Strategic Response – The Impact of Culture on Mergers and Acquisitions

The Challenge

By some estimates, 85% of mergers & acquisitions fail due to mismanagement of cultural issues

Kepner-Tregoeの反応

Executives must analyse and directly address the culture of the merging companies

Make no mistake about it: cheap debt, record cash piles and the need to outpace sluggish economic growth will see many companies back on the Mergers & Acquisitions trail this year. 2010 saw a rise in M&A activity for the first time since 2007 with $2.25 trillion of announced deals, globally. 2011 could be busier still.

But, however adept top executives are at rekindling the art of the deal, it would be a mistake to ignore the lesson from previous bouts of M&A frenzy —that merging balance sheets can often be rather easier than merging cultures.

The good news is that while culture is not usually changed quickly, processes are available to understand the “legacy” cultures of both merged and acquired organisations and to create a new culture for supporting the new enterprise’s strategy.

Clarifying ‘Culture’

Culture is the pattern of norms, values, beliefs and attitudes that influence individual and group behaviour within the organisation. In short, culture is “the way we do things.”

Corporate culture is not an independent variable in the business equation. Rather, culture exists, or should exist, to support the business strategy. If culture is how we get things done, strategy guides us in the determination of what needs to be done.

Assessing the Culture

Whilst organisational culture is unquestionably the “soft side” of business reality, we know that a severe culture clash can destroy the potential value of merged or acquired companies.

It is critical first to understand and assess the current culture of both companies involved in the M&A process, giving ample weight to issues of culture during due diligence.

It is important to remember that the purpose of cultural due diligence is not to eliminate culture clash —an unlikely event, even in the best of circumstances. Nor is the purpose to find a perfect fit between two organisations. But, while a wide gap is unhealthy, the best mergers occur when the level of culture differentiation prompts debate about what is best for the combined organisation.

Ideally, these discussions are well underway before the merger occurs.

Understandings Values

Values are a key element in assessing culture—values that are both explicitly stated as well as those that are implicitly held in an organisation.

In an M&A situation, it is vital that both types are examined and intimately understood. The strategy of an organisation is a goldmine for the discovery of explicit values within an organisation. For example, what does the mission statement say about the organisation and its goals? What values are manifest in strategic statements dealing with future markets, future products, capabilities, and financial expectations? What does the annual report emphasise? Such statements speak volumes about the culture of the organisation.

Cultural Integration

Once you have developed an understanding of the current culture, and compared it with the goals of the merged organisation, it is time to think through what it will take to implement that strategy. This process requires consideration of a number of factors, including organisation structure, operating and decision-making processes, reward systems, and people-related issues.

Integration of corporate cultures in an M&A environment is not easy. Project plans are extensive in scope. Whilst each plan will be developed around unique needs, these plans should have a number of elements in common. These include:

Establish the Strategic Context Early On

The strategic context can be formulated by asking—and answering—some very basic questions about vision, product and market scope, critical issues, competitive advantage, key capabilities and Driving Force® of the two companies. By addressing these issues, companies will be able to formulate the strategy of the new enterprise, and ultimately to return higher value to their customers and establish themselves as a powerful competitor in their markets.

コミュニケーション

Communications is an important element for managing a company’s culture in preparation for M&A activities. But it is even more important in the period leading up to and following closure of a deal, when people need to have sufficient understanding of the goals and how they can behave to support them. Management behaviour —the “body language” of an organisation—is another form of communication that often gets overlooked in an M&A situation. It is, however, a critical element to managing culture. The literature is replete with examples of companies in which—despite written values and beliefs—managers act in opposition. This sends a mixed signal that typically results in no change. Actions speak louder than words, especially in M&A situations.

Identify and Resolve Important Cultural Differences

Often differences in culture and values lie beneath the surface and are not identified until it is too late. No matter how well thought out the integration project plan might be, unforeseen problems may surface and pockets of resistance develop.

These are not necessarily insurmountable obstacles but, without a clear procedure or policy, ad hoc approaches to problem solving arise.

Identification of Leaders

When we discuss leadership, there are two distinct issues. First is the need to ensure that the executive team is aligned with the new strategy during the integration process. The second issue is the creation—as quickly as possible—of a new management team. Even if an interim team is required (as is often the case), changes to the management team must be completed as soon as possible because, until the final management team is in place, operational uncertainty will grow and will be manifested first in high employee turnover. A mass exodus of customers moving to the competition is typically next.

Culture Does Matter

Creating a cohesive culture from two distinct entities is a challenge. But with the hunger for deal making re-emerging, it is essential we learn from past experiences and take cultural issues as seriously as financial ones.

Paying careful attention to the cultural aspects of a merger or acquisition can make the difference between success and failure. Consider culture, or the urge to merge may prove to be a costly impulse.

関連

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今日の組織とその従業員の多くは、過去の信念や行動に縛られており、目の前の未来を理解し受け入れることに苦労しています。

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