We are all painfully familiar with the high-failure rate of mergers. The many reasons behind the downfall of these corporate events have generated a plethora of business literature. But often times the troubles start early on: The structure of the due diligence process prevents a company from gaining a clearer understanding of the health of a business based on the tangible and intangible factors leveraged to create value. One of the factors consistently overlooked during a merger is cultural fit.
In a recent McKinsey survey, 92% of respondents said that “their deals would have substantially benefited from a greater cultural understanding prior to the merger.” This lack of understanding is often worsened by the belief that merging companies operating in the same industry are likely to be similar, thereby making cultures’ compatibility a non-issue.
In reality, no two companies are cultural twins. As companies grow and mature, they codify what makes them successful: Each merging entity has its own norms, behaviors, rules, guides, and thinking. By acquiring a deeper understanding of each organizational culture merging companies either avoid or at least substantially alleviate the pitfalls that are normally experienced during the integration process. Moreover, mergers inevitably make employees unsettled and uncertain about the future. Understanding the ‘mood’ of an organization can provide useful insights to guide internal communications efforts.
To help executives assess cultural fit of two organizations, we developed an agile methodology that allows merging entities to spot differences and similarities between their two cultures. This approach is designed to work within the timeline constraints normally associated with the due diligence process and yet provide the depth necessary to inform the integration process, Day One communications, and the brand strategy of the new, combined organization.
M&A Planning: Initial Cultural Understanding
To help executives of merging companies analyze the impact of culture on their planned merger outcomes, BrandingBusiness has developed a Culture Integration Assessment. The assessment is designed to be used after the public announcement of the intent to merge, which starts the due diligence process leading to Day One. By placing emphasis on the integration, the assessment is seen in a less threatening light and as a valuable input to facilitate cultural integration after Day One.
A workshop with select executives from both companies is used to discuss the project and acquire a better understanding of each merging entity’s culture. Employee satisfaction surveys and other available materials are shared during the workshop and used to moderate a transparent conversation about potential problems and opportunities surrounding the integration.
The insights from the workshop are then integrated into a discussion guide designed to lead focus groups. The purpose of the focus groups is to validate internal perspectives and gain additional insights about each culture’s characteristics, strengths, and weaknesses. Several areas are investigated, such as attitude to change, accountability, communications, collaboration, employee and customer focus.
Culture Survey Assessment
Armed with the insights gathered, we then tailor a survey instrument that is designed to gain a quantitative understanding of the differences and similarities between two different cultures. The survey is composed of the following elements:
- Screening questions focused on demographics, tenure, location and functional areas, to mention a few
- Unaided current perceptions of the organization as well as future desired perceptions of the combined organization
- Current cultural characteristics based on a battery of aided adjectives
- Sentiment about the merger and expectations
- eNPS score, which measures employees' willingness to be ambassadors for the company for employment opportunities
These preliminary questions are then followed by an in-depth survey component, which focuses on the following areas:
- Managing change and customer focus, which drive an organization’s adaptability
- Goal orientation and accountability, which shape an organization’s ability to perform
- Communications and collaboration, which affect how people work together to achieve common goals
- Leadership style and employee focus, which identify how an organization values and manages its human resources
Other areas can be added and considered based on insights gathered from the workshop and from the focus groups. Opportunities for open-ended answers are also provided throughout the survey to solicit further qualitative input. Overall, the key is to keep the survey within the 15-minute duration to ensure high participation rates.
Final Reporting Before M&A Integration
The results are carefully analyzed and presented to the teams of the two merging organizations. A series of recommendations are also provided to address identified gaps and advise how to take advantage of opportunities that might have been uncovered.
The impact that culture can have on a merger is well known. Employees clinging to the old way of doing things can lead to corporate tribalism and cultural clashes that affect significantly the ability to create new value from a merger. A culture integration assessment can enable the executive team of the newly merged company to go into the integration phase with open eyes and a better understanding of the struggles that they may face to form the new culture.