5 Keys to Successful Culture Integration in a Merger

5 Keys to Successful Culture Integration Post-Merger

Mergers are one of the most effective strategies for growth when done well.

Why then, do 70-90% of mergers disappoint in comparison to expected financial results?  Shouldn't integration of two companies be able to beat the odds of two people getting married!? This 2011 HBR article on the new M&A Playbook analyzes some of the reasons in greater detail.

Issues surrounding cultural integration in a merger have defined about 2/3 of my practice over the past 18 years - not because I set out to specialize in this area; because THIS is where the pain was felt most deeply.

My clients have learned it's never about great lawyers getting the deal right (any more than the wedding is the marriage.) And yet, this is where most of the focus is when making the deal to acquire or merge between two companies.

Company CEO's who were proud of the value they were adding through the merger, became shocked at how difficult it was to achieve that value proposition.  Often, I am called when the two organizations' people are acting like the Hatfields and McCoy's (in certain camps) more than a collaborative, high-performing, integrated team. In some cases, this is years after the deal closed, and leaders were not even aware of how bad it was down the chain.

CEO's need to understand the power of conscious cultural alignment pre-merger. How initiating some essential conversations can truly save the deep, far-reaching and real costs of misalignment cascaded into the organization (and painful unintended consequences.)

No union ever starts out with the belief it will go sour. (like the milk in your fridge does not suddenly "become sour.")  You wake up one day and realize things "went array" in a thousand tiny moments over time.  Lack of cultural integration in a merger is the same way. When leaders consciously commit to work on connecting their people to playing a bigger game, and focus their leadership on showing them how to do it, this is the level of commitment that beats the odds.

What does it mean, to successfully integrate two cultures in an acquisition?

Amid globalization, disruptive technology, rapid change, and increasing competition in every industry, the need to tend to culture in any big change is more important than ever. In an acquisition, confusion and polarities on both sides strengthens when leaders at the top are not proactive from the beginning - and even when they are, turf battles cascade into the organization in ways you would never have expected.

During the choice of an acquisition, leaders can perform diligence around what kind of growth goals they are seeking the merger to accomplish, and look for cultural integration points that must happen to support them.  On a continuum between “buy this company and leave them to run their business as is” to “fully merged staff and facilities” - the expectations on both sides determines how you approach the cultural aspect of your growth-through-merger process.

Integrating cultures is about determining what to preserve and keep about BOTH company cultures - and where compromises are needed. It is not realistic - or even desirable - to expect people to adopt the culture of their acquired culture (eg, core values) immediately.  Both companies have been successful, or you wouldn’t be considering this move. Demanding culture cooperation from the top (without implementing sound methods to achieve it, such as listening and respecting needs on both sides) makes cultural differences more pronounced. This dynamic causes people to "go underground" and undermine each other.

This checklist represents the most common issues I have seen in clients seeking to achieve meaningful alignment post-merger.

5 common culture integration issues that derail your Happily Ever After

(along with some tried-and-true tips for proactive measures pre-and-post deal.)

1) Clarity of Mission. The most important due diligence to perform prior to a merger is determining a Shared Mission.  The discussions among leaders at this level are incredibly powerful determinant of merger success.

Get real about whether two independent missions can truly be merged to forge one stronger, compatible, and common Mission. This truth may reveal that you’re better off keeping the operations separate.

Common mission is less about the words or posters, and more about the story created by the leaders at the top, and how that story is told by leaders on both sides, to their employees. If top leaders are personally excited and show alignment continuously that “We can be much more together” it feels very different to employees than “we are buying our competitor to put them out of business.”

The recent AT&T and DirecTV merger produces synergy and market disruption, through merging content with distribution channels for entertainment and communication. And, as two HUGE entities with separate legacy cultures, the process of a common mission will take work to filter to all employees at every level.

Mergers in every industry are for one of two reasons: Grow your existing market share or business, or purchase a new technology or business model.  Starting with purpose and mission is crucial, to ensuring the success factors that made each company great, will be preserved.

2) Leadership Alignment.  Is the management team of the acquired company aligned with the expectations of the buyer? In the courtship stage, everyone wants to show their best side. But, even when synergy and excitement exists for the monetary and market share potential, there are often hidden agendas lurking on leadership teams.

De-stabilization in the core leadership of an organization can wreak havoc on growth and integration plans.

One company we worked with, forged what seemed a natural merger in the patio entertainment space, but the two leaders of the separate organizations did not see anything the same way - including their core values. After years of work, they never got on the same page. The two organizations never fostered the desired financial growth as a result.

You need to drill deeply into the core values of the management teams on each side, ensuring a high percentage of alignment if you want to realize the growth potential.

3) Us Versus Them.  Humans are tribal. Even within a company, you see the power of fiefdoms and rivalries. A dynamic that is under-estimated consistently, is that of the acquired company feeling they are being swallowed. They will fear their best qualities and unique culture is going to be wiped away.

A recent client in the healthcare industry, was merging two separate companies into one building, a year after one purchased the other in a distress sale. They were formerly competitors; the buyer was moving into the building of the purchased company. The two companies were completely different in their cultural origins: One came from a legacy Fortune 10 company, the other was a successful entrepreneurial disruptor in the industry.

People on both sides were very attached to their ‘us versus them’ story. The civil war internally was threatening the foundation of what made both companies successful. Customers were embroiled in the battle and threatening to leave.  Even simple processes to integrate the customer experience, could not achieve agreement. The company was literally stuck in a state of paralysis a few weeks away from the co-location.

The remedies are too long to cover here; however, the company’s CEO and Chief People Officer hired us to help uncover the depth of this mindset and what it was costing the company. They needed to send a loud and clear signal, “We are moving forward” and “I expect both sides to work together on solving our customers’ needs - and shift away from who’s right versus wrong.”  The steps from that point were not easy; difficult people decisions had to be made. But the clarity and evidence of the cost to their growth and profit, of allowing this mindset to eclipse the opportunity of both sides coming together, was an eye-opening case for proactive steps in cultural integration. .

4) Entrepreneur Versus Corporate. There are significant differences in companies that are private versus public, global versus U.S., virtual workforce versus on-site.  These differences often clash around two of the most important people-centered aspects of a business: How decisions are made and how people are promoted. (both of which are highly feared by people in a merger.)  Even a seemingly simple difference such as leadership accessibility, can create a great deal of confusion as people try to navigate their differences.

Spending time up- front working through the cultural tone, the overarching philosophy, leadership decision rights, and how duplicate positions will be decided, pays off later.

Not easy work!  This is the place for an outside or neutral facilitator, who is not associated with either company.

5) Preserving Identity While Fostering Synergy.  When the purpose of the acquisition is clear, this part is much easier. Still, culture is a powerful identity.  A cool technology or product branding may be a pretty face you’ve fallen in love with, but culture is the internal beauty that led to the attractive qualities you’re smitten with.

The habits of thought and behavior that created this company will be different, even at the level of how teams are chartered, criteria for hiring and promoting employees, how meetings are conducted, informality or formality of hierarchy and communications. Once the papers are signed and the ribbon is cut, there is NO pixie dust that produces harmony.

Yes, diversity is a strengthening force if you embrace it. Begin with the assumption (and expectation) that both sides will learn from each other and be stronger.  Have discussions about where people want and need to allow and appreciate differences. Preserving the strengths of the two cultures in ways that are different and honor each identity, forges a stronger unified organization.

Growing through joining forces is a tremendous opportunity. And, you will have blinders on in the process – just like in courtship.  If you ignore faults, it will spell trouble later.  The best leaders understand the need for cultural due diligence up front, and seek a "marriage counselor” (outside expert with no vested interest in the deal) to support them in defining a successful cultural union.

Contact Lisa Jackson to schedule a complimentary strategy session on fostering leadership alignment in a merger. Doing so before you walk down the aisle will save a great deal of time, money, and people frustrations.

 

 

 

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