Change Corner© is the industry leader for all change management information, industry updates, news, educational workshops and industry events in the Australian market.

We dedicate this site to change management professionals and future change buddies!

Bridging the cultural divide

Bridging the cultural divide

Originally posted @

Given its impact on employee and company performance, corporate culture should be a primary consideration for all organisations – particularly those pursuing a merger or acquisition. Historically, however, companies have paid insufficient attention to cultural compatibility during M&A. According to a Hay Group study, only 27 percent of business leaders analysed the potential cultural harmony of the merging firms. Some acquirers simply swallow the target and impose their culture upon it; others try to maintain its cultural integrity, especially if this made the target an attractive proposition in the first instance.

In recent years, the very notion of a corporate culture has become twisted. Rather than representing the core shared values, beliefs and assumptions that influence the behaviour, expectations and attitudes of a company and its employees, for many firms, culture has become a corporate buzzword, used to describe a range of workplace entitlements for employees. Unlimited holiday, free gym memberships and casual dress codes, among other perks, are not necessarily representative of good culture. Such perks may attract and retain employees – not through creating a shared corporate identity, but by aping the practices of the latest ‘hot’ startup or tech giant. They may give the company a competitive advantage, but they should not be confused with a company’s culture. Any company can offer employees incentives, however a strong culture is borne out in actions. It should shape how work is done and how people relate to one another in an organisation, according to Dimity Hodge, leadership advisory consultant at Spencer Stuart. Culture should also promote the delivery of a company’s strategy.

Companies must ensure that their corporate values are the guiding principles of their culture, including what drives employees’ actions within the organisation. A company’s values must be clearly defined, realistic and unique to that organisation. They must also be consistently applied across the company, from the boardroom to the post room. Corporate culture should embody how the company sees itself and how it wants to be seen by the outside world. This is particularly important for a newly-combined company, post-merger. Leaders who want to shape their organisation’s culture must source employee input and define what the ideal culture would look like, and embark on a journey together to realise that vision.

“Organisations have to find out what their real values are,” suggests Dr Finn Majlergaard, a post-merger integration expert at Gugin. “A value is not a value just because you write it in a PowerPoint presentation. It is only a value if you are willing to make sacrifices for it. You cannot say customer satisfaction is you core value if you are consistently choosing short-term profit over customer satisfaction. When you have found your true values, you will gain credibility from all your stakeholders and then your values will lead to better financial and operational results.”

Cultural failures

When pursuing a deal, it is important to evaluate the corporate culture of both organisations. Incompatibility is a key reason why mergers fail. As cross-border mergers become more prevalent, cultural integration in such transactions is crucial to the viability of a deal.

Every merger or acquisition is undertaken to enhance business value, yet closing the deal is just the first step in the process of unlocking that value. Many mergers fail to achieve expected outcomes because of a failure to effectively manage cultural risks and harness cultural opportunities. However, by preparing thoughtfully, and delivering a clear strategy and commitment to cultural success, organisations can improve their odds of generating expected results. Failure to do so may have disastrous consequences. Indeed, cultural disparities between a target and acquirer can potentially derail a transaction. The ill-fated mega merger of AOL and Time-Warner in 2000 is a prime example of companies with divergent and incompatible corporate cultures being brought together in a poorly-realised merger. According to a 2010 interview with The New York Times, former Time Warner president Richard D. Parsons said, “It was beyond certainly my abilities to figure out how to blend the old media and the new media culture. They were like different species, and in fact, they were species that were inherently at war.”

Though the AOL/Time-Warner deal deteriorated for a number of reasons, failure to perform sufficient cultural due diligence caused both companies to enter into a costly and unworkable alliance without identifying underlying problems. Other high-profile mergers, Daimler and Chrysler, Sprint and Nextel and HP and Compaq, all serve to underline the precarious nature of M&A transactions and how easily they can be undone. Often, the merging parties failed to make cultural alignment a key objective.

Due diligence

The potential successes, failures and potential flash points of any merger should, obviously, be addressed before the deal is completed. This should not be limited to financials, however. Cultural due diligence is a must. This involves adequately evaluating the target’s corporate culture, as well as the national culture of the country in which it is located. Linguistic barriers, as well as different values, beliefs and traditions across markets, can cause myriad unexpected problems if appropriate steps are not taken to address them.

Cultural due diligence can help an acquirer to identify emerging cultural challenges and overcome those issues. It allows them to uncover and examine the attitudes, mental processes, behaviours, functions, norms, structures and history of the target. If a transaction is to be successful, all of these factors must be aligned across the two organisations. The human resources (HR) department must play a key role in identifying and analysing the target’s culture. It can help with planning the human aspects of the integration process, and manage and measure performance post-close to ensure that integration goes smoothly.

“Discovering the best parts of the two companies’ cultures and values, and blending them, can help to generate a shared mindset, language and way of working.”

Cultural due diligence allows acquirers to assess the institutional strengths of the target company and compare and contrast these factors with their own strengths. Acquirers will also understand the cultural dynamics of the target, how it operates, how it develops talent, how it is motivated to succeed and its decision-making style. A company’s culture will have a significant impact on these aspects, and differentiate a target from its competitors, making it more attractive to would-be acquirers.

Though a formal assessment of the target is unlikely to be completed until after a definitive agreement has been reached between the parties, the acquirer can utilise cultural due diligence to attain an insight into the target’s true nature and discover any potential headwinds that may impact the integration process.

Shared cultural norms

Cultural due diligence should not exist in isolation, however. It should form part of the wider integration management process, which includes defining culture, mapping and measuring culture, generating insight to design plans and cultural integration actions. “A common pitfall is the integration process can be saddled with the wrestling of power and politics, which can be driven by the differences in size or market focus of the companies,” explains Ms Hodge. “But in fact, different strategies can be applied to really create synergy, which may be cultural integration, cultural assimilation or even remaining culturally separate.”

Discovering the best parts of the two companies’ cultures and values, and blending them, can help to generate a shared mindset, language and way of working. “Parties should carry out a cultural due diligence process that determines the cultural DNA of the two organisations,” notes Dr Majlergaard. “When comparing the two cultural DNAs, you can see where the potential synergies are and where you, as a management team, need to put special attention, because of the risks of cultural conflicts.”

In those transactions where cultural due diligence has not occurred, or where it has been deficient, conflicts can easily emerge. Employees from the target company may feel a loss of control or identity if the acquirer imposes its cultural norms on them. Furthermore, without a framework to understand the cultural styles of each organisation, employees may experience confusion and distrust.

Any lingering resistance to cultural change can lead to unfair treatment. Further, it can foster a feeling of ‘them and us’ among employees of both companies. To counter this, the newly merged company needs to form a new shared organisational culture. Senior management must ensure that strong ethics and compliance programmes are put in place, along with a list of the company’s values, using concise, clear and understandable language.

When a company begins to pursue a deal, it must be aware of its own internal corporate culture and any gaps between it and the culture of the target. “To identify and bridge cultural differences we need to start with a rigorous framework to diagnose the individual company culture first,” says Ms Hodge. “The framework must clarify and categorise the main social and behavioural styles of the organisation to assess its key cultural traits. The next question to ask is what key cultural traits the merged organisation requires to deliver against the strategy and to maximise the value of the merged entity. Aside from the process side of integration, human factors, such as managing culture and culture integration, should be incorporated into the ongoing management discussions and actions by the C-suite. Beyond that, culture and leadership are inextricably linked. The C-suite are the embodiment of company culture and their style defines the shared value and behavioural style of the organisations,” she adds.

Post-merger integration

The importance of a post-merger integration team cannot be overstated. The acquirer must be able to capture cost and growth synergies in the post-deal phase. M&A transactions are complex and nuanced undertakings, and no two deals are identical; as such, companies must be prepared for the unique challenges each deal brings. Post-merger integration teams can help with this process.

Management integration teams (MIT) and a series of integration work teams should focus on implementing a specific portion of the merging companies’ integration plan. The team should have clear accountabilities for addressing the primary sources of value in the integration and for managing critical areas of risk. However, companies often make the mistake of only utilising internal resources when putting their teams together. External advisers can be invaluable.

Ideally, the MIT should include senior managers from the two merged organisations, tasked with unlocking the synergies identified during the pre-close due diligence. A successful implementation team will outline what constitutes success for the organisation early in the process, allowing the newly-combined company to map out milestones along the way.

Allocating senior managers from both organisations to the integration team will smooth the transition for employees who may otherwise feel disconnected from the new business. “People who have fears will never tell a colleague or boss about their concerns,” explains Dr Majlergaard. “External specialists receive much more valuable information which they can use to adjust the process. And do not forget: the business needs to run as usual while the integration process is going on. That is another reason why you need external expertise to facilitate the integration process.”

Today’s competitive economy is putting ever more pressure on organisations to generate value. One way to drive growth is M&A. Though measuring the value of M&A is a difficult task, it is clear that parties are increasingly drawn to it for the advantages it can offer in new markets or across different industries and product lines. It can grant access to new markets, create cost advantages and achieve synergies.

Ms Hodge believes culture, alongside strategy, should be among the key levers leaders utilise to maintain and grow the company’s viability and effectiveness. “As the company strategy evolves and changes through its growth stages, or in response to fast shifting market dynamics, the key characteristics of the company culture which help to optimise the shared value and behaviour of the company evolve and change too,” she says. “For example, companies with strong innovative needs may need to make sure a learning culture is in place. A consistent and comprehensive framework to evaluate the current culture and map the desired culture needs to be in place. This process should be conducted regularly as the company strengthens, evolves or changes its culture to help measure and sustain the long-term development and transition.”

Yet, while M&A can create myriad opportunities, it can also create significant challenges which must be quickly overcome if deals are to be successful. Corporate and national cultural differences can erode value the acquiring company may hope to gain from pursuing a target. Bridging the cultural gap requires strong leadership. Through cultural due diligence, leaders will come to know the scale of the chasm between the two cultures and in turn can identify areas where those cultures may collide. An integration or alignment plan will then allow them to come closer together and set a new cultural path for their merged organisations, founded on a shared set of values and beliefs.

Preparing for the new face of learning

Preparing for the new face of learning

Adoption strategy: driving the effective use and adoption of information in your organisation

Adoption strategy: driving the effective use and adoption of information in your organisation