How Important is Culture in M&A?
The success of a merger or acquisition is often a function of how well the two organizational cultures have been integrated. Any time two organizations are being merged, there will be cultural conflicts that need to be reconciled. Cultural integration needs to be managed, carefully managed, instead of leaving it for everybody to work out on their own.
M&A Culture Due Diligence
M&A culture due diligence is an exercise that identifies the cultural differences between the acquirer and seller in mission-critical areas such as communication, decision making, and performance management.
Culture seems to appear at the top of everyone's frustration list when talking about M&A. When mergers fail, the most frequently cited cause is cultural conflict. Nonetheless, few companies invest much time, if any time at all, in cultural due diligence. Often culture seems too fuzzy and soft. It does not have the clarity of financial analysis and other types of due diligence so many executives don't bother with it. Or they simply assess culture based on their impressions of the executives they are working with when negotiating the deal. Before close, at a minimum acquirers should identify where they converge or diverge with the target company on operating philosophies, communication, and performance management.
M&A Culture Integration
M&A culture integration is the process of assessing merging companies cultures, identifying the gaps between the two cultures, determining which gaps should be closed and then deciding how to close them. Since culture is deep rooted and extraordinarily difficult to change, only the cultural changes necessary to achieve the deals benefits should be included in the scope of the integration. This focused, targeted approach is practical and viable. Attempting to build one common culture during an integration is not.
Free M&A Culture Presentations and Assessments
Download the below free M&A culture presentations, research, and assessments that educate acquirers about how to best perform cultural due diligence and integrate disparate cultures.
M&A Culture Research
Organizations have grown far more sophisticated and skilled in their ability to execute the integration process. The one area where companies still struggle, though, is in merging disparate cultures. This is the black box of integration, the most complex problem that executives encounter in M&A.
PRITCHETT, LP surveyed 130 executives and their responses offer important clues for cracking the code on culture in M&A. Here’s what the data indicates:
- Most culture assessment efforts are too ad hoc, unstructured, sketchy, and haphazard. In fact, they may very well cause more problems than they solve. There is a clear lack of efficacy in the data-gathering process and how that information is utilized.
- Outside consultants have utterly failed at establishing credibility in this arena. Executives have apparently concluded that the purveyors of traditional culture assessment/culture ...
M&A Culture Presentations
Hard Facts About Culture
- Strategy is a product of your view of the future.
- Culture is essentially the product of your history
- That will always present a challenge in ensuring that the corporate culture is aligned with and supports your plans for tomorrow.
- VERY FEW culture characteristics wield a make-or-break influence over operating results and an organization’s future …
- Merging Requires New Culture and Behaviors
- Closing the Gap
- Work Culture Implementation Schedule
- Work Culture Team Mission Statement
- Mission of Organizational Development
- Characteristics of An OD Function
- What Are We Doing
- Quote on Culture
- One Culture
- “Should Be” Work Culture Attributes
- Thanks To You Great Foundation to Build On
Several Ways to Address Cultural Issues
Four Possible Scenarios for Culture Integration
Advantages to Each Approach
Why Are Post-Merger Cultural Issues Difficult to Manage
Consequences of Culture Conflict
Culture Differences Can Cause Integration Failure
3 Important Drivers of Cultural Issues
Components of Culture Change Programs
M&A Culture Due Diligence
Organizational Culture Checklist covers questions for:
Customers / Community
Listed below are a number of cultural dimensions and indices that are organized across a continuum.
Step 1: Review each cultural characteristic and place an A in the column that most closely represents your perception of the Acquirer’s culture.
Step 2: Place B in the column that most closely represents the Acquired Company’s current culture.
Step 3: Calculate the absolute difference between each rating to determine the largest culture gaps ...
15 culture assessment questions to identify strengths, weaknesses, and wild cards.
- How do people feel about being merged/acquired?
- What would be your (or others’) major concerns about being acquired or merged?
- What are the defining characteristics of your company? (What’s distinctive? What differentiates you from other organizations in general? From the competition?)
- Describe the company’s core values. (What does it believe in?)
- What do outsiders not know/realize about this company?
- What are its idiosyncrasies?
- What are the unwritten rules around here?
- What aspects of the culture are most important to people here? (What do they hold sacred?)
- Where in the organization do the dominant subcultures exist?
- What are the company’s negative or undesirable cultural attributes? (What aspects of the culture need to change? ...
1. How do people feel about being merged/acquired?
The corporate perspective is different from the field’s perspective. Here at headquarters the questions are, “Is there room at the inn?” and “Will I go to Atlanta?” In the field, people are wondering if they will have to work for less money. Some are angry that it came to this. Did the CEO and the SVP just sell us out? People’s emotions run the gamut from “How could you do this?” to “What took you so long?”
It’s no shock that we merged, but people are set back on their heels that it is this acquirer...
1. Spending Habits: Frugal or Free Spending
Comments regarding this issue: __________________________________________
2. Decision-Making Process: Deliberate or Expeditious
Comments regarding this issue: __________________________________________
3. Power and Authority ...
- What aspects of the way your organization operates contribute most to its success/effectiveness?
- What characteristics of the way your company operates most hamper or interfere with its ability to compete?
- List the company’s operating strengths. (What does it do best?)
- What would you identify as the company’s operating weaknesses? (Where is the company most vulnerable or least effective?) ...
M&A Culture Best Practices
Nothing in the realm of M&A gets botched up so consistently as the blending of two companies’ corporate cultures. This foul-up is rooted in naiveté and fueled by the popular idea that culture requires broad-gauged attention once a deal closes. The naiveté is revealed in executives’ misconceptions regarding the malleability of culture. (Actually, it’s hard as hell to change.)
And the popular idea is wrong because instead of focusing on quickly “fixing” culture differences in the broad sense, which isn’t feasible, top management should focus the organization on delivering operating results in spite of those differences. That is feasible ...
How different a person would you be? If the change happened overnight, would you even recognize yourself the next morning? What would it feel like? How would you behave?
That’s what happens when, for example, a 4,000-person company acquires and integrates a 1,000-person firm. The acquirer’s cultural DNA will be reconstituted as it absorbs the new employees. Immediately when the deal closes, one out of every five people in the workforce will be from a firm with a different genetic code.
Can anyone doubt that the immigrants will leave their cultural mark on the land of the parent company?
The integration of a small, well-run company often requires a light touch strategy. In those situations, follow these 10 rules to achieve the best results:
1. Turn off "integration autopilot"
Over time, serial acquirers develop detailed procedures and checklists for running efficient integrations. That can work very nicely, just as long as the same tactics are not blindly applied to all deals, no matter their size.
2. Don't "wing it"
A light touch integration strategy does not mean no touch. Processes always should be implemented even on little deals, to define goals and time frames, track progress, and hold people accountable …
There's an insidious threat facing organizations that is growing rapidly via M&A: A loss of alignment between corporate strategy and the existing culture.
If these two fall out of sync, you’ve got a real dilemma on your hands. But the disconnect often goes unnoticed by top management and the board of directors, even as it quietly undermines operating effectiveness. So what causes strategy and culture to fall out of alignment?
Think of it this way. Strategy is forward-oriented. It’s today’s game plan for tomorrow. Culture, on the other hand, is essentially the product of your history. One is shaped by the future, the other is forged by the past. (That’s a dramatic difference and it has huge implications.) …
Look out, because culture usually wins the war. Or to put it another way, far too often the past fouls up your future.
Mergers very often are such a destabilizing event, and have such a powerful impact, that they “break the organizational box,” so to speak. Frequently there is a window of opportunity that develops during which management can do some very profound things in terms of reshaping the corporate culture.
But if that opportunity is not seized, the window soon slams shut, or gradually slides shut, as the case may be. If time goes by and nothing much changes, people tend to settle back into their same old behaviors and reembrace the same old beliefs and values.
This says two things. First of all, management has an outstanding opportunity to do some things to a corporate system and its beliefs, priorities, and so forth, on the heels of a merger. There is a superb opening (plus a real responsibility) to come forth and lead the organization into the changes that are needed …
The “best of both worlds” strategy for integrating cultures brings traumatic destabilization to both organizations. Managers in both companies end up struggling to manage an unfamiliar situation. They can’t necessarily draw on their previous successful experience as they wrestle with subtle and not-so-subtle ramifications of cultural shifts. Besides, after all is said and done, one of the two cultures virtually always comes out on top anyhow.
We recommend a much more pragmatic, business- oriented approach ...
As far as corporate culture is concerned, “change” is the dirtiest word in the dictionary.
It’s culture’s nature to believe deeply in itself, and it shows absolutely no sense of humor when people attempt to redesign it.
In Culture Matters: How Values Shape Human Progress, Harrison and Huntington discuss how difficult it is to find something that “can substitute for disaster in stimulating cultural change.”
You’re dealing with a self-righteous, heavy-handed adversary. Don’t expect it to fight fair.
Culture’s overriding priority is to protect itself. This is more than a habit—it’s buried deep within culture’s DNA.
Let’s look at how this plays out when management decides to reshape the existing cultural …