Acquisition is Not a Magician
The news of Amazon’s acquisition of Whole Foods is exciting on many levels as a fantastic example of how old industries have to evolve to deliver modern services. However simply acquiring a key set of capabilities and physical assets for over $13 billion won’t magically make the transaction a success. The way the organizations come together as a new service system is critical to growing the investment as an asset instead of creating a liability. Amazon, like any acquirer, must see new and existing resources, people, and processes to create new connections can avoid a culture cliff post acquisition. Designing a unified service system from two cultures requires processes to take shape around the new team, not just applying the processes of one to the product of the other.
The Amazon/Whole Foods acquisition is an all cash deal which can allow the two companies to move quickly, and clearly establishes who is buying who. Whole Foods’ 400+ locations are tiny in comparison to Kroger’s 2700+ locations in the US market, but it’s the premium nameplate that makes them attractive to Amazon. Distribution and delivery infrastructures are Amazon’s bread and butter– historically the parts of the grocery business that impact razor-thin margins the most. The premium positioning gives Amazon the leverage to affect the industry disruptively, and from an established position of strength. In contrast, the Walgreens/Boots Alliance deal was a cash and stock deal that ended without a clear vision of who was the dominant party — they just wanted to gain leverage on pharmaceutical pricing. The Amazon/Whole Foods deal creates physical and digital scale in a regulated red ocean of price centered competition that Amazon has struggled with.
My experiences having worked within two acquired organizations has taught me that service design around mergers and acquisitions is like group therapy at the Tower of Babel. Getting a common language is the first step closely followed by understanding what each side already has. Whole Foods and Amazon have very different values, but now have to become a grocery juggernaut that can compete against another juggernaut: Kroger. If Amazon is able to understand the new realities of their shared resources, avoid the culture cliff, and build a viable new normal they have an opportunity to create a ripple effect through many aspects of the US economy and uncover new service opportunities.
Understanding Resources
Ancient tribal cultures believed that eating a rival provided additional power and strength. Acquisitions can be viewed in a similar way, but recent history has illustrated that when service systems have to come together the integrations do not connect. In 2011, Clayton Christian wrote about how “profit formulas and processes don’t exist apart from the organization, and they rarely survive its dissolution.” A recent example is Nordstroms’ acquisition of Trunk Club. The deal offered Nordstroms more established retail service a set of capacities that Nordstrom lacked, but less than 3 years after acquisition TC’s leadership has dwindled and Nordstroms has all but walked away from growing the Trunk Club. Additional examples of capabilities driven acquisition are AOL/Time Warner, Quaker/Snapple, Apple/LALA and many more. Even with infinite resources, smart leadership, and the best intentions, these efforts fell short of expectations because they failed to connect what each side offered in terms of resources and processes.
The “Acquisition Halo” is the time of great anxiety and great excitement just after an acquisition has been announced. During this early transition period, it’s helpful to map resources, needs of the people in a given position, and available capabilities. If a core team focuses on the tasks the new team will perform, the new entity can accelerate the shift to “We can help with that” from “We work this way.” Something I have found helpful is creating a visual of the roles and goals of each team and then illustrating how they can share resources and work together to achieve simple and effective outcomes.
Design Away From a “Culture Cliff”
In every instance of bringing two larger groups together, there will be a natural level of unease and change. A Culture Cliff is the point where one of the organizations involved feels like their organization is no longer a part of their work life and they start to leave the acquired organization.
Every organization at any scale has a culture and a system that lives as the output of their organizational values. Culture can be an obscure concept thrown around by consultants looking to offer you the magic “transformation” beans only they can provide, but evolving and smoothing two cultures together requires thousands of people to take a million rapid little steps in the same direction. I would start by getting people that will work together in one place and get a sense for what a new reality could feel like. Saving the wasteful cost of turnover and toxic nature of discontent will cost much more in the long run.
One of the more impactful ways to bring cultures together is to design a set of processes that are mindful of the old organizations but focused on bringing companies together. Start with HR and Onboarding so new employees get started aligned with the vision. After core people processes are aligned with the post-acquisition organization, focus on the services offered, then innovation and planning. Employing this sequence allows the new organization to shape itself from the ground up.
The Evolution Must Be Televised
The longer an organization allows an acquisition to linger the more anxiety fills the void created by limbo. My strong advice would be to make sure the transition is transparent with tangible and visible evidence of the process. Making improvements or creating new services can make a tremendous difference in how people see themselves within the new organization.
Service Design affords large groups the ability to see their entire system and resources. If we accept that patterns from past M&A deals are applicable lessons learned, Amazon and Whole Foods must accept that one can not ingest the other to gain their strength. Effective mapping and measurements are critical allies in the complex process and innovation work that lies ahead of both companies as they become one organization with a new culture.
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