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There are numerous benefits of expanding your business through a merger or acquisition – you can obtain valuable resources and additional skills, diversify your product offerings, reduce costs and competition, and access a greater customer base. While M&As typically seem like promising business opportunities, executives often underestimate the challenges involved in successfully blending two distinct cultures. According to a recent study, while leaders understand the criticality of establishing a new culture within M&A activities, they often lack a comprehensive approach to establishing one.
Some 95% of executives describe cultural fit as critical to the success of integration. Yet 25% cite a lack of cultural cohesion and alignment as the primary reason integration efforts fail.
Culture Clash
A classic culture clash example that led to a failed M&A was the Daimler-Benz and Chrysler merger in 1998. This merger was predicted to be the perfect union between two automakers. Maybe on paper this was true; however, in reality, the merger was a flawed idea that had little chance of success. Chrysler was an American company with an entrepreneurial spirit that embraced risk, while Daimler was a hierarchical, German company that was risk-averse. Executives failed to make efforts to blend these two distinct cultures, and Daimler took the reins of the new company. The merger lasted just a few years until the two entities split in 2007.
To ensure that a merger or acquisition transitions smoothly and is positioned for long-term success, at The Clearing, we believe the following strategies may be used to proactively address and overcome differing cultures.
1. Analyze Cultural Differences in Advance
M&As often fail because most companies don’t consider differences in culture when analyzing potential mergers. Although identifying differences in culture isn’t always easy, there are numerous tools that companies can use to diagnose differences before the acquisition, including:
- Analyzing process flow charts that indicate how work gets completed
- Conducting interviews with customers to determine differing customer perceptions of each organization
- Conducting interviews with management and upper-level employees to determine managerial styles
- Distributing surveys to employees with questions about behaviors
These tools will help executives identify any cultural disparities between the two entities. Once executives feel confident in their abilities to overcome these differences, they can begin to move forward with the M&A deal.
2. Communicate & Listen to Employees
Effective communication is a crucial way to influence employee buy-in. Employees need to understand why the merger or acquisition is happening so they can hop on board and get excited about the change. Furthermore, employees need to know where they stand so that they feel valued and secure in their positions. Senior leadership is responsible for communicating this information to employees early and often, providing open lines of communication between teams and leaders.
If employees are frustrated by the merger or acquisition and their concerns aren’t being heard, they are more likely to leave. Executives must actively listen to employee feedback by distributing regular employee surveys and/or hosting one-on-ones or town hall-style meetings. Not only will employee retention improve, but executives will also gain valuable insight into whether the M&A is heading in the right direction.
3. Define & Implement Your New Culture
Rather than trying to unite conflicting values and philosophies, merging companies are better off starting fresh by agreeing to an entirely new culture, or way of being, from the ground up. Consider the following when establishing a new culture:
- Behavioral Norms: What behaviors are celebrated and appreciated in the workplace?
- Organizational Structure: Who is accountable for what, and how do things get done?
- Organizational Strategy: Where should we compete and what is our strategy?
Transitioning into a new organizational culture can make employees feel like they are starting a new job. To facilitate this transition smoothly, it’s important to consider organizing orientation programs. These programs serve as a tool for employees to learn more about behaviors and attitudes in alignment with the new culture. Through the orientation program, it is essential to provide key aspects of the changes, such as behavioral norms, organizational structure, and strategic direction. Ensuring clarity is paramount; thus, inviting questions and delivering clear answers throughout the orientation is vital to defining the new ways employees will operate post-M&A.
4. Celebrate & Embrace Change
Rather than allowing a merger or acquisition to make employees feel uncomfortable or displaced, welcome this as an opportunity to celebrate this change with employees. An M&A is exciting, and employees should be excited too. Team building events such as volunteering, team outings, or catered lunches will help employees feel connected throughout the transition, leading to stronger cultural integration efforts.
For a merger or acquisition to be successful, businesses must dedicate time and effort to cultural integration. Should you need additional guidance before, or throughout your M&A deal, The Clearing’s professionals are here to help.