees career opportunities as a result of the growth. Although Shaw admits that some people would rather be in a low-growth company, he notes that USWeb/CKS is stuck in a high-growth industry.
Another player in this high-growth industry is Atlanta-based iXL, also a fast-moving rollup outfit. IXL has purchased a total of 35 companies, its most recent move being the $120 million acquisition of Tessera, a customer-relationship and data-mining company that will put iXL at 1,565 employees. "You can't grow enough organically to keep up with the demands of the industry," says iXL's Dave Clauson.
IXL's turnover rate was 21 percent in the last quarter, according to the company. That may sound high, but USWeb's Small estimates the industry average at between 15 percent and 25 percent. Clauson says the acquisitions themselves aren't difficult to execute on paper, but integration and management restructuring are. "CEOs of targets have to buy into the fact that they continue business as usual, but now report to someone else," says Clauson. "Emotionally, that's the hardest part for the entrepreneur." The rest of the company will often follow the tone its leaders set; if executives seem comfortable with and happy about the change, the troops will usually give it a try.
Of course, when acquired employees find out about a deal after it's already been done, it may come as a bit of a shock. Clauson calls it the "unwelcome glass of champagne" that can lead to resentment in the ranks. So iXL has instituted iXL 101. All acquired and hired employees attend a two-day indoctrination program held at iXL's headquarters in Atlanta. They meet CEO Bert Ellis, get a management presentation, tour the offices and get a feel for what the organization is all about. Sapient (SAPE) , an I-Builder based in Cambridge, Mass., has also been acquiring companies. There have been four acquisitions to date: Exor in 1997, Studio Archetype in 1998, Adjacency in 1999 and E-Lab last month.
The Studio Archetype buy was a move to gain much-needed design talent for the systems integrator. Originally, the San Francisco-based Studio Archetype was to remain an autonomous entity. But that didn't happen. Slowly, Sapient started getting more involved in the day-to-day operations. Soon Studio Archetype became part of a corporate organization, rather than the boutique design shop it had been. The ensuing culture clash led to high turnover.
A year after Sapient acquired Studio Archetype, Studio Archetype's founder and design guru Clement Mok is still there. "Keeping core founders is important," says Tracy Keough, Sapient's VP of people strategy - after all, acquisitions are about buying top talent. But practically all the rest of Studio Archetype's executives have left - including CFO Peter Rack, CEO Mark Crumpacker, VP Eric Wilson and VP Todd Holcomb. In the last month, another 10 employees left, and losing that many people is not good for morale.
From that experience, Keough says Sapient has learned to manage employee expectations by approaching acquisitions directly and executing changes right away. The Studio Archetype deal was announced in August 1998, but integration wasn't complete until June 1999. With Adjacency, Sapient moved more quickly - announcing the deal in March 1999 and integrating by June 1999.
"Moving to one brand early on is key," says Keough. "And making sure people feel connected to the new institution is important." Like iXL, Sapient also has instituted a training program, SapientStart, a five-day "new-hire experience" that introduces employees to the Sapient work culture, which is centered around its "one-team methodology." Executives from Sapient and Studio collaborated on the one-team plan to meld the two company's methodologies - business strategy, consulting, design and technology - into one. SapientStart consists of "interactive" lectures, case studies and activities. New recruits must work together to solve a problem, like coordinating a charity auction. These team-building experiences are seen as a key step in the culture evolution.
There's no shortage of experts on the issue of merging cultures. When Phoenix Pop, a San Francisco Web design shop, decided in June to buy another design firm, Brand A, it consulted with Patrick Lencioni of the Table Group, a management consulting firm in Emeryville, Calif. Brand A consisted of only four employees, but Phoenix Pop had also recently "acquired" the two founders of Electric Ocean, a South African design firm, and wanted to ensure a smooth transition.
Lencioni, author of the fiction business book The Five Temptations of the CEO, helped Phoenix Pop recognize that even though all the people involved in both cases were friends, communication was needed to figure out shared values. And although Brand A was small, it would experience a loss of identity that needed to be acknowledged upfront.
"We needed to determine if we were compatible and had to identify what it was that made us want to come to work," says Phoenix Pop cofounder Simon Smith. "The mergers had to have a positive impact on our culture. Phoenix Pop was always like a club or family, and we didn't want that to change."
The senior people also figured out their new roles by talking about their passions. They agreed that they all wanted to design great sites for startups, but they negotiated different roles within that rubric. Bruce Falck, who along with Smith was a founder of Phoenix Pop, is CEO, while Smith is chief creative officer. Guthrie Dolin was president and CEO of Brand A, and his design expertise earned him the title of VP and creative director of Phoenix Pop; Electric Ocean's Nick Wittenberg is a VP and creative director. When Brand A was acquired, Phoenix Pop was a 40-person team. It's since doubled to about 80 people.
Lencioni says that often, acquirers have good intentions and want to play nice. As a result, they avoid the difficult decisions and tend to say what the acquirees want to hear. "They give the company autonomy that they later take away," he says. His advice? "Rip the band-aid off in one fell swoop" and rebuild a sense of connection to the new entity that emerges. After the initial pain, expect a four- to six-month transition period.
Some people will inevitably want to leave. "It's better to have them leave than 'quit and stay,'" says Lencioni. "It's better to have people opt out than to hang out and not be happy."
After all, there always will be employees who won't like the new-and-improved place of work. People who want to work for a renegade Gen-X design firm of five might not like working for a large multinational corporation. As iXL's Clauson puts it: "You can't put lipstick on a pig."
TIPS FOR TRANSITION
Mergers and acquisitions are never easy. But here's a simple five-step approach to integrating employees without losing them. The advice comes from management consultant Patrick Lencioni of Emeryville, Calif.-based Table Group. He has helped companies such as ExciteAtHome and E-Trade deal with transitions.
HASH IT OUT
Make the difficult calls right away. Avoid the temptation to shy away from conflict. Do not say what the target company wants to hear; you will end up paying for that later. Figure out the executive roles before the deal is done.
BE HONEST
Instead of reassuring employees that there will be no further changes, be honest about the consequences of the marriage. Be as upfront as possible about the maximum amount of change that is likely so that the acquired company can have only pleasant surprises. Playing nice-nice and making promises you can't keep is a recipe for distrust. The last thing you want is for employees to feel betrayed.
COMMUNICATE
Take time for the acquired employees to work through the human part of the transition. Mergers, even the best, are like death experiences. Give people a chance to talk about the changes and sense of loss. This is a grieving process that needs to be acknowledged so people can come to terms with it, move on and contribute to the reborn company.
NURTURE
Pay attention to the newly acquired company. Often, the acquiring CEO will say, "Let's not overwhelm them." The intention is good: wanting the acquiree to feel autonomous and that things are business as usual. But the company can wind up feeling neglected. Don't limit interaction with the new company. It can feel like a slap in the face. Instead, make your new employees feel like you want to work with them and talk to them.
MOVE QUICKLY
At the moment of a merger, employees are most ready to deal with change. There's a small window of time to make changes. Use it and deal with the reactions immediately. Then help employees build a sense of attachment and connection to the new entity.
**Reprinted from Industry Standard, November 15, 1999