Designing a Failure: AOL/Time Warner’s 10th Anniversary

Remember “synergy?” AOL Time Warner was designed to save money and make money. But it was not designed to be a true organization.

New York Times: Gerald Levin and Stephen Case in happier times

10 years ago, Time Warner aimed to blast into the 21st century by “synergizing” with America Online. The New York Times has a fabulous retrospective of the merger. In their teaser video, Robert Puttnam, former co-COO of the merged entity tells us:

The thing that makes a merger work is culture. These were two mergers of equals And now you’re trying to put two together and if the cultures aren’t somewhat aligned, you’re going to have problems. And we had big problems.

The article traces in historical detail where the merger’s economic logic went awry, but more importantly where it’s cultural integration went awry. The story provides first-person accounts of key milestones in the negotiations. Key are the recollections of key executives in Time Warner, who had been kept out of the loop until the deal was finalized. They were aghast. Don Logan, the head of Time Inc., said simply “The dumbest idea I had ever heard in my life.”

The entire article is a testament to “the power of the people,” in the sense that senior leaders can make all the change they want, but if they do not enrol the organization, change will never happen .¬†Culture is indeed the wild card in mergers. 45% of executives say their mergers are failures. 45%! That failure rate is astoundingly high, considering that improving success can be as simple as adding sociological inquiry to the pre and post-merger cultures.

I recently completed a sociological study of a merger for the express purposes of designing a new, cohesive, innovative organization. The key lesson I learned in that process is that truth telling about the organization’s true values is difficult but necessary. Cultures try to reproduce themselves, even if it means lying about their true values. Maybe an organization doesn’t actually value diversity. That truth needs to be told.

It was the conflict in values that brought down the merger. As one Time Warner executive told the NY Times:

I knew and I loved Time Warner. I saw it as a company with a vision and a set of values, and I saw AOL in a much less favorable light, much more opportunistic, made up of folks who were really trying to merely exploit the market they were in as opposed to developing something that was enduring, and I was very leery about this deal.

In the case of AOL Time Warner, AOL’s truth was that it set out to make money, not to actually “revolutionize” the media landscape. Telling this truth would have made the AOL culture much more authentic to the Time Warner culture, and may have actually saved the merger.


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