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Agenda
What is Corporate Culture?
Follow the 95-5 Rule
Mission-Critical Culture Traits
The Process of Culture Due Diligence: The 5 Stages
- 1. Understanding the Deal Logic
- 2. Getting Organized
- 3. Data Gathering Tools and Techniques
- 4. Analyzing the Data
- 5. Operationalizing the Data
What is Corporate Culture?
Broad & Complex
Corporate culture is broad, deep, and very complex. It covers almost everything regarding how the organization lives, works, and thinks about the world in general.
Visible & Invisible
Some aspects of culture are in plain view—such as how people dress, their daily routines, and customer interactions. Then there’s the invisible stuff: beliefs, values, and assumptions about the best way to run a business.
Follow the Rule of 95-5
95%
Culture Noise
5%
Mission Critical Culture Traits
Operating Style and Culture Wild Cards
Mission-Critical Culture Traits
Operating Style
- Spending habits
- Corporate metabolism / energy level
- Decision-making approach
- Work habits & Organization structure
- Exercise of power / authority
- Performance management
- Communication practices
Culture Wild Cards
- High-voltage idiosyncrasies
- Random aspects with heavy influence
- Situational in nature
The Process of Culture Due Diligence
Understand the Deal Logic
Get Organized
Gather Data
Analyze & Synthesize Data
Operationalize the Results
Stage 1: Understanding the Deal Logic
Key Considerations
1. The Business Case
2. Value Drivers
3. Integration Intent
4. Perceived Risk Factors
The Business Case
- Competitive market advantage
- Synergy targets
- Geographic expansion / international
- Vertical integration
- Product/service diversification and cross-selling
- Financial targets & Timeline
Value Drivers
- Revenue growth projections
- Cost synergies (process, HR, admin)
- Vertically integrated product/service offering
- Competitive advantages
- Technological benefits (IP, systems, R&D)
Integration Type
| Integration Type | Minimal | Moderate | Substantial |
|---|---|---|---|
| Subsidiary Bolt-On | Example: Subsidiary manages all integration needs. Minimal if no integration support required. | ||
| Functional Integration | Example: Only Accounting, Finance, and HR require integration. | ||
| Functional & Operational Integration | Example: Integration includes functional and operational elements but may not include all parts of the newly formed entities. Also, may have timing variances for full NewCo org. | ||
| Full Integration | All functions included in integration planning. Dedicated functional support required. Several ad hoc and "what if" integration support needs. | ||
Perceived Risk Factors
Strategic and Systemic Risks
- How will the market, stakeholders, and competition respond to the change?
Operational Risks
- Disruption to critical process, systems, work groups, people, and fulfillment.
Risks Related to Execution
- Where are the people, talent, and resource bottlenecks?
Stage 2: Get Organized
Scoping the Project
- Budget
- Time available for CDD
- Nature/depth of cultural inquiry
- Size of target company
- Geographic locations involved
- Number of people on CDD team
- Degree of access to target
Selecting the Team
- Time
- High social intelligence
- Good listening skills
- Critical thinking ability
- Objectivity
- Perceptiveness
Setting Goals & Objectives
- Uncover "deal breakers" and confirm value drivers
- Be tactical and targeted, but circumspect
- Develop actionable intelligence for integration planning
- Establish priorities and identify "red flags"
- Pro-active value protection of existing value streams
- Where is the "secret sauce"
- Practice appreciative inquiry
Stage 3: Gather Data
Principles
- Design your sampling: Target most critical and/or greatest cultural risks areas. Ensure sample size is large enough to be representative.
- Define your metrics for evaluation: Establish demographics and metrics by location, function, job level, etc.
- Use multiple tools/techniques: Gather both quantitative and qualitative data.
- Be systematic: Follow a consistent, structured format. Stick to the interview protocols.
Data Gathering Methods
1. Culture Insight Data Sweep
2. Structured interviews
3. Surveys (Operating Style Analysis)
4. Culture Due Diligence Assessment
5. Talent Assessment
6. Merger Integration Risk Analysis
Data Gathering Timeline
1. Initial Courtship
- Culture Insight Data Sweep
- First-Hand Observations
- Executive Interviews
2. LOI to Purchase Agreement
- In-House Documents
- Leadership & Mgmt. Interviews
- Culture Due Diligence Assessment
- Operating Site Analysis 1 & 2
- Talent Assessments
3. Post-Announcement
- Team & Dept. Level Interviews
- Process Diagnostics
- Additional Survey Tools
Culture Insight Data Sweep
Business Case
- Business case: (e.g., deal drivers/value proposition/objectives of the transaction)
- Perceived strengths, weaknesses, opportunities and threats of the target
- Expected sources of value creation (e.g., cost reductions, revenue increases, new product or service launches, synergies with other portfolio companies, growth through acquisitions, etc.)
- Intentions regarding degree of integration and assimilation
- Perceived challenges to successful execution of transaction, of the integration Top line and bottom-line performance targets 1-3-5 years out.
Overview
- Business of the company Products and services
- Vision/Mission statements
- Values statement
- Strategy statement
- Self-identified corporate brand and major sub-brands
Roots
- Genealogy and history of the company
- Bios of the founders, backgrounds, lifestyles, role-models, and heroes
- Bios of key executives, backgrounds, lifestyles, role-models, and heroes
- Geography (vis-à-vis company HQ, workforce, founders, key executives)
- Legacy businesses and cultures (from departed founders or previous acquisitions)
A disciplined process for gathering general corporate information that can serve as a fact-related window into the culture
Pros
- Doesn't require permission
- Easy to access most data
- Provides very broad array of cultural indicators
- Rich with implications
- May signal wild cards
Cons
- Produces a massive amount of data; mostly noise
- Time consuming
- Generally un-focused
- Provides "indirect evidence" (requires interpretation)
Operating Style Analysis
An inquiry into the day-to-day operating fundamentals that reflect the cultural basics of how the business is run
Part 1 - Pros & Cons
- Structured, focused, and efficient
- High-value information
- Requires minimal interpretation
- Open-ended questions provide rich contextual data
- Requires critical listening for follow-up questions
- Requires good note-taking skills
- Requires access to target company personnel
Part 2 - Pros & Cons
- Focused, structured, and efficient
- Ease and speed of administration (10 min)
- Requires minimal interpretation
- Quantitative data can be ranked and compared
- Limited in scope of inquiry
- Data can be dept. or team-specific
- Provides limited depth on each topic
Culture Due Diligence & Executive Talent Assessment
Culture Assessment - Pros & Cons
- Structured, focused, and efficient
- Requires minimal interpretation
- High-value information
- Open-ended questions provide rich contextual data
- Requires critical listening for follow-up questions
- Requires good note-taking skills
Executive Talent Assessment - Pros & Cons
- Demonstrates objectivity, fair-mindedness
- Gives insights into leadership style, potential
- Provides clues regarding "flight risks"
- Informs succession planning & bench strength
- Requires a skilled professional to conduct
- Time-consuming
- Can be threatening to participants
Stage 4: Analyze & Synthesize Data
1. Organize and process CDD information
2. Make inferences and draw conclusions
3. Prepare summary reports
Links to Culture Assessment Tools and Examples
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