Businesses get merged or acquired for a variety of reasons. Very often, although companies have gone for such a merger or acquisition after a due diligence, it fails spectacularly. One of the main reasons for failure is most often than not the fact that the companies did not address the issue of cultural integration of the merging entities. Cultural clashes between the two entities regarding their core values and working leave the employees demoralized and disengaged. As a result, productivity suffers, problems start to become insurmountable and the whole initiative is doomed.
Before acquiring a company, acquirers team usually do due diligence about all financial aspects. After the acquisition also, the financials are tracked carefully. Teams look into results and executives get their targets that are monitored. But the assimilation of two different work cultures does not merit top priority and considered soft somehow. This cultural integration is hard to monitor and accountability is difficult to be fixed on people. As a result, problems start to unfold soon.
Culture change percolates from the top. Senior management must have a clear vision of the new company’s culture. Smart acquirers pay attention to the question of cultural integration early on and rely on an effective tool kit for cultural integration that is crucial for the success of the M&A. These tools work well in bridging the gap between the cultures of the two entities. Senior management can manage and gauge the difficult terrain of cultural integration by using these new tools.
The tool kit comprises of the following:
Setting the cultural integration agenda
We need to first understand what culture of a company really means. The culture of a company is the set of values, behavior and style of functioning that all employees share and follow uniformly. All employees, the most senior to the most junior follow the behavioral norms. All employees are aware of the critical capabilities and decisions and the company strategy. Operating model of the company and its structure and accountability are also part of a company’s culture.
For the seamless assimilation of two different cultures, the culture of the newly acquired needs to be given shape first. The senior management should lead from the front and finalise the culture of the merged entity and bring in a chief executive who is committed to complete the job at hand successfully. Management should make efforts to retain key employees by constantly keeping them motivated and engaged. The commitment of key employees to the culture change is crucial for the success of the operation.
Deciding the culture of the new company involves difficult choices. There can be a blend of the two cultures, or the acquired company can be totally absorbed in the larger company. Sometimes the acquired company can have a culture that is worth emulating by the acquiring company. It actually depends on what is most advantageous for the new entity.
Identifying the material difference in cultures
There will be differences between the two entities that are coming together. Not all differences matter. The management needs to focus on identifying important differences and their significance by using diagnostic tools. Some of these tools are:
- Interviews with the management to understand the management styles of the two entities.
- Video recording of employees at work. This will reveal their styles of work.
- Decision and accountability mapping
- Customer feedback to understand the two entities attitude towards customer service.
- Process flow charts to show the style of working of the two entities.
- Identification of areas where the biggest cultural differences are.
- Employee interviews or response forms to know their behavior and attitude.
These tools help to identify the cultural clashes. Once the differences in cultures are identified and mapped, the management can go ahead with setting the culture they need to build for the new entity.
Setting the culture for the new company
Once the agenda (broad understanding of the culture of the new company) and identification of the cultural gaps are done, the management has to proceed to fill the significant cultural gaps. The next step is to outline the future culture to be adopted in great detail. Mere vision statements and broad guidelines about the new culture are not enough. A detailed picture of the future culture should include specific behaviors, style of work, customer service etc, all of which should be measurable. Adequate plan for incentivizing workers to show commitment to the new culture so defined must be put in place. Once the future culture plan is ready for execution, the actual and onerous task of creating that culture begins. The best tool for achieving this is the intent workshops. The insights gathered during the diagnostic phase are shared with managers during the intent workshops. Armed with this knowledge, managers devise set of behaviours, as well as the processes and incentives which will encourage those behaviours in intent workshops.
Staying the course and measuring success
Once the set of behaviours are in place, senior management must put in place a robust training program that describes and trains employees for these behaviors. A mechanism to reward employees that adopt these behaviours by promotions and incentives and a zero tolerance policy for employees who resist these behaviours.
Assessment of these behaviours is crucial. This can be done by customer feedback mentioning names of employees they dealt with. Customer feedback should play an important part in evaluating employees work.
To sum up, the top management must start conversations about cultural integration very early during mergers and acquisitions. It is essential that the management gives out a consistent signal about the cultural shift. They must spell out expectations from the employees in terms of time and change expected in their behavior in the new entity. Sustaining change can be a long journey involving years. Management must show inclination and resolve to stay the course. They also need to exhibit the behavioral change they expect to see in others.
References:
Addressing culture in post-merger acquisitions https://www.bcg.com/
Integrating cultures after a merger https://www.bain.com/
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