Too often mergers and acquisitions fail to achieve the expected synergies and deliver increased value to shareholders. Recent research from leading M&A integration firm Pritchett found that more than 40% of corporate executives said that culture is the number one problem in merger integration. Other research by KPMG concludes that deals were 26% more likely to be successful if the dealmakers identified and resolved culture issues.
Whatever the numbers, anyone who has been involved in M&A knows that many, if not most of the deals don’t live up to expectations and the impact of people and culture are largely underestimated.
Reduce the Unknowns with Cultural Insight
Merging disparate leadership, departmental and organisational cultures is a complex problem, often not well understood by the advisors and managers who drive the deal and integration processes. They pay lip service to the importance of culture, despite being aware that it heavily influences the ultimate success (or failure) of the merger.
“Culture is one of the most precious things a company has, so you must work harder on it than anything else.” Herb Kelleher, Founder & Chairman Emeritus, Southwest Airlines
There is simply too much at stake to not manage culture integration well. Complementing the necessary interviews, informal discussions and observations, it is a relatively straightforward exercise to gain a ‘snapshot’ of the current culture and various sub-cultures within an organisation. This provides valuable, objective insights into why things are the way they are, highlighting potential pitfalls or problems that need to be addressed and similarities and differences across the organisation/s upon which one can build.
Culture assessments improve M&A outcomes by providing useful comparisons of the buying and selling companies, highlighting differences in culture which may be the very reason to do the deal (or not), and identifying issues that will need to be dealt with as a high priority. For example, today’s tools can even provide a measure of the unproductive conflict, friction and frustration that exists within an organisation. Usually well entrenched, this ‘cultural entropy’ may show up as excessive control, caution and bureaucracy, blame and internal competition, confusion, and long hours. Useful stuff to know.
Cultural insights can help guide decisions, shape the communication strategy and influence the desired future culture. This speeds up integration and reduces the risk of joining the long line of M&A failures.
Communicate to Reduce the Fear Factor
Another area often neglected throughout the integration process is communication, both internal and external.
M&A’s inevitably bring about fear, uncertainty and doubt (FUD) amongst employees at all levels, within both the buying and selling organisations. At the leadership level this can play out as clashing egos, power struggles, turf wars, protectionism and potentially even sabotage. With poor communication the rumour mill runs wild, skepticism and lack of trust sets in and unproductive and sometimes aggressive behaviours are displayed.
As Price Pritchett comments: “Communication problems never seem to remain mere communication problems. They morph into bad morale, loss of talent, productivity decline, and slippage in profitability.”
And with social media the consequences can become a PR nightmare, literally within hours.
Why then do so many leaders fail to execute an effective integration communication strategy?
Rather than an ad hoc approach, or winging it - as many do, there should be a well thought out plan for each target audience. It doesn’t need to be complicated – a simple table (who, why, what, when & how) or a checklist is a good start. Make sure your integration team has an internal communications champion to help craft consistent, straightforward and timely messages that can be delivered and reinforced by leaders at all levels. Change is scary for most of us. It is human nature to be concerned about “what will happen to me.” Much of the FUD and the resulting negative behaviours can be reduced through honest, balanced communication that sets realistic expectations, informs, addresses concerns, highlights progress, wins and successes, focuses on the future, and engages people throughout the transition and beyond.
Move from an Internal to an External Focus
While organisations are focused on bringing things together internally, deciding on who and what is in and out, they can take their eye off running the existing business and lose sight of their customers. Integration usually takes longer than anticipated and internally-focused operational decisions can be made with little consideration of their impact on customers. When the organisation finally comes up for air they may find that the world has changed, customers don’t like what they see and have made a choice to go elsewhere – if not now, as soon as their contract is up or it makes sense for them to do so.
Yes, key customers may have been visited or sent a letter and told about the changes, what products and services they can now buy and how good it will be for them. Yet how often does the internal cost saving brought about through integration translate to a better proposition for the customer? As well as benefiting customers (which ultimately benefits the business), our experience has shown that focus on the customer can be the uniting force
when staff are looking for direction, post completion.
Addressing culture, communication and customer integration issues doesn’t have to be complex and it doesn’t have to be costly. But it does have to be done quickly. The longer it takes to tackle these issues the harder it is to overcome them. Key people and customers leave, staff lack trust and resist change, inertia sets in, synergies are not realised and shareholders are left disappointed.
As they say, there is a big difference between making the deal and making the deal work! Lack of attention to these ‘soft’ areas is a massive, missed opportunity to create value for all stakeholders.
to discuss how we can help you reduce the risks, speed up access to anticipated synergies and achieve greater M&A success through our culture integration services.