Watkins Internationals acquisition of the small engineering consultancy practice, Brownloaf MacTaggart produced unfavorable results. Brownloaf MacTaggart was a small, tight-knit practice with an autonomous work environment. Watkins, on the other hand, was an international enterprise with many rules and regulations. On paper and in thought, the acquisition seemed to be a good idea with the probability to increase the company’s profitability; Brownloaf MacTaggart was a small but very successful engineering consultancy practice, Watkins International was a multi-divisional management consultancy practice who experienced a lot of success in growth by acquisition and had been looking to expand by acquiring an engineering consulting company. However, the disregard for the mismatch of cultures between the two companies, and the leadership from within Brownloaf MacTaggart created problems that will ultimately have a negative affect on the productivity and profitability of the Brownloaf MacTaggart division of Watkins International.
The acquisition created a division between the two preexisting cultures of each company. Looking at BM using Edgar Schein’s iceberg model of culture, we can infer values that the company held based on their behaviors that were manifested in the work they did (Mills et al. 2009).
From its start in 1962, BM had built up their success by its unique specialization in its field and by taking on modest projects, offering unique and innovative solutions, and keeping prestigious customers. From this, it can be inferred that they valued high quality service, innovation, and pride in their practice. To use the same framework to understand the values in the culture of Watkins International, we must look at the behavior of the company. Watkins is a worldwide company employing over 70,000 people. It is constantly trying to expand its business and has standardized practices such as time sheet recording system, staff holiday requests, expenses, and time control sheet. Sticking with Schein’s Iceberg model, we can infer that the company values competition, and given its standardized practices of time control, holiday requests, staff hours logged, it is apparent that the company values efficiency and maximization of its resources to generate profits (Mills et al. 2009).
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When BM was acquired by Watkins International, each company had their own culture firmly established. The main issue, however, was not the significant discrepancy between cultures of the two companies; rather it was the lack of action and precaution taken by management to help BM adapt cultures. Luthan’s outlines a number of steps that should be taken when changing a culture. Most notably, in this case, is step 8: “Move quickly and decisively to build momentum and to defuse resistance to the new culture.” (Luthans, 2011).
What is likely a significant barrier to change in this case is that for 18 months following the acquisition, almost everything at Brownloaf MacTaggart stayed the status quo including procedures, office setting, and leadership. What this did was almost trick the employees of the BM division to thinking there wasn’t going to be much change, rather than starting to work on the change right from the beginning when they were prepared for change from the start. After 18 months, when BM moved from its small office space to a large office with many other Watkins International employees is when the real shock hit the employees.
If some of the other steps that Luthans highlights as being important to culture change, such as hiring outside personnel to help with the process, setting goals, removing those resistant to change, and including the employees in the process (Luthans, 2011) then there would have been a less rocky transition. However, the fact that no precautions were taken in the merging of BM into the Watkins culture created a very large barrier. As explained by Robbins, Judge, and Campbell, most large organizations have a dominant culture, where there are common values (core values), shared by most of the organization and then subcultures form in different divisions that reflect the experiences that are unique to that division. In these subcultures, the core values of the company are shared as well as additional values specific to the division (Robbins et al. 2010).
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As a result of the process of culture change being ignored, there was a complete mismatch in core values between Watkins International and the BM division.
BM did not adapt to its subculture, but rather it developed a volatile resistance to the core values of Watkins International. In consequence, the current state of the BM division of Watkins International, if left unchanged, will result in a lower profit margin. Employees at BM have a declining sense of job satisfaction. Promotion opportunities are seen as almost unreachable, as there has only been a handful in the past few years. A majority of consultants get burnt out after a couple years. There is a perceived hierarchy of jobs in the division, and they are assigned by punishment and reward. There are two major factors that could lead to a lower profit margin. The first is that the high turnover rate of employees that results from burn out, overworking, and discouragement will come at a cost to the company. It may not be hard to find new employees, but the costs that accompany hiring of new individuals such as the cost of time spent on interviewing new candidates, training new workers, and the learning curve of inexperienced new employees learning the trade of their job.
If employees are replaced every 1-2 years, this will inevitably have an effect on the profits the company is generating. Secondly, and alternatively, what will occur to those employees that decide to stay on board and not leave their job is the notion of “continuance commitment”, which is the idea that the employee stays committed to their job because of the perceived economic value and the need for an income, rather than their emotional attachment or belief in the organization. (Robbins, et al. 2010).
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The idea of “continuance commitment” suggests that the employee is not passionate about the work they are doing, much like the employees at BM, and as a result will become disengaged in their work and might not care as much about the job they are doing, resulting in displeased customers “While a favourable financial statement or product line may be the initial attraction of an acquisition candidate, whether the acquisition actually works seems to have more to do with how well the two organizations’ cultures match up.” (Robbins et al. 2010)
This statement is very appropriate in the case of Watkins International’s acquisition of Brownloaf MacTaggart; the differences in cultures were not considered before the acquisition, nor was a strong attempt made to align the core values of the two businesses cultures. If the environment of the business is perpetuated without change being made, the profit margin of BM will decline as a disengaged workforce remains on staff with “continuance commitment”, and as time, energy, and money is spent on hiring and training of new employees due to high turnover rates.
References
Luthans, F. (2011).
Organizational Behavior. 12th ed. New York, NY: McGraw Hill/Irwin. p.101
Mills, J., Dye, K, Mills, A. (2009) Understanding Organizational Change. Abdington: Routledge. p. 59-63
Robbins, S.P., Judge, T., & Campbell, T. (2010).
Organisational behavior. Harlow, Financial Times Prentice Hall. P. 63, 459-463
