By Andrew Yue
July 2019
One of the primary reasons mergers are not
successful is differences in culture between the
acquiring and acquired organizations. We hear
similar feedback frequently when we are called to fix
an integration such as: “we can’t work together,”
“their MO is so different from ours,” or “we were
entrepreneurial and able to make decisions
independently and now we are stifled by their
bureaucracy.”
As part of merger integration, the acquirer will often
make organizational changes to the target, but
changing how people work at the target company
without understanding its culture can lead to
resentment and failure to meet the desired goals.
Why at the onset of a merger are the cultural aspects
of what makes an organization function not factored
into the merger plans? There are many reasons:
culture is vague and hard to define; management is
preoccupied with the financial aspects of the merger;
the focus is on securing top spots in the new
organization; people issues are not considered
important until after the deal is closed; and most
frequently, there is an attitude that culture will
simply work itself out and it is not a priority.
Organizational culture is the DNA of the firm. It
represents the behaviors of the collective
organization, the way of working, such as:
– How people interact and communicate which each
other – use of jargon and acronyms, open door
policy, meeting style, working remotely vs. faceto-
face, etc.
– How people dress – formal vs. informal
– How people are rewarded – what is important
beyond merely job performance
– How we deal with clients and other external
parties
– Organizational structure e.g. meritocracy,
democracy, dictatorship
– Openness to challenge and feedback
– Association with and loyalty to the company brand
– History of the organization
Smaller organizations tend to have closely knit
cultures because they often have been shaped by a
strong entrepreneur and people are promoted from
within the organization. As companies get larger
through acquisitions, culture becomes diluted and
fragmented so that organizations have pockets of
legacy cultures.
Strong cultured organizations which “row in the same
direction” have been proven to be more effective
because there is less infighting.
Any time two organizations are being merged, there
will be cultural conflicts that need to be managed.
Left unattended, this will give rise to discourse and
infighting. People will cling to their legacy company
identity and never truly combine. Culture takes a
long time to shape and is very difficult to change.
Unless there is an impetus to change, culture will
continue as is, unimpeded. Even if the new
management gets along, that does not mean that the
rest of the organization is working in harmony.
People do not like change as it creates discomfort
and uncertainty. They resist change unless it
becomes clear what the benefits are for them to
embrace it. Culture is re-enforced by policies,
reward mechanisms, and role models. We all
carry a “mental map” of how to navigate within
an organization and we feel comfortable
operating in familiar territory. Mergers disrupt
this.
There is no silver bullet to solving cultural conflicts
and we would not advocate wholesale culture
change without outside assistance to facilitate
change. However, there are some actions that
you can take to mitigate the disruption from
cultural conflicts.
1. Understand your own culture – what
behaviors you value, the mechanisms you use
to re-enforce those behaviors, what you
would look for in a partner firm that would
complement the existing culture.
2. Conduct due diligence on the culture of the
firm you want to acquire – talk to staff,
customers, and suppliers to understand how
the organization operates, how it treats all
related parties. Don’t limit these
conversations to the top of the organization,
although secrecy may be a hinderance, look
for avenues to explore widely so there are no
surprises.
3. Determine where there are going to be
significant cultural differences that need to be
bridged and how these can be overcome.
4. Identify specific actions that need to be taken
to resolve cultural issues up-front.
5. Take a systematic approach to how cultural
integration is going to proceed:
– Assimilation – forced adoption of
acquiring company ways of doing
things
– Reverse assimilation – adopt acquired
company culture and rules
– Hybrid – pick and choose aspects from
both organizations
– Start fresh – redesign the culture
6. Factor corporate culture into the integration
plan and determine how to measure success;
devise a culture plan.
7. Develop policies, processes, and reward
systems that re-enforce the desired behavior.
8. Have leaders be the “standard bearers” of the
cultural values you want the organization to
adopt; people who aren’t assigned active
responsibility to help shape a new culture will
continue to perpetuate the old one.
9. Remove people who do not support the new
culture. It is better to eliminate resistors early
especially if they are in a position to influence
others. This shows people you are serious
about cultural change.
10. Measure the success of cultural changes as
you would with synergy targets.