Merging businesses whether by acquiring a new entity or collapsing existing lines expands footprints, saves costs and delivers benefits to shareholders and customers. The critical success factor however is, whether the marriage of two cultures works out.
Marriages may be made in heaven, but mergers are arranged on earth. Like any marriage the coming together of two entities demands copious amounts of effort: due diligence, verifications, background checks… lots of work!
Usually shareholder or customer driven, the focus is on revenue growth, profit, brand etc. and culture coming lower down the pecking order.
Consulting firm, Aon Hewitt’s global survey Culture Integration in M&A involved 123 companies in an attempt to understand the importance of cultural integration during Mergers & Acquisitions (M&A). Their report indicated that the top two areas of focus in M&A activity over the next two years were going to be growth in geographic footprint and revenue. Leadership and Talent showed up a distant fifth! Yet the same survey shows that the second biggest reason for deal failure was cultural integration.
Culture is the way an organization behaves – its personality. The way leaders lead, the way people perform their roles – approaching challenges, solving problems and driving strategy. All stemming from the belief in a value system that everyone subscribes and lives up to.
Commonality of strategy, brand, customers and product mix are the more obvious and visible reasons for M&A. Culture is not immediately apparent and hence gets taken for granted causing loss of money, synergy, talent, customer satisfaction and brand image.
One classic case study is about the ‘merger of equals’: the Daimler-Chrysler story. Strategically and optically it looked ‘perfect’. Culturally it was the collision of two worlds! Daimler had a centralized and structured decision-making approach. Chrysler, on the other hand preferred creativity, risk-taking and empowerment. Within two-years, an expensive divorce process had begun!
But M&A are not the only time a marriage of cultures happens. It also plays an important role when two business units get paired to work together or get collapsed into one.
There is no doubt that mixing cultures, even congruous ones is a change process that makes people anxious in turn impacting productivity. Unless, culture is considered on equal footing with strategy.
A good time for the Human Resources chief to sit at the same table, alongside the CEO – when the implementation team gets created. Meaning: become a core part of the merger strategy from day-one. And contribute.
- Due diligence stage: Culture needs to be brought in alongside profit, growth and geographic expansion, when work begins to determine the merits of the merger. Thus, challenges and best practices from both entities are identified in advance. Leaders and people in both entities get a heads-up and those nasty costly surprises get eliminated early.
- Leadership goals: If it isn’t a goal, it won’t happen. While the Human Resources team may drive the acculturation process, every leader must be committed too by putting culture into their goal sheets. Styles and behaviors that need to be demonstrated and best practices that need to be implemented.
- Rules of engagement: In challenging areas whether around reporting hierarchy or a dress-code, it is important to list rules of engagement so people don’t get at each other’s throats. Rules of engagement determine an agreed manner in which to handle behavioral differences. They are the new definitions of ‘respect’.
- Synergy targets to bolster collaboration: Synergy is the vehicle for every reason to merge, acquire or collapse businesses. Synergy success sometimes may mean individual loss – the goal-setting process needs to consider this. Who gives a little, and when. In today’s aggressive world, nobody wants to give! Synergy goals ensure that the more inward looking leaders look beyond their fiefdom. Sometimes they could even provide a little forgiveness.
- Strong communication and feedback mechanisms: Changing things without appropriate communication is a guarantee for failure. While email messages and town-halls work, it is important to keep the decibel level high. Culture training, road shows and creative visibility around the water-cooler add to awareness and influence the mindset changes expected of everyone.
- Employee feedback is an invaluable barometer to determine employee engagement levels, fine-tune changes or predict a brewing storm. Intranet drop-boxes and generic email addresses allow people to state their views and give suggestions – if possible anonymously. And someone should be responsible for monitoring feedback mechanisms.
Former IBM CEO Louis Gerstner wrote in his book, Who Says Elephants Can’t Dance? “I came to see, in my time at IBM, that culture isn’t just one aspect of the game – it is the game.”
Mars-Venus marriages do work, and bear beautiful offspring provided culture gets a VIP seat! Some CEO’s have got the hang of it. Their HR Heads are happy to take on a leadership role in such transitions. May their tribe increase!