Importance of Culture for Mergers and Acquisitions

The Importance of Culture for Mergers and Acquisitions
Mergers and Acquisitions remain at the core of many executive team growth strategies.  The appeal is quite clear.  Smart acquisitions can provide immediate access to valuable new products, technologies, talent, intellectual property, clients, and geographies.

But 60 to 70% of mergers and acquisitions fall short of expectations. Why?  Because the importance of culture for mergers and acquisitions continues to be underestimated.

According to McKinsey, 95% of executives describe cultural fit as critical to the success of integration, and 25% cite a lack of cultural cohesion and alignment as the primary reason integration efforts fail.  That makes sense to us.  Your strategies must go through your people AND your culture to be successfully implemented.

What Happens When the Importance of Culture for Mergers and Acquisitions Is Underestimated
We know from organizational alignment research that culture accounts for 40% of the difference between high and low performing companies in terms of revenue growth, profitability, leadership effectiveness, customer loyalty, and employee engagement.  High-performing companies have notably higher levels of strategic clarity and alignment regarding what they do, why they do it, and how they do it.

Leaders that do not appreciate the importance of culture for mergers and acquisitions tend to:

• Lose top talent in one or both organizations
• Create employee uncertainty, confusion, and disengagement
• Miscalculate the time and resources required to successfully to integrate strategy, structure, people, processes, business practices, and technologies
• Overlook workplace politics and power struggles
• Underappreciate the changes required to account for shifts in strategy, structure, and leadership
• Overlook the negative performance impact caused by uncertainty and ambiguity

Effective Culture Integration
Given the high complexity of the challenge and the low odds of success, you would think that leaders would take culture integration more seriously.  Sadly, when it comes to culture integration, many leaders just cross their fingers and hope for the best when combining companies.  But hope is not an effective culture integration strategy.

Successful culture integration requires the same thoughtful due diligence that is applied to the legal, financial, technological, and operational aspects of the deal. Here are four key steps to take to improve your odds:

1. Be Clear About Your Current Culture
   Knowing your current culture (what you do, why you do it, and how you do it) is critical when preparing to acquire or integrate with another organizational culture. For example, the Denison Culture Survey measures four validated and benchmarked culture traits in the areas of mission, consistency,  involvement, and adaptability.  Understanding your culture lets you identify and be proactive about potential cultural alignments and misalignments.

   Do you truly know your current culture?

2. Be Clear About the Other Company’s Culture
   Using organizational culture assessments to measure potential acquisition targets provides critical data points in the areas of organizational health, cultural accountability, and strategic alignment to rate cultural fit.

   For example, at one acquiring client, their cultural approach to customers was highly customized, personal, and intimate.  Their acquisition made financial, technical, and geographic sense.  But their cultural approach to clients was low touch and highly transactional.  It did not make sense to their people or their business practices.  With a high level of integration required to reap the desired benefits, the merger was a failure because cultural due diligence was not part of the assessment or integration process.

   Are you assessing the organizational culture of target companies during the M&A due diligence or integration phases?

3. Be Clear About the Desired Culture
   Culturally, successful mergers and acquisitions ensure that the desired corporate culture of the integrated companies aligns with the strategic growth plan for success. An in-depth analysis of cultural alignment allows leaders to make informed decisions to proceed, anticipate synergies, and effectively address the risks for culture clashes.

   Are you clear enough about your desired culture to create a roadmap that keeps you focused on the activities that create the right levels of unity, alignment, and business impact?

4. Be Intentional About Culture Integration
   Being intentional about culture and culture management is a sophisticated competence that offers a sustainable competitive advantage. Organizations that engage in culture work due to an acquisition learn quickly that the insights provided are critical to performance.

   Are you willing to make culture understanding and management a core part of your integration process?

The Bottom Line
Mergers provide a unique opportunity to align combined cultures with strategic priorities.  Knowing the cultural landscape of the respective organizations allows the transition and integration teams to proceed with the confidence that they are focusing on issues relevant to business performance and an understanding of where the cultural landmines are located. Do you have the cultural insights required to develop a roadmap for the culture integration process?

To learn more about the importance of culture for mergers and acquisitions, download The 3 Levels of Culture you Must Get Right for High Performance