Glynn Davis explores cultural flashpoints liable to flare in a Morrisons-Safeway integration process
Morrisons might be close to the finishing line in the marathon takeover battle for Safeway but only when the deal is actually completed will the northern-based group find out where any serious mismatches and flashpoints exist with its rival in the south.
Richard Brown, managing partner of strategy consultancy Cognosis which analyses corporate structures, believes that although strategic differences between the two companies will cause problems during integration (see box), the main upheavals will be a result of cultural variations.
“I don’t believe any strategic issues are so serious that a sensible management team can’t work through them. But the success of a takeover is massively dependent on the cultures of the businesses,” he says.
Unfortunately, in the case of Morrisons and Safeway he predicts major cultural clashes: “It will not be a smooth ride and the potential for value destruction is high.”
This prognosis is based on the detailed analysis Cognosis has made of all the major supermarket groups. It found that Morrisons and Safeway have dramatically different cultures: “They are polar opposites. Morrisons is about consistency that is challenged by change whereas Safeway is constantly under change and inconsistent.”
According to Brown, Morrisons is a ‘guardian’ whose key characteristics include strong internal policies and procedures. This leads to consistency as it covets mandatory control and efficiency. Although this consistency has its benefits it can also lead to inflexibility that causes problems in situations where change is required.
Evidence of its aversion to change - and its dislike of accepting outside views - is its failure to stick to the promise to appoint non-executive directors that it made after its original bid. “The company is cast in the image of Sir Ken,” says Brown.
In contrast, Safeway falls into the ‘fixer’ category and delights at fire-fighting. It thrives on change, the downside being that by constantly changing it falls victim to inconsistency.
As a result of such cultural differences, Mike Dennis, food analyst at Cheuvreux, believes that the takeover will impact heavily on Safeway store managers. He says they are worried that working for Morrisons will bring an end to their autonomy and be replaced by “prescriptive and standardised” practices.
He suggests the managers of the 53 stores that Morrisons may have to sell would be “chuffed if they end up with Tesco or Asda”.
Brown agrees that a “substantial clash” would occur if Morrisons simply stamps its culture on Safeway. “If Morrisons believes it can spray Safeway employees with yellow paint, I’d expect a lot of resistance - passive and active,” Brown predicts. To avoid this, he recommends Morrisons jettisons its tendency to “order and direct - in the absence of listening” and implement a policy of wide communication. “People can quickly adapt to a new business model, but only if they trust a new senior team to treat them fairly and keep them informed,” he says.
Although it will clearly be a major challenge, he says the combined group would benefit greatly from “bringing together the buttoned-down approach of Morrisons with some of the extrovert qualities of Safeway”. He says this would produce a company classified as ‘expeditor’. These have a strong external-focused strategy that would give it the “ability to manage change and innovate while being consistent”.
This is exactly what Morrisons will aim to do, according to Clive Black, head of research at Shore Capital. “We expect it to assess where its business is best and where Safeway is best and then bring together these best parts from both businesses,” he says.
If it can do this - while keeping everybody informed - then the combined group can create, rather than destroy, value.
Mark Hughes, food analyst at Numis Securities, is confident the outcome of the takeover will ultimately be positive. “You could argue the two are worlds apart in strategy, execution and the way they are run and so there will be lots of issues. But we still believe Morrisons will do a good job and nothing is so large that it will be a major problem,” he says.
All that remains now is for Morrisons to make its revised bid. Until then, whether it has the flexibility to change some of its cultural spots and become a heavyweight top-four grocery retailer will remain an unknown quantity.
Morrisons might be close to the finishing line in the marathon takeover battle for Safeway but only when the deal is actually completed will the northern-based group find out where any serious mismatches and flashpoints exist with its rival in the south.
Richard Brown, managing partner of strategy consultancy Cognosis which analyses corporate structures, believes that although strategic differences between the two companies will cause problems during integration (see box), the main upheavals will be a result of cultural variations.
“I don’t believe any strategic issues are so serious that a sensible management team can’t work through them. But the success of a takeover is massively dependent on the cultures of the businesses,” he says.
Unfortunately, in the case of Morrisons and Safeway he predicts major cultural clashes: “It will not be a smooth ride and the potential for value destruction is high.”
This prognosis is based on the detailed analysis Cognosis has made of all the major supermarket groups. It found that Morrisons and Safeway have dramatically different cultures: “They are polar opposites. Morrisons is about consistency that is challenged by change whereas Safeway is constantly under change and inconsistent.”
According to Brown, Morrisons is a ‘guardian’ whose key characteristics include strong internal policies and procedures. This leads to consistency as it covets mandatory control and efficiency. Although this consistency has its benefits it can also lead to inflexibility that causes problems in situations where change is required.
Evidence of its aversion to change - and its dislike of accepting outside views - is its failure to stick to the promise to appoint non-executive directors that it made after its original bid. “The company is cast in the image of Sir Ken,” says Brown.
In contrast, Safeway falls into the ‘fixer’ category and delights at fire-fighting. It thrives on change, the downside being that by constantly changing it falls victim to inconsistency.
As a result of such cultural differences, Mike Dennis, food analyst at Cheuvreux, believes that the takeover will impact heavily on Safeway store managers. He says they are worried that working for Morrisons will bring an end to their autonomy and be replaced by “prescriptive and standardised” practices.
He suggests the managers of the 53 stores that Morrisons may have to sell would be “chuffed if they end up with Tesco or Asda”.
Brown agrees that a “substantial clash” would occur if Morrisons simply stamps its culture on Safeway. “If Morrisons believes it can spray Safeway employees with yellow paint, I’d expect a lot of resistance - passive and active,” Brown predicts. To avoid this, he recommends Morrisons jettisons its tendency to “order and direct - in the absence of listening” and implement a policy of wide communication. “People can quickly adapt to a new business model, but only if they trust a new senior team to treat them fairly and keep them informed,” he says.
Although it will clearly be a major challenge, he says the combined group would benefit greatly from “bringing together the buttoned-down approach of Morrisons with some of the extrovert qualities of Safeway”. He says this would produce a company classified as ‘expeditor’. These have a strong external-focused strategy that would give it the “ability to manage change and innovate while being consistent”.
This is exactly what Morrisons will aim to do, according to Clive Black, head of research at Shore Capital. “We expect it to assess where its business is best and where Safeway is best and then bring together these best parts from both businesses,” he says.
If it can do this - while keeping everybody informed - then the combined group can create, rather than destroy, value.
Mark Hughes, food analyst at Numis Securities, is confident the outcome of the takeover will ultimately be positive. “You could argue the two are worlds apart in strategy, execution and the way they are run and so there will be lots of issues. But we still believe Morrisons will do a good job and nothing is so large that it will be a major problem,” he says.
All that remains now is for Morrisons to make its revised bid. Until then, whether it has the flexibility to change some of its cultural spots and become a heavyweight top-four grocery retailer will remain an unknown quantity.
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