What are the 3 key cultural ingredients of a successful merger & acquisition?

3 key cultural ingredients of a successful merger & acquisition

HR teams need to take a proactive and early role in potential a merger or acquisition, according to Jerome Parisse-Brassens, who details a 3-step process to ensuring a successful cultural due diligence and resulting M&A integration

Most organisations start thinking about culture after a merger or acquisition deal is signed or closed. Others, only when people start leaving the business in large numbers. Commonly used data shows that one-third of all mergers fail and fifty per cent result in lowered productivity, profits or both. To improve the chances of merger success, what do HR teams need to do from a cultural point of view?

1. It is critical to have culture on the table well before diligence begins, and with HR being part of the process. The very first thing to do, which can be counterintuitive, is to know the cultural attributes of your own organisation in depth, well ahead of considering a merger or acquisitions. This is the first role of HR teams in a merger. What are the strengths of your business? What cultural attributes do you want to keep? What attributes are needed to meet future business challenges? What do people need to do differently?

Only after you understand where you stand culturally and determine where you need to head, is it possible to assess the culture of potential partners in terms of their impact on your organisation. Then, armed with a good understanding of your potential partner’s culture, you should consider cultural fit.

But how can HR evaluate the culture of potential partners? It is often impossible to have access to data before the merger is announced. One of my clients recently acquired a US firm. When I asked about culture, they told me proudly that the cultural fit was great. When I pushed, I found out that their assessment was based on what had been said to them and on some stated values and behaviours.

We all know that stated values are often more aspirational than lived, so beware. Shortly after the merger took place, significant cultural differences started to play out in a negative way. Their assessment had not been on the money.

“We all know that stated values are often more aspirational than lived, so beware”

There are many ways to find out about the culture of an organisation from afar. Analysts know how to do it because they take culture into consideration in their buy-sell recommendations. Some of the strategies include:

  • Articles in newspapers
  • Published results of great places to work
  • Interviews of the CEO and top leaders
  • Interviews of current and former employees, and customers
  • Customer awards and other types of awards
  • Office layout
  • Behaviours observed when visiting the workplace (The water glass offered or not is for me always a clear sign of customer-centricity – or not).

2. With a good understanding of your own culture and of the partner’s culture, identify the culture strategy for the new entity. There are four possible culture strategies in a merger that HR leaders need to take into consideration. The choice depends on both the intended business strategy and value creation plans described in the deal, as well as the current cultures of both organisations.

 

Merger & acquisition options

 

Developing the new culture involves defining what is needed to deliver on the intended strategy, and then aligning behaviors, symbols and systems which will build this culture. HR teams should pay attention to key decisions made during the early stages of a deal and through the first few months of integration as they can have a significant cultural impact.

For example, choice of CEO and from which organisation they come; composition of the new leadership team; and new head-office location. These early decisions will affect how people feel. As a leader, spend time on the balcony during the merger or acquisition process to assess the impact of the messages you are sending through your actions and decisions.

3. Work with leaders of both organisations to increase the speed and effectiveness of integration. The partner may look very much like you, and on the surface, they may be in the same business or industry. You may therefore think that the fit is strong and integration will be easy.

However, you may quickly start noticing that they are not the same as you. What is important to realise is that there is a large distinction between the observation of differences, and the formation of judgments about those differences. Based on previous reputation and rapidly cemented opinions during the first few weeks of direct exposure, each group forms a view of the other that is usually negative.

A critical role of HR teams in an acquisition or a merger is to help move themselves as well as business leaders past this stage as fast as possible, whilst simultaneously creating the target culture.

“The water glass offered or not is for me always a clear sign of customer-centricity – or not”

Five mental models can potentially exist during a merger. People have to go through at least the first four to reach the point where the culture becomes an asset.

  1. My way is the only way
  2. My way is the best way
  3. You have some good ways too
  4. Let me learn from your ways
  5. Let’s build a new way together

Everyone without exception starts at levels 1 or 2, even the most senior leaders whose jobs have been secured before the merger commenced. The journey from 1 to 5 then depends on each individual. It is critical to move through the levels as soon as you can if you are going to be a useful contributor in the merged organisation.

Once again, HR teams can support leaders progress to a mental attitude which will facilitate their objectives. The process of building the right culture and supporting people through their early emotional turmoil, is made much easier by planning and leadership.

With careful planning and a lot of openness, mergers can be a lot more successful than they currently are. HR teams should focus on providing data on the two organisation’s culture, train leaders and managers in how to lead in these unique circumstances, and provide the forums for teams to understand and learn from each other and build respect. Neglecting this work can result in departures of key people, poor communication and slower integration.