Lessons from Aqui-Hiring

What happens when two rival companies, each with a strong culture and intense dislike for each other, merge – with one company acquiring the other? This was the case with two regional travel companies based in the Asia Pacific region. As one employee described it, “The rivalry between the two was comparable to a university rivalry, each of its loyal employees bleeding either green or yellow (note that names and other identifying information have been altered for anonymity). Nearly all internal reports would benchmark performance against the other, and sales pitches were designed to compete directly against each other.”

When the acquisition was announced, employees of both companies were in shock. This was like sleeping with the enemy. Furthermore, there was very little communication from senior management of both companies (and in fact, there seemed to be a lack of agreement even within the management ranks of each company on the benefits of the merger).

Not long after the acquisition was announced, the merged company sent an e-mail to all employees declaring that it was going to use its annual year-end celebration as an opportunity to have the two workforces get together. The party was held in a hotel with tables seating ten each. Not surprisingly, the employees of each company sat with another. Only at the VIP table was there a mixing together of the two companies, with the two incumbent Managing Directors of each company sitting together, along with a few executive managers from both companies. One year later, the integration still had not been completed. There were still two Managing Directors, two sets of functional heads, and duplicate activities. Many managers were still in the dark on the future of the company, and as a result, a number of talented employees left the company.

Despite the research showing that over 60% of mergers and acquisitions destroy shareholder value (remember AOL-Time Warner or Daimler-Chrysler?), we continue to see the thirst for merging and acquiring continuing unabated. One of the biggest recently is Disney’s $71 billion deal to acquire Fox. The biggest momentum seems to be among grocers, especially after Amazon acquired Whole Foods in 2017. Global food retailing is a huge business and only 3% is done online. The New York Times (August 22, 2018) has reported the following recent acquisitions in the grocery industry: Kroger with Ocado, an online grocery company using robots to pack online orders; Target with Shipt, a start-up offering same-day delivery services; Walmart with Parcel, another start-up with same-day delivery; and Aeon (one of the largest retail chains in Japan) with Boxed, a grocery e-commerce company. 

Perhaps because of the high failure rate of M&As, a more recent trend known as “acqui-hiring” has been growing, especially among technology companies. In acqui-hiring, a large company (such as Google, Amazon, Facebook, General Motors, and Wal-Mart) acquires a smaller company (such as Lytro, Zappos, Faciometrics, Cruise Automation, and Parcel respectively) primarily to obtain ownership of that company’s talent, rather than its products and services.

Coyle and Polsky (2013) were among the first to describe this trend, and they interviewed key players in Silicon Valley to get a better understanding of the motivations behind acqui-hiring. They started out by asking themselves why companies even go to the trouble of doing this, when simply targeting selected employees would be less costly (note that at least in California, where many technology companies are headquartered, non-compete agreements are generally not enforced tightly). In their analysis, such acqui-hire transactions are completed not for the purpose of the larger company acquiring the smaller company’s assets but to hire some or all of the smaller company’s employees. As they put it:

One frequently cited rationale for acqui-hiring is that it allows a large technology company to obtain the services of several talented engineers and entrepreneurs in one fell swoop. It also allows the buyer to hire an existing, well-functioning team of individuals who will often continue to work as a team with expertise in a certain field, as opposed to trying to assemble such a team from scratch.

An acqui-hire also enables the buyer to utilize the talents of its new, experienced employee team to enter into a new space quickly despite the buyer’s inexperience in that space. This is especially useful in Silicon Valley, where the pace of technological innovations creates a frenetic environment in which time is frequently of the essence and business plans rapidly shift and pivot.

In one of their examples, Apple a few years ago acqui-hired a team of engineers from Lala that had extensive experience in streaming music online. That team stayed together at Apple to work on its own cloud-based music service even after Apple terminated the Lala service six months after the acquisition. Coyle and Polsky’s explanation rests partly on what they consider the informal social norms of Silicon Valley, which among other things suggest that software engineers themselves prefer acqui-hiring rather than jumping to the competition so as not to incur the possible wrath of colleagues and other companies. They suggest that due to the “non-adversarial culture of Silicon Valley,” this is actually an easier path for the buyers as well as the acquired firms.

Here are three pieces of advice for organizations, especially for those interested in acqui-hiring. First, be clear on the objectives and rationale of the acquisition, and conduct a thorough analysis and due diligence (Christensen et al., 2011). Unfortunately, all too many executives are not clear on the specific purpose of the acquisition and rush too quickly to get things done. According to a McKinsey report, executives involved in M&As reported that due diligence was inadequate in more than 40% of their deals (McKinsey, 2010). More worrisome for an organizational psychologist like myself are those executives with an “overconfidence bias” (alas, all too many of them do) who believe that despite the statistics, they can beat the odds, as well as those who are well aware that the acquisition might eventually fail but in the short-term will drive shareholder value and make them very wealthy.

Second, follow the basic principles of change management, especially around the integration of cultures. McKinsey found that over 70% of the executives they interviewed reported that too little effort was made on focusing on culture during the integration. From my own experience, it seems to me that too many executives assume that cultural challenges can be overcome easily as long as both organizations see “what’s in it for them;” besides, they rationalize, their organizations are really not that different. Here are four change principles that I have found useful in my experience having been involved with several change initiatives:

1.     Make sure you create a change team (or, in Professor John Kotter’s words, a guiding coalition), a group of engaged individuals and leaders who are totally behind the change and will help you throughout the effort. These individuals do not all have to be senior managers; some can come from lower down in the organization, as long as they have the credibility and respect of their peers.

2.     Communicate relentlessly especially around what will change and what will stay the same (that is, what won’t change), and keep in mind that the most effective communication is when there is face-to-face dialogue and feedback and not simply sending out e-mails.

3.     Create a compelling and exciting vision of the future. A senior manager I know was tasked with reducing operating expenses in her division by 30%, a tall order especially since she had already been reducing expenses aggressively for the past two years. She framed this challenge to her team by describing how their mission could help transform the company, contribute to its success, and at the same time elevate their functional area to become world-class.

4.     Follow through and have a change execution plan. Don’t declare victory too quickly; integration often takes months if not years. In an acquisition effort I was involved with several years ago with a Japanese company, integration teams from both companies in different functional areas (e.g., Sales, Human Resources, Operations) were created and met regularly over the next two years to execute the overall plan.

The case of the two regional companies I described earlier failed to follow these four principles. There was no change team, communication was almost non-existent, there was no sense of identification with the new organization, and no plan especially for retaining key talent. Sometimes it makes sense to keep the two companies separate, such as with Amazon and Zappos. For example, when GM acquired Cruise Automation recently, it kept the acquired company separate to make sure it continued to operate very much like a start-up.

Third, perhaps most important when acqui-hiring, have a rigorous process in place for determining the talent you will need in your organization. Many organizations will focus on the technical skills of potential employees; as important, perhaps even more so, are the soft skills and the cultural fit that will determine whether the acqui-hires will be able to work effectively in their new environment. As the Wall Street Journal has reported (April 25, 2017), some of the more recent startups have begun to realize that getting the culture right and hiring people for cultural fit is just as important as their technical skills. It quotes CodeFights CEO Tigran Sloyan, who said: “Even with five to 10 people, if you don’t get the right culture going early, it’s almost impossible to get it right later … and quickly adding staff without building the right team can hurt, not help, the bottom line of an early startup.”

Christensen et al. (2011). The Big Idea: The New M&A Playbook. Harvard Business Review, March.

Coyle, J. and Polsky, G. (2013). Acqui-hiring. Duke Law Journal, 63 (2): 281-346.

McKinsey (2010). Perspectives on Merger Integration. https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Organization/Our%20Insights/Merger%20Manager%20Compendium/A%20McKinsey%20perspective%20on%20the%20opportunities%20and%20challenges.ashx

Taking Advantage of "Leadership Moments"

After the Deepwater Horizon explosion that killed eleven men, BP CEO Tony Hayward infamously said, “I’d like my life back.” This was the beginning of the end for Mr. Hayward, who was fired from his position a couple of months later. We have all seen this before - how some leaders will rise to the occasion while others falter when a crisis hits. Deepwater Horizon was indeed a terrible crisis, but not all crises that leaders face will be this significant or far-reaching. In fact, Kouzes and Posner (2017) suggest that managers perform potentially at least twelve “leadership” acts every day, that is, behaviors where we are trying to positively influence others for the good of the team and the organization (as well as for the leader’s own good).

These leadership moments are analogous to what Jan Carlzon, former CEO of Scandinavian Airlines System (SAS), described as “moments of truth.” In that context, he was referring to the contacts between a customer and a company representative. Similarly, I view the interactions between a leader and his or her followers as moments of truth, where the outcomes of these interactions can lead to a more positive path and ultimately a productive and effective relationship – or its opposite. Viewed in this context, there are many such interactions that leaders have during the course of the day; these are the day-to-day moments that provide opportunities for them to demonstrate their leadership. They don’t have to be big moments, but the cumulative effect is to build their leadership and influence.

In fact, you don’t even have to be a “formal” leader or a manager to show your leadership and demonstrate leadership behavior. But you first need to be aware of these leadership moments and adapt a leader mind-set. Of course, this is easier said than done. Unfortunately, many of us don’t necessarily carry this view of ourselves as leaders, perhaps because of the following:

·      We have “implicit leadership theories” or prototypes of what a leader should look like, or how a leader should behave. For example, research has shown that individuals who are extroverted and show dominance tend to be selected to leadership positions more frequently than others.

·      We associate leaders with larger-than-life characters and charismatic figures. When we generally talk about leaders, our minds immediately jump to such larger-than-life figures. These may be political leaders like JFK, spiritual leaders like Ghandi, military leaders like MacArthur, or business leaders like Steve Jobs.  If our image of leadership is shaped by these individuals, then we might in fact conclude that these are tough shoes to fill, and in no way could we ever attain the stature and success of these individuals.

·      Those who perform extraordinary acts in times of crises. Some of these are ordinary individuals who show courage in the face of danger (like the five passengers who tackled a gunman who opened fire in a French train earlier this year). Others are leaders who summon the will and brilliance to face reality and make bold decisions, such as Intel CEO Andy Grove’s decision to abandon the chip business and shift toward microprocessors, or IBM CEO Sam Palmisano’s decision to sell the IBM hardware to focus on services.

·      Our own identity. Professor Sue Ashford of the University of Michigan points out that when MBA students are asked to write descriptions of who they are, only 16% mention the word “leader.”

Recently, I came across the Heath brothers’ latest book, “The Power of Moments” (Heath and Heath, 2017), in which they analyze why some experiences become so memorable, and how leaders can capitalize on what they call “the power of moments.”  I find their framework very useful in suggesting to managers how they might capitalize on these leadership moments. I have paraphrased their descriptions of the four elements of such defining moments here.

·      Elevation.  These are moments that stand out from the day-to-day. Think about the interactions you have had with others, including managers who have supervised you, and what stands out to you about some of those interactions. For one lab worker I once interviewed, it was the time when the CEO of the company, while visiting the lab, shook his hand for the remarkable work he had done on a project, and personally thanked him for his contributions. A short time later, he received a letter from that same CEO acknowledging his value to the organization. The lab worker had this framed and to this day the framed letter hangs on his office wall. He also received a bonus that year, but he does not even remember how much the bonus was. As the Heaths point out, there are many such moments in organizations that you can “elevate.”  My take-away: look for those opportunities where your leadership actions will have the most positive impact. There will be many such potential opportunities every day, e.g., thanking an employee or expressing gratitude for a job well done.

·      Insight. This is like an Aha moment when something clicks and you start to do something differently. The Heaths suggest helping others (they focus primarily on mentors) with challenging or stretch goals. This is also what good personal trainers and executive coaches do. They encourage people to get out of their comfort zone to try something different. In one of my coaching assignments, I was having a conversation with a high-potential executive who had been struggling with his behaviors especially with his peers and superiors. They saw him as argumentative, dismissive of their concerns, and arrogant. When I asked him if he recognized this in himself, he acknowledged this. He certainly did not intend to come across that way, but his style was very much ingrained in him from his days as a consultant with a top-tier consulting company. It was difficult for him to simply alter his style. We started to work on specific behaviors to improve his collaboration skills (including active listening and building on what others said), and I encouraged him to continue reflecting on the impact of his style. However, the great insight for him came when he along with his wife visited his family over the holidays. Over several days, he began to see his father as exhibiting similar behaviors, and how turned off people were to him. His father had also grown very embittered and cynical. At one point, his wife turned to my client and asked him whether he wanted to end up like his father when he was older. During our next coaching session, I could sense a renewed dedication on my client’s part to change his behavior. My take-away: during your one-on-ones with your direct reports, discuss their goals and what barriers (especially internal barriers) might be getting in the way of achieving these goals.  Challenge them to get out of their comfort zone, while also making sure you reinforce your support for and confidence in them.

·      Pride. These are moments which managers can capitalize on, especially when their team has achieved something special, like at the end of a successful project, or when a research team learns that the results of a clinical trial they had been working on were positive. The Heaths suggest that because we “underinvest in recognition,” we need to find those moments to provide others with special recognition. My take-away: make celebrations a big deal. Spend the extra money to go for a team dinner or party after the end of a successful project. When she first became CEO of Pepsi, Indra Nooyi celebrated her first successful year with her team with a team dinner in which she invited all of the team members’ spouses. She had also written each of them hand-written notes thanking them for their support of their spouses.

·      Connection. These are moments that enable a team to bond together; they are often when the team is struggling to accomplish a difficult task, and then succeed. Managers can also create “shared meaning.” Some of the most cohesive teams I have seen are among project teams that were faced with high-pressured deadlines and the feeling of exhilaration when the deliverables were successful. These teams had built up a camaraderie, some of which have lasted for decades. My take-away: get to know your team members better by finding out something more about them than what you know at work; create a common purpose (with their involvement) and a goal that will challenge and inspire them. An executive I was coaching recently took on a new leadership role in another company. During his first meeting with his team, he had everyone go around and share with each other something about themselves, their family, their past experiences, and something about themselves that not many know. The team was totally energized by this simple exercise. Even though they had been working together as a team for at least four years, they had never known much about each other and this activity helped build connections and trust.

Professor Bob Quinn (Quinn, 2005) also writes about moments of greatness for leaders, and I would characterize what he calls the “fundamental state of leadership” as pre-conditions for getting into these moments. In other words, these are the things that help us get ready and prepare us for creating these “leadership moments:” moving from being comfort-centered to being results-oriented; moving from being externally-directed to being more internally-directed; becoming less self-focused and more focused on others; and becoming more open to outside signals or stimuli. In other words, leaders need to focus on what they want to achieve versus doing what they have been comfortable in doing (results-oriented); worry less about social pressures (internally-directed); putting the team’s needs before yours (focused on others); and paying more attention to the environment (becoming more open to outside signals).

Heath, C. and Heath, D. (2017). The Power of Moments. New York: Simon & Schuster.

Kouzes, J. and Posner, B. (2017). The Leadership Challenge: How to Make Extraordinary Things Happen in Organizations (Sixth Edition). San Francisco: Jossey-Bass.

Quinn, R. (July-August 2005). Moments of Greatness: Entering the Fundamental State of Leadership. Harvard Business Review.