THE CULTURE CONUNDRUM

THE CONDITION

A very significant cause of M&A failure is the culture clash that comes to the fore long after all the other M&A related issues have been dealt with. Research (as shown below) ranks culture incompatibility among the top 5 reasons for M&A failures.

THE REASONS

Mergers and acquisitions almost always involve some level of transformational change and disruption. Successful post-merger integration demands significant change on the part of both the acquiring and the acquired organization. The acquirer creates ‘boundary disruptions’ — changes in stated goals, strategies, ways of doing things and customs. The acquirer also deploys control mechanisms to manage the change and achieve the strategic goals that were the reason behind the M&A in the first place. For its part, the acquired organization may have to deal with any anxieties about being “absorbed” and learn to integrate itself into new corporate procedures and values.

In short, a process of mutual adjustments and acculturation must take place for post-merger integration to succeed. Shared beliefs lead to more delegation, less monitoring, higher satisfaction, higher motivation, less information hoarding, less experimentation, faster coordination, less influence activities (politics), and less biased communication. Intuitive rationale for why a homogeneous culture throughout the organization is such a pervasive force is that

• agency problems arise from differences in objectives and
• Shared beliefs and values reduce or eliminate such differences in objectives, thus eliminating the agency issues (and their negative and positive consequences) at the root.

THE INTERGRATION STRATEGY

1)       The HR team that is in charge of the culture integration must start by building a clear view of the context of change and the rationale behind the M&A. It must ensure that all parties have a full and comprehensive understanding of the context of the deal and the outcomes that need to be achieved.

2)       Next they need to determine the degree of integration in two parts. First, translate the understanding of the deal in terms of the target operational integration. Second, determine the extent of cultural integration required to achieve that operational integration.

3)       Then clarify the specific behaviors required to run the combined business and include a behavioral assessment of each organization and an assessment of their combined future state. Follow this by proposing the culture change hypothesis – specifically, what changes in behaviors must take place to successfully run the post-deal business.

4)       Next identify the drivers needed to influence those behaviors, design the drivers (initiatives) and then implement those drivers through an effective change management process. Finally set up an appropriate measurement system and reinforce the cultural changes.

REFERENCES

• Strategic Employee Recognition by DerekIrvine at hr.toolbox.com
• Culture Clash: The Costs and Benefits of Homogeneity, by Eric Van den Steen, Working Paper, 10-003, Harvard Business School
• The impact of culture on M&A- Doing something about it, by Bob Bundy  and Elisa Hukins, Mercer Consulting
• The Importance of Leadership and Culture to M&A Success, by Richard M. Able, Human Capital Institute
• Mergers and Acquisitions Due Diligence: The 360-Degree View, by John O. Nigh and Marco Boschetti
• HR’s Role Crucial in M&A, by Rupa Jha, at jansamachar.net