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How to make culture your M&A secret weapon

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Published on: November 2022

Written by: Alex Amsden

Supercharged. That was the story of a record-breaking 2021 M&A market with more than 62,000 transactions. Now those companies are integrating new acquisitions in a very different market, facing economic headwinds and signs of a recession emerging in the second half of 2022. The sobering reality of M&A even before these challenges is that 70-90% of M&As fail according to Harvard Business Review. More is at risk now than ever. 

What makes most M&A integrations fall short of expectations? More often than not, the challenge is the people and culture. People are the way business objectives will be met, cost reductions will be achieved, and the promise of the new organization will be realized in the timeframe promised. Often, the assumption going in is that people will somehow go along to get along during an M&A because so much is at stake. The reality is much different. 

When people can’t see themselves fitting into an integrated culture, they assume they can’t or won’t succeed. As a result, they leave and take their talent and knowledge with them. Or they passively resist integration and cling to their legacy ways of working and thinking. This leaves the organization scrambling to find new talent with the right expertise. They face friction in the system, slowing progress towards goals. 

Let’s be realistic. There are millions of details, considerations, and decisions to make after the decision to acquire a new company. Like the transaction itself, those details can feel structural, policy and process focused. They are driven by operational synergies that have been promised to shareholders as part of the deal. It is not that M&A integrations do not focus on people and culture. They just leave the people and culture challenge until much until too late in the integration process when the business is already facing problems.  

The three biggest people and culture missteps that derail M&A success 

At a very basic level, the biggest people and culture-related M&A integration missteps fall into three buckets.

1. Over rotation on first impressions of synergies with the other company. Humans have an amazing tendency to become so committed to an action that they don’t see problems or differences. In an integration, we see leaders move forward under the assumption that both companies have the same operational processes. Many leaders even assume that organizations use the same language and fail to look below the surface at the embedded mindsets driving behavior. It’s no wonder that clashes happen.

In our work with one global network infrastructure company knee-deep in the M&A process, both companies used the term “escalation” during decision-making. However, one company escalated decisions to manage risk. The other company escalated all decisions based on a certain level of historical criticality. The new, much larger post-integration company required faster decision making to keep up with shifting customer expectations. To get decision making right, it was critical for the organizations to address the disconnect on the meaning of “escalation” and its implication for the decision-making process. Otherwise, this difference in language would have become a major hinderance to executing at scale together.

2. The assumption that only one company has to change. In an integration, leaders often assume that if their entity is the acquirer, they remain safe from massive change. That’s not true. An integration will always cause flux. Assuming the acquiror will not experience change is naïve. It causes significant lost time and money as managers have to learn to operate at new scale, lead new employees and teams, and integrate new assets and offerings into their operations. 

3. The belief that a change in information will result in a change in behavior. This is rarely the case in practice. Research shows that people engaged in the process of integration such as providing input into the future direction and determining the “how” around processes and defining supporting actions, are much more likely to engage in and own the new direction.   

Take action: three steps to make culture your M&A secret weapon 

The solution to these concerns is to make sure that your people, culture, and strategy are clearly aligned and strategically considered from the beginning of the M&A process. Below are three steps to help organizations focus on their people so they can realize the successful promise of an impending integration.

  1. Pin down potential cultural derailers early

Culture is the deeply held organizational mindsets that shape organizational identity and how people in the organization do things. Up front, you need to prioritize the effort to uncover, analyze, and understand the mindsets in the two organizations. This enables your leaders to make conscious decisions about the best ways to achieve the company’s new integrated goals and serve customers. To do this, engage people at all levels of the organization to provide a rich and human picture of how the companies operate. Company culture is experienced differently by each level of the organization, function, and region. Be honest in your observations. One company is not all right and the other all wrong. And often, the analysis shows that one or both cultures is out of sync with industry trends, the speed at which customers need to work, and the aspirations of the current workforce. Collecting the data will allow you to identify and focus on the biggest cultural derailers and points of leverage first.

  1. Get practical in your language and approach

 Culture seems amorphic, theoretical and a bit “kumbaya.” What we are really taking about is how organizational mindsets determine ways of working such as: how to navigate conflict, make decisions, escalate issues, respond to customers, and address and manage risk. The data on organizational mindsets will help you identify potential points of culture clash and proactive actions to redefine how best to work together across all of these elements. The key is to break this down to a level that makes it real for people. This requires leaders to think about the daily moments where these ways of working show up and then speak about them in clear and straightforward terms. 

During the integration phase of one communications company merger, we identified a critical “way of working” moment that related to how they made decisions around products. At one company, the organization launched products as if they were hardware, and would never ship a product before it was ready. The other company approached product launches more like releasing software and were fine with sending routine updates or upgrades as they were released. Spotting these operationally critical differences early on allowed the newly formed entity to set a formal policy to cover these moments. This allowed them to hit the ground running together rather than suffer through the friction and misfires of clashing how they got products to market.

  1. Allow people to let go of the past and own the future

On the surface, mergers are full of opportunity, growth, and excitement. But that does not mean that people can or will easily let go of the past. Without intentionally honoring and letting go of the past, new priorities are heaped on top of old ones and new habits are built around the old ones. This doubles the human and organizational burden of change and leads to layers of dysfunction that hinder the new entity.  

Instead, give people a chance to honor how the old ways of working served them in the past and reflect on which ones may no longer serve them to achieve the future direction. There may also be ways of working from one or both organizations that people want to adopt or lean on more. This exercise helps align people on what they can stop doing. It also creates a way for them to prioritize a shorter, more focused list of what to do now. Research and experience show that people can be surprisingly resilient and much less resistant to change when they’re included and allowed to make their own conclusions and define how to turn their new reality into action. Once you have defined the newly integrated organization’s directional aspirations and biggest pain points, engage your teams in defining how they will work together in new ways. Resist the powerful temptation to tell them how to do so. Your teams typically have a better idea of how ways of working manifest than the executive team. With clear direction and ownership, your teams will take this new way of working to the next level of detail and make sure it gets off the ground. 

Acquisitions are daunting no matter how synergistic the companies appear on paper. Even the most experienced leaders struggle with M&A. Executive teams are understandably consumed with meeting bottom-line revenue targets – it is how they are measured, after all. However, people and culture are what will make or break the merger’s success. Putting people’s needs and considerations at the front and center of your M&A integration strategy will set the stage for a faster, better, more satisfactory integration for all leaders, employees, and shareholders.

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