Technology company mergers and acquisitions of size generally don’t work. They are too complicated; egos often too great; cultures too attached to legacy. The list goes on. That was the base conclusion from just about every academic paper Ciena’s Board of Directors and management team reviewed as we contemplated a game-changer of our own, the purchase of Nortel in 2010.
By some accounts, two-thirds of these transactions were considered train wrecks; the more pessimistic set would postulate 80 percent. Every deal starts with big hopes – implied synergies, cost-savings that come from economies of scale, growth opportunities that only can be realized by a consolidated industry giant – but such promises rarely make it from press release to the real world.
IBM’s recently-announced big bet on Red Hat, a deal aimed at accelerating transformation and ranking as the company’s largest to date, could be the next case study for business schools. While distinct transactions are never truly apples-to-apples comparisons, the IBM-Red Hat deal reminds me of our union with Nortel. Both combinations represent marriages of what some might call “older school” and next-generation technology companies. The idea behind each is to accelerate a strategy of the buyer (IBM and Ciena) toward achieving market leadership in a growing space where they are already credible. The “buy versus build” argument is evident in both.
I have learned from experience that the following are critical to a deal’s success, but one is paramount:
- Rationale for the deal needs to be sound. The key stakeholders – regardless of who they are – need to, at a minimum, appreciate the combination’s potential.
- Execution is critical – one could argue that it’s more important than strategy. Former Wells Fargo CEO John Stumpf once said “We always say we could leave our strategic plan on an airplane, somebody could pick it up, and it wouldn’t matter. It’s all about execution.”
- Most importantly, however, is ensuring Cultural Integration. Rationale and execution are dynamic and have room to evolve (like any business plan), but getting the “people” part, or cultural integration, right is key to realizing the long-term success of any combination.
After we read a great deal about the failures of previous combinations – both large and small – we were able to better understand why deals fail. While technology obstacles, power grabs and bad bets on market opportunities that never materialized are real concerns, inevitably mergers failed when the companies were not rowing the same way internally.
With that in mind, once we decided to proceed with the Nortel deal we prioritized cultural integration with two very important considerations. We had two groups of people who would both be experiencing a culture shift. Given the roughly equal sizes of the two combining companies, it was unlikely that one culture would rise to dominate. As such, we had to establish a new culture comprised of the strongest and best elements from both existing cultures. We define culture by articulating the behaviors we want to encourage as well as those we will not tolerate in the workplace.
We assembled a “Culture Committee,” comprised of mid-level employees across disciplines and departments, and equal parts Ciena and Nortel. That team examined the existing cultures to determine where there were alignments as well as cultural gulfs between the two companies. Members of the team defined aspects that were favored and explored what new cultural aspects we wanted to incorporate.
The result of this team’s work was tremendous, with the greatest output being a set of five “core values” with associated behaviors that underpinned everything we did from that point on.
While those core values established our cultural foundation and belief system, we also needed to address culture through the lens of how we operated on a daily basis. We prioritized two actions above all: 1) make quick decisions (leadership appointments, product portfolio rationalization, etc.) and 2) over-communicate details on the integration progress to be transparent and open with employees.
There were certainly challenges along the way. One of the more daunting that we didn’t anticipate was that conforming to one set of job titles would be incredibly challenging. Given the hierarchical differences between the two companies, it became a hot-button issue that was ultimately only diffused by goodwill borne from earlier efforts.
Now, nearly a decade later, we recognize that the union advanced our business plan by several years. Driving that success and as a result of it, Ciena has a strong, consistent and distinct corporate culture that is a source of pride for the company.
Successful combinations are rare in the world of business and even less common among technology companies. IBM-Red Hat would do well to buck the trend by being as focused on the people driving the business as the state-of-the-art technology that makes it so exciting.
Gary Smith is CEO of Ciena, a supplier of telecommunications networking equipment, software and services.
