There are two hallmarks of successful M&As that bring together organisations with different cultural backgrounds – both of which revolve around engagement, according to a cross-cultural M&A expert.
Engagement is demonstrated at all levels of two businesses when there is a willingness to collaborate and be interested in not only ‘what’ their new colleagues are doing, but ‘how’, said David Morley, managing director of Ponte Valle and associate partner of The Hofstede Centre & itim International.
But to hold this mindset, and to be engaged in this context, requires another key feature of a successful cross-cultural M&A: cultural and strategic alignment between the two organisations, and in particular, between the leadership of each country.
“The strategic alignment piece is mostly present in M&As, however the piece that is often missing is the cultural alignment, and this extends beyond organisational culture to include national culture,” said Morley, who specialises in cultural bridging and teaming solutions for organisations.
“For example, if an anglo-based acquiring company, which will naturally value flatter structures and higher levels of consultation throughout the business, understands that the target company has a deeply embedded, and almost emotional need for hierarchy, structure and are more likely to ‘tell’ than involve staff in vertical consultation, then you can imagine how much difference this would make to the way the M&A is planned and executed.”
Cross-cultural M&A pitfalls and challenges
One of the most obvious pitfalls of cross-cultural M&As (and the one that is least thought about) is developing the intercultural capability of the those will be at the interface of the M&A to be able to work effectively with their new colleagues, said Morley.
“We often think of developing technical capabilities, and increasing the knowledge of organisational culture factors, such as training in the new values, mission, vision, etc,” he said.
“But none of this prepares those who will need to work with colleagues from a different cultural background in how to make this transition.
“We see this often in project scenarios: a project manager in a country that is comfortable with uncertainty and ambiguity won’t understand, or know how to deal with, their new manager who is based in a country that doesn’t deal so well with uncertainty and is therefore requesting more reporting, data and information to remove any uncertainty.
“If the M&A raison d’être is not clear, or lost in translation at the highest levels of the business, then we know what can happen beyond those tiers”
“This is usually perceived as: ‘my new manager doesn’t trust me. I’ve never had to provide this much information before, and frankly I don’t see why I should start now.’”
The easiest way to point this out to an executive team or board is to identify some of the most critical collaboration points that exist in the new entity and to ask the question: ‘what would happen if communication and collaboration broke down?’.
“Start with the most senior and critical collaboration points – those that exist between HQ appointments and their key stakeholders in the business like innovation/R&D, strategy, operations; if the M&A raison d’être is not clear, or lost in translation at the highest levels of the business, then we know what can happen beyond those tiers,” said Morley.
The role of board diversity
Board diversity can play a particularly important role in cross-cultural M&As, and Morley pointed to a recent McKinsey study which found that the companies in the top quartile for racial and ethnic diversity were 35 per cent more likely to have financial returns above their respective national industry medians.
“The same goes for board composition, and the influence of the board on M&A strategy design,” he said.
In an organisation that is planning for growth on the back of a strong M&A program, Morley said board diversity opens the door to discussions, questions and analysis that may not have been possible in a mono-cultural environment.
“If you are planning to expand abroad, think about your board composition”
In the absence of a planned analysis of cultural compatibility, or a plan for addressing cultural alignment, a diverse board has the opportunity to naturally raise questions or make suggestions on how the new parent company should move into their new country in such a way that there is little or no political push back, and that the M&A has the best opportunity to work on the ground.
“In terms of what more can be done in this space? It’s simple,” said Morley.
“If you are planning to expand abroad, think about your board composition. Does it support, and enable, the objectives of your growth strategy, or is it a limitation?
“The same goes for those in your executive team who are responsible for executing the M&A strategy.”
How HR can assist with cross-cultural M&As
There are a number of steps HR can assist with in the process, according to Morley, who said the first one is to take the time to get an independent assessment of the culture of each company.
This should not just be about the organisational culture (for example, whether this may be innovative or bureaucratic), but the national culture as well if it is to be a multinational M&A.
“If there are significant differences, it’s not the end of the world; however the differences are known and can be worked with from the outset, rather than invisibly eroding the deal until it’s too late,” said Morley.
“Implementing a process of strategic and operational alignment between key stakeholders from each camp can help to determine a shared approach to working with, and leveraging, the different cultures for success.”
“Don’t be afraid to look beyond culture and strategy to the philosophy of the two organisations”
Secondly, Morley said to assess the strategies of the different organisations and look at the principles of manufacturing, project management, innovation and client interaction.
“How different or aligned are they?” he asked.
“There may be a synergy in product strategy or a symbiotic effect in terms of market position, but if the way the product is conceived, created and brought to market is disjointed then the impact will be noticeable quickly – in terms of order intake, client satisfaction and share price.”
Strategy can be explored in conjunction as part of the alignment process mentioned above, according to Morley, who said the strategies of the two organisations can be explored to the extent that there is a new and shared strategy created that optimises the best of both worlds.
“Finally, don’t be afraid to look beyond culture and strategy to the philosophy of the two organisations,” he said.
“Who were the founders of these organisations and how have their organisations evolved as a result of their intent?
“They may not be with the organisation any longer, however their philosophy on why, where and how business is conducted can still be regarded as the heart and soul of the organisation.”
Importantly, if the founders are still with the organisation, then this is an important element to be acknowledged and worked with if the M&A is to be a success, said Morley.
Image source: iStock