Blog #2: Internal Organizational Analysis and Developing Strategic Options (Part I)

Seven Ways to Fail Big written by Carroll and Mui (2008) gives me precious viewpoints which I should consider to face companies’ M&A as a government official. It is one of the crucial roles for the government to help domestic companies grow or at least keep their business to sustain the national economy and employment. To achieve the purpose, the government sometimes informally advises companies for their growth strategies, including their acquisition. 

Among the seven patterns for companies to fail their business which Carroll and Mui (2008) maintain, “the synergy mirage” seems most relevant to me. As an outsider of companies, the government appears to overlook the differences in the internal propensity of companies. It often concerns mostly their external environment, such as the domestic and global structure, market situation, and growing technologies of the industry. However, the authors point out the risk of pursuing a merge to seek synergies without considering the cultural and organizational incompatibility of the companies. They use the case of insurance companies Unum and Provident as an example to fail business integration due to their different business models and target customers (p. 4). As another instance, Professor Zak referred to the case of America Online (AOL) purchasing Time Warner in his class. The acquisition looked inevitably unsuccessful for him because of their apparent cultural differences, although it had potential synergies in the integration of media and contents businesses. 

Another critical lesson from the seven patterns by Carroll and Mui (2008) would be to avoid rushing to consolidation because a merged company might bring internal problems. The authors explain the case of Ames Department Stores’ purchase of a discount chain company which had an issue of inventory thefts by employees (p. 9). Its failure would not only exist in the acquisition of the company with the problem but also its inability to fix it. Again, the government should be careful of its ignorance in domestic matters in an acquired company which would be hard to see from the outside. 

One of my working experiences related to these lessons was Toshiba’s acquisition of Westinghouse in 2006, which my ministry also supported in terms of national interests. The investment finally turned to the bankruptcy and sale of Westinghouse. Many books and articles covering the incident, including Abe and Hosokawa (2018), reveal some fundamental problems lying between the two companies. In essence, Toshiba seemed to overlook Westinghouse’s cultural immutability as the acquiring company and fail to make necessary corrections in its business as the parent company. 

The organizational culture of Westinghouse was too heavy for Toshiba to manage. Westinghouse was historically one of the global leaders in nuclear power and an initial provider of nuclear technologies to Japanese companies. Believing its superiority in nuclear business over Toshiba, Westinghouse seemed to adhere stubbornly to its methodologies. This stubborn resulted in huge overrun in cost and term because the company, indeed, had lost its engineering capacity due to three-decades of no construction project of nuclear plants. Toshiba could not correct the failure as the parent company. According to The Mainichi (2017), “Running our company is really easy because Toshiba never gets involved. Toshiba is a cash dispenser,” once said an executive of Westinghouse.