From Rob Enderle, Enderle Group
Mergers are very difficult to do, and while Oracle is one of the best at doing them there are degrees of difficulty. On a scale of 1 to 10 the Sun acquisition by Oracle is likely an 11 and will probably fail. Whether it takes Oracle with it may be a question for a later time, but let’s explore why Snorkel appears to be trending back to becoming Oracle at some future point.
I spent a number of years in IBM as part of a merger cleanup team and we were very busy. Most mergers fail but they are so small, unless you are inside the company, that you never see it. The easiest mergers to do are between two profitable similar entities where the buying company is significantly larger. This allows fewer command and control problems and the folks driving the companies together can treat the addition as minor adjustment in the product set and drive product lines and infrastructure together at their leisure. Having said that a surprising number of these easy mergers fail because of conflicts over products, or responsibilities don’t get resolved timely or well. This is kind of like jumping from one horse to another while both are close together and going in the same direction.
The hardest mergers to do are between two large companies who are dramatically different and where one or both are doing poorly financially. Sun is not at all like Oracle and was in extreme financial distress prior to the merger. This is like jumping from one horse to another while nether is going in the same direction, one of the riders is drunk and falling off his horse, and the horse isn’t a horse at all but an out of control merry-go-round. Degree of difficulty is off the chart because no aspect of this merger will go as expected. In this case, the Oracle executives will spend much of their time simply trying to figure out the related problems.
As merger degrees of difficulty go, this would be an 11.
Typical Problem One: Preordained Due Diligence Process
There are typical problems with every merger that exacerbate this one. One of them is the tendency to focus on getting the deal done and not on deep due diligence. When someone of Larry Ellison’s stature says to get the merger done, the staff of that company is going to focus on exactly that and likely miss, or cover up, substantial problems that might have had them otherwise recommending walking away from the deal.
In a marriage or a merger that kind of attitude can lead to a really nasty string of events, and we seem to be seeing that string of events play out through this early massive layoff sequence. When people are focused on closing a deal rather than vetting it the vetting comes late, in hindsight and with regrets.
Typical Problem Two: Image over Reality
After a bad decision is made there is typically a lot of effort put into making everyone believe the bad decision was actually a good one. This is problematic because problems tend to get covered up at lower levels and only escalate once they no longer can be contained. This tends to result in cascading failures that rip up through the company as each problem only moves up in level once it has effectively exceeded the authority of the level has been escalated to. By the time it makes it to the top it has grown to such proportions that even the CEO can’t deal with it and the result is a meltdown. In Oracle’s case, and the massive size of this latest layoff showcases this, many of these problems could become so large they risk Oracle’s survival. At the core of this problem is the unwillingness to admit that the merger was a bad idea and to either think about spinning Sun out again or resourcing the effort to a level that will assure its success.
Typical Problem Three: Inadequate Merger Plan
A merger plan needs to be broad enough and flexible enough to compass the major problems, including staff retention that will occur as the companies are put together. However if the due diligence process, which forms the foundation for this plan, is inadequate and managers are unwilling to report major problems when they are discovered the merger plan will be woefully inadequate and fail. The massive surprise layoff would indicate that the plan is both inadequate and failing likely due to the fact that it has not been founded on management practices that would assure its success.
Wrapping Up: The Emperor has No Clothes
There are two major difficulties with this Snorkel merger; the first is that mergers of this type and scale almost always fail. The other is that companies don’t like to admit they made a mistake, and given the size of this one the problems tend to fester and become far more damaging than they otherwise might before someone takes corrective action. IBM/ROLM, AT&T/NCR, and AOL/TIME Warner were each easier mergers than what Oracle is attempting because the acquired companies were in reasonably good shape and not on life support. Yet each failed and each did substantial damage to the parent before the mergers were eventually reversed. This is because at the outset the mergers were designed to fail because they weren’t designed to succeed. The desire to do the acquisition simply exceeded the desire to do it successfully.
Rob Enderle, Principal Analyst