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Overcoming The Cultural Integration Factor in M & A Published: Sunday, January 15, 2012 8:00 am By: Rafael Ríos, Executive Vice President

The biggest chore associated with an acquisition of any size is to merge the two (or perhaps more) different cultures. If this part of the transformation is ignored or handled poorly, problems will surface for years, maybe decades.

The importance of an organization’s culture, particularly as a risk factor in Merger & Acquisition integration, cannot be underestimated. Researchers found that firms that managed their culture realized a nearly seven-fold increase in revenue, compared with a 166% increase for firms that did not manage culture. Yet specific, focused efforts to integrate different cultures and workforces remain the exception rather than the norm in M&A activity. Poor cultural compatibility continues to be cited as a factor in M&A failure. Cultural signs of the so-called “merger syndrome” include a “we versus they relationship, with a natural tendency for people to exaggerate the differences rather than the similarities between the two companies.” The key to a successful Done Deal, is selecting a culturally appropriate model of integration.

An organization’s culture consists of the underlying values, beliefs, and principles that define an organization’s management system, as well as the firm’s management practices and behaviors that reinforce those principles. (Denison, 1990) A more detailed definition of organizational culture comes from Dr. Edgar Schein, who defines it as the pattern of basic assumptions a given group has invented, discovered, or developed while learning to cope with external adaptation and internal integration challenges. The assumptions, says Schein, should “be taught to new members as the correct way to perceive, think, and feel in relation to those problems.”

Successful cultural integration begins with an early understanding of the cultural differences and processes that exist between the acquiring and target companies. Stages of culture clash include employees reevaluating the way they do things, followed by viewing their way of doing things as superior to the other company. This is followed by attacking the other’s way of doing things while defending their own. For a successful cultural integration to occur, each company should be coached to look at how the practices of the other company might be beneficial in the new entity. Organizations that have a track record of successfully managing acquisitions share several major processes in common that differentiates them from the rest of the pack:

  1. Preparing a cultural due diligence.  The assessment of organization culture and people are critical components of M&A. Conducting culture due diligence allows the acquiring company to assess cultural compatibility with the target firm. Cultural compatibility and all of its ramifications need to be understood completely to ensure a successful M&A.
  2. Developing a "transition team" dedicated to the success of the merger/acquisition is appointed prior to the merger, and is active in managing the post-merger integration period. Additional transition teams (internal practitioners prefer the term “integration teams”) that involve employees from both the target and the acquiring company ensure a successful deal completion. Consider the transition team a lever to share cultural intelligence between the two companies.
  3. Successful organizations also create a procedure for integration that includes includes clear, coherent communications before, during and after transition. Clarity and transparency of process going forward (what's going to happen, who is affected and what factor contributes to success. Extensive/"excessive" communication (repetitive, frequent, direct and open) with all stakeholders, beginning with employees, customers and suppliers is key.
  4. A celebration of the legacy left by the acquired/merged entities was followed swiftly by a resolute and unapologetic focus on the vision and values of the new entity. Processes to engage all employees in achieving the "common purpose" of the new entity; Rewarding and recognizing people according to the acquirer's or stated purpose, vision and values
  5. In a meaningful way, holding one another accountable for the future success of the whole organization

Business leaders have rich opportunities to humanize what is often treated by companies as merely a business and financial transaction. For those situations where a merger or acquisition is the best solution from an operational or strategic perspective, decision-makers must take the time to do it right: to focus on the whole picture, beyond the numbers, the business case and the management team Any M&A should be viewed as an activity good for both the organization and for the employees rather than as a time of employee uncertainty and insecurity. The focus on the human dimension of M&A will significantly impact the bottom-line success. It will also result in less organizational turmoil, and ultimately determine the overall success of the M&A transaction. Business Leaders have the opportunity to serve as role models by working collaboratively from the outset to realize the possibilities of a successful M&A.

Copyright 2012 QBS, Inc.
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