Connected Research

Union policy research in the 21st century

AOL and Time Warner split: why again do mergers fail?

leave a comment »

AOL and Time Warner have completed the demerging of their interests, some ten years after the two businesses first sought to merge with the aim of bringing together old and new media as preparation for a converged world in which the winners were going to be those with both ‘pipes and poetry’ (or in somewhat less floral language, networks and content).

Clearly, this didn’t happen (at least, it hasn’t happened for AOL Time Warner). This is largely for reasons that the bursting of the dot.com bubble shortly afterwards destroyed shareholder value (which evidently hasn’t recovered – albeit in the midst of cold winds blowing globally, the value of the demerged businesses is currently one-tenth what it was) and also because technology advanced in a different way: both of which Rory Cellan-Jones highlights in his thoughtful online piece for the BBC.

At the same time, and more generally, some 60-80% of mergers apparently fail and available research indicates that the largest factor in this is a failure to deal satisfactorily with the related employee issues, as this particular piece from 2003, aimed specifically at AOL Time Warner (and produced following the announcement of the departure from the merged operation of AOL’s Steve Case), indicates:

Mergers have an unusually high failure rate, and it’s always because of people issues.

Here, it’s cultural issues which are largely to blame, with the essential lesson that companies merge so as to provide identified or anticipated product or market synergies, but frequently fail to acknowledge other than in words that it is different corporate cultures that militate against those synergies being realised in practice. Resentment and shrinking productivity are often the result as employees engage in ‘psychological protest’ about being given ‘little information about the turn of events until well after the deal is settled’.

Other research concurs with the line that it is HR failures that determine whether or not corporate mergers are successful:

… it is how effectively the people from the two organisations are brought together that will ultimately determine whether the merger will be successful.

Failures in HR can be anticipated in advance, and measures put in place to ensure the HR strategies are sound enough to deliver a successful merger – yet it is true that the importance of people issues, with a human resources profession which is still suffering a crisis of trust and a loss of legitimacy vis-à-vis major stakeholders over its role, is too often realised too late in the day to prevent problems arising in the first place.

Advertisements

Written by Calvin

09/12/2009 at 7:15 pm

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s