“That’s not how we do things around here”. It is a harmless enough phrase, but it speaks volumes about organisational culture disconnect. It flags a culture clash. It says that ‘we’ have an accepted way of doing things and ‘you’ aren’t doing them. And this one small phrase lobbed into a conversation is enough to trigger culture consultants across the land, and if it’s thrown into conversation during an M&A process, well, warning bells should be well land truly ringing. Disconnected organisational culture can cause serious damage to M&A processes, may derail them or cause them to fail completely.

The term ‘organisational culture’ covers the group of internal values and behaviours within an organisation. It includes experiences, ways of thinking, beliefs, and future expectations. It is also intuitive, with repetitive habits and emotional responses. It’s often nuanced and subtle and sometimes gets brushed aside a ‘fluffy’ or inconsequential to the business by executive leadership and boards.

What’s concerning about this attitude is that culture is cited as one of the primary reasons why M&A transactions fail to realise their full potential. In fact, a  study by Accenture found that 67% of mergers and acquisitions are hindered by a cultural disconnect. Almost 50% fail completely, and of the deals which do conclude, a further third fail to realise the financial targets which investors set at the time of the transaction, for the same cultural reasons.

A report commissioned by Mercer surveyed 1,400 M&A professionals based in 54 countries, who collectively have worked on more than 4,000 deals on both the buy and sell sides. They concluded, as many as 43% of deals saw prices impacted, were delayed, or were prevented from closing thanks to cultural issues.

There are plenty of high-profile examples to support these statistics. In 2017 global giant Amazon merged with Whole Foods, a multinational supermarket popular for its health focus and organic food selection. It’s reported that a failure of cultural alignment caused the merger to collapse. Amazon’s impersonal, processes-driven approach clashed with Whole Food’s personalised values, with Amazon’s relentless drive for efficiency affecting Whole Food’s sense of purpose and lowering staff morale.

Then there was Google’s acquisition of Nest, a hardware innovation start-up. Nest was founded by ex-Apple employees, and their talent in hardware development was a key part of the purchase for Google. However, for Nest founders, Tony Fadell and Matt Rogers, the Steve Jobs rigidity and top-down autocracy that they’d learned to thrive under at Apple was a world away from the collaborative engineering-driven, bottom-up culture of Google. By 2016 the culture clash proved insurmountable, and Fadell left the business, Rogers following him later. While Google has retained the Nest brand, it has lost the key personnel and core skills that drove the acquisition in the first place, by simply not doing the cultural due diligence before the acquisition, nor building a plan for cultural alignment.

Two examples of a  merger and an acquisition could have gone very differently. Clearly when two or more businesses join forces, not only are there structural and functional changes required but the alignment of culture is critical.

Whether it’s the more dominant culture that needs to be rolled out across the organisation, a best of both worlds approach, or a complete cultural overhaul that’s designed specifically for the new company, what’s clear is that without a concerted effort to unite people behind one purpose, a new vision and a defined set of values and behaviours,  performance and productivity will suffer, your people will be less engaged, possibly even confused with the change and there is a risk of damaging a positive employee experience.

Aligning cultures stretches well beyond just harmonising people and HR policies and practices.  It’s about re-designing all work practices in alignment with the new values. This means applying the culture lens to policies, processes, systems, governance, and decision making, and ultimately to any organisational restructures that need to be completed.

One way companies can give the culture lens adequate attention is to link the cultural programme to tangible and quantifiable business results. Cultural due diligence and integration planning can smooth out the merger process. Cultural due diligence should be conducted early in the process and should consist of a cultural assessment highlighting areas of similarity and divergence which may impact integration efforts and the ability to achieve strategic objectives.

The worst this you can do is to make the culture integration just be another workstream in the overall integration, rather, you should be leveraging the overall integration to bring about the desired cultured change and realise the full value from the M&A transaction. 

While it’s a big ask for most companies going through the upheaval of an M&A, it can be done.

HP and Compaq is a great example of a successful result, though it nearly wasn’t. In 2001, the then struggling computing brand Hewlett Packard announced it would acquire its competitor Compaq. The merger was risky and cracks started to show as the HP engineering-driven culture based on consensus clashed with the sales-driven Compaq culture of rapid decision making. There were periods of infighting in the new company, and a resultant loss of 13 billion dollars. But, the company persevered and eventually made the cultural and leadership changes it so desperately needed, resulting eventually in success. The lesson in this example is, even if you miss the boat on cultural alignment early, all is not lost, as long as the work gets done. But arguably, doing the work upfront is probably less painful and definitely less expensive than the 13 billion dollar lesson HP learned working it out as they went.

In other examples, Adidas acquired Reebok in 2005 to an estimated value of USD 3.78 Billion. Just months later, Adidas’ sales revenue had increased by more than 50%, the largest growth figure in the previous eight years. A strategic approach to blending cultures despite individual brand differences was a key to this success. The German Adidas brand personified core sports while the American Reebok stood for all things lifestyle. Yet the cultural aspects of both people and business merged through a well-managed programme.

A year after the Adidas/Reebok merger, Disney and Pixar merged. Disney acquired shares worth $7.4 billion in Pixar and made it Disney’s subsidiary. Since then, it has been reported as one of the most successful mergers of all time. The brands not only followed normal tactics for successful mergers but also came up with some different ones. Pixar created a list of things that would not be changed so as to preserve its culture. Pixar and Disney employees were embedded into new mixed teams. Pixar employees were given new responsibilities and tasks to increase the efficiency of Disney and the transformational Pixar leadership ability to lead and motivate employees was adopted by Disney. In this example, the best parts of both cultures were identified and brought together to create a collective business that was better as a whole than the sum of its parts.

Culture Consultancy regularly works with M&As, helping to bring clarity of vision to change programmes and then help design and embed the culture for the future. Here are the ways we approach avoiding culture clash.

Start With a Cultural Assessment.

Whether you are contemplating a strategic cultural change through an M&A, looking to identify your current positive culture, or looking to see where the performance bottlenecks might be within your organisation, using the Culture Consultancy Organisation Culture Assessment^TM will allow you to understand the way things are currently done and identify what is supporting your strategy and growth as well as highlighting potential internal misalignment or culture blockers that are impacting business performance. 

The assessment can be completed by the whole company or just within a division, department or large team.

There are many ways in which the insight from the Culture Consultancy Organisation Culture Assessment^TM can be used, including:

• Identifying existing attributes which are helping performance, and those which are hindering.
• Assessing how well the organisation is aligned for delivering against your strategy or transformation (new or existing).
• Identifying immediate untapped performance improvement opportunities.
• Understanding variances across the organisation so you can focus attention on the right areas in order to gain full cultural alignment.
• Demonstrating progress to stakeholders, including shareholders, regulators, the media.
• Identifying mismatches with 3rd party providers which may be impacting your service and/or commercials.
• Provides a baseline measurement for future alignment or change, hence providing you with an ongoing tool for guiding the required culture.

Steer The Change Journey

Once you’ve assessed and then defined the culture you want to embed, we use our 4E’s Principles of Human Change – Educate, Engage, Empower and Enable – to shape the change journey for the various groups of your people, all with the objective of aligning and engaging everyone with the transformation.

Most change initiatives will impact the work practices, behaviours, and dynamics of your individuals, teams, and departments.  Many transformations will require a refreshed definition of expected behaviours. Our methods and tools equip managers and teams to identify the impact areas, establish and prioritise the changes that need to be made to support the new world, then enable them to make the necessary changes in line with the overall change implementation, hence creating ownership of the new world by your people, rather than imposing the change on them.

Any major change like an M&A process has a significant impact on your people. How they are led and managed through the change journey will also have a huge influence on the success of the change.  We upskill leaders and managers in how to successfully lead change,  supporting them with regular forums during implementation to ensure managers are able to keep things on track,  despite the regular twists, turns, and unexpected challenges that are inevitably experienced through the change journey.  We have  three objectives to our support:

1. Lead and support people on the change journey.
2. Effectively implement and embed the desired changes.
3. Upskill your people so they have greater capability, not just for the immediate change agenda but for future changes as well.

There’s no doubt that developing and implementing a plan for your business culture through an M&A takes work, but the employee’s experience and bottom-line impacts of well-integrated businesses are clear to see, and there’s no need to hear “that’s not the way we do things around here”, ever again.

Merging cultures is critical for innovation, employee experience, and the business’ bottom line. Learn more about how we unite cultures for success.