April 15, 2013 3:13 pm

How not to stifle your new subsidiary

Most of the time, the culture of the buyer prevails

One company may decide to buy another for its people, its clients, its products, its technology or a combination of all four. But how often does a company acquire another for its culture?

Bromides pumped out by companies during a takeover aim to reassure investors and staff that the two organisations will “fit” well. But history frequently disproves those promises. Even if the bid is deemed a success, the benefits are often achieved through the larger company’s total absorption of the smaller. Most of the time, the culture of the buyer prevails.

This sort of acquisition strategy leaves behind a trail of disgruntled, if newly enriched, founders. They will often be torn between devotion to their business and old colleagues and irritation about the big-company bureaucracy to which they must now conform. Frequently, they will quit as soon as they can.

Big companies have started to realise what they are losing by forcing new acquisitions into a blue-chip straitjacket. They are offering more independence to companies they acquire and providing some shelter from organisational overload.

In a speech last month, Dick Olver, chairman of BAE Systems, recalled how in the 1990s his former employer BP “killed” the brand and culture of Duckhams, the venerable lubricants company it owned. By contrast, he said, BAE had tried to maintain the identity of Detica, a data management and cyber security group the defence and aerospace company bought in 2008. “We have to recognise that these sorts of new businesses require a slightly different culture and perhaps lighter-weight policies and processes [than] big companies,” he said.

As I wrote last year, when the tension between Hewlett-Packard and its ill-judged 2011 acquisition Autonomy started to erupt, some integration – and, therefore, friction – is inevitable in any deal. Similarly, some parts of the culture of the new owner will be non-negotiable, however loosely the parent agrees to oversee its new subsidiary. BAE, for instance, cannot allow any business under its umbrella to flex the group’s strict code of business ethics.

But best practice must run in both directions. The problem with a structure that guarantees creative thinkers autonomy and preserves their business in a discrete silo, safe from big-company bureaucratic nonsense, is that it could also prevent innovative business approaches from permeating to the rest of the group. How can both sides reduce this risk?

The new parent has to give entrepreneurial employees the chance to make their own mistakes, but entrepreneurs must also take the initiative themselves.

Tommy Ahlers sold Zyb, a social networking and data back-up company, to Vodafone in 2008. “I did more PowerPoint than coding,” he says, describing the first months working for the UK telecoms group. He left after two years.

When Citrix, the technology company, bought his latest venture, an online work platform called Podio, he took a different approach, securing a seat at the table “where the important decisions are being made”, and a high-sounding title: Citrix vice-president of social collaboration. “Even if entrepreneurs don’t care [about titles], they need to look six months ahead and see how the dynamic of a big corporation will work,” he says.

At a Citrix conference in January in California attended by 1,000 salespeople, the 15 “Podios”, as they style themselves, roamed about sticking fake tattoos to Citrix staff. Podio’s sales techniques – it uses a “freemium” model, making the software available for free at first – may not work for all the larger companies’ products. But according to Mr Ahlers, the Podios’ unconventional attempt to break the ice with their new colleagues may at least prompt Citrix executives to consider alternative approaches.

The approach of serial acquirers such as General Electric, a rapid and efficient integrator of the companies it buys, is sometimes contrasted with that of, say, Amazon, which has allowed Tony Hsieh, founder of Las Vegas-based Zappos, the shoe retailer it bought in 2009, to maintain its declared culture of “fun and a little weirdness”.

The best path, however, lies somewhere between the two. Don’t extinguish the entrepreneurial spark in new acquisitions or hold it at arm’s length from the rest of the company: seek it out and use it to rekindle everyone’s innovative flame.

andrew.hill@ft.com

Andrew Hill blogs at www.ft.com/businessblog

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