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Lack of brand and culture considerations causes major M&A failure

This article was originally posted on The Pharma Letter. 

In an Expert View column, Helen Westropp, managing partner of branding agency Coley Porter Bell, describes how tens of millions of dollars are wasted in M&A deals every year when acquirers fail to understand the value in the brand and culture of the business they are buying. This is particularly the case in pharma and biotech businesses. 

Close to 90% of all M&A deals never get off the ground. And seven out of 10 fail to create long-term shareholder value (according to KPMG). This is often because there is a concentration during M&A deals on the hard factors – extensive due diligence and attention to market considerations, financial calculations, cost-saving opportunities, balance sheet and legal issues – while brand and brand strategy is often overlooked or only evaluated post M&A.

The ideal time to consider the real worth of soft factors, such as brand, culture and people is during due diligence or even better when the target has been formally selected and vetted, rather than later.

So far, 2018 has been the strongest year in a decade for pharma M&A and remains on track to be 50% more by value than the previous year (source: Financial Times). This is for a myriad of reasons – from drugs coming off patent to pharma companies’ perennial search for the next generation of market leading medicines.

Celgene (Nasdaq: CELG) paid $9 billion for Juno at twice the value of its stock a week before the announcement. Novo Nordisk (NOV: N) purchased Ziylo, a small UK biotech company spun out of the University of Bristol, in an unusual deal that both parties said could eventually be worth more than $800 million if a series of milestones are met.

High M&A failure rate.

These are striking examples of a trend that seems set to grow – namely, high-stakes partnerships between stalwart incumbents and disruptive minnows.

Most M&A in pharma and biotech is about expertise, pipeline, portfolio synergies, portfolio expansion or market share. With competitive service providers within the same fields looking to gain more market share and benefit from the synergies inherent in a partnership or merger. While large and mid-size pharmaceutical companies, on the other hand, constantly faced with the pressure to refill their drug pipeline, are continually relying on acquisitions or in-licensing from smaller biotech companies to gain access to new innovation in general, and more innovative drug candidates in particular.

But it’s worth noting that, historically, a high percentage of M&A deals never get done and most that are completed do not result in long-term shareholder value.

Why is the approach of looking at brand and culture later in the process, flawed? While pharmas and biotechs work toward the same basic objectives – they are very different in nature. Biotechs are often smaller and more flexible than pharmaceutical companies and their most coveted assets tend to be their scientific minds and proprietary technology. Pharmaceutical companies’ contributions to partnerships are more often based on regulatory, sales and marketing expertise.

So the process of due diligence, or even better during the initial consideration, rather than when the target has been formally selected and vetted, is the ideal time to consider the real worth of soft factors as well, such as brand, culture and people.

According to KPMG research (The Morning After; Driving for Post Deal Success), 92% of business executives surveyed admitted their deal would have substantially benefitted from a better cultural understanding prior to the merger.

Targeting partnership ‘bliss’

This means focusing on elements such as organizational structures and ways of working; the type of culture in the companies involved – is it fast or slow; does it focus on long-term sustainability versus short-term profit (one of the most common reasons for failed mergers); is it top down, hierarchical and formal versus informal; is it ‘corporate’ versus progressive ….; and how do we ensure staff won’t feel distrustful, disillusioned or disenfranchised during the M&A process.

To achieve partnership ‘bliss’, before finalizing the deal, each party must truly understand the other’s business, the value proposition each brings to the table, and, importantly, the subtle nuances (such as corporate culture) that can ultimately make or break a deal. That way it will provide a better idea of the challenges that will be faced during the integration process and whether/how those differences are surmountable.

It also means focusing on answering early on the critical questions: what are the inherent brand equities of what we are acquiring? When we own this asset, what are all the ways we can create value with it? What are the untapped growth opportunities of the acquired brand or the combined brands to provide long-term benefit?

So, often in M&A, we have seen brands that were the very reason for the acquisition being weakened or destroyed because of a lack of understanding of what the brand stood for rather than just its financial worth. They end up destroying the very things the brand was bought for in the first place.

Bring brand into business strategy discussions.

However, despite the current failure rate for M&A, the outlook needn’t be so grim. Brand strategists can help decision makers have the right conversations and ask the right questions at crucial (and often difficult) moments of the M&A process.

The key is to bring the brand into business strategy discussions in advance of the deal and carry it forward well past the transaction itself into genuine integration.

Incorporating brand at all phases of a merger, from discussions to implementation to integration, undoubtedly forces difficult discussions and decisions but it ensures that people act in direct response to their business strategy and their unique position in the market.

Companies that are willing to spend the additional time and effort addressing organizational culture and brand and thinking about how they will integrate these prior to and during due diligence are more likely to achieve the sort of growth and efficiencies they are seeking through mergers and acquisitions.

With some forethought and planning, there are ways to avoid costly mistakes and retain the assets that made the target so attractive in the first place.

The science behind neurodesign

How does Disney make things disappear? Why should you box in red? And what’s the link between beauty and your website? Our Executive Creative Director, James Ramsden, and Planning Director, John Clark, look at why – and how – neuroscience can supercharge the world of design.

Understanding how people decode the world and make decisions is essential to building successful brands – particularly in design. If you want to create brands that engage, cut through and success you need to understand how people decode the world and make decisions about brands – particularly at an intuitive level.

Thinking fast & slow

There are two systems of the brain: System 1 is automatic, fast and unconscious while System 2 is effortful, slow and controlled. System 1 is the Ferrari of thinking compared to System 2. The speed of System 1 is what makes for what feels like intuitive decision making.

Thinking about this in terms of design, research shows we can decode images without actively looking at them. So, even though we aren’t always engaging with visual images, we’re still processing them and getting meaning from them without even knowing it.

For example, people can tell within a tenth of a second whether something is natural or manmade, an indoor or outdoor scene. For design, this means that the best content will be poorly received and interpreted if we don’t pay attention to aesthetics in the overall design.

Visuals are the dominant language

System 1’s dominant language is visual. It takes in all the information from the senses but 90% of what it processes is in the visual realm. This is important for design. Colours hit the eye in very different ways – this is the reason why red and blue are difficult to see beside or on top of one another.

There are evolutionary contextual learnings to this, particularly with the colour red in the West. Research shows Olympic competitors are much more likely to win in combat sports if they’re wearing red than if they’re wearing blue, for example.

All of these rules add up to help us decode the world quickly, based not really on what’s there before us, but what we expect. We can use these things to trick the brain as James explains. The heuristics in our brain conspire to tell us what should be there rather than what exists.

Design heuristics

There are heuristics and rules of thumb that, if understood and leveraged, can give our brands the edge to succeed in the real world. There are three key rules:

1 – We learn by association. So, if you’re wanting to associate your brand with a particular idea, you can look to culture to see where those ideas start to show up and use this association.

2 – We are hard wired to humanity, all of us are naturally drawn to things that feel like they have human qualities. In the world of design, we can attribute certain characteristics or human values to brands.

3 – We assemble visual DNA. We don’t see the world as whole images but more as a collection of smaller images. We construct a whole image from component parts. Understanding visual DNA helps us understand and answer common questions including how similar or different should a subbrand be from a masterbrand or how to reposition a brand whilst still having it remain recognised.

When it comes to brand acquisition, the first rule is “do no harm”

Soft-drinks began their life in the 19th Century as sugary cordials marketed first and foremost as health tonics. And nearly one hundred years later as the less salubrious effects of sugary drinks becomes an ever greater commercial challenge to the category, a new brand acquisition sees Pepsi acquiring Soda Stream – a product that allows individuals to effectively blend their own effervescent libations either with Soda Stream’s own range of flavours or get more creative in making flavours themselves.

From an acquisition point of view, the product represents a number of compelling category trends that are valuable to Pepsi – the rise of everyday products being reborn as “craft items” to be enjoyed as premium connoisseurship, the ability to use less packaging, ostensibly healthier drinks and a powerful recurring revenue stream akin to that of Nespresso. Moving from the supermarket shelf or fridge to the heart of the kitchen with a more upmarket customer also represents a powerful potential opportunity for Pepsi.

But in other ways, Soda Stream sticks out like a sore thumb. Pepsi’s mainstream snack and drink brands like Doritos and the eponymous cola are the kinds of things that Soda Stream’s audience would likely reject in hand and it’s not hard to imagine Soda Stream customers reacting with huge disappointment at the news. Soda Stream’s offer fits well with millennial culture whereas Pepsi is establishment and old-school by comparison – with many products that fall afoul of increasingly health-conscious consumers’ changing tastes. Soda stream’s approach to channel distribution, price point and premium marketing communications are markedly different to that of the FMCG giant. Pepsi will need to tread with care in terms of how it manages its shiny new brand to realise the return on its investment and make up the 30% premium it paid for the business.

From cultural integration, to distribution to brand management and commercial metrics and targets, Soda Stream needs to be nurtured and incubated. Treated with care, Soda Stream has the potential to be a Trojan Horse for a business intelligence and competencies that may not be second-nature to Pepsi today – a long term return-on-investment that is far more valuable than any sales metric. In the meantime however, the fact that Sodastream announced its best ever quarterly performance on the eve of the acquisition suggests that Pepsi should be more than happy to let the company do what it does best in the short term, with minimal interference.

Brands and bots: The new age of beauty…

Over the last few months I have noticed a lot in the news about AI technology. Life-like influencer bots have been created digitally to sell fashion and lifestyle brands like Opening Ceremony, Supreme and even their own merchandise by interacting with consumers and fans through Instagram. It first came to my attention when social media influencer, Lil Miquela, was revealed as actually being an AI bot. Another AI influencer named Bermuda (created by competitor company Cain Intelligence) hacked into Lil Miquela’s account and revealed to her 1.4m followers that this ‘person’ wasn’t real. Fans were outraged that Lil Miquela and her creators had been lying to them, and although this caused a backlash within the community, this also started a conversation and put these new tech companies on the map.

I found myself asking how this could possibly be real. It was scary to realise that a technology company could fool 1.4m people into thinking that a bot was a real human. My mind was blown.

After some digging, I discovered that Lil Miquela’s creators are part of a highly intelligent company called Brud.fyi. They actually create AI bots with conscious minds, which are able to think and make their own decisions. This kind of technology meant that Lil Miquela could live her fake, online life without conscious input from the company that made her.

This technology didn’t fool everyone though, some eagle-eyed fans did start to question her existence. Did people not care that she was a bot? Did it not matter, as long as the aesthetic of her photos was perfect? Once the secret about Lil Miquela was out, Brud.fyi decided to buy Bermuda from its rivals. They gave her a pixel perfect makeover and relaunched her as their own. Not only were people commenting on Bermuda’s beauty but, but they also were complimenting her new level of render, interacting with her as if she was real. Whether our ‘perfect’ idols are real or not doesn’t seem to matter anymore.

Bermuda before and after her makeover 

Fashion label Balmain recently launched its very first campaign with AI models as the face of it. After seeing the controversy with Lil Miquela I questioned why such a highly influential brand would do this? Where do we draw the line in our quest for perfection? And how will this new technology affect younger generations?

These days, even the real people we see online already come with photoshopped complexions and face-tuned features, so what is ‘real’ anyway? This is simply just another example of unachievable beauty standards.

In comparison, we are also seeing a rise in ‘real’, with brands taking a stand and having confidence with a voice of their own. Boots have moved into this area with their recent faceless ad campaign highlighting how beauty makes you feel rather than look, with a range of non-professional models. ASOS are now putting a stop to editing their models with visible stretch marks and scars, making the brand feel more relatable to the consumer. There has also been a rise in influencers like Megan Crabbe, with her 1M-follower Instagram account, ‘bodyposipanda’. She is undeniably herself and is the queen of body positivity and a huge influence to many women of all shapes and sizes.

The art and technology that goes into these bots is fascinating, but with it brings concerns around younger generations feeling the need to be pixel perfect. The Balmain campaign is beautiful, and to some extent shows inclusivity, but why not celebrate diversity with real models? Technology is all well and good but what about the social responsibility these brands have?

It’s an interesting discussion, and one that I’m sure will develop over the next few years to the point where we could even start to see moving, talking bots on our TV screens.

Bots VS humans. Whose side are you on?

The value of out-of-category learning

The best innovation often comes from looking at categories outside of your traditional competition or frame reference. Next-generation property player Wework is just one recent example of this, although its founders would probably blanch at being described as “property”. It’s impossible to understate just how hot their brand is. Valued at $20 billion, it’s more hotly tipped than a variety of long established property groups and with 250,000 members in 72 cities its growth curve is meteoric.

Wework’s genius has been its ability to create a buzzy, club-like community vibe that has proved both attractive and valuable to a growing generation of start-ups, creative professionals and the self-employed. Whereas traditional property brands think in terms of tenancy and facility management, Wework’s reference points have been members’ clubs and boutique hotels with their talent for feel, experience and community. But beneath the cleverly orchestrated atmosphere, the model is deceptively simple – make the basic service affordable and charge generously for the extras.

But as demand for flexible working spaces grows, Wework’s model of “real estate as a service” is being widely copied and spawning an industry of “co-working” spaces. The Wework brand therefore cannot maintain its differentiating vision of being the home to thriving businesses if it competes solely on price, flexibility, location and cooler sofas.

That’s why Wework’s recent acquisition of Designation – a Chicago-based design school is so interesting – and smart. The brand is recognising the “real estate as a service” model it has invented must evolve into something else that can increase loyalty, differentiation and crucially higher margin upsell to its members in the future. If the previous brand borrowed from the world of hotels and members’ clubs, it’s now taking inspiration from venture capital brands like Google Labs or Ycombinator by looking to shape, mentor and grow its members’ actual businesses – a brand differentiator that is more emotive, aspirational and crucially, harder to copy. That said, to truly position itself as interested in the wider growth of its members, Wework will have to look deeply at and invest in the human side of its delivery model and brand culture to truly foster a values-led service ethos that doesn’t start and end with flat whites and Scandinavian furniture. It’s increasingly in the business of culture and consulting rather than merely a more flexible property model. It’s a brave leap and an exciting one for one of the world’s true brand innovators.

Mozilla rebrand Firefox (again)

Following their brand refresh last year, Mozilla are once again revisiting their brand identity and, in keeping with the spirit of the organisation, are openly asking for the design world to critique the work. Our Creative Director, Dean Field, responds.

Mozilla Firefox is a free and open source web browser developed by the Mozilla foundation. Available for windows, MacOS and Linux, and multiple mobile platforms it is the second most popular web browser in the world.

The rebrand in 2017 was largely successful and well received amongst the design community. The Firefox logo was one of the world’s most recognisable browser logos, and could afford to be updated. A cleaner, bolder, simpler graphic update with fewer details and increased vibrancy worked better at smaller sizes and the ability to change skins for different Firefox branded products was clever, nicely crafted and well executed. The updated wordmark however, was not as successful and lost some of its personality and boldness in its approach.

Overall, it was a modern, crisp evolution that retained the ‘flaming fox’ personality that ardent Firefox users know and love.

Cut to the present day, and due to the growing range of new apps and services Mozilla Firefox offer, they have created a whole new set of icons and a new master brand logo.

The company has suggested that there isn’t enough visual equity in the existing mark to represent the new product family. So, an internal team made up of product and brand designers have adopted a system-based approach. They have created two design systems and are openly asking for feedback from the design community. So, here goes…

There is a clear tension here that is evident in both approaches. There is a brand architecture issue to tackle, and it’s fighting with the need for attribution and the fear of losing equity in the ‘flaming fox’ logo.

Mozilla has demoted the existing master brand logo in the architecture, and created an entirely new one, along with a new suite of icons that share the same visual DNA for the new apps. However, their reluctance to significantly change the flaming fox device and reluctance to borrow from it for the icon suite, means they are at odds with one another.

The result in my view, is two systems that don’t quite deliver.

System 1 has a master brand logo that feels very corporate and lacking in personality and character, it’s ambiguous and has been described as a ‘down arrow’ or a ‘pen nib’ in the open feedback, similarities to Gitlab and Voxmedia have also been flagged. The icon suite shares the same visual DNA and works well. However, the web browser logo which is another refresh feels completely disconnected and not part of the same set, it bears hardly any resemblance to the other icons in the suite and no resemblance to the master brand at all.

System 2 has a master brand logo that has focussed on a single part of the original and has become more of a globe than a fiery tail, losing the ‘fox’ element. The web browser icon shares the same visual DNA and works well and will be familiar to users. However, the icon suite feels completely disconnected from both the master brand and the web browser, like an add on or an afterthought.

My solution – leave the firey fox logo that everyone knows and loves, as the master brand logo. And create a new icon for the web browser that is aligned with the rest of the suite that sits underneath the master brand. Interrogate the firey fox device fully, and look to borrow any visual cues you can to create your new icon suite.

Sounds simple enough, but with typography, graphic patterns, motion, naming, events and co-branding still to consider it’ll be interesting to see how it all unfolds, and whether Mozilla genuinely take on board the thoughts, varied opinions and comments of the wider design community.

Journey Beyond the Senses: How understanding neuroscience can make you a better wine connoisseur.

We recently hosted a wonderful wine tasting evening here at Sea Containers. Though it wasn’t just an excuse to drink wine, we promise! Guests enjoyed a variety of immersive wine tasting activities that stimulated the 5 senses, to understand how the brain affects the way we taste and perceive wine.

Smell

The brain is a master of pattern recognition. We can recognise someone’s face from just a small sliver. But if we try to describe that face, language proves a blunt tool.

The same can be true when describing aromas! Smell is the only sense that connects directly to the limbic system, the unconscious part of our brain involved in emotion and memory. That’s why smells can be so evocative even if we can’t consciously articulate what or why – proving smell is not to be forgotten when creating a brand environment.

If you’ve ever walked past an Abercrombie & Fitch store, you may be familiar with a certain fragrance in the air which you can smell from the end of the road. The same goes for Subway sandwich shops, the inviting smell of their bread is unmistakable and instantly tells passers-by that Subway is near.

See

System 1 (the intuitive part of the brain) dominates over System 2 (the thinking bit) when it comes to decision making – and 90% of what System 1 takes in is visual. The colour of wine unconsciously primes our brain, helping us anticipate and deconstruct the taste experience, and drives our flavour vocabulary. ‘Impact aromas’ are the chemical compounds responsible for certain pronounced aromas; however, the colour of the wine can change how we describe the exact same compound:

ROTUNDONE: described as ‘black pepper’ in reds but in whites it’s described as ‘white pepper’.

DIACETYL: described as ‘buttery’, and ‘creamy’ in whites, whereas for reds it’s likely to be described as ‘velvety’.

VANILLAN: from oak aging, is typically described as vanilla, or even coconut in whites, but in reds it could manifest as chocolate.

For example, if you were to taste a brown-coloured pudding, your brain might tell you it was chocolate, even if there was no chocolate flavouring in it.

Hear

Gastro-physicist Professor Charles Spence argues that at least half of our food and drink experience is determined by forgotten flavour senses including sound. Consider that at the Fat Duck, one of Heston Blumenthal’s most consistently popular and memorable dishes since 2008 is a seafood dish, served with the sounds of the sea played through earbuds which are connected to a giant shell. The humble ‘Patagonian Toothfish’ enjoyed a 1300% increase in consumption when it was re-named to ‘Chilean Seabass’. It’s also proven that food tastes sweeter with higher pitched music. The list of researched examples is ever-growing.

The devil really is in the detail here, driven by the science of thin slicing: the ability for the brain to extrapolate large amounts of information from tiny details. Something to remember next time you wonder whether you should sweat the small stuff…

 

Touch
Just as sound can be translated into spatial imagery, can we do the same with wine? Neuro-enology shows us that our sense of smell works in a similar way to vision; the brain constructs spatial patterns; ‘aroma maps’, much like the visual cortex takes visual stimuli from the retina and creates images by identifying contrast, shapes and outlines. These spatial patterns of aromas, although we are not aware of them, are the first step towards our conscious perception of aromas. Using a Google Tilt Brush, guests were asked to taste different wines and draw what they think the wines would look and feel like if the taste was a 3D shape.

Taste
Does coriander taste like soap to you? Can you tolerate spicy food? There are plenty of examples of how sensory physiology varies. The number of taste buds on a human tongue can vary from 2,000 to 8,000, and their sensitivity can vary too. This calls into question the notion of wine scores, or objective assessments. You must be your own expert on what you like, and what gives you most pleasure.

For example, 25% of the nation are ‘super tasters’ and 25% are ‘tolerant tasters’. As a tolerant taster you may be less likely to suffer from negative interactions from certain food and wine pairings, and may take pleasure in wines with pronounced tannins that others would not enjoy.

 

You can apply similar neuroscience techniques to understand how people decode the world and make decisions about brands. Our approach to brand creation and brand design uses learnings from neuroscience to understand how the brain has an impact on brand perception. For more information, get in touch at hello@cpb.co.uk.

How private banks can appeal to a new generation of investors

The profile of the traditional private banking customer has changed dramatically. Whether it’s increased competition from fin-tech start-ups, or the rise of crypto currency, traditional institutions steeped in heritage are no longer automatically on the wish lists of young entrepreneurs and agile investors. Not only do private banks need to engage a whole new set of millennial customers, they need to re-evaluate their traditional approach to brand strategy and design to capture the imagination of the next generation.

Click here to check out our latest thought piece for Global Banking and Finance (turn to page 40). Our planning director John Clark talks about how private banks can rethink their brands to appeal to a new generation of investors.

The role of neuroscience within design

Our CEO, Vicky Bullen, talked to OnDesign Podcasts about the role of neuroscience within design, the importance of diversity to the creative industries, and the qualities that make great design leaders.

You can listen to the podcast here.

Transform Award

We are thrilled to announce that we won a silver Transform Award in the ‘Best Visual Identity In The Healthcare & Pharmaceuticals Sector’ category for our work on Lonza Pharma & Biotech!  It was an inspiring night spent celebrating some of the best design work from the past year.

We created a visual identity designed to engage customers, energise staff and position the brand at the heart of a greater endeavour, the ongoing quest for medicines to make a better world. We then brought the brand to life across multiple touch points and media, including photography and film. Lonza Pharma & Biotech now have a powerful brand driving them forwards. They can reach out to customers with confidence, attract the talent they need, and see the road ahead clearly. The new brand has helped them get much closer to their goal of of being the world’s leading solutions provider in the pharma and biotech industry.