Swiss Mix: A US Biotech Company Merges Internationally
About 10 years ago we merged an established Swiss company in the biotech laboratory field with a US start-up – I have to say that this was done against the will of the Swiss team.
The cultural differences could not have been any bigger. The Swiss team was heavily engineering focused and was lacking in creativity when it comes to new product ideas and had no direct access to its key market, as it was purely relying on indirect sales through distributors. However the core strength was the engineering execution resulting in cost efficient and very reliable high quality products.
The US start-up of course was super creative when it came to product ideas and had perfect access to the US market – the world’s largest market for research laboratory products. Purely intellectually seen the two organizations were perfectly complementing each other.
The cultural clash in the first two years was enormous and costing the team an enormous amount of energy. It was the very classic blame game: The Swiss had to re-engineer the product because the US execution was very poor – they were selling green bananas, the US was blaming the Swiss that they were unable to sell and market the products in the European market and all product ideas were coming from the US. In addition to the differences described we were facing the challenge that the members of the US management team were all shareholders, whereas the Swiss members of the management team had a pure short term incentive based on the financial results of a given year. As you can imagine the start-up was generating losses which were diluting the profit of the established business –resulting in a poor financial performance and therefore low STI components. So we not only had the cultural differences between USA vs. Switzerland, start-up vs. established business cultures, Engineering vs. Marketing driven teams we also had short term, purely managerial vs. a long term, entrepreneurial perspectives. I think my headache about how to solve this was part of my Forum Update every time.
What have we done to overcome this challenge: We stopped the STI program of the Swiss team and converted its present value at theoretical budget achievement for the next three years into equity. So the Swiss team members became shareholders and had no longer a short term incentive whatsoever. The whole team started to purely focus on the long term success of the business. Our holding company as the majority shareholder gave the commitment to finance the transformation allowing for fixing the technical and quality issues. I then have hired a YPO coach for a combined management team meeting – and he was really going deep. Together we analyzed the underlying issues and worst/best case scenarios etc. As an outcome of this we fully integrated the teams. The US sales manager became global sales manager, the Swiss R&D manager became global R&D manager etc. etc. The US core shareholder and former CEO had to take a step-up in the board since he was lacking the capability of leading an international execution team. Aside from this he became responsible for Innovation topics in the board of directors. Very much to my surprise he accepted this new non-operational role. The Swiss head of marketing was sent to the US in order to have a cultural bridge between the two locations. Unfortunately and much to my surprise none of the US colleagues was willing to move to Switzerland. Once we had clearly defined responsibilities with team members from both sides of the Ocean and all of the management team became shareholders the alignment was given. One of the key challenges of this system was that not everyone was used to leading teams across the ocean. Remote and cross cultural leadership of course can be very challenging of you are not used to. One last step was to convert long term loans from the Holding company into equity. In order to avoid a dilution all shareholders were given the possibility to participate in the capital increase – and guess what everybody participated in the capital increase by actually investing their own money into the merged business.
Me as the chairman keep pushing Innovation at every single board meeting, whats the pipeline of new product ideas, whats the status of the development projects, how are the products we launched doing? Ultimately this lead to Innovation becoming part of our core mission. I have to admit that our products and technology are no rocket sciences but they are the most innovative in the market and are simply a tick smarter and better than what the competition has to offer.
Once the company started to grow and make profits we were able to celebrate success stories. Our annual global management team meetings (about 12 people) become more and more also fun events in which we celebrated our success. By now we have good and true friendships in the company. We now have an extremely informal and customer driven culture.
Since we have done the merger we have grown the business by more than 10x! From a tiny player in the industry we have become recognized as the innovation leaders, we for sure are also the fastest growing player in our field. The CEO of one of our competitors (about 5x larger than us) in one of his management meeting was referring to us as their role model.
Two challenges remains though: first, how to keep a culture during times of enormous growth, how to ensure that people you recruit also fit and live your culture and second, since the founder generation is now retiring, how to transform this culture to a new and next generation management team. I guess managing a corporate culture in an highly dynamic business remains a top priority project.