The evidence on mergers is not good, but you're not saying don't do them. Are you just saying learn from where they can go wrong?
There are two parts to the issue. First, what are the conditions under which mergers succeed or don't succeed? The worst condition is when you have two companies of about equal size, and they're far away from each other. That's just about as bad as it getswhen they start talking about mergers of equals.
The other part has to do with the cultural integration of the two companies. Look at Cisco Systems. It's a company that actually does a pretty good job of acquiring companies. There are a number of reasons, but one thing is that they have an incredibly detailed merger integration process. And whenever they do a merger, they conduct a postmortem, and try to figure out how they should change their merger integration process as a result. That's a very different process from what you usually see. Cisco looks at the evidence about why mergers tend to succeed or fail, and then constantly updates its own merger process.
How should corporate managerswho have all kinds of pressures on them, and no timego about finding real evidence?
That's a great question. The snide answer is that it's amazing to me how many managers don't have time to look for the evidence but do have time to make the same mistake over and over and over again.
First of all, look at the second table in Chapter 2 of the book (see table, page 64). You could use that as a guide to what to ignore. It's an old theme of mine: One of the most important things successful managers do is not to figure out what they should pay attention to, but what they should ignore.
Second, every manager needs to take the time to examine their management and business assumptions. Go out and cut through the layers and take a look at what's going on. Executives at General Motorsnot just the top 20 people at the company, but further down in the organization than you might thinkare provided with a car that's gassed up, washed and kept repaired. They don't have to deal with the horrible experience of buying a car from a dealer. Rather, they're isolated from the experience of the average American consumer buying a General Motors car. Not exactly a recipe for self-examination. Yet this sort of behavior is standard at lots of companies.
There are times when it's reasonable to figure out what the best evidence is when you're making certain decisions, especially when they're expensive. But what we're really trying to say is that you should act on what you know now, and when you face problems and setbacks, you should take the time to update and learn from what has happened, both good and bad. One of my former students, Andy Hargadon, says that some companies have 50 years of experience, but it's the same year 50 times over and over again. Other companies have 50 consecutive years of experience. To me that's the important distinction.
So it's just common sense that you shouldn't act unless you have done some homework. Yet so many people go by what they believe or what their company believes, and don't look for these truths. Why is that?
My perspective on business is that people in the most effective organizations usually have common sense and act on it. In fact, I believe that many of the most effective organizations are masters of the obvious. Dell, Toyotait's not exactly like they have a business model their competitors don't understand. They just do it right. But common sense is uncommon.
There are certain things that organizations that are better at evidence-based management do, and one of them is create an environment where it's safe to speak up. It's very difficult to do. One thing I like about [Intel's] Andy Groveand he's been consistent about this throughout his careeris that he wants to hear the bad news as well as the good, and he wants to have people argue with him.
This article was originally published on 02-06-2006