Lead Right for Your Company's Type by William E. Schneider

Author:William E. Schneider
Language: eng
Format: epub
Publisher: AMACOM
Published: 2017-03-14T16:00:00+00:00

The Importance of Viewing Your Enterprise as a Living System

In the year 2000, America Online (AOL) merged with Time Warner in a deal valued at $165 billion. So far, it is the second largest merger in history. When the deal was announced, Steven Case, co-founder of AOL said, “This is a historic moment in which new media has truly come of age.” CEO Gerald Levin of Time Warner said, “Because AOL takes us to the Internet, our merger with AOL will unleash immense possibilities for economic growth.” Case and Levin knew that media and the Internet would soon be merging—so combining Time Warner and AOL would put the newly merged company way ahead of the competition. The announcement was hailed by many as a momentous coming of age for the Internet and the triumph of the New Economy.

Within a year, the two companies hated one another. They had completely different kinds of customers and customer promises. Employees from both companies continually clashed with one another, and leaders from each company spent their time blaming one another for the financial losses that soon began piling up. Thousands lost their jobs. There were countless executive upheavals. Ten years later, the combined values of the two companies, which are now separated, was one-seventh of their combined worth on the day of the merger. To this day, the Time Warner–AOL merger is taught in business schools as one of the worst transactions in history. What happened?

Executives from both companies attribute the failure of the merger to market circumstances (the dot-com bubble burst), the slowdown of advertising, and the change in how to access the Internet. While these issues were definitely a factor, the major reason was the clash of customer bases, cultures, and leadership approaches. These two companies were oil and water. Time Warner was a predictable and dependable enterprise and AOL was a best-in-class enterprise. They differed on almost everything: whose leadership approach was better, how to decide, who had what kind of power, structure, design of work, and much more.

Where they really differed was in their customer promises, which meant that their living systems (networks) were completely different. Each had developed its own way of connecting customers, employees, and leaders. Their financially motivated merger ignored the fact that they were fundamentally different living systems and thus almost killed both, reducing their combined financial values by 86 percent. Put starkly, by primarily viewing their two enterprises as financial vehicles (more revenues, cost cutting, and layoffs and more profits) and not as living systems, they almost completely destroyed them.

They are not alone. Estimates vary, but somewhere between 50 and 83 percent of all mergers and acquisitions fail. The cumulative financial and human cost is astronomical. This has been the case for many years, and little headway has been made in getting to the bottom of the problem.

Leaders need to learn a different way of thinking—adopt a living system–centric mind-set. They need to define a merger or acquisition as a combining of two distinct living

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