This week's merger of Britain's EMI and America's Time Warner brings together into one giant music company stars as diverse as Madonna and Martine McCutcheon. And while Madonna is unlikely to be working with Martine, the staff of the two companies will have little choice but to get on - and the evidence of past mergers is that they often come unstuck on the shop floor.
The chief reason why they fail is mishandling of staff in the wake of a deal, and a clash of cultures between the companies.
"Even the best strategic logic will only work if it can be implemented," says Dr Richard Schoenberg, senior lecturer in international business strategy at London's Imperial College Business School. "And as the employees are closely involved in the implementation and have to live with any uncertainty, they need to be consulted every step of the way."
Part of the problem is that cultural differences between companies are notoriously difficult to measure. The number-crunchers dissect the balance sheets of potential acquisitions with ruthless efficiency, but base their analysis of the "softer" issues on little more than assumptions, because they have little real scientific data to go on.
The results are there for all to see. "We have gone from one new management fad to the next in the past 15 years," says Mike Fiszer, senior specialist in organisational development and change at the Irish Management Institute. "We've had restructuring and business process re-engineering, but neither has been particularly effective in smoothing the period of transition after a takeover. The reason is that more often than not companies have these solutions foisted upon them with little understanding of the values that underpin these organisations."
Five years ago, Mr Fiszer, and another business psychologist, Ros McCarthy, set out to construct a tool that could measure the core values of an organisation and could accurately predict potential areas of conflict and compatibility between two companies. The Organisation Character Audit profiled 20 different values, such as focus on performance, diligence and integrity, and constructed a form of group psychometrics that would allow them to map these values on a scale from 1 to 100.
The beauty of the method was that it could expose any myths a company might hold about itself, and that by superimposing the maps of the two organisations on top of one another, hotspots became readily apparent. Moreover, it provided the structure by which an acquiring company could best manage the transition by pinpointing the best type of people to put in charge to achieve the acquisition objectives.
As with many new ideas, the Organisation Character Audit has proved a step too far for many commercial accountants. However, Mr Fiszer's work with a finance company and a retail leisure group was so successful that SmithKline Beecham asked him to develop a cultural assessments tool for use in strategic initiatives. Mr Fiszer is unwilling to discuss his commercial work, but the failure of SKB's first attempted merger with Glaxo Wellcome in 1998 due to the incompatibility of management styles proves his point.
What Mr Fiszer and other leading management specialists are agreed on is that it is the quality of the leadership that will often determine the success or failure of a takeover. The key to this is communication. Ernst & Young and the Warwick Business School's joint report into acquisition management found a depressing catalogue of despair amongst staff.
"We were left in a complete vacuum," said one senior employee. "All we did was carry on. I had a futile role as managing director." Another reported that: "I was extremely frustrated and mystified that I never had any discussion with any board member about the future of the company. There was no discussion as to potential synergy."
Mr Fiszer believes that the new breed of manager needs emotional as well as business intelligence. "He or she needs the credibility to get performance in times of uncertainty," he says. "They must be able to communicate the vision and involve staff in it. There must also be an acceptance that many acquisitions can and will take years to integrate and that goals may shift along the way."
You don't have to look far to see what happens when companies get it wrong. The 1996 merger between Royal Insurance and Sun Alliance is universally acknowledged to have underperformed. "They fudged the leadership issue by maintaining a dual chief executive role between two men who were obviously in competition," says Trevor May, an insurance analyst at Salomon Smith Barney.
"It took the chairman 18 months to bite the bullet and sack them both. Moreover their declared cost-saving targets of £300m were not aggressive enough for the market. So they created unnecessary tensions and uncertainties by dragging out the unpleasant decisions. They have now announced a further £100m of cost-savings."
Mergers almost always involve redundancies, and there is no easy way for companies to sweeten the pill. Creating uncertainty merely makes a bad situation worse. The able people find another job, while the remainder often feel angry and insecure about the way they have been treated and lose commitment to the company's future. Let's hope the alarm bells are ringing at AOL, Time Warner and EMI.
