Bigger is only better with training wheels on

In a perfect world, increasing size and scale should lead to operating efficiencies, improved profit margins, a strong growth trajectory (both per unit and in the number of units), career opportunities for employees, and competitive prices and options for customers. Unfortunately, that is not always the case.

Contributed by Mark Sherwin, Strategic Solution Partners, Oakton, Virginia. 

Many companies look to grow through mergers/acquisitions for other strategic reasons – vertical integration, entering new markets, or changing a business model and, historically, only 53% of mergers/acquisitions involving public companies actually deliver increased shareholder value. When motivated primarily by size and economy of scale, the success rate is higher, but those that ignore the human capital side of the equation and compatible cultures face many more obstacles.

Examples of cultural incompatibility causing problems after mergers can be found across many different industries (eg. Amazon/Whole Foods, Daimler Benz/Chrysler, Sears/Kmart, AOL/Time Warner, Nextel/Sprint, etc.) and hospitality is not an exception. The good news is, however, that the difficulties hotels face when driving towards operational efficiencies generally fall into only a few categories and can be solved before the culture clash causes unnecessary friction.

Where it can go wrong

Put yourself in the position of hotel company A (a management company with several hotel brands) which is acquiring a large portfolio of hotel management contracts consisting of several different brands of hotels in many new markets. This growth will require new employees at many levels within the organization – in the field, at the regional/oversight level, and in new and expanded corporate roles. It will also organically add a significant number of new employees to your company, who will all come from different corporate cultures, operating norms, and values. History has shown that it is important to install a unified and consistent culture – to optimize performance and results.

A prime example of a company that experienced a “culture clash” is Amazon after the purchase of Whole Foods. The “tight, precision-based, and highly structured” culture at Amazon was in direct conflict with the “decentralized, employee empowerment-based, and self-managed” culture at Whole Foods. The inevitable disengagement of employees, customers, and shareholders was a natural result of the lack of alignment around operating norms and values.  So, your company’s challenge will be to avoid the pitfalls of cultural incompatibility to ensure a successful acquisition. 

Ways to avoid a culture clash: 

  • Embrace the new employees by acknowledging their prior perspectives, experiences, and operating norms.
  • Reinforce your underlying cultural norms, values, and guiding principles, while allowing the individual brands/hotel categories to reflect a distinct personality – (lifestyle hotels, extended stay hotels, select service (with/out food and beverage), etc.).
  • Define what “the Company A way” means – identifying what is negotiable and what is not.
  • Take the core values and translate them into operating norms around communication, collaboration, operation, etc. (risk profile, use of data, entrepreneurialism, empowerment vs. SOPs, progressive discipline, onboarding, and training, etc.).
  • Determine which areas allow for a slight diversion from the current Company A protocol.
  • Determine the communication vehicles that can support the desired approach.
  • Get feedback from all stakeholder groups to surface issues/concerns.
  • Identify any core elements of the current operating norms that need to be addressed due to the increase and diversity of scale (decision-making protocols, approval levels, etc.).

Designing a logical initial game plan 

As effective as these strategies can be, they only deliver when they are part of a logical, well-designed, and well-planned enrollment plan. There are different ways to design one, and the best ones typically rest on three pillars:

  1. Communications Strategy

a) Begin with a straightforward message from Senior Leadership on the reason for the acquisition, the intended benefits for all stakeholders (employees, guests, owners), and a brief outline of the timeline and game plan.

b) Ensure employee onboarding messages are on point including a review of Leader Onboarding and the messaging around Leading in the “Company A Way”. This should include how “the Company A Way” is described – in tangible, concrete terms that can be cascaded throughout the organization. Begin with a summary of Guiding Principles and Core Values.

c) Ensure there is a feedback mechanism – including surveying of new employees to get a baseline on what is working, what needs changing, and which needs are not being met.

d) Continue having ongoing communications acknowledging what you heard and what actions are being taken. You can do this through a virtual Townhall meeting, a memo to the field, or videos sent to the hotels.

  1. Keep versus change plan

a) Identify what needs to be changed as a result of the new scale and diversity of the acquisition.

b) Design functional processes and decision-making framework. Multi-level and unclear decision-making processes may inhibit Company A from operating nimbly and quickly on its new scale.

c) Choose how centralized you want to be and bear in mind that multiple levels of approval may be interpreted as a lack of trust at the property level, especially when the new team members are not able to make the decisions that they consider straightforward.

d) Consider the impact of “pulling leaders down” into tactical issues in a centralized environment.

e) Assess and redefine the decision-making framework within each corporate function/role. Balance risk and efficiencies, develop and implement a new, scalable decision-making framework with corresponding accountability measures.

f) Create checkpoints along the way.

  3.  Clear notion and communication of your strategic plan and priorities (both near-term and long-term)

a) Develop a clear and compelling vision and purpose for Company A, answering the following questions:

  • Where are you going as an organization?
  • Do you have clarity around your brands and your target customers by brand
  • How, where and when do you want to grow?
  • What does success look like for individual hotels, and for the organization as a whole?
  • Why should the new employees keep working for you? – Outline the benefits and make sure your employees understand them.

Keep the momentum going

Company A has a wonderful opportunity to make sure the thousands of new employees have a clear understanding of the company they are joining, the role they are to play within it, and the expectations at all levels of the organization. The approach discussed above will however have short-term implications (tactical execution) and require longer-term strategic decisions.

With so much change happening at Company A as a result of the acquisition, it is imperative to identify the items that are critical to focus on immediately and then develop a plan, timeline, and resource allocation that is reasonable and achievable. It is also essential that the leadership remains an active part of the process, listen to their employees and steps in before any important culture drifts.