Incompatible DNA

Quick Summary: Different core capabilities may make a partnership look attractive but may backfire.


Fundamental operational and cultural differences may lie below the surface during the courtship phase of a partnering relationship.  On the other hand, the differences may be the primary reason the potential partners are attracted to one another.  The combination could involve access to another market or access to other resources.  Carefully weigh those advantages and the potential disadvantages that may be difficult to adapt to or overcome.

This subject logically belongs in the article 5.050204, “Partner Risks and Pitfalls.”  However, it is so important and yet so subtle, it warrants its own article. What sets it apart is its benign nature that usually does not surface until the partnership (or investment) has been made and the arrangement has become operational.  During early discussions, the difference in DNA may be obvious and perhaps even welcome.  However, when the actual combination occurs, friction is almost certain to occur with both parties absolutely convinced that “their” DNA or approach is better than the others.  Many times, these differences are referred to as cultural differences.  Sometimes they are, but in most cases, they can be fundamental differences in actual business operations and even business philosophies.  Unfortunately, in many cases, one party simply cannot adjust to the other’s methods.  Their reluctance may be based on historical differences that may no longer be relevant or may be based on processes and procedures that could upset the foundation of their business.  The article in this series, 5.050201, “David and Goliath Partners,” described some of the challenges faced with partnerships involving large companies (“Goliaths”) and small companies (“Davids”).  Aside from their size differences, incompatible DNA is quite common and a serious issue that needs to be carefully assessed by both parties.

Many mergers and acquisitions, as well as strategic investments and partnerships, fall victim to their incompatible DNA.  Examples include:

  1. Asking a commodity product sales organization to take on the sale of complex system sales and vice versa.
  2. Asking a company that primarily develops hardware to merge with a company that develops custom software.
  3. Asking a products-based company to merge with a services company.
  4. Asking a company that focuses on new, emerging markets that require channel development to merge with a well-established company with a stable and mature customer base.
  5. Asking a company with historically high gross margins to merge with a company with much lower gross margins but may be just as profitable due to a lower “below the line” cost structure.
  6. Asking a company with historically long product life cycles to merge with a company with much shorter product life cycles.
  7. Asking a company with low development costs to merge with a company with high and drawn-out development cycles.
  8. Asking a company that relies heavily on their intellectual property to merge with a company that focuses on out-executing companies that offer similar products.
  9. Asking a company with a direct sales force with long-term customer-sales rep relationships to merge with a company with multiple distribution channels.
  10. Asking a company that focuses on increasing market share (at almost any cost) to merge with a company focused on stable, short-term profitability.
  11. Asking a company that is focused on following rigid processes (for various valid reasons) to merge with a company characterized by its free-spirited, highly agile nature.
  12. Asking a company to discontinue a core product and embrace the partner’s product.
  13. Asking a company that requires little capital investment to merge with a company that requires considerable capital investments long before products reach the market.
  14. Asking a company with a recurring revenue model from a stable or growing customer base to merge with a company that primarily has a one-shot, upfront revenue model.
  15. Asking a company to revise their fundamental operational financial metrics to fall in line with the other company’s metrics.

There are many more dissimilarities that could be listed that are capable of creating new areas of friction.  The fundamental issues as listed above are often not immediately apparent or discounted with the rationalization the other party will be able to adapt to “our way” of doing business.  These issues may show up later with missed forecasts, alienated customers, high employee turnover, or differences in expected financial metrics.

We all know the axiom that oil and water do not mix.  Many of the issues listed above are similar.  Time will not fix them, and neither will compromises.  Often, the issues simply linger below the surface and can re-surface quickly with potentially devastating effects at any time.  In the anxiousness to form a relationship, many of these issues are easily discounted.  Always keep in mind that divorces can be very nasty, and the elapsed time in the troubled relationship can never be recouped.  Think long and hard about your DNA and that of your partners.  Do not be judgmental; accept the fact that there could be DNA differences that both of you may not be able to overcome.


Article Number : 5.050205   

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