Research

Merge right: Avoiding the clash of corporate cultures

As companies adopt a strategy of growth via brand acquisition it becomes increasingly important to understand the corporate cultures — the core values, ways and beliefs, business principles and traditions — of the new members of the family. At the 17th annual Compete Through Service Symposium sponsored by the Center for Services Leadership in the W. P. Carey School of Business, executives from Luxottica Retail discussed the lessons they learned from an acquisition gone awry.

2006-11-08

An interesting paradigm shift is underway as the global marketplace rapidly expands. On one side of the coin, it is becoming the 21st century norm for technology companies to dismantle vertically integrated holdings in favor of flat, streamlined strategic partnerships. On the other, retailing giants battle to assimilate one another, pursuing vertical integration to ever-increasing heights with the fervor of squirrels gathering acorns.

The challenge that presents itself, as corporations continue to accumulate brands, is how best to fold a new arrival into the parent company in a way that does not upset the rapidly filling apple cart. Even worse is to allow one bad apple to spread its rot to its neighbors. It is critical for companies to recognize the importance of the corporate cultures — the core values, ways and beliefs, business principles and traditions — of the companies they acquire.

In fact, it is as important as providing strong leadership through the merger. Luxottica Retail learned this the hard way. It didn't have a rotten apple, but a very bruised one, when an acquisition went awry. The missteps illustrated to the Ohio-based retailer of eyewear and optics how not to integrate a newcomer into its family of name brand products.

A series of unfortunate events

The events that unfolded after LensCrafters (as Luxottica Retail was known at the time) acquired Miami-based Sunglass Hut caused an incredible amount of frustration, distrust, resentment, dishonesty you can stop me at any time here, because you get the picture, said Frank Baynham, Luxottica Retail s executive vice president for stores.

Baynham and Mildred Curtis, Luxottica Retail s senior vice president of human resources for North America, shared their experiences with executives attending the 17th annual Compete Through Service Symposium sponsored by the Center for Services Leadership in the W. P. Carey School of Business.

Baynham described how an integration process between Sunglass Hut and the LensCrafters unit was lurching along uneasily when the parent company, Luxottica Group S.P.A. of Agordo, Veneto, Italy, stepped in unexpectedly with a radically altered plan that flew in the face of all previous arrangements. A wary, semi-autonomous co-existence had developed between LensCrafters and Sunglass Hut.

Then Luxottica changed the rules. Sunglass Hut would cease to exist in Miami — a major sticking point from day one. Field management would be halved, with LensCrafters managers replacing their Sunglass Hut counterparts at the mall-situated stores. Adding insult to injury, ties with a vendor that represented a third of Sunglass Hut s sales were severed. Instead, Sunglass Hut was to take on obsolete warehouse inventory from Luxottica Group to sell in place of the vendor's merchandise.

The final finger in Sunglass Hut s eye: this all was to take place within 10 days. The ensuing process, Baynham said, was very messy, and the public trauma that followed the September 11 attacks made the situation even worse. Morale plummeted quickly, as did sales and the accompanying commissions. We could not have made any more mistakes in trying to build a very diverse culture into one team that could work together, Baynham said.

The bad blood continued for the next two years, even as Luxottica Retail went to lengths to undo the damage and restore trust. All the while, the situation was analyzed at length, and before long certain truths were realized: among them, a failure to acknowledge the relevance of Sunglass Hut s corporate culture.

What LensCrafters learned

We learn so much more from our failures than our successes, said Mildred Curtis, and let me tell you, we learned a whole lot. One important lesson was that acquiring knowledge of corporate culture would have to take top priority in order for the company s next acquisition to run smoothly. At the top of the agenda: establish FCT — an open line of communication between the two cultures to create Familiarity, Comfort, and Trust. This was the first step in gaining that confidence, Curtis said. Curtis listed a few of the lessons learned:

1. Every company has a culture.

LensCrafters realized that Sunglass Hut had a distinct corporate culture based on the leisure and fun associated with the South Beach lifestyle, Curtis said. While the energy of the culture in Florida was attractive to LensCrafters, it had only limited application to the sensibilities of those in the southwestern Ohio region where LensCrafters was based.

And, Curtis indicated, LensCrafters failed to give the new kids on the block an opportunity to become familiar with the corporate culture developed by the parent company in Italy. The Luxottica culture, Curtis said, focused on mission, vision, and values. At the corporate website, the Luxottica culture is embodied in the importance it places on personnel:

"The corporate culture has given Luxottica Group a great strength, typical of a compact body, where each part plays an essential role in pursuing the corporate goals and, as such, is considered, appreciated and valued a vast structure that has succeeded in keeping alive the values and feelings typical of a community: having respect for individuals, sharing common goals, boosting development, and giving special attention to personal satisfaction and well-being.

"All this, in a basically flexible and casual work environment where communication and dialog among participants are pursued and regarded as a value. In such a context, workers and employees alike feel they belong to a global process where their contribution can be crucial, in spite of the size of the company. "In this way, a virtuous circle of common interests originates. The staff works in a friendly environment where results are seen and appreciated by everyone.

2. Leadership matters.

It isn't just about what we do, it's how we do it, Curtis said. Associates can ask What kind of leadership should I expect to receive here? What are you leaders doing to model what we want?

3. Uncompromising integrity is everything — respect is everything else.
4. Find a common ground.

Curtis stressed the need to find a connector when two corporate cultures are integrated.

Luxottica's secret weapon

To create a solid foundation for leadership practices, Luxottica Retail developed a leadership guidance program based on principles that authors Jim Kouzes and Barry Posner define in their bestselling book, "The Leadership Challenge." As the authors state, The Leadership Challenge is about how leaders mobilize others to want to get extraordinary things done in organizations.

Every two years, Curtis said, leaders attend a two-week retreat. It s part classroom, part outdoor experience, part inspirational activities which are tied into their personal growth, she said. Core to the program are Kouzes and Posner's The Five Practices and Ten Commitments of Leadership :

1. Find your voice by declaring your personal values.
2. Set the example by aligning action with shared values. Inspire a shared vision.
3. Envision the future by imaging exciting and ennobling possibilities.
4. Enlist others in a common vision by appealing to shared aspirations. Challenge the process.
5. Search for opportunities by seeking innovative ways to change, grow and improve.
6. Experiment and take risks by constantly generating small wins and learning from mistakes. Enable others to act.
7. Foster collaboration by promoting cooperative goals and building trust.
8. Strengthen others by sharing power and discretion. Encourage the heart.
9. Recognize contributions by showing appreciation for individual excellence.
10. Celebrate the values and victories by creating a spirit of community.

The ace up the sleeve

By the time the next major merger developed in 2004 - this time, with Ohio-based Cole National Corp. — Curtis team was prepared and determined not to let history repeat itself. A corporate culture department formed in the wake of the Sunglass Hut debacle provided the Luxottica Retail teams with research on how to approach Cole employees with sensitivity and empathy.

Compared to the tentative nature of the Sunglass Hut experience, a multitude of activities took place this time around, including right-to-know meetings, transporting employees to Luxottica Retail headquarters to determine whether or not relocation would be something to consider, and thank you parties for employees stressed and overworked by the six-month-long transition leading to the closure of the northern Ohio facilities. It was designed to keep everyone in the loop.

The pièce de résistance, however, was the discovery of common ground: a philanthropic spirit. Dr. Stanley Pearle, former owner of a Cole subsidiary cared about giving back to the community, and he cared about optics and vision care, said Frank Baynham. To establish common ground, Baynham said, the company first launched the Better Together campaign, designed to put a positive spin on the merger and impending division closure.

Then soon-to-be-former Cole employees learned about Give the Gift of Sight, a charitable organization founded in 1988 that sends Luxottica Group personnel on missions across the world, providing free eye exams and matching needy recipients with donated, recycled eyeglasses. To date, the organization has donated over three million pairs of eyeglasses. A total of 16 international missions have been planned for 2006.

Give the Gift of Sight swayed many of the Cole National employees to accept transitional offers, Baynham said — 155 in all, 50 percent more than expected. The new team members had an immediate impact on the charitable effort. The acquisition of Cole enabled us to significantly grow our program we expect that we will see our 7 millionth recipient by 2008, Baynham said.

The ROI on corporate culture

Baynham was careful not to place a dollar figure on the enormous effort to understand corporate cultures in the wake of the Sunglass Hut fiasco. Sunglass Hut really helped wake us up, he said. Sunglass Hut, Baynham pointed out, has reported 38 consecutive months of positive comps, record sales, and record profitability.

Luxottica Group, meanwhile, reported a 17 percent increase in sales and a 34 percent increase in earnings in the previous six months. As of November 2, the company reported that it will pay $90 million to acquire the retail optical business D.O.C. Optics, further strengthening its market presence with 100 stores scattered throughout the Midwest.

As part of the ROI, Baynham said, the company shares its stories in video, public speaking engagements, and via e-mail. The impact is reflected in the low turnover rate Luxottica Retail has in comparison to the typical retail industry member. We re not happy with where we are, but it is by far dramatically lower than what we find [elsewhere], he said.

Baynham acknowledges that the Leadership Challenge training courses were totally alien to Sunglass Hut executives; conversely, the Cole National alumni enthusiastically embraced the opportunity to develop their leadership skills. Baynham said there are no regrets with the path traveled. It was work, we committed to it, and it made a big difference in our organization, he said.

The Bottom Line

• Every company has a culture. Learning about the others culture is the first step in establishing trust in the business relationship.
• Leaders must share their vision with the organization — tell everyone what the goal is, and what s in it for the organization to pitch in to achieve that goal.
• Uncompromising integrity is everything, as is respect. Without either, you will not be able to develop a sustainable professional relationship.
• It is critical to find common ground between corporate cultures. That sense of solidarity is the foundation for a long-lasting relationship.

Management