Culture Eats Strategy for Breakfast

While this quote is attributed to management guru Peter Drucker, Quoteinvestigator.com has other ideas. The 1985 book “Organizational Culture and Leadership” by Edgar H. Schein included a similar expression between quotation marks suggesting that it was already circulating. He also had this quote in his book:

“a cultural mismatch in an acquisition or
merger is as great a risk as a financial,
product, or market mismatch.”

Where am I going with this? I was in the supermarket line on Friday when a man and a woman put four 6-packs of beer and a bunch of bags of potato chips on the belt. I said, “Wow, party at your place!” and he said, “Yes it is, I founded a startup and it’s Friday, so we kick back early and I buy some brews to celebrate that we made it to the end of the week.”

Did that bring back memories? It sure did! When I joined Tandem back in 1980, I remember huge buckets of potato chips in the One Market Plaza office that I wasn’t allowed to touch. The admins (back then we called them secretaries), told me that there would be a surprise for me at the end of the week. When Friday at 4 rolled around, the potato chips came out, a stack of beer showed up delivered on a hand truck, and a dozen sales reps who I hadn’t yet met showed up. Yes, my first beer bust!

When I visited Cupertino for training, I was shown around and I remember a room called “The Swamp” which held two customer engineers, two hamsters (Perk and Elmer), and a keg refrigerator. Yes, I had joined an alcohol-fueled company which changed the world. And no other company would even get close for a bunch of years.

But fast-forward to June 23, 1997 and the laid-back, west coast Tandem was acquired by a Houston-based suit-and-tie gang called Compaq. Now I am fuzzy on a lot of the details, but I do remember that there were several cultural mismatches in this acquisition.  Some interesting rules came into effect for us Tandemites:

• No alcohol on campus
• Holding stock in a competitor was forbidden
• Macs would not be allowed on the Compaq campus (there were several stories of Tandemites having their Macs traded for Compaq laptops)
• Compaq tried to force their suit-and-tie dress code on Cupertino

A televised Q&A which was held in the LOC 100 cafeteria left dozens of us confused and close to tears. Tandem was a huge Apple shop. Since we made mainframes and they made desktops and laptops, we had a great relationship. Contrast that with Compaq, which was locked in a life and death battle with Dell. Company employees hated each other with a passion and there would be no way that a family would have members working for both of them at the same time. That would be like a Hatfield marrying a McCoy.

One Tandemite stood up to state that his wife worked for Apple and she owned Apple options and shares, and he asked what he was supposed to do. Compaq’s response was that at a minimum, she would have to sell all of her shares or either he or his wife had to quit because this was incompatible with their rules.

Three other culture clashes come to mind:

1. At our first big customer meeting after the acquisition, John T. Rose, Compaq’s director of sales, let our customers know that Compaq was here to help them move from “proprietary systems” to “industry standard servers.”
2. While Jimmy Treybig told his sales reps that he expected every one of them to out-earn him, Compaq capped sales commissions.
3. Reps also were told that sales cycles needed to move to 30 days from 18 months. Their view was that since they could sell tens of millions of dollars of PCs in a month, why did Tandem need over a year to sell a one-million-dollar machine.

As you can imagine, two things happened. Customers started talking to our competitors, like IBM and Stratus, and sales reps jumped ship, with many of them going to a storage startup called EMC2.

While rival Dell Computer had 55% growth in U.S. PC sales in the first quarter of 1999, Compaq could only manage 10%. On April 17, 1999, just nine days after Compaq reported first-quarter profit being at half of what analysts had expected, Pfeiffer was forced to resign as CEO in a coup led by board chairman Ben Rosen. The big changes were announced on Tandem TV by none other than Tandem’s ex-chairman Tom Perkins, who pulled a T-shirt over his dress shirt to show that the evil dragon had been slain. Several years later, Perkins led efforts to force Carly Fiorina out of HP.

While HP had some issues, don’t think that everything is doom and gloom, because there is a silver lining. The HP split into HP, HPE, HP Software and DXC had some benefits for the HP NonStop server. You see, HPE elected to retain NonStop when everything around it was disposed of. So when it comes to culture eating strategy, perhaps the new NonStop has finally found a cultural connection. And maybe, just maybe, this was the plan all along for Tandem. It was a long time in coming, but we’re back, baby, we’re back!

So, there you have it. A story of intrigue, mis-matched cultures, and a possible confirmation of Edgar H. Schein’s quote. I would love to hear other Tandemite’s recollections of the acquisition.

Ron LaPedis
Managing Director
Seacliff Partners International, LLC