Failure of the Organization Change in the AOL Time Warner - Case Study Example

Organizational change failure Introduction Organizational change normally involves altering of human behavior which would result in their accepting the change. However, there is always resistance to organizational change which has been attributed to a number of factors. It has been established that the greatest obstacles to organizational change center on people as well as corporate culture. Changing people’s mindset and attitudes in an organization has been cited as the greatest challenge to change implementation followed closely by rigid corporate culture factors which often render the intended change unsuccessful. One such unsuccessful change was the merger between America Online (AOL) and Time Warner (TW) both of which are American company that happened in the early 2000s and immediately encountered very big challenges which eventually saw the merger breaking down (Barber, 2010). Though market factors could also have contributed to the failure, poor change management is blamed for the failure given that the two companies had completely different cultures that needed to be managed properly if the merger was to be successful. As such, this report looks at the factors that might have led to the failure of the organization change in the AOL Time Warner merger and what could have been done to avoid the change failure. As stated above, culture crash and poor change management are blamed for the organization change failure in the AOL Time Warner merger and hence the failure of the merger. The two companies had traditionally been characterized by disparate yet strong cultures which called for proper change management if the change was to be successful. This is seen in the fact that AOL had embraced modern technology while Time Warner had not. The two companies’ cultures differed in the following respects; AOL Time Warner Employed latest technologies Considered old world Considered tight on cost cutting and finance Considered spendthrift Employees wore casually, cotton shirts and khakis Employees wore suit and ties The organization was centrally managed The organization was decentralized with autonomy at divisional level Organization described as being smaller and younger The organization considered big and mature with AOL appearing as a small division of TW Utilized top-down style of management Utilized improvisational management approach Compensation through stock options Compensation through profit sharing Employed unitary organizational culture Diversified kind of enterprise based on divisions Company focused on improving stock price Company focused on organic growth of the business. Without proper change management, the above cultural differences meant that it would have been hard to achieve transition smoothly so as to have one organization on merging. The merger was instead characterized by poor change management actions which included employees in both the organizations not being engaged in the change with change only being accepted at the very top but lacking follow through down the line (Rita, 2015). The employees were being told to change instead of being helped to change. In addition, the stakeholders had not been given time of discussing and debating before discovering the benefits of the merger. In other words, the merger was being bombarded on the two companies stakeholders (employees) resulting in culture crash. This in return resulted into four barriers to success that results from culture crash as follows; a) The teams were likely to have viewed clashing communication styles as acting to violate cultural norms. This is because the direct style of communication observed at AOL obviously was in opposition with the communication style made use of in TW. b) The employees from the two companies were likely to consider members of a different team who were less fluent in the language to have less in terms of contribution to the group’s success. In this regard, the young and open employees who were also tech savvy from AOL with differing work and hence culture and language compared to those of Time Warner who were mainly older but also more formal. However, in real sense, it is the Time Warner business that had the greatest contribution to the group since the AOL business was being affected by market shocks. c) The cultures of the different teams had a negative impact on issues that involved hierarchy as well as protocol (David, 2013). This is because while AOL was centrally managed, Time Warner was not and hence AOL employees found it difficult to acculturate themselves into the divisional structure. d) The decision making process differed between the two cultures with the process employed at AOL being faster and directed at achieving the Wall Street and shareholders expectations. On the other hand, Time Warner employed a more slow and measured approach to decision making. It is worth knowing that for change management to succeed, it requires time and enthusiasm factors which lacked in the case of this merger. Hence, signs of failure emerged even before the merger was implemented. A lot of time passed before regulatory approval and when the merger had been approved, the merged company leaders had already lost enthusiasm for the merger. With resistance to change being concreted in the new company’s fabric. Instead of developing a new company wide philosophy and working to ensure commitment of all to change, executives were now involved in fighting fires with change management moving to change management and a new culture of blame between the merged companies emerging. This resulted in the early departure of the chairman in 2003. The initial aim of merging was to make use of the synergies possessed by the two companies. In this regard, AOL wanted to utilize the Time Warner facilities and contents in dealing with its subscribers while Time Warner would benefit by tapping into AOL’s technology. However, the performance of AOL segment stalling owing to economic slowdown saw the division’s performance declining leading the group to declare losses. This would lead into board wrangles and resignation of directors. In addition, the many expected synergies between the merging companies were never to materialize since many of Time Warner divisions much autonomous hence not cooperating before the merger. A new reward system that gave incentives based on the group performance that instead of cash payments that resulted from divisional performance was met with resentment from Time Warner divisions. The divisions blamed AOL for not meeting targets thus lowering overall group performance (David, 2013). As such, the divisions that had been expected to work towards convergence were instead characterized by heavy resistance from divisional executives who criticized the optimistic group growth expectations that were not met. As a result, the group continued to perform worse than it had ever performed prior to the merger. It is not surprising then that by 2007, the group had removed the AOL initials from its title and was planning of spinning off Time Warner Cable and selling off AOL. By December 2009, the company (Time Warner) spinned off AOL as an autonomous and separate organization marking the end of the nearly decade old merger that had been majorly been characterized by blame games and resistance from all levels. The decision to server links between the two companies marked an end to close to a decade of a troubled union. The union had resulted in losses of billions of investor dollars owing to poor change management. Had the change been properly managed, the merger and hence the change ought to have been successful. In addition, the steps aimed at salvaging the merger or walking out of it were taken too late when the damage had already been done. In other words, all the steps taken in a bid to address the resistance to change were all unsuccessful and hence the reason why the merger failed. If I would turn back the clock and be the change agent, I would undertake the following steps which would ensure that the change is successful and hence beneficial to the intended parties. It has been established that even before the merger could materialize, trouble had already began with AOL being accused of cooking its financial records so as in a bid to alter its financial outlook favorably. AOL started slipping immediately after the merger. As change management, I would have ensured that the leadership had set quantifiable metrics and milestones that would be used in evaluating the integration process (Daniel, 2014). Having known the merger’s performance was below expectations thus diminishing shareholder value at such a high speed, I would have advised the company to immediately spin off AOL hence saving millions of shareholder dollars and years of frustration. However, once the merger had been consummated, I would have undertaken steps that would have kept the group at integration path as follows; As stated above, AOL has been blamed for having low view of Time Warner culture. In this regard, I would have coached the staff at AOL of the need to demonstrate more respect for Time Warner culture as well as personnel in a bid to foster coexistence and hence harmony. This should have reduced the strife within divisions’ hence encouraging cooperation towards achieving the group’s strategic goals. . I would also have ensured that key members of the company are involved in the merger decision and the resultant formation strategy. This would have ensured buy-ins from executives within the group which would have ensured that divisions continue to work as before. In addition, I would have brought about structural changes that would have allowed for free information and ideas flow thus creating conducive environment in which employees cut across formal divisional lines thus each company assimilating the other’s strengths (Burnes, 2009). Furthermore, I would have created new systems where employees would have constantly been reminded that they were attempting to weave together two different companies. In addition, teams from the two companies would have been given a platform for discussing the two company’s strengths. This would have encouraged respect and cooperation while increasing self-confidence via positive feedback. In addition, this should have provided an amicable environment for interaction and culture exchange between the two groups. In addition, I should have provided a platform for employees to express their opinions regarding the toothing problems of the merger so that they can be addressed. All these steps should have ensured the success of the merger. Conclusion The AOL Time Warner merger failure is considered the greatest merger failure to have ever happened and is hence a great example of a failed organizational change. It has emerged that the failure of the merger resulted from improper change management given that two companies with completely different cultures were being merged into one company. Consequently, the merger resulted in massive losses of shareholders’ funds and hence it is an example of how failing to manage change properly can be detrimental to all the stakeholders involved. Though the companies split after nearly a decade of troubling experience, it is worth noting that the failure could have been avoided had there been proper change management. The paper has examined the reasons that could have led to the failure of the merger with suggestions of what should have been done to avoid the failure. Corporate changes are almost sure to experience resistance from many quarters and hence it is important that change is properly planned and managed if it is to succeed. References: Barber, S2010, Organizational change, Sydney, Prentice Hall. Rita, G2015, 15 years later, lessons from the failed AOL- Time Warner merger, Retrieved on 16th June 2015, from http://fortune.com/2015/01/10/15-years-later-lessons-from-the-failed-aol-time- warner-merger/ David, B2013, Organizational behavior, London, Rutledge. Daniel, C2014, when cultures clash, change management evolves into crisis management, Retrieved on 16th June 2015, from; http://daniellock.com/leadership/when-cultures-clash-change-management- evolves-into- crisis- management/ Burnes, B2009, Managing change, Sydney, Prentice Hall. Read More