Measuring cultures in Mergers

How to make a Merger successful?

 A sign of unity

It is often stated that most mergers and acquisitions fail to meet their overall business target. Due diligences are made and the companies are turned upside down and inside out, firstly to ensure that all that needs to be known is known and secondly that the businesses (to be merged or acquired) will be a complement to, or add value – with a target that 1 plus 1 should at least equal 3.

So what is the problem, why is it that most mergers don’t succeed and meet their targets?

Where do you focus?

According to our experience, the main focus during the merger is to build a clear strategy, draw out a new organisational structure and ensure that the right systems are in place – What we call “the logic agenda”. In other words we tend to focus on the things we can control and the areas where we have the knowledge.

However, it is suggested that the key reason to why most mergers and acquisitions fail is related to company cultures, thus meaning that if we are to succeed with a merger we need to include both management styles and competencies during the due diligence process – A “Culture due diligence”.

Carrying out a “Culture due diligence” will provide us with information regarding what cultures we are dealing with, the core capabilities and the behaviours of the management that we have at hand to run the merger. If we know this we can estimate the true cost, time and investment needed.

If we tend to focus on things we can control and things that we have knowledge about this then leaves us with two questions?

  • Can we control culture?
  • Do we have the knowledge to be able to identify, measure and deal with different cultures?

If we can define the culture we want, we can also measure it, we can of course then get a picture of our current and future state. What are the current states of the companies we are merging with or acquiring? What culture do we want? The same culture as one of the existing companies, or a completely new culture with the behaviours that we are lacking today?

The implementation process

If the cultures are similar there will be no (more than usual) additional challenges when introducing changes. We have a management with the behaviours and styles that will maintain the culture we want, but what if the cultures are very different?

In this case, if the cultures are very different we need to decide on what the future culture state of the merged company should be and the “Culture due diligence” would then include a map of the different cultures together with a business case for the transformation process – The knowing-doing-being process.

We need to understand what the true business impact will be and how to manage the process from the current state to the desired state as efficiently as possible, this will then of course mean more than just managing the logic agenda, this means that we also need to have plan for leading the cultural change (the behavioural agenda) and keeping people motivated during the transition (the emotional agenda).

If we have a cultural gap and consequences:

What will happen if we have a big gap and we don’t do anything about it:

  • People will leave during the process – incurring cost for recruitment and loss of competencies
  • People will be frustrated during the process – loss of work hours – negative focus covering an extended period
  • People will not understand the “new way of working” – old and new working methods will coexist – no value will be added
  • People will not understand the “new way of working” – with the best of intent people will work to keep the old way just because they want things to continue to work

If we know there is a gap we can foresee these obstacles – if we can foresee them we can evaluate them and estimate the total cost for the transaction, for instance:

  • Activities to keep key people motivated
  • Cost for recruiting new people
  • Development for mangers
  • Development for core competencies needed to run the new company
  • Realistic time frame – unrealistic time frames lead to stress and stressed people tend to have a higher resistance to taking on-board new ways of working

The most important part is that we can communicate to people what they can expect from the process and manage those expectations.

Management competencies and style

The definition I like to use when defining organisational culture is “the sum of the behaviours of the most dominant people defines the culture”. So who are the most dominant people?

  • The leaders
  • The informal leaders
  • The heroes – the people that others tend to look up to and are visible on intranet, internal magazines, blogs etc.

Therefore if you can define those behaviours you can define the culture. If you can define your culture you can measure it; if you can measure it you can manage it.

It is also important to introduce the management competencies in to this part and look at the skills and competencies needed to run the merged companies in the way we are aiming for in the business plan. For instance the company might be twice as big as before, how many of the leaders are equipped to handle that (or to grow in to that level)? The new company may need to be more innovative and market oriented than before, what will happen then if the managers in the old companies are just moved in to existing positions in the new company?

So part of the cultural change process will include moving managers not only from a previous experience position to new positions, but also looking at future capabilities (the ability to learn and grow). It will also be just as important to look at the management styles, so that in the new organisation you select people not only with the right competencies and a good track records, but that also have the right management styles from the beginning. For example, a manager with 25 years experience running a hierarchal line organisation successfully will have huge difficulties to run a matrix organisation (even more difficulties if he/she doesn’t get the right level of support to understand the behavioural transformation he/she needs to do).

Running the merger process with the culture you want

Very often companies use external consultancies to help them in the transformation process and they in turn don’t take into consideration the most important part – You need to run the merger process with the style of the culture you want. This means that you need to choose supporters that are supporting you in the ways you need in order to establish the new culture, otherwise you may end up with a clash between the consultancies way of doing things and your desired new culture.

Finally

From our personal experience, helping your managers get some insight in to these areas will then change their way of running the change process and will significantly change the business impact.

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