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 together. According to a Bain survey, culture clash is the number one reason for a deal’s failure to achieve the promised value.
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, but 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 on 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, the following strategies should be used to proactively address and overcome differing cultures.
Analyze Cultural Differences Before the Merger Happens
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 accepted and unaccepted 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.
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 with the change. Furthermore, employees need to know where they stand so they still feel valued and secure in their positions. Senior leadership should be responsible for communicating this information to employees.
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 hosting one-on-one meetings. Not only will employee retention improve, but executives will also gain valuable insight on whether the M&A is heading in the right direction or not.
Define & Implement Your New Culture
Rather than trying to unite conflicting values and philosophies, merging companies are better off starting fresh by building an entirely new culture from the ground up. Consider the following when creating a new culture:
- Behavioral norms – what behaviors are accepted and unaccepted?
- Organizational structure – who is accountable for what, and how do things get done?
- Organizational strategy – where should we compete and what is our strategy?
A new culture will likely make employees feel as though they are starting a new job. Because of this, consider hosting orientation programs so employees can easily transition their behaviors and attitudes to accommodate the new culture. The orientation program should define the items above – behavioral norms, organizational structure, and organizational strategy. You should ensure that the new culture is clearly defined by inviting questions and providing clear answers throughout the orientation.
Celebrate & Embrace Change
Rather than allowing a merger or acquisition to make employees feel uncomfortable or displaced, you should celebrate this change with employees. An M&A is exciting, and employees should be excited too. Team building events such as volunteering, happy hours, or catered lunches will help employees feel connected throughout the transition, leading to stronger cultural integration efforts.
In order for a merger or acquisition to be successful, businesses must dedicate time and effort to cultural integration. Should you need additional guidance prior to, or throughout your M&A deal, The Clearing’s professionals are here to help.