The Change Analysis – Images of Change

Table of Contents

The Change Analysis – Images of Change

Comparison of Two Companies

America Online Background

Time Warner Background

AOL Image Differences

Time Warner Image Differences

Image Analysis Matrix (Change Grid)

Image Analysis Continued

Conclusion

References

The Change Analysis – Images of Change

As a company goes through a merger it must put together an implementation plan that includes a successful adaptation, adoption, and acceptance protocol to monitor and control resistance.  As the merger persists the inevitable changes will impact the current leaders, organizational structures, internal and external relationships, resources and existing policies and procedures.  These changes will push boundaries to include the organizations current work culture and operating standards.  This was experienced in with the AOL Time Warner merger.  This paper will cover the background of both companies, provide insight on how they compare to one another, overview of their differences, and analysis of their change images as they merged.

Comparison of Two Companies

America Online Background

America Online (AOL), an internet service provider, grew rapidly in the 1990s. Users grew by 500% between 1992 and 1995 with its market cap peaking at $222 billion in 1999 (Duggan, 2018).  After acquiring Moviefone and Netscape in 1999, AOL merged with Time Warner in 2001.

Prior to the merger AOL was led by Steve Case. In 2000 AOL set up the purchase of Time warner with a 55% shareholder ownership in the new company, AOL Time Warner.  In 2001, after the merger was approved, most executive positions within the new company, AOL Time Warner, were filled by AOL executives.  In 2001 AOL’s stock fell 50 percent (Munk, 2007). In 2002, after SEC investigations of inappropriate accounting practices came out, the stock price dropped to $8.70 or roughly 85% from the previous year (Bodie, 2006).  Time Warner executives started to replace AOL executives. In 2003 Steve Case resigned and the company was renamed Time Warner with AOL as one of its divisions. In December 2009 Time Warner spun off AOL all together and in 2015 Verizon purchased the remaining assets for $4.4 billion (Duggan, 2018).

Time Warner Background

The story of WarnerMedia, formerly Time Warner Inc. was birthed 1990–2001; 2009–18) and AOL Time Warner (2001–09), one of the largest media and entertainment conglomerates in the world. It was founded as Time Warner following the merger of Warner Communications and Time Inc. in 1990, and after becoming a subsidiary of AT&T in 2018, it was renamed WarnerMedia. However, for the purposes of this paper we will refer to the later of the entity, Time Warner Inc.  It consists of three major divisions: Home Box Office Inc. (HBO), Warner Bros. Pictures Inc., and Turner Broadcasting System Inc. Its products primarily encompass motion pictures and broadcast and cable television programming and distribution (Hall, 2018).

The name Time Warner came from the merger of Time Magazine and Warner Brothers Pictures. The initial film company was incorporated in 1923 in Los Angeles as Warner Brothers Pictures, Inc., by Polish immigrant brothers Harry, Albert, Sam, and Jack Warner, who had started out with a nickelodeon in Newcastle, Pennsylvania, in 1903 (Hall, 2018). Time magazine first appeared on March 3, 1923 and sold 9,000 copies. Its founders, Briton Hadden and Henry R. Luce, sought readers among the 1,000,000 college-educated citizens in the United States at the time. The magazine made a modest $700 profit in its second year of publication; by 1928 its profits were $125,000 on a circulation of 200,000 (Hall, 2018). By the time the merger talks began, Time Inc. was the third largest cable operator in the country, including its 23 percent stake in Turner Broadcasting System. Despite initiating talks in late 1987, the merger that created Time Warner was not completed until 1989, in part because Time Inc.’s executives delayed the merger until official investigations into the financial scandals of both WCI and Ross were cleared up. Ross shared CEO duties until early 1991 when Nicholas left the company. Ross died in December 1992, and Gerald (Jerry) Levin became CEO of Time Warner Inc (Hall, 2018).

AOL Image Differences

AOL was extremely successful in the emergence of internet service for consumers, and experienced rapid growth in a short period of time (15 years). AOL pushed the maximum stock price as possible under every situation. AOL anticipated growth that seemed unrealistic to many Time Warner executives (Munk, 2007). AOL was unstructured in how they executed meetings which lead to many unproductive outcomes of important decisions.

The Director Image of change management impacted AOL as loosely structured, but highly motivated to achieve monetary rewards. This was in stark contrast with Time Warner’s Director Image which focused on the disciplined blocking and tackling of daily execution without stretching financial objectives to maximize valuation at every opportunity. While a lose structure and high growth were very possible in the 1990s as the internet economy rapidly expanded, it became more challenging in the early 2000s as the economy faltered.  AOL expected to achieve the best possible results in every scenario and were not satisfied with the status quo. Growth was the top motivation within those in control of the company; not solid execution.

The Navigator Image of change management for AOL was to find out how to prop up stock prices and exploit them. AOL used questionable accounting practices from advertisers and new subscribers, all with the intention of making the valuation as high as possible (Bodie, 2006). The biggest issue with the navigation was the direction they were navigating to, which were short term fixes to keep growth and optimism alive.  Time Warner executives were not in favor of the AOL business approach or attitude. They favored navigating in the direction of a more conservative solution.

AOL’s Interpreter Image of change management was essentially to inform Time Warner that AOL was going to make everything better. They were taking over and would grow, what they perceived as a mediocre company, in AOL’s image.  AOL Executives tried to get Time Warner employees to understand their actions should be focused on whole company valuations and not their specific division.  AOL executives did not win the hearts and minds of Time Warner employees. Time Warner executives were skeptical of AOL growth forecasts. It became evident that the interpreter image of change was failing because the employees continued placing efforts in the old ways of doing business such as focusing on the success of their divisions rather than the whole company.  The new organization was led by AOL executives and named AOL Time Warner, but the culture at Time Warner never changed.  After significant losses, AOL was stripped from the name. Ultimately the parent company became Time Warner with AOL as one of its divisions and later AOL was removed entirely.

Time Warner Image Differences

In analyzing Time Warner and AOL, at initial glance it is very easy to see how different these two companies are based on the services they provide. Upon further research and analysis, the two organizations have much more in common. These two fascinating companies’ share many strengths and weakness as they approached their historical merger which was partially the reason they desired to become one. Time Warner’s leadership team has always prided themselves on remaining strategic while expanding their portfolio based on consumer demands, market trends, and industry performance. Time Warner’s desire to be the number one entertainment, media, publishing, and broadcasting service provider of all time has been quite the journey.

Time Warner has undergone many mergers Time Magazine, HBO, AT&T, etc. just to name a few. Each merger came with a different set of lessons learned. In this particular merger with AOL, as eloquently stated by Carlson, “Something old (Time Warner). Something new (America Online). Something borrowed (AOL will inherit Time-Warner’s long-term debt of roughly $18 billion). And something blue (AOL shareholders, who have seen the value of their AOL shares drop substantially) (Carlson, 2000). The failures are short-lived, Time Warner used each one as an opportunity to improve their business operations and prepare for the next big venture.  Shareholders of “new” and “old” economy companies mix about as well as oil and water.  A big part of making mergers work is all about successfully combining corporate cultures. The biggest sticking point — and probably the major reason many mergers create little or no lasting value for shareholders — is that cultures collide. This problem is magnified when “old” and “new” economy companies combine. (Carlson, 2000).

Since the AOL Time Warner merger, both have taken very different paths in their respective industries. Time Warner Inc. employs their industry-leading suite of brands to deliver high-demand and high-quality media worldwide through a variety of platforms. Current day, Warner Media (formerly Time Warner) continues to remain on the top of the consumer boards for their overall organizational strength to include quality of services, popularity amongst consumers, and strong financial portfolio.

Image Analysis Matrix (Change Grid)

Change Image Basis of Image Application to Company – Time Warner Application to Company – AOL Pressures for Change Differs From Others How? Unintended Consequences From Image
Director In a merger, with different cultures it is also important to create a new mission statement and company values or imperatives so both teams have a single understanding of where the company is going and what is expected of each member which will increase acceptance and adoption. Time Warner has always had a strong desire to become an organization that services all their consumer’s needs. Therefore, inquiring or merging with a competitor or an organization that does not provide the same service satisfies Time Warner’s strategic initiatives.  AOL takes over.  They were not going to focus on tradition or the structure of daily activities. They will grow at the fastest rate possible and save the day. As the world continues to advance, both organizations found that their portfolio would benefit from the merger. This acquisition would allow for them to own a big piece of consumer interests from media to services. The merger of the two has had a significant impact on how current day acquisitions are implemented. The many CEOs since the AOL Time Warner days has shaped their futures in a world full of technical innovative solutions. If AOL/Time Warner do not prepare their companies for the merger it will likely not be accepted and will ultimately lead them in a path of discovery outside of growing as one organization.
Navigator In a merger, resistance is expected, and each company has a responsibility to console those that are not comfortable with the change but be prepared and understanding for those that do not welcome it. Time Warner ‘s culture has always been strong, professional, and prepared for any change. The change that comes with a merger has the potential to shed light on the gaps or weakness within an organization.  AOL used every means possible to navigate legal ways to make their finances appear desirable to drive up stock prices. Time Warner/AOL has culture conflicts that could negatively impact how the implementation of the merger. The need to have a plan of each phase would be likely the best implementation starting from the top-down and encourage each member of the new merged organization to take part in the activities of becoming a single organization. This merger is different from other mergers because the magnitude of the impact it had on consumers, each company, and the nation. It was a competitive advantage acquisition that grazed the line of unethical due to it potentially causing a monopoly which is illegal in the US. The failure to properly socialize and console the change would potentially carry a burden in future change which would lead to an increase in resistance, partnership or merge opportunities, or the ability to operate at its current potential. Change be navigated with care, concern, caution, and contingencies.
Interpreter In a merger, it is necessary to communicate often with all levels of people in both organizations to decrease resistance, encourage acceptance, and lead by example. Time Warner leadership team have successfully merged with other companies prior to AOL. They approached the merger with a plan considering all aspects from new name to new services / products, and how-to rollout the changes.  AOL installed almost every senior executive position within the new company framework.  Those executives struggled to translate the new strategy to the Time Warner rank and file employees. The acquisition has to take in consideration new service limitations based on conduit and content discrimination in order to meet legal requirements. Other mergers may have similar implications, but what makes this merger significant is the amount of market share the two organizations have independently. The merging of two cultures, executive branches, and consumers requires diligence. If the merging entity does not meet the requirements from an organizational and legal perspective it will impact the mergers success and potential lead to federal fines.

Image Analysis Continued

The image that would best facilitate the change in this case is the navigator.  The navigator looks critically and identifies external impacts on the organization.  This includes changes in valuations due to industry wide and or market corrections.  The tech bubble bursting wasn’t a complete surprise and should have been part of any risk analysis attached to the merger.  Time Warner’s willingness to get in the middle of that high level of risk and let AOL take over at the tail end of the bubble shows Time Warner did not apply enough of a priority on this image of change.  They could have given more credit to the concern’s voices by those with the navigator image of change.

As a secondary image of change that had a large impact, the interpreter image of change could have made the difference between a multifaceted conglomeration and a tightly focused whole unit. With an organization this size and so diverse, it may not even be possible to get everyone on the same page.  Clearly each organization interpreted the situation differently and focused their efforts with different priorities.

Conclusion

At $147 billion, AOL Time Warner was the most recent largest media merger in history, combining the old-world assets of Time Warner with the new-world growth of America Online. Promises by the bankers that synergies would be worth upward of $54 billion within AOL and another $29 billion at Time Warner (merger prospectus) were quickly forgotten amidst the largest write-down in corporate history in the first quarter of this year. With the bad timing of a change in accounting rules, the combined company took a $54 billion charge to goodwill carried on the balance sheet as a result of the merger (BERNSTEIN RESEARCH, n.d.). The differences between the two infamous entities created a wave in the business world of mergers and acquisitions. Both had undergone mergers in the past, but not quite as big as this merger.

References

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