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March 21, 2023 5 minute read

Making Culture a Priority in M&A

Culture is quite often not the top priority when a potential deal is looked at.  Companies often merge with other businesses to increase the scope of the services offered by their core business, like Warner Media’s recent acquisition of Discovery, Inc. to attain its video library and expand the variety of content available to subscribers. 

Bringing two enterprises together still takes a lot of time and effort. One place where many business leaders come up short is failing to account for the cultural differences between two business entities. Unfortunately, McKinsey & Company notes that 25% of leaders felt that a failure to ensure cultural cohesiveness led to problems in their M&A efforts. 

What Is Culture’s Effect on an M&A?

A single program at an organization doesn’t define culture. It’s a combination of the vision set forth by leaders and the environment in which workers operate, from the mailroom to the executive suite. It guides how people act, how they accomplish their goals, and how they define success. 

Every business defines its culture based on several things. A business that prioritizes the well-being of workers may establish rules that ensure that the workforce can take mental wellness days. Another organization that is more focused on pushing the boundaries of technology might set up a cloud infrastructure or incorporate machine learning (ML) and artificial intelligence (AI) into work processes. If these two work cultures merged, what adjustments would it take to keep things running smoothly? 

Large enterprises also often have cultural differences from one department to the next. For example, the marketing team might have a more fast-paced environment, as opposed to the operations department, which could take a more methodological approach to ensure the company runs without disruption. 

Now, let’s say the business that prioritizes employee mental health also encourages casual dress daily and uses a hybrid work model, where some workers are at home while others are in the office. However, what happens when the technology-focused business acquires the company? They may have a culture where all employees work in the office every day and require more formal work attire for employees. 

Leaders must assume responsibility for helping workers who are used to their old culture adjust to the changes needed to combine both companies into one harmonious unit.

Culture Shift Challenges for an M&A

Businesses with a strong company culture may be susceptible to dysfunction following a merger. Employees often feel unsettled by the accompanying changes, leading to a sometimes volatile work environment riddled with uncertainty. Everyone’s wondering how the merger will affect their position within the company. It’s up to leadership to find ways to channel that energy productively to benefit the new organizational structure. 

Unfortunately, it’s nearly impossible to find two companies with the same culture. At some point, sacrifices will be asked of both entities. Communication is essential to making this transition more palatable. Corporate leadership must devise a plan to get both halves of the old companies to stop thinking individually and start looking at themselves as a new, unified entity going forward. 

That will require a willingness, though, to relinquish old habits and practices ingrained in the old culture. For example, a company that documents everything on spreadsheets may have to adjust to using SaaS tools for data analysis and storing information in cloud databases. In addition, workers might have to start using online collaboration tools to complete projects with remote workers versus gathering together in an office space. 

Let’s look at some issues businesses often encounter during the M&A process. 

Decision Making

Businesses may need help adjusting to different leadership styles. One company might have an environment where decisions are made from the top down, while others operate more collaboratively. 

That can lead to frustration, though, as those used to faster decision-making might chafe at the slower pace of a more democratic leadership style. On the other hand, those used to having a say in how the company runs might feel stifled if decisions are made without their input. A clash of decision-making styles can prevent decisions from being made or implemented correctly. 

Process Changes

Changing leadership typically leads to adjustments in how businesses conduct business. Certain departments within the two organizations might find it challenging to change how they’ve done things in the past, though, and this inability to change work mindsets can lead to an unwillingness to adopt new strategies or even try working through issues. The problems become exacerbated when that indecisiveness comes from the executives charged with taking the lead and bringing two separate organizations together to work cohesively. 

Work Style Conflicts

Employee work style clashes can disrupt a smooth merger. Workers used to a more informal work structure may need help to adjust to new rules set down by management. 

Companies typically try to bridge the gap by integrating functions from both businesses into a new set of policies. Their success ultimately depends, however, on business leaders understanding the culture in both organizational units. Inconsistent cultural assumptions can cause breakdowns in task handoffs and lead to irritation among employees because they feel that colleagues lack understanding of work processes. 

How Culture Can Impact an M&A

Mergers can happen because of a desire to enter new markets or to sell new products and services. Still, you can’t get employees from different companies to start thinking as one unit and working together, those cultural conflicts can lead to various problems in the workplace. 

Cultural alignment is critical to ensuring that all aspects of a merger lead to success. Otherwise, several problems can arise when there is no resolution to internal cultural issues: 

  • Lack of employee engagement — Employees facing an environment where they constantly feel at risk might avoid making waves. They may keep their head down until they leave at the end of the day. Lower engagement among workers can include a lack of commitment to making the new cultural environment work. This is not ideal. You want happy employees to show up each day and play a role in making the new organization beneficial for all. 
  • High turnover — Once employees start feeling less engaged, you might start seeing your turnover rate increase. Sadly, replacing experienced workers can lead to costly recruitment efforts. Remember that workers are dealing with a new, unknown entity, thanks to the altered management structure, which can make some workers feel like they have no future at the new company. Effective handling of cultural issues can resolve some of that uncertainty, stopping businesses from losing valuable employees. 
  • Lower productivity — Companies that embrace a high-pressure mentality after a merger can stress out workers, leading to mental and physical health issues. Businesses can then lose money because workers aren’t available. If leaders don’t find a way to relieve the constant pressure, it can exacerbate disengagement and leave workers seeking other employment options. 

Managing Culture During Integration

“Cultural facts can be deal killers. It’s important to understand how different the two company cultures may be and what impact that can have on integration.”  –Dawn White, Integration Manager at Corning Inc. 

Attempts to combine two business environments into a cohesive functioning whole will falter if business leaders don’t perform their due diligence, gathering knowledge about each culture. The analysis of company culture needs to start at the beginning to keep mergers from failing. 

Bringing your HR team to the table early in the game should be standard practice. Culture surveys and assessment tools help, but this data collection may require much time and effort. In the meantime, management and executive leadership must keep cultural differences from undermining the work environment. 

One common approach to dealing with cultural conflicts is outlining desired cultural attributes for employees to adopt. For example, you might see workplaces with posters and stickers encouraging workers to stay customer-focused or team-oriented. However, using overly generic attributes can lead to struggles in adapting these broad ideas to the realities of the day-to-day work environment. 

Additionally, many businesses operate with the idea that work must be done quickly, which leaves everyone feeling like they’re under a constant time crunch. However, that doesn’t leave much room to complete a culture change project. You can produce more tangible results by taking a more focused approach that identifies and tackles the riskiest parts of integrating two companies. 

Another best practice is to get your HR team ready to tackle the culture mix by arming them with tools and knowledge needed. The M&A Leadership Council provides a great program, the Art of M&A for HR Leaders

M&A Cultural Merger Risks

The major risks vary from one M&A to the next, so you must evaluate each situation on a case-by-case basis. Certain risks are inherent to most merger transactions, though, and may manifest when you are: 

  • Setting up a shared approach to making speedy and decisive business decisions
  • Establishing which interfaces work best between the two companies
  • Creating a new brand that employees from both groups can feel proud of
  • Figuring out how to integrate compensation programs from the two companies in a way that benefits workers 

Integrating Cultures During M&A

Any business going through an M&A needs to prioritize culture early. McKinsey & Company recommends taking the following approach to aligning two separate cultures. 

1. Figure Out How to Do the Work

Start by putting both business cultures under a microscope. What made the businesses successful before the M&A, and why were they brought together? 

From there, start mapping out how each company got things done. For example, did employees at one business work under a strict hierarchy, or were people encouraged to disagree with action plans? Did workers receive incentives based on achieving specific work milestones? How much did this affect motivation? 

Some companies do well when operating under a shared mission or offering a material reward when the enterprise achieves specific business objectives. Others do well when the workers feel they are part of a team that drives the company’s success. Integrating a competitive culture with a more laid-back one is likely to lead to some friction. However, that doesn’t mean enterprises have to swing more in one direction or the other. 

Businesses should determine which business goals are best suited to different cultures and keep them going in specific business areas instead of brashly eliminating them. That way, you avoid undermining the business environment that helped both companies achieve success before the merger.

Once leaders understand both cultures, they should share a new vision for the combined organization. Then, they need to incorporate those new values, behaviors, and management styles to benefit both companies. 

2. Establish Priorities

Once leaders decide which direction they wish to take the new company culture, they must determine which items take precedence. For starters, customers still expect product or service delivery, so employees still need space to complete their daily work. However, you don’t want any bad habits to carry over from an old culture and infect the new one. 

Leaders must model that new behavior if they want to encourage more collaboration between departments and break down silos. They may also encourage workers to contribute ideas, solve problems, and determine which business areas need the most work. 

Leaders should similarly communicate the behavior they don’t want to see and how they want to see employees operate going forward. Once that’s done, leadership can set up concrete initiatives and measure them using key performance indicators (KPIs). 

3. Create a Support Infrastructure to Advance Change

After leadership establishes the themes and initiatives for the new culture, they can start infusing it through the new business’s operating model and practices. Updates to governance, policies, and processes should reflect the new cultural reality. 

The merger team should also ensure that the right messaging gets passed throughout the company. One way of doing that is by identifying workers with a lot of influence and recruiting them to aid in cultural integration efforts. That typically means providing them with the training and skills needed to help them model desired behavior and, in turn, teach it to others. 

Keep measuring established KPIs to ensure cultural integration goals are on track. Leaders should step in if they see signs of faltering efforts or a lack of enthusiasm among the workforce. Sending out surveys and setting up focus groups can help leaders pinpoint where they can improve their efforts, bringing together disparate cultures.  

Bring Cultures Together With Devensoft

Devensoft’s M&A platform helps facilitate visibility and encourage collaboration throughout the M&A process. Businesses can track the progression of deals and help teams organize around specific objectives. 

Discover how Devensoft can Elevate Your M&A by putting culture top of mind by setting up a customized demo.  

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