THE BLOG
06/22/2016 01:58 pm ET Updated Jun 23, 2017

Why Corporate Culture Eats Strategy For Breakfast

A few years ago during a Bluedrop board meeting, I remember one of our directors at the time, Lecia Stewart, injecting some philosophy during an analytic discussion. She warned us to consider a truism based on the ideas of Peter Drucker -- "culture eats strategy for breakfast." While I vaguely remembered hearing this saying before, it surprised me in this context. We were talking about buying the major competitor to our Training and Simulation division. At the time, this phrase seemed a little distracting, if not indulgent. I believe Lecia's point was that we needed to put a lot more thought and energy towards ensuring that the combined culture of two different companies does not result in an implosion that cost us key people, clients or worse. That view was also shared by Carl Youngman, a special advisor to our Board who had run over 30 companies and been involved in significant acquisitions as a corporate turnaround specialist. Carl and Lecia both warned that that over 70% of corporate acquisitions fail... and getting the culture right a big factor in the ones that succeed.

In this case, Bluedrop's Training and Simulation division and its direct competitor, Atlantis Systems Corp., were primarily based in the same city, did the same type of work, shared many of the same clients and went to the same industry events. Both companies had roughly 65 to 90 employees, and many of the employees knew each other. In fact, many employees had previously worked together in the tightly knit Halifax marketplace. Our board agreed that there were numerous advantages that should make this acquisition wildly successful. After some discussion of the special synergies and connections between the two companies, all agreed that the cultural concern would be manageable in this case. We went forward with the acquisition and...it was wildly successful.

But still I was struggling to absorb Lecia and Carl's guidance. Could company culture really be more important than strategy? Or was this an esoteric, theoretical luxury that we could not afford to indulge? My instinct was that Drucker wouldn't raise this issue unless he felt this was something profoundly important. Carl explained that while corporate strategy changes as it is often driven by the customer, culture is much harder to change as it is driven by the people in a company-- and employee loyalty to culture is much greater than their loyalty to strategy. Every company has a culture; you can't touch it, but you definitely feel it. Cultures are unique to each company, like their own fingerprint and represent a unique mix of flavors on various scales. Companies cultures can be entrepreneurial or conservative, buttoned-up or relaxed, freewheeling or process driven, collaborative or territorial, creative or traditional, egalitarian or hierarchal and golden rule or 'whoever has the gold rules'. It got me thinking about the culture(s) within Bluedrops' divisions, but as the barrage of day to day financial, legal, HR and regulatory "stuff" began flooding our teams--cultures (and, for that matter even our breakfasts) took a back seat and were soon forgotten.

Months after the dust had settled from the acquisition, I was at meeting with some of our new staff who came from Atlantis--really smart and capable people. As I listened to their experiences and perspective...it suddenly all made sense. Lecia and Carl were right--culture was indeed the most important part of the acquisition of Atlantis. In fact, culture had already eaten strategy for breakfast. The very fact that Bluedrop was able to buy Atlantis in the first place was the irrefutable proof.

The Bluedrop Culture

First, it might be instructive to understand Bluedrop culture and why it gave us an insurmountable advantage. At the time, Bluedrop culture was (and still is) collaborative and focused on 'win-win' in all our dealings both internally and externally. That philosophy was there from its inception. Any company founded by a bunch of 23-year-old engineering graduates with no money/experience/contacts, needs to be good at getting smart people to join, feel a part of something bigger, and develop significant trust and alignment. I have always believed that I would rather lose money than do wrong by a client or a person. Certainly, I am not arguing that Bluedrop was utopia, or that there wasn't conflict and mistakes or people that weren't happy with us at times. However, culturally our approach arcs towards collaboration, finding mutually beneficial solutions, and honouring our word at all costs.
By the time I had spun out Bluedrop in 2004, I had still never worked anywhere else... I actually never learned any good or bad habits on how to run a company. So the slate was clean--and I filled it with my values and preferences. Till this day, I still passionately hate and resist office politics, am uncomfortable with too much adulation or deference, despise excessive bureaucracy, seek creative and 'out of the box' solutions. I still value risk taking and demand accountability and straight talk. I need to love going to work every day (and I do).

At this point, I hope you are not thinking--where is all this 'me, me, me' coming from. I generally do not have a "Trumpian" compulsion towards self-praise, but, for better or worse, to some extent...it was about me. Culture starts at the top. What I didn't realize until a few year ago was that my core beliefs and values as outlined above--always managed to infiltrate the way people acted and interacted at Bluedrop. Today, Bluedrop prides itself on hiring very smart people and providing them with a fast paced and responsive meritocracy. While we strongly value process, we don't want to be uptight. We are very interested in promoting and harnessing innovation. So, necessarily, that means allowing employees the freedom to make mistakes. We value people taking initiative and reward them as best we can based on their outputs versus inputs. We also seem to draw people who collectively want to make a difference in our world--by helping our clients with important work... and by participating in and sometimes driving external activities to help the less fortunate. Finally, and true to my core belief, Bluedrop still wants people to enjoy their work--life is too short not to.

What surprised me is that these founding beliefs and values formed almost a self-selection mechanism for employees. The people who joined, thrived, stayed around and got promoted are typically the ones who most embodied the prevailing culture. This culture also permeated how we dealt with our clients over the years despite rapid growth and less and less interaction between myself and dozens of new hires.

The Toddler and the Old Man

So, back to Atlantis. Bluedrop Training and Simulation was the young upstart in Atlantis' marketplace. We should have never been able to buy a much more established global player in this market. Atlantis was over 40 years old, it had peaked at $35M in revenues and had clients around the world. It had begun a slow and steady decline over the last decade, so much so that by the time we bought them their revenues had shrunk to $8M per year. Bluedrop on the other hand, only had 3 or 4 years of experience operating in Atlantis' industry. During the first year in Altantis' marketplace, we looked on with awe as we saw Atlantis easily secure large multi-year contracts almost as if it was their birth right.

My epiphany about culture became clear as I listened to a few former Atlantis employees tell me how much they now enjoyed Bluedrop. They talked of the difference in how the two companies approached them as employees--and how we took a very different tact with our customers. Apparently, all the relationships with former Atlantis clients had improved in the months since the acquisition. Not only had we not lost key people or clients--we had begun again to expand both. It left me wondering, what on earth happens to a market leader that allows an inexperienced competitor to establish itself in their market and grow to threaten and ultimately acquire them? The answer, I believe, is squarely rooted in company culture.

Atlantis had a privileged market position, exceptional people, decades of long client relationships, deep financial backing and a world class corporate résumé. When Bluedrop jumped into their industry, it was certainly with modest goals--I never dreamed a few years later that we would acquire them! My objective was to diversify our revenues, bring greater stability to our finances and people...and increase our opportunity to innovate. In fact, one of my first stops in our diversification strategy was to approach the Atlantis CEO at the time to see if they would consider using Bluedrop as a subcontractor. I remember I went in armed with a list of reasons why that would benefit them. While I was treated with respect, I can safely say that the idea was not taken seriously. We also certainly were not seen as a threat. Atlantis was doing just fine, thank you.

Disappointed, I was determined to find an inroad somehow into the Canadian Defence and Aerospace industry. Frankly, I had concluded that we could not survive the ups and downs in our current market without the long term multiyear contracts that were available in this market. Soon after, Bluedrop made investments to hire a couple of key people with strong industry experience. This was a monumental move for us at the time, as we were a relatively anemic $2M to $3M company. But as the saying goes, you need to "put your money where your mouth is".

Soon, we began to win a few small contracts and we worked extremely hard to do a great job. After a few years of slogging it out, we began to experience one of the most powerful business advantages that any company can experience. This advantage is 'soft' and hard to measure... but when it happens there is no mistaking it. In a word: Momentum. And this critical business advantage fits squarely in the realm of culture. With momentum on our side, we began to draw the attention of a few very senior industry veterans (including some from Atlantis) who were eager to join us. Shortly after, CAE Inc. of Montreal also gave us a big break and awarded us one, and then a second, multi-million-dollar contracts.

While Atlantis had every raw ingredient they needed to crush Bluedrop, it soon became apparent that they didn't have the ability to use all those ingredients to their full potential. That is what a superior company culture can provide--it allows companies to harnesses and channel the powerful raw ingredients that they possess. A strong company culture can be a source of huge advantage in the market and by contrast, weaker company cultures can paralyze decision making, demotivate employees, reward the wrong behaviours and/or destroy their relationships with their clients.

Why Bluedrop Culture Won

Why did Bluedrop possess a 'cultural advantage'? That is the big question--and the truth is I will never fully know. I can say that Bluedrop had local ownership and focus, whereas Atlantis' primary shareholders were a private equity firm based in Florida. Key decisions for Atlantis were made far away and likely focused on short term and purely financial objectives. On the other hand, Bluedrop had local decision making, a longer term perspective and a strong entrepreneurial drive--not to mention a strong sense of purpose and drive to succeed. The Bluedrop executive team also had very deep connections to our communities. So while Atlantis had superior raw ingredients, their bread failed to rise while Bluedrop's spilled over.

I would surmise that top heavy decision making, year over year cuts and contraction would help to shape a corporate culture that would find it hard to compete with a culture basking in growth, an 'us-against-the-world-ness' mentality, and momentum. As the resulting culture is not only felt by employees--but clients experience it very viscerally as well. Not surprisingly, as Atlantis spent year after year under fire and in decline, their approach to clients would have been very different in contrast to an ambitious, fast growing competitor which was eager to please. I believe that some Atlantis clients grew so frustrated with their relationship they began actively seeking out Bluedrop to create more competition. As Bluedrop increasingly became a credible competitor, Atlantis responded by pursuing very aggressive pricing as part of an all out battle to hold their market share. This created an unsustainable market dynamic that could only be fixed by having the two companies come together. So in that sense, it was not strategy that was at the root of our union--it was actually a cultural differential that created the environment for the strategy to be obvious.

A few years ago, Bluedrop was awarded with a Passion Capital Award along with respected companies such as WestJet and Canadian Tire. Reflecting the passion and character of our staff during what was actually a very difficult time, this award was perhaps one of the most significant presented to Bluedrop in its long history. The organizers of the award hold the view that corporate passion is a company's most important asset and it is my belief that passion is the fruit that comes from a positive corporate culture. Here's to hoping that strategy and culture can always sit together at the breakfast table.

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