When making an acquisition, a company can typically expect to gain access to markets, brands, technology, products and people. It is therefore surprising that the 'people' element is often given so little consideration compared to the work that goes into other aspects of a deal. A recent study by KPMG revealed that dealing with different organisational cultures is perceived as the second-greatest challenge when implementing a merger or takeover, yet while over half of the business leaders surveyed felt that they had been well prepared for other aspects of the deal, just one in five thought that they had given the cultural element enough consideration. If key members of staff depart in the wake of a merger or takeover, they take with them all their knowledge, expertise, influence and connections that were central to the value of the transaction, and so it is hardly surprising that so many mergers fail to realise the value expected.
Furthermore, too many business leaders view 'culture' as a blanket problem rather than identifying precisely what it means. John Kelly, head of KPMG's integration Advisory Practice, points out that what is perceived as a cultural clash is really prompted by someone not knowing how to be successful in the new organisation".
So what exactly is meant by the 'culture' of an organisation? Put simply, it is the way customers are dealt with, the way employees treat each other, and the way leaders and managers in the organisation motivate, reward and develop people. Company culture is likely to have complex roots and so be deeply ingrained, particularly among more senior employees who have succeeded and gained status within the company by conforming to its values and procedures.
It is of course possible to adopt a Laissez-faire approach to company culture when merging two different organisations, however simply believing that 'everything will work out' through some kind of cultural osmosis is a risky business. Even if a shared culture does eventually emerge, it may be very different to what was envisaged at the start of the merger process. Equally, it is just as dangerous to attempt to force one organisation to adopt the working practices of another: employees for whom a merger or takeover has already sparked insecurity over their job or their status within the company can prove stubbornly resistant to change if it is not presented and communicated in the right way.
The KPMG study showed that those who spent the time before the merger identifying and analysing differences in working style achieved greater synergies and gained control of the acquired company sooner. Conducting this kind of cultural due diligence prior to a merger or acquisition can identify potential problems and areas of conflict and address them before they develop. Key questions to ask include:
What are the official values of the organisation to be acquired?
What about its unofficial values?
Is there any discrepancy between the two?
How do they relate to the values of your own organisation?
How are they communicated and articulated?
How do employees perceive their own company?
How do they perceive the other company in the merger?
How are the various brands perceived, both by employees and the marketplace?
How are decisions made? (Top-down or consensus-based? Fast or slow?)
Is the organisation focused primarily on relationships or deals?
Is the organisation driven by products or processes?
How are new procedures integrated and old ones discarded?
How are managers motivated and rewarded?
How are employees motivated and rewarded?
How is business performance gauged?
How is individual initiative recognised?
How is group initiative recognised?
Once you have answers to some of these questions, you can set about the task of identifying and creating the kind of shared culture you want. It is important to first build up an explicit picture of what the new organisation will be and feel like. Communicate with managers and employees, and allow for discussion of your initial ideas at both formal and informal events. Consider what the new culture will look like from the inside out - not just what people will do, but why they will believe certain things to be right for the organisation.
Consult with staff at all levels of both organisations, allowing employees to vent their feelings about the old culture and take on board suggestions where they are appropriate. Remember that changing the culture of an organisation is likely to take years, and the outcome at the end is unlikely to look like the model you first envisaged. Reinforce the new culture as it evolves, making adjustments to people or HR practices only when it's apparent that the old practices can no longer support the evolving culture. Introduce them too early, and you will meet with confusion and anxiety.
John Kelly offers anyone undertaking a merger or acquisition the following advice: "What you need to do is identify the 20% of things you can change to make the biggest difference. You have to recognise that you won't completely change the culture. What you can do is identify the new behaviours you're looking for and value and reward them highly. Spend the time to understand the different styles such as approaches to performance management and decision making and explain to both parties what will and won't work."
He concludes: "There is no doubt that culture and cultural differences play a huge part in the success of M&A. However, culture is something that everyone blames and no one explains. Successful integration demands we stop hiding behind the label and stop blaming culture."
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