AOL and Time Warner a Classic Failure

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    AOL-Time Warner: A Classic Failure

    A classic example of failure was the unsuccessful combination of AOL Time

    Warner.

    In order to resolve the litigation claims that resulted from the merger, Time

    Warner paid shareholders over $3 billion for misleading them about the value of

    the deal. Share holders suffered even more, as stock prices plummeted from the

    time the merger was first announced.

    A major part of the failure of this merger was the fact that developing a

    learning

    culture was never considered, and no strategic vision was created for the newly

    merged organizations. For example Time Warner Cables high speed Internet

    services, Road Runner, as part of its profitable cable operations was never

    integrated with AOL as Case explained in his 2005 article in the Washington

    Post

    (6/ 11/05: B01). The first AOL Time Warner Annual Report (2000) claimed

    that it

    was fostering a nimble, entrepreneurial culture that recognizes that it can

    only

    succeed if everyone supports the new organization based on a shared set of

    values and common goals. Unfortunately, the team-work necessary to integratethe two companies never happened, because there was no shared strategic

    vision of what the merger should be, and where it would be going.

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    Merger Failure and the Need for a ulture of LearningAccording to some estimates, 85% of merger failures are related to the

    mismanagement of cultural issues. Awareness of cultural differences is then

    seen as an issue of primary concern when organizations merge. According toMiller (2000:8):

    Once you develop an understanding of the current culture, and

    have compared that with the goals of the merged organization, it is

    time to think through what it will take to implement that strategy.

    This process requires consideration of a number of factors,

    including organizational structure, operating and decision-making

    apparatus, reward systems, and people related issues. From a systemic

    perspective, organizational culture is intended to create shared

    identity, shared purpose, and shared vision among organizational members so

    that they can together function with optimum flexibility and creativity in the

    realization of organizational goals and objectives.

    In our view, merger success can be greatly enhanced when organizational

    culture is based on learning. When this happens, continuous interaction with

    internal and external environmental changes can effectively and efficiently take

    place. Internal conflicts can be better managed, and necessary adaptations to

    changing environments can be made.