Bringing together cultures after a merger or acquisition is essential for the success of any new business entity. Depending on the nature of the agreement, it’s an exciting opportunity to bolster an existing culture, fuse the best of both, or create an entirely new one. Whatever your organisation is trying to achieve strategically, getting the cultural integration right can pose many challenges.
In this blog we will look at the biggest obstacles we see organisations face when merging cultures, outline steps you can take to overcome these, and showcase the signs your merger has been successful.
What are the biggest cultural challenges when it comes to mergers and acquisitions?
1. Leaving it too late.
The first challenge we usually encounter is that organisations consider culture at too late a stage, either towards the end of the due diligence process or after the deal is done. It’s never too early to look at culture – it should be a central part of any deal analysis.
2. Accepting statements at face value.
Even if culture has been considered as part of the due diligence, it’s often not been looked at deeply enough. Companies accept culture statements at face value, rather than checking they are the reality. This can cause nasty surprises further down the line.
3. Clarifying the culture strategy for the combined entity.
Being clear about what type of culture you need to support your strategy, and specific on the behaviours, systems, and symbols that will form it, is critical. This means understanding the culture work that needs to be done and putting in place the resources to do it.
4. Not understanding that culture is an enabler of strategy.
With most deals driven by a desire to grow the top line, culture can often be relegated down the priority list, ignored, or forgotten. When this happens, you don’t achieve the performance you were hoping for, business outcomes are not delivered, and you haemorrhage talent.
How can leaders prepare team members for an upcoming merger?
This depends on the nature of the deal, so let’s outline the main scenarios:
1. Acquisition
The acquiring company wants to retain its existing culture, and the integrated business needs to adopt this. In today’s market, where organic growth is becoming harder, we see more clients develop their businesses in this way.
What we witness in these situations is that while the deal may well be driven by financials, there will often be an element/s of the culture of the acquired company that the acquiring business wants to absorb into its own.
To prepare for this, both organisations need to be clear with their people about which attributes of the incoming culture they want to protect, why, and how they are going to work in combination with the existing one. It’s about being proactive, intentional, and transparent with employees of both. If you don’t do this work, the risk is that the acquired culture will disappear, which could lead to talented people leaving.
As acquisitions become more frequent, organisations need to learn how to integrate other businesses culturally. You need to build your internal muscle to manage culture change so it can be done smoother and faster. Developing this capability is a critical and differentiating skill for companies.
2. Merger
Identify and blend the best elements of both cultures.
The key here is to bring the leadership teams together as early as possible to understand each other’s culture, build trust, and begin the emotional journey of the deal on an open, inclusive, and strong footing. This transparency also enables key decisions to be taken – for example, who will be the CEO of the merged organisation? These decisions all send messages about the culture, and leadership teams need to be aware of this, and aligned, so they can communicate them with conviction.
What’s important here is to look at the respective strengths of each culture, decide what aspects of your DNA you want to carry forward, and clearly communicate this throughout your merged organisation. Leadership teams who take the time to do this are then well-prepared to bring their new company on that journey with them, which will accelerate the desired culture change.
3. New Identity
Define and create a new culture for the combined entity.
This is about collaborating to create a new culture. To do this effectively, you need to be constantly communicating with your people about the strategy of your new entity, the culture that you therefore need to support it, and what that means for them.
In times of mergers and acquisitions, people need clarity more than anything else. Why are we doing this? What’s in it for me? How do you want me to behave differently? You need to ensure you are putting in place the role modelling, systems, and symbols that people need to see as markers of culture change. The quicker you can provide these for your people, and remind them at regular intervals, the easier you will be able to embed your new culture.
Steps to preserve positive company culture, during or after a merger
Communication, communication, communication
During and after a merger can be a fragile time for an organisation. One golden rule is: You cannot over-communicate. People make assumptions, rumours fill vacuums, and misinformation can quickly spread. You need to be constantly communicating with your employees, explaining the reasoning behind your decisions, sharing work in progress on your target culture journey, and listening to their feedback and concerns.
It's also important to communicate what you don’t know, otherwise your people may think you’re hiding information from them. So, don’t be afraid to tell your employees that you don’t have it all figured out, but when you do, they will be the first to know. This helps to reassure people, keep them focused, and maintain momentum.
‘Above the Line’ mindset
At Walking the Talk, we call the key mindset needed for culture change ‘Above the Line.’ Put simply, this means taking a constructive approach to challenges and focusing on what you can do, rather than fixating on what you can’t. Mergers and acquisitions are never smooth, and there will inevitably be challenges that come up – both anticipated and unexpected.
By having an ‘Above the Line’ mindset, the leaders of your new entity can combine their resources on building the positive culture you need, rather than blaming each other when there is an issue. This will speed up the emotional journey for them and your organisation, increase engagement in the change, and help you to retain talent.
Change management
Whether you’re doing it for the first time, or you’ve experienced it before, there is a huge education element to integrating diverse cultures. You’re going to need to explain your strategy, how your culture supports that, and provide leaders with the tools they need to communicate effectively with their teams.
For example, if you’re a large organisation acquiring a smaller one, you may well need to explain why you have values, what they mean to you, and what we expect from employees. That’s potentially going to be a steep learning curve for the acquired company. Having the right skills in place (whether internally or with support from an external partner) will make all the difference.
What are the signs of a successful company culture merge?
1. Talent retention
In successful integrations, people stay because they are excited by the possibilities of your new entity. They are enthusiastic about your culture and want to play their part in shaping it. By contrast, the first indicator that a cultural merger is not going well is that people are flocking to leave.
2. Not referring to your legacy organisation
This is a big giveaway as to whether your cultural integration has been successful or not. If your people are not mentioning legacy organisations, then that’s a positive sign. Organisations in which cultural mergers have not gone well are marked by constant, and often wistful, references to old entities.
3. Business strategy is being delivered
While this takes time, one medium-term sign that a cultural merger has worked is if your business goals – the financial drivers of the deal – are on track. This means you are successfully embedding the culture you need to deliver on the strategy of your new organisation.
How can leaders maintain a positive company culture in the months or years following a merger?
Culture change is a long-term, iterative process. The key is to maintain focus so that people don’t drop back into their old ways, or claim success too early. Here is where the culture plan comes in. The plan enables you to prioritise and execute the culture change, sustain momentum, and course correct if necessary. To be successful long-term, you must work on culture every day.
Integrating company cultures effectively following a merger or acquisition is central to the success of your new venture. The work should start well before the paperwork is signed, and continue long after the ink has dried. And while merging cultures is not without its challenges, managing it effectively is the only way to reap the business benefits of joining forces.
Get in touch to start developing your target culture today.
