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LEADERSHIP LAB

The challenge of merging new acquisitions with company culture Add to ...

This column is part of Globe Careers’ Leadership Lab series, where executives and experts share their views and advice about leadership and management. Follow us at @Globe_Careers. Find all Leadership Lab stories at tgam.ca/leadershiplab

There are two different kinds of acquisitions: ‘scale acquisitions’ and ‘bolt-on acquisitions’, and we tend to focus on the latter. We like to buy a technology and ‘plug it in’, because our sales force and distribution channel are second to none. The last six deals we’ve done were all about technologies or products that we wanted to own. In these cases, some of the management team stays with us, but we’re really taking on a new product and adding it to our existing culture.

These kinds of acquisitions have been pretty easy on our culture. The main thing you’ve got to be careful about is ensuring that quality standards are the same for both companies. You’ve got to do your due diligence. Bigger-scale acquisitions are more challenging for a company’s culture – and our acquisition of China’s leading orthopedics manufacturer, Trauson, is an example. With that 2013 acquisition, we decided to leave the company alone – not to ‘Stryker-ize’ it. Their advantage was a low-cost structure, so if we had added in our heavy cost structure, we would have destroyed that. If a company’s culture is very different from ours, we will pass on the acquisition. With a scale acquisition, the culture aspect can destroy the value of the deal.

There is actually a third category of acquisition, which is disruptive, and I would put our 2013 MAKO Surgical Corp. acquisition in that category. When I joined Stryker, it was difficult for our board of directors. The first acquisition was Trauson – our first-ever deal in China; and the second one was MAKO, which was a high-end robotics-based disruption. A lot of people were thinking, ‘Is this guy reckless? Will he just buy anything?’

With those first two acquisitions, I made it clear to the board that these were rare opportunities that we couldn’t miss. The strategy with MAKO was to differentiate us, because hip and knee-replacement products had become so good, across the board; we felt that there wasn’t enough differentiation with these products, and the way to achieve that was to look at how the procedures were done. Robots make the procedures even more consistent and reliable.

Frankly, that deal was challenging for us, culturally, because our sales force felt threatened by it. They thought it was going to make them less important, because they were out there in operating rooms, dealing with doctors every day – and now a robot was going to be doing part of the job. We underestimated their reaction, but we learned our lesson pretty quickly, and after about six months, we were able to get things back on track. That part of our business is now doing very well, but I would say that any time you do an acquisition of scale, you should be very attentive to the cultural aspects.

We recognized [the cultural hiccup] pretty quickly, and it was painful. We were very honest with Wall Street about why we were lagging behind where we had hoped to be. Honesty is critical with all stakeholders. With my people, I always ask, ‘How are things going – really?’ I don’t want to see a beautiful PowerPoint slide saying everything is great, if it isn’t.

The best companies have problems surface early. When problems surface late, that’s a sign of a culture that’s not transparent enough. Fortunately, our culture is one where people aren’t afraid to tell us bad news quickly, and I want to keep it that way, especially as we grow. That’s one of my biggest challenges, as we grow: to create a more intimate, small-company feel inside of a big company.

Without question, this culture fits me the best of all the companies I’ve worked for. I would advise people to be really sure when you join a company, that the culture matches you. I use a sports analogy: when you go to work every day, it should always feel like a home game. I was in China recently, and that definitely felt like an ‘away-game’ for me: I didn’t understand what any of the officials were saying, and I was surrounded by interpreters. You should never be in a position when you go to work every day feeling like you’re in an away game.

Kevin Lobo is CEO and president of Stryker Corporation. He holds a BComm from McGill University and earned his MBA at the Rotman School of Management in 1995.

As told to Will Mitchell. Reprinted, with permission, from Rotman Management, the magazine of the University of Toronto’s Rotman School of Management. rotmanmagazine.ca

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