Every merger or acquisition is undertaken to enhance business value, yet many fail to achieve expected outcomes because of a failure to effectively manage cultural risks and harness cultural opportunities. Data shows that up to 50% - 70% of mergers and acquisitions fail to achieve expected returns. In most of these underperforming deals, culture clash is at the top on the list of reasons for failure.
It does not have to be like this.
With thoughtful preparation, a clear strategy and commitment to cultural success, organisations can improve their odds of achieving expectations. Here are some of the most important factors to take into consideration for successful culture management during mergers.
1. Start early
This is the number one key success factor. Most organisations start thinking about culture after the deal is signed. Others, only when people start leaving the business – especially when people they want to keep start leaving in droves. All too late. To improve the chances of merger success, put culture on the table well before the due diligence process. Culture itself could be one of the reasons why a merger does not happen in the first place.
2. Be clear on the value you are trying to achieve
This may sound obvious, but many mergers do not effectively articulate and communicate the business case that underpins the decision to merge or acquire. Are we trying to increase market share or cross-selling, are we trying to enter new markets or bring in talented people or new capabilities? The reason for the merger or acquisition is critical because it will drive what must be done and how people are expected to behave to achieve the outcome.
3. Define the end state for culture
Culture strategy for a merger should be started in concert with business design and integration strategy development. There are four main choices for organisations merging, in terms of the desired future culture for the resulting entity: 1) Select the culture of the acquirer 2) Select the culture of the acquired entity 3) Choose a blend of the two cultures (“best of”) 4) Develop a new culture. The choice will need to be made early, in any case before the merger actually takes place, so that an effective culture plan can be developed.
4. Conduct a culture assessment during due diligence
The two biggest challenges for conducting formal culture assessments at the diligence stage are access and bandwidth. Ideally, an acquirer will already have undertaken an assessment of their own culture and be clear on what cultural attributes will be important in a potential partner well before diligence begins. Usually, cultural assessment of potential partners at this stage takes the form of public information reviews, interpretation of data room content and observation through management presentations and related interactions. When considered in light of earlier work done by the acquirer, a disciplined approach sometimes reveals differences so profound they could jeopardise the deal. In any event, identified gaps will highlight risks, inform the deal approach and become an important lens for implementation planning decisions.
5. Pay attention to all decisions being made
All decisions that are made during the M&A process will have an impact on staff and both organisations before the deal is complete, as well as on the future combined organisation. This includes early decisions such as who will be the Chief Executive, composition of the new leadership team, head office location, etc. Such decisions will affect how people feel and their mindset, which may be hard to undo if cultural impact of the decisions has not been considered and managed effectively along the way.
6. Focus on emotions
Walking the Talk’s Be-Do-Have model explains how our values, beliefs and emotions drive our actions and behaviours, which in turn underpin our results and outcomes.
Many merger processes focus on the DO level and forget the BE level. This is a tragic, yet common, mistake leading staff to desert the resulting organisation, or worse, stay with low commitment and productivity. Merger activities and investments must address feelings and emotions, because the emotional journey that employees from both organisations go through is not a straight line. By focusing on this BE level, businesses will be in a position to influence what people do and how they behave – and make it a much smoother transition.
7. Bring people with you on the journey
Over-communicate! In a merger, you can never communicate enough. Employees will want to know what is happening, their emotions and feelings will be heightened, and perceiving the wrong message may lead to actions that are contrary to what’s expected. Even if there is little to say, say it. And if there is nothing to say, then say that there is nothing to say. It will avoid many issues later.
8. Be open
The more open leaders are during a merger process, the more likely the process will be smooth. To the extent allowed by the regulatory environment, be open about what is happening. Be open about what you have in mind, and be congruent. Be open about how you feel. Give feedback and ask for feedback. Be open about the other organisation and their ways of thinking, being and doing things. Learn and look at the world with new eyes. After all, if you are merging, it is because you want to benefit from the others.
Get ready first; then merge!
Download the Culture Masterclass for M&A Executives brochure with full information by clicking here.