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Acquisition Integration Strategies Part 2

Acquisition Integration Strategies Part 2

Part 1 of this blog presented a knowledge-based argument in support of acquisitions and discussed the role of integration strategies in terms of their significance to the achievement of acquisition goals. It also examined ‘organizational integration strategies’ from three different perspectives. The first is the rationale behind the acquisition decision, which sets the integration agenda by establishing objectives and goals that are aligned to the underlying strategic purpose. The second examined the strategic level of integration, which defines the umbrella strategy for integration efforts. The third introduced tactical integration. Part 2 picks up where we left off and explores the four areas of tactical integration and the factors that influence tactical integration design decisions.

Factors that Influence Tactical Integration Decisions

As one might expect, there is a wide range of factors that can potentially influence the design and effectiveness of tactical integration efforts. Due to the scope of this study and the fact that access was restricted to three support departments in the acquired firm, four factors are of interest: differences in organizational culture, differences in management style, the relatedness of the business, and the relative size of the firms.

Differences in Organizational Culture

The main premise with respect to differences in organizational culture, is that the greater the cultural fit between the combining organizations, the easier the integration and the greater the likelihood that acquisition goals will be achieved. Likewise, organizations that tolerate and even promote internal cultural diversity are more likely to allow an acquired firm to retain its own values, beliefs and practices than organizations that use culture as a control mechanism that emphasizes conformity and adherence to a unique organizational ideology. In other words, a high tolerance towards cultural differences translates into low or moderate levels of integration, which is consistent with the preservation and symbiosis approaches. On the other hand, an acquiring firm with a low tolerance is likely to employ several control mechanisms to establish its own culture in the acquired firm thereby raising the potential for conflict especially between top management teams.

Differences in Management Style

Arguably differences in management style is a subset of organizational culture, however I have chosen to treat it separately as it is an area that has received a great deal of attention in the acquisition literature. As with most assessments of the influence of culture on acquisition performance, differences in management style tend to be examined using Hofstede’s (1997) six dimensions of organizational culture resulting in the identification of a number of behavior-oriented predispositions such as risk orientation, decision-making approach, and preferred control and communication system.

This has led to the recognition that management style tends to vary greatly across organizations. For example, policies and practices that appear reckless and extremely risky to one management group may be justifiable approaches in another. Similarly, one management group may have a completely different tolerance for change and ambiguity than another. There are also differences in orientation towards decision-making in that while one management group may rely primarily on intuition and experience another may require formal management science techniques, such as strategic plans and market research. Differences in orientation towards control and communication can also be significant in that while one management group may prefer loose controls and open channels of communication, another may prefer greater operating control, highly structured channels of communication and adherence to well-defined job descriptions. Similarly, one group may prefer a high involvement, consultative approach to decision-making while others lean towards centralized decision-making and formal authority.

The main argument is that “while similarities in management styles facilitates organizational assimilation, major differences in management style and philosophies can prove to be serious impediments to the achievement of acquisition success” (Datta, 1991: 291. Specifically, acquisitions of firms with different management styles can result in integration challenges such as interpersonal conflicts, difficulties in achieving operational synergies, market share shrinkage and poor performance. This is aggravated by the fact that most acquisitions are accompanied by significant changes in a compressed time frame which creates high levels of apprehension among acquired firm management who often react defensively by clinging to their own beliefs and approaches in an attempt to reduce uncertainty and preserve their identity. The outcome is likely to be one of conflicts and confrontations contributing to poor acquisition performance.

The extent to which differences in management style affects organizational performance is likely to vary depending on the level of interaction required amongst the two management groups in the organizational management of the combined entity. As such, the potential for conflict due to style differences is likely to be the highest in acquisitions followed by considerable integration. In addition, the cooperation required to manage the integration process might be very difficult to obtain if there are major style differences. Because the integration of operations makes the coexistence of two different styles virtually infeasible, it inevitably raises the issue of whose style will dominate (generally it is the style of the acquiring firm that prevails). When this occurs, it is frequently accompanied by the voluntary resignation of members of the acquired firm including key executives and thus the loss of potentially valuable knowledge.

Relatedness

Relatedness has also been referred to as the ‘combination potential’ of the acquiring and acquired firms. The popular belief is that the more similar the strategies and operations of the combining firms, the more likely that integration efforts will be effective and acquisition targets will be achieved. There is, however, recent evidence that suggests that this may not be the case, as high relatedness often coincides with a lot of overlap in operations, which leads to streamlining efforts and potentially the termination of the employment of members of the acquired firm. The result is a high degree of employee resistance to integration efforts, which puts the acquisition’s performance at risk. Hence, it is suggested that a better scenario is one where the organizations have complementary strategies and operations, which results in ‘economies of fitness’ (Larsson & Finkelstein, 1999: 6).

This is because complementarities can present opportunities that enhance the competitive position of the combined entity by boosting synergy realization. However, the combined theory and evidence suggests that the differences between the organizations involved are only beneficial if they are not so large that they prevent synergies, learning and the creation of value. Hence, it is important for organizations to include an assessment of the degree of similarity between the two organizations in order to determine the likelihood of resistance, the opportunities for synergies, and the potential for achieving synergies that will lead to acquisition success. Too much similarity limits opportunities for operational synergies and presents a threat to members of the acquired firm that will result in significant resistance to integration efforts. On the other hand, a high degree of complementarities presents a challenge, as it may be difficult for managers of the acquiring firm to identify the full range of synergy opportunities, especially if the organizations are large and complex.

Relative Size of the Two Firms

The relative size of the two organizations is a factor but not as might be expected in terms of a difference in the basis of power. According to some theorists, it is an indicator of management attention, and to others it is an indicator of synergy potential related to critical mass.

According to the management attention argument, if there is a large size difference in that the acquired firm is small relative to the acquirer, the firm is often left alone because it does not attract a lot of attention from the acquiring company’s management. As a result, the human needs of small acquired firms tend to get overlooked or trivialized leading to alienation and discontent.

On the other hand, if the acquired firm is relatively large, it represents a higher potential gain or loss, which results in greater attention. In comparison, the critical mass argument basically states that “bigger acquisitions do better because they offer greater synergy potential, not because managers pay more attention to the integration process when targets are large” (Larsson & Finkelstein, 1999). Whatever the specific reason, larger acquisitions are more likely to be subject to integration efforts in order to achieve acquisition goals. However, as noted previously, the larger the acquisition, the more difficult it will be for managers of the acquiring firm to identify the potential opportunities and risks associated with integration.

Four Elements of Tactical Integration

Once these factors have been taken into consideration, the next step is to determine the appropriate course of action to achieve the objectives of integration. If interpreted from a change management perspective, integration activities focus on the four major components of organizations: the work or tasks performed by the organization (task integration); the people who perform the tasks (people integration); formal organizational arrangements that are aimed at coordinating the work of the organization (structural integration); and organizational culture (cultural integration).

These four components constantly interact as part of the daily functioning of the organization and, as such, changes to one component affect the other components often leading to reciprocal changes in the search for congruence, which is the degree to which the needs, demands, goals, objectives or structures of one component are consistent and complementary to the same aspects of other components. Hence, the design of a tactical integration plan must take into account all four components as well as the connections between them.

Task Integration

The primary focus of task integration is on changes to the work activities that produce an organizations products or services. It is normally associated with the absorption strategy in that it involves the elimination, re-allocation and/or redistribution of work, predominantly within the acquired firm, in order to reduce costs. In most cases, this involves significant changes in the nature of the work being performed with corresponding shifts in associated roles and responsibilities.

Although, it is possible for the changes to affect both organizations, members of the acquired firm usually feel the primary impact. In Hakanson’s (1995) study of the merger and acquisition of research and development (R&D) laboratories, he noted that in a number of cases task integration involved a shift in focus from innovative work to more mundane adaptation and improvement of existing products based on the technology of the acquiring firm. Likewise, Galpin and Herndon (2000) provide the example of the elimination of work associated with the development of internal policies within the acquired company primarily because the acquiring firm takes over the management of these types of activities. In other words, the acquiring firm sets the work agenda including determining, to a large extent, which projects are cancelled or redirected in order to meet acquisition goals.

These types of changes can result in a requirement for different skills and knowledge that can be addressed by the termination of the affected resources and hiring of new employees with the required capabilities or through retraining initiatives if supported by time and financial resources. However, even in cases where a skills gap does not exist, changes of this type are likely to be met by strong resistance due to the ambiguity and related stress of the situation. The risk, of course, is that affected individuals will choose to leave the organization taking with them potentially valuable and specialized knowledge.

Structural Integration

The focus of structural integration activities is on changes to one or both organization’s formal arrangements such as the structures, systems, processes, methods and procedures that are explicitly developed to get individuals to perform tasks consistent with the combined organization’s strategy. As in the case of task integration, structural integration activities tend to be most commonplace within absorption approaches whereby efforts to achieve acquisition benefits and efficiencies focus on the removal of overlapping positions and the consolidation of structural hierarchies. This is especially prevalent within support organizations and other internal groups that are not seen as providing additional value to the acquiring firms.

Structural changes often involve shifts in reporting relationships and lines of authority that require the acquired firm to conform to the structural arrangements in the acquiring firm. This can lead to confusion particularly regarding the ground rules of acceptable behavior within the new entity that can result in conflicts and even unethical behavior that interfere with integration efforts and is detrimental to acquisition performance.

Changes in formal structural arrangements can also involve significant shifts in business processes even within protected areas of the acquired business as illustrated by Cisco Systems insistence that acquired firms conform to their quality manufacturing process within the first six months of integration and GE Capital’s focus on systems integration including shared e-mail and intranet. These types of changes can, however, also lead to confusion and inefficiency as members of the acquired firm struggle to address ‘downstream’ problems and to figure out ‘what to do’ and ‘how to do it’. This is especially prevalent where the ‘how to’s’ are left to the discretion of local management leading to the development of multiple approaches and fragmentation.

One process area that is frequently targeted for integration when absorption is the goal, and especially when it is accompanied by a desire to culturally assimilate the acquired firm, is reward and evaluation systems. This is because these are widely viewed to be influential in reinforcing a desired organization culture in that they define what is important and how success is measured and rewarded. For this reason, changes that affect an organization’s system of bonuses and incentives often create huge negative reactions, even if the differences are relatively minor. For example, managers that are used to highly leveraged bonuses, which are common in entrepreneurial firms are likely to have difficulty accepting a more traditional or bureaucratic model. Even speculations on how the system is going to be affected can lead to anxiety and negative reactions that impede integration and are detrimental to the performance of the acquisition.

Another aspect of structural integration focuses on decision-making particularly as it pertains to integration decisions. At several points in this paper, I have noted that top managers within the acquiring firms are expected to manage, or at least provide a plan as to how they are going to manage the combined entity. As a result, integration decision-making is often centralized with all significant decisions made by members of the senior management team of the acquiring firm, primarily because they are held accountable for acquisition performance and are compensated accordingly. The result is that, in many cases, the acquiring firm’s systems, processes, procedures, structures and so on are imposed on the acquired firm however, whereas a system may have been appropriate in the acquiring firm, it may be detrimental to the functioning of the acquired firm. Jemison and Sitkin (1986) explain the dysfunctional imposition of an acquiring firm’s formal structural arrangement as an outcome of either defensiveness or arrogance. The former is a result of a lack of familiarity with the acquired firm’s business and processes, whereas the latter stems from an erroneous belief that the acquiring firm’s systems, including evaluation criteria and rewards, is superior and should therefore be adopted uniformly after the acquisition.

An explanation for both behaviors may be provided by Grant (1996: 119) who suggests that the quality of decisions depends upon their being based upon relevant knowledge such that “decisions based upon tacit and idiosyncratic knowledge are decentralized while decisions requiring statistical knowledge are centralized”. If the knowledge relevant to a particular decision can be concentrated at a single point in the organization, then centralized decision-making is feasible however in an acquisition, we are dealing with complex, context-dependent knowledge comprised of tacit and explicit knowledge, which cannot be aggregated and analyzed in statistical form. This suggests that the common practice of centralizing decision-making such that all major decisions are made by members of the acquiring company’s senior management team is ineffective as there is no way that they can possibly have access to the full range of required knowledge.

In essence, all of these examples of types of formal structural arrangements constitute a means of coordination and control in organizations and, as such, related changes tend to conform to the routines currently in place within the acquiring firm. However, for acquired company personnel, standardization of procedures typically carries “strong symbolic meaning, signifying their subordination to a new and alien organization” (Hakanson, 1995: 135). Therefore, although it is tempting for an acquiring organization to assert its own management systems, especially if they believe them to be superior in terms of control and/or performance, this should be undertaken with extreme care as “changes in established practices and work routines tend to be resisted and can easily cause severe obstacles to integration” (ibid: 135).

Cultural Integration

Cultural integration is concerned with differences between the cultures of the participating organization, including management styles, with an emphasis on acculturation or the extent that the acquired firm is expected to conform to the culture of its acquirer. It includes all elements of the informal organization such as the behaviors and mental models of senior managers, social relationships, the political climate, and communications patterns.

As already discussed, an acquiring organization’s orientation towards cultural diversity or a single unified entity will determine the extent to which culture change initiatives are part of its integration plans. However, the feasibility of any cultural integration strategy is constrained by the values and attitudes in the acquired organization and specifically the propensity of individuals to accept the change and conform to the culture of the buyer, which is referred to as acculturation. As such, the degree to which members of an acquired firm want to preserve their identity and culture and the extent to which they are attracted to the acquiring firm appear to influence both the process and the outcome of the cultural change. This has led to the proposition, supported by research reported by Navahandi and Malekzadeh (1988), that for cultural integration to be effective, both firms need to agree on the mode of acculturation that is to be used. If this does not occur, the result can be significant levels of acculturative stress, which is defined as “…individual states and behaviors that are mildly pathological and disruptive…” leading to resistance to integration efforts (ibid: 84).

Acculturation occurs through four primary modes: deculturation, separation, assimilation and integration. These tend to correspond to the degree to which the firms are related and their tolerance towards multiple internal cultures and subcultures. Deculturation tends to occur in situations where the two firms are unrelated and there is a low tolerance for multiple cultures. Typically, the acquired firm loses faith in its own culture but is unprepared to accept the culture of the acquiring firm. This results in high confusion and anxiety accompanied by a loss of identity and feelings of alienation.

Separation also occurs most often in unrelated acquisitions but in this case, there is a greater tolerance for multiple cultures. As a result, the acquired firm attempts to preserve its culture and practices by remaining separate and independent of the acquiring firm resulting in minimal cultural exchange between the two organizations.

By contrast, integration or cultural pluralism is an option when the acquiring and acquired firms are related, the acquired firm wishes to maintain its own culture and identity and the acquiring firm has a high tolerance for multiple cultures. As a result, there is some degree of change in both organizations’ culture and practices concurrent with the retention of elements of each. Ideally, this accompanies symbiotic integration as it presupposes that both organizations attach a high positive value to interaction and that such interaction is not seen to be a threat to cultural autonomy. Unfortunately, this is rarely the case in acquisitions.

The fourth mode is assimilation, which is a one-sided process where the acquired organization is willing or forced to adapt totally to the culture of the acquiring firm. This can occur when the acquired organization is favorably disposed to the buyer and holds its own company in low regard, thus seeing its culture as an obstacle to performance. However, assimilation can also occur in situations where the acquiring firm has a low tolerance for multiple cultures and sees the acquired firm has highly attractive (and related). Unfortunately, in this type of situation, conflicts can arise as the acquired firm may not wish to be assimilated and chooses to resist efforts in this direction. However, even if both organizations agree to an assimilation mode of acculturation, the decision to pursue this course of action must be taken with care as low tolerance towards cultural diversity has been shown to negatively affect earnings expectations. To show intolerance for the acquired company’s culture is to threaten the cooperation and commitment of the senior managers who may be instrumental in determining the success of integration efforts.

When cultural assimilation is a desired objective of tactical integration plans, the next decision is to design an appropriate course of action. According to Hakanson (1995) this should include three areas of focus. The first is to foster formal and informal face-to-face interactions between members of both firms to create contact networks based on mutual trust and credibility. The second is to as quickly as possible integrate the communications infrastructures of the two organizations to promote the development of a common dialect as well as the dissemination and sharing of information. The third is actually more of a caution that pertains to task and structural integration activities as it highlights the potential for resistance resulting from standardization of procedures, as previously discussed. Other authors suggest a variety of approaches that loosely fit into these areas such as cultural awareness workshops, upward feedback forums, changes to assessment and feedback processes and incentives and so on.

People Integration

I have left people integration to the last as its primary emphasis is on minimizing employee resistance which is a risk associated with all three of the previous integration areas. In general, members of acquired organizations tend to react negatively towards acquisitions thereby making integration efforts difficult and negatively affecting acquisition performance. These reactions tend to range from active resistance in the form of voluntary exits, verbal discontent, and sabotage, to passive resistance such as increased absenteeism, low productivity, and disobedience. But what causes this negative reaction?

The answers are just as broad ranging as the behaviors they engender. For example, an early study by Handy (1969) reported that ninety percent of nearly one thousand senior and middle executives he studied were psychologically unprepared for the changes in status and organizational structure they would encounter following their company’s acquisition. Seeing and sensing the anxiety in senior managers, lower level employees grow anxious about the combination, how it will be managed and their personal fate in it resulting in resistance to integration efforts and lost productivity.

Another example is provided by Marks and Mirvis (2001: 87) who, reporting on the AOL-Netscape acquisition that occurred in the late 1990’s, describe how integration efforts were slowed by Netscape’s self-perceptions of technical superiority; “the people who believed they had invented the Internet were dismayed at combining with a firm they considered the McDonald’s of the Internet”. They suggest that an attitude of superiority frequently carries over into assumptions that the buying company’s business acumen – and policies, procedures, people and systems – are superior to those of the purchased firm thereby contributing to condescending attitudes about the other side. When this is combined with pressures to quickly integrate the acquired firm plus incentives for short-term results versus how smooth the transition goes, managers in the acquiring firm often unilaterally dominate the action and impose their own integration plans resulting in high levels of resistance within the acquired firm. The result is usually high turnover especially among key executives from the acquired firm and with this the loss of valuable expertise.

As well, Larsson and Finkelstein (1999) noted that the more similar the operational and strategic elements of the combining organizations are, the greater the employee resistance. This they suggest makes sense given that similar operations are likely to provide more opportunities for the elimination of work, jobs and people. In contrast, organizations with complementary operations are likely to be seen as less threatening but are still effective for realizing combination synergies. In addition, other studies have illustrated how acquisitions negatively affect career mobility, opportunities for advancement and career development by forcing layoffs, relocation and loss of individual influence. Still others, have found that a lack of attention, in general, to people-affecting integration issues can lead to resentment and resistance.

The actual tactics engaged to minimize resistance tend to concentrate on four categories of interventions or change activities: communications, senior management leadership, informal and formal relationship building, and personal transition coaching and counseling. In the context of an acquisition, communications tend to be effective when it delivers timely and relevant information using a variety of channels, but which emphasizes frequent face-to-face interactions. This is similar to senior management leadership, which emphasizes visibility and continuity as determinants of integration effectiveness. Basically, it is believed that integration tends to be more effective when there is high visibility and long-term continuity both in acquisition related leadership roles, as well as within the senior management team of the acquired firm. Visibility is important as it relates directly to the active involvement of senior managers in the change effort thereby giving it credibility and momentum. Likewise, continuity of the acquired firm’s top management team reduces employee concerns regarding the potential impact of the change and ensures that valuable knowledge stays in the organization.

Meanwhile, continuity of the integration leadership team ensures that momentum is maintained. For example, Hitt and his associates (1998) found that nine out of ten unsuccessful acquisitions that they studied experienced senior management turnover leading to confusion and resistance among lower level employees.

As for relationship building, the apparent rule of thumb is the more, the better. There are numerous ways of fostering formal and informal relationship building opportunities. Formal activities tend to emphasize the movement of people between the two organizations achieved through the rotation of personnel, or secondment of people between firms. It can also include formal gatherings of people such as international team meetings, which provide opportunities for people to get to know one another and establish cross-organizational contacts and networks. Informal activities focus on social gatherings such as the Eka Nobel ‘Whisky and Sauna’ meeting described by Birkinshaw and his associates (2000) as a way that senior R&D managers could get to know one another and the head of the organization could get to know them on an informal basis. Finally, several interventions focus on assisting employees in dealing with the anxieties and stresses resulting from a major change such as an acquisition. These personal transition interventions often include a wide range of activities such as counseling sessions, change and cultural awareness seminars, workshops, one-on-one coaching and so on.

There are, also, some general findings that are interesting with respect to managing people integration. The first is that people integration is extremely difficult and takes a very long time to accomplish. For example, Birkinshaw and his associates (2000) noted that after six or seven years only one of three acquisitions in their study appeared to be fully integrated and this single company, despite all three having significant prior acquisition experience, was the only one that apparently did a good job of people integration. The second is to not overemphasize employee satisfaction as they suggest that an “excessive concern with employee satisfaction may be misplaced” (ibid: 417) as even though people integration was incomplete the acquisitions still achieved the desired operational synergies and financial results. Furthermore, there appeared to be a ‘zone of indifference’ within which people were willing to stay with the firm even though there was a certain degree of dissatisfaction present. Finally, there appeared to be support for the premise that a certain amount of tension and conflict creates a positive rivalry between firms that can result in superior performance. The third and final guideline is more general in that they found the human integration process appears to facilitate the effectiveness of task integration. Specifically, “if the task integration process is pursued before human integration has begun, there is a high likelihood of acquisition problems, because the individuals on each side do not know one another, and because there is a high level of suspicion about the motive’s of the acquirer’s management” (ibid: 419).

Summary

The tactical integration of combining firms is a complex, difficult and time-consuming endeavour requiring a pluralistic approach that addresses all four categories of integration activities as well as the connections between them. As such, it requires a significant investment in resources to be effective, however the benefits that can be realized are believed to far outweigh the costs associated with the failure that is likely if integration is not addressed adequately. However, even when the decision is made to invest in integration practices difficulties will likely be encountered that have the potential to impede progress and negatively affect performance.

Certainly, the most prevalent concern is employee resistance, which is a potential risk of integration activities in all four areas. If you change the work that is to be done, people are threatened, and the result is resistance. If you impose the acquiring firm’s processes, systems, structures and so on, you create resistance. If you try and assimilate cultures, there will be resistance and, if you make changes that cause people’s skills and knowledge to no longer be valued, there will be resistance. Hence, a great deal of attention is given to managing resistance as a central aspect of integration efforts at the tactical level.

There are, however, other potential problems that must be considered such as knowledge gaps that are too great to be easily bridged leading to few synergies between the organizations, too much similarity in the knowledge structures of the firms such that little new knowledge is acquired, or the imposition of dysfunctional processes resulting in knowledge loss and degradation of performance, and there are many, many more.

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Mergers & Acquisitions – The Case for Culture

In 2015 a global Fortune 100 company asked us to conduct research to determine if including culture in merger and acquisition due diligence and integration activities would be a worthwhile investment. Interviews were conducted with seven of its leaders involved in both large and small acquisitions in five regions of the world. We probed to find out what was working and not working in recent acquisitions and what support or tools would provide value.

The research findings clearly indicated the need for a consistent, practical approach that leaders, HR/OD and integration team members can use to identify culture synergies and tensions. The result was the development of a set of culture tools that were integrated into merger and acquisition due diligence and integration activities. This article summarizes the key findings from this research.

Is Paying Attention to Culture a Worthwhile Investment

The research revealed that without a disciplined approach to culture assessment, the company faced rapid erosion of the value of its acquisitions. Loss of critical talent, lagging productivity, compliance and risk management issues and delayed integration were just some of the issues described by leaders when culture was not on the agenda as part of their M&A due diligence and integration planning.

Understanding Cultural Differences affects the Success of M&As

The degree of effort invested in understanding cultural differences affected the success of the acquisition. While some acquisitions moved slowly and carefully in order to ‘not break what is working’, others followed an aggressive timeline. The less attention that is given to culture, the higher the risk of problems during integration such as:

  • The acquired company was not prepared for the level of compliance and metrics that the company demanded and almost lost all of their key employees in the first 3-6 months.
  • Serious compliance issues were experienced due to a difference in beliefs regarding the need to follow rules.
  • Unclear communications and high volume of integration-related activities disrupted work and put the retention of top talent at risk.
  • Misalignment in what people were told to expect and what actually happened resulted in 50% of staff at one acquisition, the best people, leaving the company.

Where People are Key to Success, a Culture Assessment is Essential

Leaders said a culture assessment was essential for all acquisitions where people are key to success.

  • Some leaders couldn’t think of a case when it isn’t needed while others thought that it is vital where human capital is key to value.
  • There was some agreement that where product lines or contracts are the purchased asset, culture only needs to be monitored and a quick scan approach could be sufficient.
  • For companies that are founder-led and start-ups where culture shock can quickly impact productivity and retention of employees and customers, leaders believe a culture assessment process is vital to success.

A Culture Assessment Prevents Many M&A Pitfalls

Leaders indicated that a culture assessment could have helped avoid and/or be better prepared to address challenges often encountered during a merger or acquisition. Specifically, it could help them to:

  • Identify non-negotiable areas that lead to No Go decisions earlier (i.e. lack of high ethical standards).
  • Predict problems and avoid early missteps by better understanding the impact of decisions before implementing them.
  • Develop a robust integration plan that prevents loss of asset value (key accounts, top talent).
  • Improved ability to sequence and phase integration to minimize disruption of work.
  • Understand people’s appetite for change and tailor change management and communications plans accordingly resulting in less angst, resistance and attrition.
  • Build communications that explain why and what will happen that connects with people and will be heard.
  • Manage expectations and set a pace of change to manage risk.
  • Create opportunities to gain the buy-in and support of acquisition leaders and other critical resources thereby decreasing the risk of attrition.

 

M&A Culture Assessment is Key to Success

Identify Cultural Differences Early in the Acquisition Process

Leaders believe culture should be assessed, when possible, early in due diligence to no later than 30 days after close to get the maximum benefit.

  • Pre-close was ideal to provide input to the decision to move forward with a deal.
  • Post-changeover efforts are valuable inputs to integration plans.
  • Even later in the process, culture tensions can be identified and addressed.

Sponsorship by Business Unit Executives makes a Difference

Leaders emphasized that active business unit sponsorship was very important to ensure players are aligned and doing what is needed for the acquisition to be successful. Examples were provided where direct intervention by the senior executive led to better decisions and prevented actions that were detrimental to the success of the acquisition. For example, senior executives:

  • Slowed down integration activities that were disrupting the business and affecting acquisition ability to achieve financial results.
  • Delayed implementing changes until there was a better understanding of the potential impact on the business.
  • Acted as an advocate for the acquisition when decisions were being made by functions.

Involve Leaders of the Acquired Company Immediately After Close

It is critical to engage leaders in the acquired company as soon as possible after the close, preferably on Day One or, at the latest, within the first 30 days. In addition to building trust and strengthening relationships, this helps the acquirer to learn why things are the way they are and understand the implications of potential changes. This would also allow for the timely communication of integration plans to employees, which is important to reduce anxiety and maintain productivity during the transition. Engaging leaders is most effective when the acquirer:

  • Spends time with local leaders and their teams, not just senior leaders.
  • Uses focus groups to engage employees and get their input to change plans.
  • Provides clear communications about the rationale for the acquisition and plan.
  • Engages department heads of both businesses in the culture dialogue.

 

The Outcome – A Set of Culture Tools for M&A

The outcome of this research was the development of a set of culture tools to support the M&A process.

  • Culture Due Diligence process and tools that are used in the early stages of due diligence.
  • Culture Integration process and tools for identifying cultural similarities and differences, including areas of synergy and tension.

Used pre- or post-changeover, the tools provide due diligence and integration of team members, HR and top leaders with the kind of information needed to support decision making, communications and transition planning.
With a streamlined process and a small set of highly informative tools and processes, the client now has an M&A culture game plan for more effective integration planning that will protect the value of the asset.

Download a copy of this article here.

The Importance Of Culture In M&A

The Importance Of Corporate Culture

Failure to address corporate culture is the key barrier in up to 85 percent of failed M&A transactions. Similarly, more than half of the respondents in a recent survey by IntraLinks said that corporate culture is the most important factor leading to deal success. These examples demonstrate that problems arise when two companies merge but do not agree on how work will be done. Here’s our guide to the importance of culture in M&A.

Identifying Company Culture

Despite their knowledge that corporate culture is important, many organizations struggle with how best to convert an appreciation for cultural differences into a definitive plan of action to execute a transaction successfully. Ideally, senior leaders are engaged early in the process, ensuring a clear understanding of cultural differences and identifying and prioritizing specific actions that will inform, influence, and accelerate the integration effort.

Addressing your company’s culture at the earliest possible point is essential to focusing your integration efforts. As organizations navigate the earliest stages of a deal (for example, strategy and planning, target identification, and preliminary due diligence), they should engage leaders on the topic of corporate culture and set a baseline for their own organization. Companies must specify the behaviors required for success; identify the non-negotiables, or areas where change is not welcome, and ensure corporate alignment on aspirational cultural attributes.

Understanding Your Target Company’s Culture

When considering M&A targets, you should apply a cultural lens to test inter-organizational “fit,” identify potential red flags and inform the negotiation process. Publicly available information (such as annual reports, news articles, and employee blogs) can provide meaningful insight into the target’s corporate culture even before a company approaches the target.

Once your company isolates an M&A target and begins due diligence, it can apply its preliminary understanding of the target’s culture to the formulation of a deal thesis and an integration strategy. In order to fully understand your M&A target, you must look into not only the company you’re looking to acquire itself but also the individual employees it’s comprised of. This understanding often impacts the degree, depth, and timing of integration activities.

Success In Cultural Integration

The keys to addressing culture in M&A transactions are to begin the process early, engage leaders, and use data to inform integration planning. The final step before actual integration is to choose wisely — place bets on interventions that will have the greatest impact in the near term.

Team leaders and those in charge of their company’s M&As must have the discipline to start early and get the businesses to take ownership (the position from the businesses’ point of view and make it second nature). You should also try and engage leaders and work with key company-talent to help put in place all of the necessary drivers of change. Understanding a company’s culture, for M&A purposes or otherwise, is a comprehensive effort, so the more talented people you include in the discussion, the better!

Contact Culture-Strategy Fit today at 1-800-976-1660 for comprehensive cultural help with your next M&A.

Increase Effectiveness of M&A Integration

Increase Effectiveness of M&A Integration

Statistically speaking, more than half of all mergers lose value for their combined companies. We will let MBAs ruminate on their case studies because we know the reason why so many mergers are not as successful as they should be; there is a culture clash. According to a study by Marsh Mercer Kroll, 50% of respondents found organizational cultural differences to be the largest issue they faced after the merger.

The news is not all bad, however. ExxonMobil merged in 1999, and it is currently the 7th largest company in the world. There is a reasonable chance that your child, your nephew or niece has seen a Disney-Pixar movie, such as WALL-E, Brave, or Inside Out.

At Culture Strategy Fit, we want your merger or acquisition to be as seamless as possible. Culture could take your company to the next level, or it could sink you. Check out the following few tips to understand the process for making your big corporate move effective.

1.Understand What You Are Launching In To

Look before you leap. While many managers understand this, they do not necessarily have the information that is critical for establishing synergy. The decision-makers sometimes do not even know what to look for.

Certain factors, as simple as the tone and style of emails, vary wildly from company to company. Communication breakdowns may threaten the efficacy of your business. Any difference could be a flashpoint of contention, so you should know what you will encounter

2. Decide What is Efficacious

When you are in the process of merging, you need to envision what the combined culture will be like. One company may have a unique way of innovating, where new ideas are developed or perfected. The other party may have a process for streamlining their administrative processes that establishes a cahin where the value is added at each step.

The directors must decide what they like and what they would like to eliminate in each company. Your company is unique, especially if it has gone through a merger. You must decide what is going to be best for your own company.

3. Execute

Once you have data and know what you want, the only remaining issue is executing. You may decide to reset the timing of some operational changes or provide training on some communication practices. Additional on-boarding support around decision-making may be vital to your merged company’s success.

Knowledge transfer is key here. Everyone should know as much as possible in order to move the needle. Amplifying your core competencies will be key, and when you have the information in front of you, the way forward is clear.

There are 15 key areas where culture differences have an effect on workplace effectiveness. Combining two companies might make you more agile in the modern business world, or it could mean big losses for shareholders. Since we are so experienced in this field, we recognize how important buy-in, mutual respect, and providing actionable plans are.

If you have any questions about corporate culture surveys, we have answers. Contact the experienced team of Culture Strategy Fit today.