A failure to merge cultures is one of the primary causes of mergers and acquisitions (M&A) deals to collapse. For the best chance of success, therefore, it’s important for companies to adopt a people-first, culture-oriented approach to M&A.
Typical challenges when merging cultures
According to a McKinsey (opens a new window), 25 percent of executives cite a lack of cultural cohesion and alignment as the primary reason that integration efforts fail. This is despite 95 percent describing cultural fit as critical to the success of integration.
There are various reasons why merging cultures is such an obstacle. Unlike financial and operational aspects of a deal, which have fixed targets and direct accountability, culture is hard to place. Business may struggle to identify the aspects that define their own culture. In a merger, this can complicate efforts to measure and track progress, and be a significant drain on time and resources.
Even where aligning cultures is a recognised part of an M&A strategy, it can be tricky to achieve. No two organisations are alike, and cultural differences may be stark. Leaders and managers are often unsure who has responsibility for creating a new culture, which is often viewed as a by-product of other changes. Alternatively, key stakeholders may lack the training needed to identify points of difference and drive successful change.
Key considerations when merging company cultures
A proactive mindset is essential when it comes to merging cultures. By including culture as a part of typical M&A due diligence, businesses can target firms that are more closely aligned. At the same time, this can help to minimise the risks posed by incompatibility, which may ultimately threaten to derail M&A altogether.
Below, we highlight some key points to consider when merging corporate cultures:
Develop a strategy
Before a merger begins, it’s crucial to build up a coherent picture of each business involved. This requires dialogue with both parties.
To avoid assumptions, it’s best to engage with teams directly. Carrying out surveys of employees in each business can provide valuable data on which to base an integration strategy. The process can also help employees to feel involved in the merger, making them more likely to understand and accept change.
Use findings from initial assessments to map the differences and similarities between firms. This includes identifying areas of potential friction, and developing a strategy to avoid issues further down the line.
Once achieved, use this to define the future culture. For instance, will the acquired company being assimilated into a pre-existing culture, or will there be a blend? There will likely be learning opportunities to take from both companies; the merger can be an opportunity to cherry-pick the best of both.
Defining culture in the form of concrete behaviours, rather than vague terms, will make it easier for managers to implement with their reports and across teams. The company should also consider how to foster these behaviours, be that through training programmes or compensation regimes that reward desired behaviour.
Setting clearly defined targets will allow companies to track the progress of their merger. Job satisfaction is a key metric, and could be gathered through a combination of surveys with anecdotal and interview-based feedback. Other HR key performance indicators (KPIs) are likely to be useful, such as turnover rates, absenteeism, and job referrals.
Facilitate top-down change
Those at the top of an organisation should always lead by example when it comes to culture. However, doing so is particularly important when an organisation is navigating a merger. New leaders may also come on board, who will need to familiarise themselves with the culture.
Providing support and training for these individuals will help to steer the workplace as a whole in the right direction. At the same time, existing employees are likely to have questions and concerns about the future. Leaders must be equipped with the emotional intelligence, empathy and understanding to alleviate or manage these concerns.
Transition employee benefits
Employee benefits are an important consideration in any M&A deal and due diligence should be carried out early in the process. This will aid with comparing like-for-like benefits as well as differences. While positive changes to benefits can improve employees’ experience at work and drive productivity, unfavourable changes can have the opposite effect. Continuity of any chosen benefits is important, too.
Surveying options carefully beforehand and communicating potential changes with employees will drive success in the M&A deal. Bear in mind that cooling off periods may apply, or contracts may need to be fulfilled, so any transition is likely to be staggered.
For further information, please visit our Lockton People Solutions page, or contact:
Carolyn McVey, Senior Consultant