Subscribe to our mailing list
Stay up to date on what is going on at Culture Partners!
In the corporate world, mergers and acquisitions (M&As) are becoming increasingly common, offering companies in the same or adjacent industries the chance to scale. Analysts estimate that by the end of the year, U.S. corporations will have spent a combined $1.3 trillion on M&A deals in 2018.
Unfortunately, many M&As falter within the first few years. In fact, data from the Harvard Business Review indicates that between 70 and 90% of all M&As fail.
Why is this? According to research published in the International Journal of Innovation and Applied Studies, one of the primary reasons that M&As fail is misalignment between the two company cultures.
Contrary to popular belief, workplace culture has little to do with workplace perks or company happy hours. Rather, an organization’s culture is defined by the ways in which employees think and behave in order to accomplish goals. Gaps between two converging cultures can create miscommunication between leadership teams, a lack of clarity around operational strategy, and stunted movement toward topline objectives.
On the other hand, when you successfully integrate cultures, you ensure that the strategic and operational goals set forth by the merger or acquisition can come to fruition within the new partnership. So before undergoing an M&A, follow these steps to ensure that your organizational culture is poised for effective integration.
1. Unify and Clarify Organizational Objectives
When preparing for an M&A, corporate leaders from both organizations tend to be laser-focused on their own goals and how the move can positively benefit them. However, this mindset left unchecked can be catastrophic, as it fails to provide the unifying lens that will bring the two organizations together and working towards the same cause. Unified goals add value in unanticipated ways, such as stimulating the creative leverage of resources from both parties and driving better outcomes overall.
For these reasons, the first critical step to preparing your organization for an M&A is bringing leaders from both companies together to collaboratively establish the Key Results of the new organization — the three to five meaningful, measurable, and memorable objectives that every employee must work towards. Once your Key Results have been identified, leaders are responsible for defining and disseminating these goals to employees in both camps so that every individual enters the M&A with clear targets for their day-to-day work.
2. Assess Your Company Culture
Successfully executing an M&A requires the integration of three critical components: high-level strategy, day-to-day operations, and culture. While many organizations spend significant time, energy, and resources on masterfully planning the integration of both high-level strategy and day-to-day operations, they often neglect culture — the crucial foundation upon which both strategy and operations are dependent!
As such, preparing for an M&A should begin with a holistic assessment of both organizations’ cultures. An honest evaluation of how individuals within each organization think and act to get their work done will help to identify the cultural gaps that will manifest themselves once the merger is complete.
For years we’ve seen merging organizations skip this step only to later discover that one organization’s slow and methodical approach to new product development causes massive friction with the other organization’s tendency to innovate quickly and fail fast.
The material costs associated with ignoring such differences might not be immediately evident, but the costs manifest themselves eventually. We’d suggest employing a data collection tool such as the new Partners in Leadership Accountability Index, which can help measure rates of awareness, alignment, and accountability within your organization. Leaders can subsequently implement a personal accountability plan to keep the ensuing M&A culture shift on-track.
3. Identify the Culture Combination that Will Maximize Results
Finally, before undergoing a merger or acquisition, it’s necessary to determine the shape of the new culture. Take this example: a large, established corporation decides to acquire a young startup that values risk-taking and nimble decision-making. The larger company presumes that the startup will help them adapt more quickly to new markets — however, when the acquisition occurs, chaos ensues because neither company has appropriately assessed their culture, determined topline goals, or identified hiccups likely to occur during the process.
The point is: no company will be effectively prepared for an M&A unless they have laid the necessary cultural groundwork. In general, there are three possible culture combinations that can result from an M&A: 1) one organization’s culture can assimilate to the culture of the other; 2) both cultures can maintain independence without integrating; or 3) the cultures can be combined to create an entirely new culture.
The path you choose should take into account a variety of factors, including the size of each organization, the unique strengths and weaknesses of each culture, and the post-M&A Key Results that you have identified.