Merging Organizational Cultures

Merging Organizational Cultures:

Managing Integration to Improve ROI on Mergers

"People don't resist change - they resist being changed." --Peter Senge

Most mergers are considered a failure – 65-85% fail to deliver the promised ROI and synergies, in the form of profitable growth.

While the percentages vary (based on the research approach) most CEO's and leaders accept that mergers rarely live up to their original hopes.  The price paid on your most important asset - people - is extremely high.

Why Do Mergers Fail? 

OK, the deal is signed, the honeymoon is over, your integration team has left the building – but the magical results aren’t there.

  • Why aren’t people more enthusiastic?  Why has productivity dropped?
  • Why do acquired company employees still want to do it “their way” when you’ve made it clear it’s “our way” now?
  • Why are leaders escalating turf wars when they were so nice in the deal stage?
  • Does corporate culture really matter in driving the financial performance you are seeking?

The reasons are as varied as the results, but the bottom line is - due diligence on paper, doesn't translate to acceptance and ease of the deal - for one simple reason:  Deal-makers and bankers are not experts at predicting the complex dynamics and fallout when people (customers and employees on both sides) are forced to face change,  uncertainty, and loss.

If your merger is not delivering the ROI you expected, maybe it’s time for a different approach. We are experts who have spent 2 decades' working to restore people's faith and performance, following post-merger integration.

 Corporate Culture Pros – Merger Experts

Since 1998 we have been helping CEO's (and their teams) execute their Vision for growth – especially post-merger.

PwC research survey on merger success, states that ROI from M&A depends on success in four areas:

  1. Achieving synergies,
  2. Completing the integration within an ambitious time frame,
  3. Successfully managing culture and change. (responsible for more failures than the other 3 factors, because it’s the least understood and managed territory for dealmakers and leaders.)
  4. Implementing strong project governance.

Companies performing highly in these four dimensions, are far more likely to achieve their return-on-investment (ROI) objectives. ROI is a good indicator for the success of post-merger integration, as it combines multiple success factors.

In Corporate Culture Pros' experience what leaders do in the 6 -12 months following an acquisition is crucial to long-term value.  During this time, ONE thing predicts long-term value creation and success more than anything else.

More than sales or market share growth.

More than winning big deals.

More than achieving "synergies” or cost efficiencies.

This One Thing is to restore clarity, alignment, and people’s confidence in the path forward.

Clarity and Alignment predicts high performance

Lack of clarity and alignment predicts mediocre or inconsistent performance.

People are the heartbeat of any business.  (if you doubt this, you probably don't want to read further.)

Gallup's well-documented 14-year surveys show that 2/3 of all employees are marginally or fully disengaged every day at work.  Multiple sources estimate the cost to the U.S. economy tops at least $350 billion. (due to attrition, lost days at work, lack of discretionary creative effort).  Clarity and alignment of leadership toward purpose, direction, and goals is a strong element in companies with strong employee engagement.

Denison Culture – a research-based culture survey – shows how 12 core management practices in companies link to 7 business performance metrics. In one study, strength in those 12 core practices equated to 21% ROE, versus 6% ROE in the companies who were weak:

Of the thousands of people we have interviewed over the years, one of the most common issues is frustration in “being a virtual wind sock." Constant shifts in priorities, unclear competing agendas, what changes are real versus rumored. Most are afraid to speak up, for fear of offending the CEO and top leadership. If they have raised concerns, it is often met by a defensive posture from leaders who are too busy or don’t “get it."

This is even more pronounced in companies who have been through a merger. Unless you've done considerable work, the "benefits" of the merger is not shared by most of the staff. (In fact, they are bearing the brunt of the pain.)

 

According to Pritchett (experts in M&A integration), on average, employees in acquired companies spend about 2 hours per day distracted and worried about the merger.  Often, even HR is often not privy to this, as people are reluctant to complain while decisions are still being made about who stays and who goes.

Lacking clear and compelling knowledge of where your company is going, what winning looks like, where to fit in and make an impact, the best people leave.

Unless you have done significant work to create post-merger alignment, it's likely the the opportunity the merger / change was designed to deliver, is not delivering.

Defining Alignment

Alignment is the outcome of achieving collective agreement around 3 factors:

1) Strategy - Knowing Your Value.

  • Why do we exist, as a combined entity?
  • How will we win and differentiate in our market?
  • Would everyone in your company answer these 2 questions the same way?
  • Would employees from the merged companies give the same answer?

2) Leadership - Knowing Thyself.  A leaders' job is to provide continuous clarity and direction around priorities. In the modern workplace, characterized by rapid change and innovation, your job as a leader is to inspire and empower people to lead change at the team level.  When they lack clarity and direction, creativity and teamwork suffers.

  • What does winning / success mean here? (especially in the face of conflicts in products/services?)
  • What is your combined, stronger mission?
  • Do I trust our leadership?

These are common questions on employee's minds, that predict the ability to grow and capture the opportunities promised in the deal.

3) Culture – Knowing Your Uniqueness.

  • HOW will you create a combined unique internal brand (culture) that can deliver on the brand promise to your customers?
  • What management practices will you adopt?
  • How will you preserve and evolve what was great about each company, and create a set of shared values and practices, together?
  • How will you show your customers they will benefit more?

How Mis-Alignment Shows Up

Common pain points we see post-merger include:

  • Increased conflict within mid-level management, who are receiving and translating mixed signals from the top.
  • Attrition of good people (the ones you wish weren’t leaving).
  • Missing deadlines and/or budgets.
  • "Us versus Them" mentality that shows up as turf battles.
  • Escalating customer complaints and losing key accounts.
  • Employee sabotage (yes it happens - people can sometimes go against character when their security is threatened.)

According to Pritchett (experts in M&A integration), on average, employees in acquired companies spend about 2 hours per day distracted and worried about the merger.  Often, even HR is not privy to this; people are reluctant to speak openly - especially to HR - when decisions are still being made about who stays and who goes.  When people lack a clear and compelling knowledge of where the company is headed, what winning looks like, where they will fit in and contribute best - they can't do their best work.  Many will suffer in "good soldier" mentality until they get fed up and leave.

Unless you have have done significant work to create post-merger alignment, you're company is likely suffering many of these symptoms.

Aligned organizations:

  • Create more profitable growth.
  • Empower employees to lead and own change.
  • Grow bench strength and leaders who accept full accountability for results.
  • Attract and retain happier and healthier people.

Why Culture?

Over 2/3 of employees consider culture an essential part of their decision to work for a company. Multiple studies have demonstrated the ROI of culture.  Better yet, perform your own assessment using our ROI worksheet - just email us for a copy.

In spite of the evidence, executives often struggle to "justify" or invest in culture work, because they view it as fuzzy, fluffy, feel-good territory, versus what can be tangibly managed.

The real question CEO's must address with culture is:

"Does our culture create and support a lasting differentiated market position, and attract and retain the best and right talent to lead this growth?"

Achieving this post-merger, requires new systems and processes for disciplined clarity, alignment, innovation and creativity, cascaded throughout the company.

During a merger, on average, 50% of acquired senior managers leave in the first year. Three out of four leave within the first three years.  The cost to replace talented individuals is 50% to 150% of their salaries. Re-recruitment and training costs can far exceed the cost of merger integration, if it helps a business retain even a handful of key players that would have otherwise left.

Momentum of a good product or service or technology, can carry business success for awhile. But what happens when your competitors start encroaching?  Are you aligned to innovate, achieve the next level of success? Can that happen quickly and easily in your culture?

Culture is HOW the top team creates long-term competitive advantage.

Southwest Airlines, Starbucks, Google all leverage culture as a competitive advantage. Beyond quarterly returns and profits, each is focused on building a lasting organization with a clearly differentiated mission in competitive industries.

And, each of them is proud to be at the top of their industry in financial success.

What Corporate Culture Pros Does

Corporate Culture Pros' expertise is helping a CEO and his or her executive team, articulate the mission and values of the combined entities, and foster alignment and accelerate progress to growth goals around that mission.

We support leaders in several ways:

  1. "Work at the level where the pain is."  Addressing the high failure rates of traditional approaches to merger integration, we define corporate culture integration goals that will help you accelerate a few key wins.
  2. A step-by-step approach that identifies the desired corporate culture post-merger, defines “fit” issues wherever you are in the merging process, and pinpoints the work needed to create a unified entity.
  3. Preserve essential elements of the identity on both sides; identifying what should change and what should NOT change.
  4. Perform an objective and comprehensive assessment of your strengths and weaknesses, compared to your growth goals.
  5. Train the executive team on their role and responsibilities in leading culture alignment.
  6. Design and facilitate (if desired) fun, interactive programs to help people understand and embrace the change.

Recent Case Study

BroadVoice’s CEO Jim Murphy contacted Corporate Culture Pros in 2016 to support a post-merger effort to create alignment and preserve the great cultures both companies had created separately.

BroadVoice is a mid-sized telecom company based in Los Angeles, currently about 175 employees, including remote sales and delivery teams and business units serving both residential and B2B.

When they merged two business divisions, Jim knew he had two effective (but vastly different) company cultures. He was concerned that what made each great would be diluted in the effort to create synergy and unity – and understood that was key to grabbing market share in their heavily competitive B2B space.

What We Did

  • Established a clear, inspiring, and meaningful Mission, Vision and Values for the combined organization.
  • Performed an assessment of strengths and weaknesses in executing the growth drivers of their Vision, through interviewing a selected set of employees.
  • Coached CEO on his role in leading the culture effort.
  • Designed and facilitated Executive Team clarity. Identified differentiators, strategic goals, priorities, a quarterly meeting rhythm, how/when to make key hires (and essential traits of them). We built a plan to develop bench strength at the mid-level of management, which involve cross-functional collaboration. a process to cascade that discipline (and empowerment) through their meetings, including the next level of management.
  • Developed and trained four internally led Culture Excellence Teams and chartered/coached them to alleviate 4 separate pain points in the business: Retention, Collaborative Teamwork, Fun at Work (especially relevant in their call center), and Communicating Our Values.

Client Results

  • Exceeded 2017 growth goals by 10%
  • Acquired a third company to create technology advantage, and integrated them successfully
  • Decreased attrition of employees in their call center by 50%.

Recent Merger Projects

  1. Xerox Cloud Services - Software dev teams from New York and Portland combined, to work on future-of-printing solutions.
  2. Blue Rhino / Ferrellgas - New York and North Carolina companies merged to expand portfolio, top two leaders were not aligned.)
  3. BroadVoice – 2 VOIP companies merged, creating residential and B2B synergy and cash flow to fund technology play in the space.
  4. NeoGenomics - Blood lab testing, merged with former GE Healthcare spinoff and combined lab facilities. Supported resolution of “tribal wars” between the two camps.
  5. Boulder Centre for Orthopedics – two biggest ortho practices in Boulder merged; doctors were not aligned and turnover was increasing. Supported process to create company-wide aligned core values and collaborative teamwork, coached on doctor alignment.

What Makes CCP Different

  • Post-merger work has represented about 80% of our practice.
  • We place a performance-centered lens on culture, grounded in sound strategy and effective leadership.
  • Two decades’ experience (Fortune 500 and entrepreneurial companies) supporting top teams in leading post-merger efforts to achieve synergies and expected growth goals.
  • We bring in-depth experience and empathy to CEO’s and their team, at a time when they are facing a great deal of competing pressures.

Our clients value our neutral and honest advice, and sound methodology, in helping deliver on the promise of the change.

If your organization is managing a merger, new CEO on-boarding or other big change (especially if it is not going well) please contact us for a no-pressure, confidential conversation.

Whether you engage us or not, we promise honesty, privacy, and sound advice.