M&A – How to Merge Two Cultures
Mergers and acquisitions are a critical time in the development of any organisation. The way this transition is handled determines the future of the new, combined company. According to the Harvard Business Review, studies indicate that the failure rate of mergers and acquisitions lies somewhere between 70% and 90%.
One of the key contributors towards these sobering statistics is a lack of attention to the merger of company cultures. According to a survey by AON-Hewett, 33% of M&A failures were due to cultural integration issues. If rifts emerge between the merging parties, the success of the whole endeavour is put at risk. So how can you successfully merge two corporate cultures, and move forward as one cohesive team?
The Importance of Proactive Culture Integration
The AON-Hewett survey found that 58% of companies did not have a specific approach to assessing and integrating culture in a deal. And yet, there was a broad awareness that inattention to culture integration can have a destructive ripple effect across an organisation. Participants in the survey identified that poor company culture could lead to a sharp downturn in key performance indicators.
Consequences of unsuccessful culture integration (% of respondents)
|Organization distraction & loss of productivity||80%|
|Loss of key talent||78%|
|Failure to achieve critical milestones or synergies||77%|
|Decreased employee engagement||73%|
Source: Culture Integration in M&A (AON-Hewett)
According to Elizabeth Fealy, EVP and Practice Director of Aon Hewitt’s Merger and Acquisition Solutions practice for the Americas, “This is very telling. The bottom-line is that while organizations understand cultural integration is critical to deal success, they continue to struggle to translate their assessment into actionable initiatives that drive cultural integration forward.”
Clearly, a proactive approach to culture integration is critical. By intervening early in the process, and creating a strategy for culture integration, it is possible to turn shared corporate values into a tool for success, instead of a liability.
Your Values or Mine?
When two organisations combine, it is important to question which values can (continue to) work for the new business. It may seem like a natural step to simply roll out the culture of the acquiring party, but that may not be the best solution, or even possible! What’s more, it is often the case that there are valuable cultural elements on both sides, which, if properly assessed, can help push the new business forward.
To take a simple example, let’s say that a national manufacturer of jam takes over a family business that produces marmalade. In the new structure, the smaller business’s local-first approach is no longer applicable, but there is something to be learned from their family-oriented take on flexible working. Discovering this could benefit the new business, while failing to acknowledge it could create misunderstandings and resentment. To achieve this kind of insight, it is imperative that there is attention paid to both sides before, during, and after the acquisition.
This means that the values of the merging parties need to be established, examined and compared. What overlap emerges? Which values are most desirable to embed from a strategic perspective? Which values are key to employee engagement? It’s possible that one party will have their values enshrined on posters, and that every team member is able to recite them by heart, but that doesn’t have to mean that these should automatically be prioritised. A process of discovery and negotiation may be necessary.
Top reasons cited for unsuccessful cultural integration (% of respondents)
|Lack of agreement among leadership on desired culture||48%|
|Culture risks not identified during due diligence||48%|
|Lack of leadership support||44%|
|Lack of skills/training||27%|
|Inconsistent/insufficient employee communications||23%|
Source: Culture Integration in M&A (AON-Hewett)
Bringing Your New Team Together
A company culture needs to be built from the ground up. If your entire team is not committed to your company values, you might as well not have any. This is why it is essential to ensure that the company values are actively disseminated among your team, from head office to local branches, and that everyone feels included in the process of establishing those values. This required a targeted programme that doesn’t end on the day the contracts are signed.
As a rule, programmes to establish and disseminate company values are not designed for M&A. At Green Hat People, we offer services that are customisable to the specific needs of your company. Our Active Meetings bring your team together in a way that is fun, interactive, measurable, and inclusive. We allow you to leverage your shared values to bring your team together. Ultimately, this benefits all parties involved.