James M. Haley and Mohammed H. Sidky
This study examines how leadership, teamwork, and organizational learning can contribute in making mergers and acquisitions work. Our intention is to identify critical factors and practices needed for merger success. Our research is part of an ongoing project, and builds on previous analysis of merger success/failure in such organizations as Standard Oil, Exxon Mobile, and Time Warner-AOL. In this paper, we turn our attention to the recent merger of Pixar and Disney. In our view, the Disney-Pixar case seems to be a good example of a successful merger in progress. This is demonstrated very clearly by recent box office successes such as Academy Award winners Ratatouille, WALL-E, and the current hit UP! Our analysis will show how leadership, teamwork, and organizational learning have led to this success, in an area where failures seems to be the norm. Why Merge? Mergers and acquisitions have been with us for a long time, and represent a normal part of organizational growth and development in the business environment. Through mergers and acquisitions, organizations can gain access to technology, resources, knowledge workers, as well a market share. In 2007, the global value of mergers and acquisitions hit an all time high of $4.5 trillion. This was 24% higher than the previous year. According to Reuters (9/ 21/07), the first nine months of 2007 saw a 37% increase in global M&A activity over the record year of 2006. Although the recent economic recession has decreased the number of mergers, prospects for 2009 are seen as representing good deals and opportunities. Unfortunately, the overall record of M&A’s indicates that most mergers end up in failure.
Understanding Why Most Mergers Fail According to Lundberg (2001) corporate combinations fail to achieve their anticipated benefits 70% of the time. Research conducted by Harding and Rovit (2004) involving over 50 case studies, 15 years of merger and acquisition data, and surveys of 250 senior executives found a 70% failure rate. The response rates for failure are attributed to the following problems: 1. Ignoring potential integration challenges (67%) 2. Over-estimating expected synergies (66%) 3. Having problems with the integration of management teams and/or retaining key managers (61%).
Here, an interesting question comes to mind: if the failure rate for mergers is so high, why do businesses (80% of the Fortune 100 over the past 20 years) continue to engage in mergers and acquisitions? One answer is given by De Backer: “Most CEOs today recognize that their businesses can’t succeed without acquisitions. Companies need to add new capabilities to find the next wave of profitable growth, and the vast majority will think that an acquisition is the most efficient way to deliver what they are looking for. Yet acquisitions can be treacherous. In buying their way to growth, many companies lose sight of the fundamental rules for making money in their industries” (De Backer, 2004:1). Harding and Rovit, from Bains and Company, consider M&A’s as a necessary growth option for many companies: “Unless you have a killer business model ... it's virtually impossible to build a world class company without doing deals.” (Harding and Rovit, 2004). Most of these deals however, are built on the assumptions of conventional economic theory, an approach that makes merger success difficult to attain. Why Conventional Economic Theory Fails: Conventional economic theory and the Resource-Based View (RBV) of business strategy do not effectively address the problems mentioned above. Instead, the importance of firm-specific knowledge is recognized as either a factor of production, or a resource that creates value. Often competitors merge without creating market power, but still profit by leveraging the combined propriety knowledge of the merged firms. By combing different companies, each business organization saves...