OD IN PRACTICE: WHAT'S YOUR CULTURE WORTH25

The founders of Setpoint had a pretty good idea of the sort of company culture they wanted to build. It didn't occur to them that what they came up with would become one of the company's most valuable assets. Steve Petersen,owner of his own company,Petersen Inc., with about 300 employees, says he had no particular agenda when he dropped by Setpoint for a visit. He certainly wasn't thinking about a merger. Setpoint was just another custom-manufacturing company employing only about 30 employees.Most of its revenues come from designing and building factory-automation equipment. He'd heard about some of the things they were doing with project management and open-book accounting. Setpoint's CEO, Joe Knight, took Petersen on a tour of the facility.At some point they wound up in the shop,where about 10 employees were working on half a dozen machines. Petersen noticed a large whiteboard off to one side. Scribbled across the board were about 20 rows and 10 columns of numbers forming a table of some sort.

THE BOARD

"What's that?"he asked. "That's our board," Knight said."It's how we track our projects and figure out whether or not we're making money." "How do you do that?"Petersen asked.Knight began explaining what the numbers were and where they came from. Then Knight stopped. "You know," he said, "you really shouldn't take my word for it. You should get these guys to tell you about it."He called out to one of the technicians and introduced him. "Would you mind explaining this board to us?" Petersen asked. "Sure," the young man said and proceeded to walk them through it. He talked about calculating the gross profit that he and his colleagues had earned the previous week on each project. He pointed out the column showing each project's gross profit per hour and explained the importance of keeping that number in mind. He said he also watched the ratio of overall gross profit to operating expenses,since that's how you knew if the company was making money.He added that he liked to see it running at about 2.0. "I was just amazed,"Petersen recalls."He knew that board inside and out. He knew every number on it.He knew exactly where the company was and where they had to focus their attention.There was no hesitation.He had great confidence in what was up there."Petersen continues,"I could see that the board was a cherished possession,and I was so impressed,not that Joe Knight understood it,but that the people on the shop floor had it down like that. It was their scoreboard. It was the way they could tell if they were winning or losing. I talked to several of them, and I just couldn't get over the positive attitude they had and their understanding of business. . . . I knew right then that Setpoint had what we needed,and somehow we had to get it."

MERGER NEGOTIATIONS

Shortly thereafter,Petersen began negotiating with the owners of Setpoint to acquire their business, their services, their management system, and their culture. Mergers are never easy, and the negotia

tions between Petersen Inc.and Setpoint have not yet produced one.Nevertheless,both sides say that some sort of merger is likely within the next year. Companies are bought for a limited number of reasons. "In almost every acquisition the buyer is looking for market share,earnings,cash flow,strategic advantage,or some kind of synergy,either alone or in combination,"says Sam Kaplan,president of Central Chase Associates LLC in New York City, who has bought and sold upwards of 50 businesses in his career,either on his own or with partners.Setpoint has little to offer Petersen in terms of those criteria.Yet Setpoint does have one asset that Steve Petersen, at least, would be willing to pay a substantial price fornamely,a particular type of corporate culture.

QUESTIONS

1. Is it reasonable to expect other manufacturing companies to be able to duplicate the culture that Setpoint has developed? Support your position. 2. Can culture be bought? 3. Would a merger destroy the culture of Setpoint?