Mergers and acquisitions (M&A) are a time-honored method to expand a business entity—so much so that companies dish out more than $2 trillion a year acquiring other companies. The word marriage is thrown around a lot two companies come together. But the bitter truth is that there is often not much love involved, and the ugliness of divorce frequently enters the picture. While 40 percent to 50 percent of human marriages don’t survive, astonishingly, anywhere between 70 percent and 90 percent of corporate marriages end in failure.
The number one reason for corporate marriage failure is culture clash: two different mindsets, two different ways of operating, two different aspirations. Or as Don Harrison, developer of the Accelerating Implementation Methodology (AIM) so neatly expresses it, “Same beds, different dreams.”
In fact, culture clash was the primary reason for failure in more than half of thousands of acquisitions studied by Vector Group, a global consulting firm. Many company leaders just don’t give enough consideration to the challenges posed. They focus on potential increases in revenue, bottom line profit, or increase in market share. But the “culture thing” is ignored and taken for granted. Even worse, a McKinsey survey reported the shocking statistic that 29 percent of executives said their companies were just “not willing to make changes or launch targeted interventions to address cultural gaps.”
And even when they see the need, Alan J. Smith, CEO of M&A consulting firm Bay Pacific Group, says, “Executives underestimate the challenge involved in successfully blending corporate cultures.”
What can you do to smoothly blend corporate cultures? Plan ahead, because the early days of a merger are the most precarious. This is the time when employees on both sides are most nervous about the relationship and how it is going to play out. How can you bring two cultures together to build a joint organization that’s stronger than two separate organizations? Here are six steps.
First, both companies need to define the desired culture. Jointly establish your core values. If you don’t know what they are, you can’t expect employees to get it.
Second, research and identify any significant cultural differences. Interview relevant personnel, hold focus groups, and conduct employee surveys. Talk to customers; they will be impacted too.
Third, communicate with all employees. Keep them informed about progress. Make them feel involved. Foster links between peers at the two companies. Be ready to respond quickly to the inevitable rumors and concerns. As Nielsen’s Chris Augustine told me, “When employees aren’t sure of what to expect next, it can leave everyone on edge, waiting for the other shoe to drop. This is especially true during mergers or acquisitions, when facts and plans aren’t being shared freely, leaving the employee base to come up with their own conclusions—whether they are right or wrong.”
Fourth, plug the brain drain. Often, managers become disenchanted with the blending of two companies. Go out of your way to keep this influential group on board. Otherwise, an exodus of talent can spread throughout the ranks. Make sure people from both sides of the merger are involved in key projects.
Fifth, never forget that a company is only as good as its people. Companies often focus on integrating the operational elements (the policies and procedures, rule and regulations), but don’t give equal time to the human elements (the relationships and informal structures). Conduct talent reviews sooner rather than later and identify the “keepers.” An executive from Coca-Cola once told me, “Identify your top talent and get your arms around them. Show them the love, over and over.”
Sixth, size matters. Smaller-to-medium businesses (SMBs) especially think they can’t afford to devote resources to the issue of merging cultures. Don’t short-change culture. SMBs typically have more intimate environments, and because of that, the consequences of ignoring the issue of culture or thinking it will take care of itself can be extremely damaging.
John Hren, business director for a multinational basic minerals and marketing company, has seen company mergers from both sides of the fence. In one experience, one of the merging companies was very focused on short-term profits, cash flow, and marketing programs while the other company’s culture was much more focused on long-term investments and basic research. “It almost turned into a civil war,” he recalled. Figuring out how they were all going to get along consumed the newly-formed organization.
Doing effective “cultural due diligence” can avoid that kind of culture clash. Gary W. Craig, Managing Partner and COO for Vector Group, says that in over thirty years of handling M&As across the world, he’s never seen two organizational cultures that could not be successfully integrated. “M&A failure due to culture clash is just a way of describing management negligence, arrogance, ignorance, or some mix of the three. Dysfunctional culture clash need never occur.”
I couldn’t agree more.