Culture, change and people leadership are some of the most challenging and disputed aspects of M&A integration. Especially when integration teams are not able to connect and establish trust in person, managing cultural change deliberately is essential for integration success.
Culture, change and people leadership are some of the most challenging and disputed aspects of M&A integration. Especially when integration teams are not able to connect and establish trust in person, managing cultural change deliberately is essential for integration success. The research conducted by Professor Angwin for Midagon on M&A integration success factors states that cultural differences (differences in values, attitudes, beliefs and practices) are most often stated as the reason why acquisitions fail. However, cultural differences can also be a convenient scapegoat for other issues and should be treated with caution.
Company culture is not fundamentally a tangible entity, but a social construct, created by the actions and behaviours of individuals. Individuals form their impression of company culture based on the actions and behaviours they observe. While culture may be difficult to measure, actions and behaviours can be observed and quantified, and more importantly, consciously directed to enforce the culture desired for the new entity.
Integration activities related to people, identity and culture are fundamentally about two things:
1) creating an identity for the new entity, and
2) aligning the people to the new identity – both without compromising customer service or company performance.
Serial acquirers often have a playbook for creating a compelling identity for the new entity. Different levels of autonomy and strategic interdependence result in different actions. Companies that acquire less often need to think through, what constitutes a compelling identity and its common values, what behaviours to encourage and what unlearning is required from both entities in order to arrive at a healthy company culture.
For leadership teams that are less familiar with culture integration, actively managing a company identity and culture may feel very foreign and far removed from managing everyday business. Yet everyone in a leadership position should both understand the new identity and its values and take practical action to achieve it. Culture will emerge over time from the demonstrated values, actions and behaviours. This will take longer than most other tasks related to the integration. In short term, not allowing cultures to just “collapse” into one is the key. The shared values and identity must be actively negotiated and formed.
When the identity and culture for the new entity are consciously created and enforced in the actions and behaviours of leadership, and employees find that their values and career objectives align well with them, a strong new entity can emerge from the integration. However, this does not happen organically without direction. Conflicts between existing cultures and identities occur when people from different backgrounds start working together, and naturally fall back to previous identities, laying blame for any practical difficulties on cultural differences.
Many of the conflicts that are attributed to culture don’t – in our experience - arise from culture at all, but from different maturity levels. When operating on a certain maturity level that’s worked well in the past, it’s practically impossible to imagine what life looks like on a different level, and why a different perspective is required.
A large corporation works on a different level of maturity and a much finer granularity and division of responsibilities than a small start-up. Decision-making can take longer and there are several highly specialised experts that must all be consulted, instead of just one person who knows everything related to several functions. On the other hand, ICT systems can be clumsy to use but provide full visibility to all business transactions globally, while a small company may have several simple but unlinked systems and no single source can provide all the information. Many frustrations can be avoided when these aspects are explicitly spelled out and made part of the integration roadmap.
Fundamentally, negotiating a new identity for a merged entity and aligning the team to it should be a set of practical actions on the integration roadmap - just like any other integration activity.
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