The due diligence is done and the planning for a successful merger or acquisition integration has started, and underlying the integration of product, sales, and operations strategies are the decisions that need to be made relating to the people.
Gaggles of consultants have published detailed integration plans and checklists, meticulously laying out timelines for the myriad actions, steps, and decisions a merger or acquisition requires. We reviewed more than a dozen of the most popular, and all ignored the fact that can make or break the successful integration of two or more companies: culture.
Almost any article on the topic of merger and acquisition failure calls out cultural mismatch as a primary reason so many mergers fail to succeed.
What is a cultural mismatch?
A good way to think about culture is an amalgam of “the values that guide the behaviour of its people, and the management practices, working norms, and mindsets that characterise how work actually gets done,” a definition provided via the worthwhile McKinsey article titled, ‘Organizational culture in mergers: Addressing the unseen forces.’
A mismatch occurs when the parties being integrated have significant differences in their approach – and those differences go unaddressed.
I experienced this myself in a prior role, as a member of an entrepreneurial smaller company that had been acquired by a corporate giant. My organisation believed in testing, and we tested everything with our audiences – marketing campaigns, e-commerce interfaces, pricing, process decisions. We tested and optimised continually, and the best data, we thought, was live data. The parent company, on the other hand, preferred to analyse and model outcomes, and based their decisions upon months of analysis. We thought they were slow and bureaucratic, and they thought our approach was too risky.
A cultural mismatch can have a variety of implications, including:
- Team friction. “A mismatch in corporate culture could lead to friction among teams or limit their effectiveness,” writes Jonathan Herpy for Forbes. “For instance, the buyer might impose rules or practices upon the seller’s team that get in the way of their usual modus operandi, therefore limiting their effectiveness (and profitability). Neither side is necessarily more right than the other; they just have different ways of doing things that end up clashing down the road.”
- Employee turnover. If one culture starts to prevail over the other, and imposes new and conflicting norms upon employees who valued and enjoyed the culture of their organisation, attrition should be expected. Case in point: in the above example of one of my previous employers, one department was decimated by an employee exodus driven chiefly by new layers of bureaucracy that conflicted with the fast-moving, growth mindset that had been the hallmark of this group.
- Erosion or loss of what made one of the entities successful. The clashes and turnover described above can quickly turn into value destruction when they result in the disappearance of the very things that made one of the companies special. Every time an idea is shouted down, or an employee walks out the door, the new entity is logging a reduction in intellectual capital.
How to align shared values and build the foundation of a new culture
A merger or acquisition is a time of huge change. It’s also the ideal time to build the foundation of the new culture moving forward.
Where to start? We recommend starting with an assessment of overall employee engagement – itself an indicator of cultural health. If necessary, a deeper dive in the form of a “culture audit” will reveal how the organisations’ cultures play out on an individual level, as well as inform how work gets done within each organisation. This may seem like a lot, but by assessing all parties equally, it’s possible to identify the points where the two organisations are culturally aligned, and where they are separated by wide differences.
The points of alignment are the shared values upon which the new organisation can build. The gulfs are areas that will need close management.
1. Get an understanding of overall employee engagement. Given the importance of employee engagement to performance, as well as its relationship with the overall cultural health of an organisation, a strong case could be made for including an assessment of employee engagement in the due diligence process. At the very least, understanding where employees stand, which teams are thriving, whether toxicity or burnout a present, and how connected leaders and employees are to each other is, at the very least, baseline information that should be captured. If the operations team is struggling pre-merger, for example, the additional workload, pressure, and uncertainty a merger poses could create significant new challenges. An engagement survey can alert leadership to previously hidden issues, and allow them to rectify problems, and provide more support for that team as the merger progresses.
2. Audit all parties’ cultures. There’s far more to a company’s culture than simply “how things are done” or the values statement that’s pinned to the wall. At its core, a company’s culture is predicated upon two elements: what behaviours the organisation rewards, and what behaviours the organisation punishes. Taking a clear-eyed look at the cultures of the involved parties through the lens of reward and punishment – as experienced by employees – is necessary to understand the core cultural values of each organisation.
For example – if an organisation is willing to tolerate a high performer who nonetheless is a toxic personality – such as a salesperson who flouts lead assignment rules, a chef who bullies junior staff, or a product manager who steals credit from his team – other employees can become rapidly demotivated and unengaged when the rules are perceived to apply to some but not all.
Whether you decide to gather information in a series of town hall or small group meetings, or field a survey (by the way, our On-Demand surveys are the perfect format) – here are some statements you can use to gauge how reward and punishment meted out in each organisations’ culture. Ask employees whether they agree or disagree with the statements below – and to capture additional nuance, consider adding degree (e.g. strongly or somewhat agree or disagree) and invite open-ended feedback.
- Leaders treat everyone with respect
- Employees are treated fairly
- The organisation truly lives its values
- The organisation holds everyone accountable for their actions
- Leaders display the same standards of behaviour expected of employees
3. Identify the differences in how work is done. The cultural audit should also aim to capture information about how each organisation works. Where does decision-making authority reside, or is it decentralised? How does the organisation prioritise technical development? How is performance recognised, measured, and incentivised? What’s the approach toward accountability and ownership – are teams held accountable, or individuals?
Developing a clear understanding of how work is done in all organisations will help leaders identify and manage meaningful differences in ways of working to build a single high-performing organisation.
“These are often expressed as a series of “from-to” shifts that are easy to communicate,” writes the authors of the aforementioned McKinsey article on organisational culture in mergers. Drawing on inputs from the culture audit, “the top team should develop a point of view about the shifts. This alignment ought to include target-company leaders where possible since leadership alignment and role modeling are critical for successful implementation.”
Agree/disagree statements you can use to better understand how different organisations get things done should invite the employees’ personal perspectives, and include assessment of how goals are conveyed and performance measured. Here’s a list to get you started:
- We have a clear framework for decisions
- I understand how projects are prioritised
- Employees are motivated by energising and exciting projects
- I seek opportunities to work on additional projects
- Leadership provides clear goals
- I understand how my performance is measured
- I understand how my role contributes to the success of the organisation
4. Identify shared values & use them to inform a new, united purpose for the organisation. Identifying what matters most to your employees, and what energises them about the organisation and its work is one of the simplest, and yet most important, steps you can take as you bring new acquisitions into your organisation’s fold, or merge entities.
Shared values may include elements such as delighting customers, solving problems, collaborating with colleagues, and having an impact within the community. By identifying the values shared by the majority of employees, you’ll have the basis for a new, unified purpose that will resonate with a broad swath of the team, and thus provide a catalyst for energy, enthusiasm, and engagement.
To identify shared values, we recommend asking employees to select the values statements that are most important to them from a list. Here’s a handful of statements from our “Defining Purpose” survey, which starts with this step.
- Delivering outstanding quality
- Enabling exceptional teamwork
- Creating memorable moments
- Removing stress/pain from others
- Helping others experience success
- Learning and discovering new things
In addition to identifying shared values, it’s also important to understand what aspects of their work or the employee experience truly engage your people. What are they proud of, what do they aspire to achieve, and what causes do they support or believe in are some examples. Asking open-ended questions along these lines can provide both remarkable insights as well as inspiring stores you can use to bring the purpose to life.
These steps, culminating in the development of a new, unified purpose, ensure that leaders are not just in step with employees – this process enables leaders to strategically adjust and manage the organisational culture to best support the success of the venture.
Successfully integrating a new acquisition or merging disparate entities can be amongst the most challenging projects many leaders will ever face. By prioritising the people and setting the cultural expectations, you’ll not only increase the chances of a successful outcome, but you’ll also increase the likelihood that the experience is a rewarding one for the whole team.