The Culture of M&A

Corporate bedfellows continue to rush through courtships and say “I do” to organizational marriages whose financial performances prove disappointing in the boardroom.
Decade after decade, studies find that the vast majority of mergers and acquisitions falter. One reason often cited: culture. More than 90 percent of mergers-and-acquisition professionals surveyed by consultancy McKinsey & Co. say that their deals would have “substantially benefited” from better understanding the organizational cultures before the merger.
Consultants offer these four tips for increasing the odds of a happy organizational union.
1. Know thyself, said Dan Avery, a principal with the mergers-and-acquisition practice of Point B, a management consulting and venture investment firm. Often, acquirers focus on assessing the culture of the target, he said. But the acquirer needs a deep understanding of both cultures.
2. Use data from your human resource information system, said Karen Bundy, a principal with Mercer’s mergers-and-acquisition business. “It can be very telling as to how your organization behaves, what employees actually ‘do’ vs. what they ‘say,’ ” she said.
One company looked at a potential merger partner’s internal labor flow map—a picture that shows how people move into, through and out of an organization —and turnover data. They showed that, though the potential partner said it had a performance-management culture, it was “managing out” its good talent because its practices were too black-and-white, Bundy said.
3. Focus on shaping culture rather than integrating it, said Kevin Knowles, principal at Deloitte Human Capital Consulting. “You can integrate people, processes and technology,” Knowles said. “But you can’t integrate culture—effectively.”
Mergers and acquisitions succeed when culture and strategy reinforce each other and enable an outstanding employee experience, a differentiated customer experience and superior business performance, he said.
“We have the ability to precisely define where behavior will inhibit or execute strategy, but more often than not I see clients using a standard one-size-fits-all approach to their culture,” Knowles said. “Shaping culture is more a science than an art — but unless it’s fully committed to enabling strategy and delivering value, it will always be a silent killer of value in M&A.”
4. Acknowledge the transition may feel scary and that your workforce may have questions that can’t be answered yet, said Linda Fite, vice president of training and consulting with Pritchett, a firm that specializes in change-management and merger integration. “Set their expectations to meet the reality that they’re going to experience,” she said. “Otherwise, they’ll see that reality as proof it’s not working out and that they should start looking for another job.”