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The year 2022 was challenging for the global mergers and acquisitions market. It saw total deal value drop 37% in comparison to the same time period in 2021, according to Refinitiv data. For deals that did go through in 2022, there was more pressure than ever to make them work and deliver acquisition results faster due to the challenging economic environment. In M&A integration, the problem is that the cards are already stacked against companies.
What makes M&A integrations go sour? More often than not, the challenge involves people and culture.
In any M&A, people are the accelerators. They’re the secret to meeting new business objectives and achieving anticipated cost reductions. Unfortunately, they’re routinely ignored during the deal process and largely overlooked during integration until it’s too late. The assumption is that people will conform to not disrupt during an M&A; however, the reality is very different.
If people cannot see themselves fitting into the future integrated culture, they assume they can no longer be successful in that environment and often take their talents and knowledge elsewhere. As the senior director at a global professional services firm, I’ve seen this happen a lot. This leaves the organization scrambling with a mass exodus of talent and unable to meet goals as expected.
Corporate M&A Cultural Dealbreakers
At a very basic level, the biggest culture-related M&A integration pitfalls we see fall into three buckets. The first relates to confirmation bias. Humans have an amazing tendency to commit to decisions to such a degree that they don’t see any problems or differences. In an integration scenario, this plays out when leaders fail to uncover or explore embedded mindsets within each organization. Instead, they move forward, assuming that both companies have the same operational processes and language. Is it any wonder that clashes happen?
I once worked with a global network infrastructure company deep in the M&A process. The term “escalation” came up as a pain point during decision-making. However, their people used the term differently and for differing reasons. One company escalated decisions as a way to manage risk. The other company escalated all decisions on a certain historical criticality level. To successfully serve customers and win in the marketplace moving forward, the newly combined organization needed to speed up decision-making. To do so, they needed to understand and address the root causes of escalation on both sides; otherwise, their efforts to move faster would be sabotaged.
The second people-related mistake that affects many integration situations is the assumption that both parties don’t have to change. They do. Just because one entity is an acquirer doesn’t preclude it from massive change. An integration will always cause shifts, such as integrating a new asset or offering into a portfolio, shifting how a company goes to market, or expanding an organization’s geographic footprint.
The final pitfall we see is believing that people will simply do what they’re told to do. This is rarely the case. At best, giving people clear directives will result in compliance. To foster a sense of ownership, people need to have some authorship in the integration process. They must understand what it means and fully support the new direction.
Ensuring a Successful M&A
The solution to all these concerns is to ensure that people, culture and strategy are aligned and strategically considered from the beginning of the M&A process. Here are some steps to help organizations place their focus on people so they can recognize the successful promise of an impending integration.
1. Identify potential cultural derailers early. Culture refers to the deeply held organizational mindsets that shape what a company is and how it does things. Through objective analysis, both companies’ mindsets can be revealed, compared and addressed. Analyzing data about a company’s culture enables conscious decision-making regarding the best ways to achieve objectives, change ways of working and serve stakeholders. This way, leaders in the midst of an M&A can avoid a mismatch.
What does a mismatch look like? Consider Amazon and Whole Foods. Amazon’s efficiency proved to be incompatible with the “enlightened values” of Whole Foods. It’s not that either organization’s culture is good or bad. They are just out of sync. A genuine evaluation of their differences might have made the transition less rocky and more seamless.
2. Make culture real and actionable. Corporate culture can sometimes seem amorphic, theoretical and naively sentimental. It doesn’t have to be, though. Make it real and actionable for people by speaking about culture in specific and tangible ways of working. This could include one-on-one meetings, working in teams, making decisions, serving customers and more. Look at each company’s daily operating rhythm. The goal is to identify ways of working that impact the company’s ability to achieve results, delight customers and reinforce the desired culture. Then, align as an organization on how to work together in those moments.
While going through the integration phase of one communications company merger, we identified a critical way of working related to culture. At one company, the culture was very hardware-oriented and focused on never shipping a product before it was ready. The other company was software-focused and fine with sending routine updates and upgrades later. Spotting these differences sooner allowed the newly formed entity to create a policy to cover these moments if they arose. This allowed them to make progress faster rather than suffering through clashes as they tried to bring each product to market.
3. Let people let go of the past and be owners of the future. At face value, mergers are full of opportunity, growth and excitement. But it turns out that even with that excitement, people have a tough time letting go of the past. They need time and space to acknowledge the norms, behaviors, symbols, processes and policies that contributed to their prior success and reflect on what will no longer serve them given their current realities and future aspirations.
University of Oxford research shows that people take on more responsibility when they come to their own conclusions and help author the solution. As part of an M&A integration, organizations should seek broad and representative input on the current company cultures. Then once the directional aspirations for the integrated organization are defined, give people authorship in defining how they will action it in ways of working.
Acquisitions may look purely economic on paper. However, corporate morale and culture can overshadow dollars and cents in the long haul. Putting people’s needs and considerations front and center sets the stage for a more impactful and efficient integration for all leaders, employees and shareholders.
The post 3 Ways To Leverage Culture Successfully During An Upcoming Merger Or Acquisition appeared first on ChiefExecutive.net.
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