Culture: The Forgotten Link in M&A

Posted on March 10, 2016

Culture: The Forgotten Link in M&A

Culture - The Forgotten Link in M&A

Mergers and acquisitions (M&As) saw a record high in 2015 (3.8 billion USD), surpassing the numbers from the years before the financial crisis. This year could see even more deals, if we trust an Ernst & Young survey that reported an increase of 20% of executives expecting to carry out acquisitions in 2016. M&As are driven by an organization’s motivation to grow market share, acquire R&D knowledge or lower costs through synergies, but successful M&As are highly dependent on the inclusion of two organizational cultures.

In a ground-breaking deal between Lenovo and IBM’s PC business nearly ten years ago, the Chinese firm merged two disparate national and corporate cultures. As a cross-cultural consulting company, we supported the deliberate transformation process of cultural inclusion that Lenovo underwent. [Read more in this interview about Lenovo’s cultural inclusion approach throughout the merger] A decade later, Lenovo is a thriving business with an organizational culture that emerged after strategic implementation of inclusive values and behaviors.

The urgency that often surrounds M&A deals means that the assessment of the two organizational cultures and the identification of any potential issues related to cultural integration may be overlooked. The unenlightened view of culture as something that can be addressed ad-hoc in such an integration process further hinders a successful merger. Organizations that fail to include cultural change in their change management processes later cite culture as the main reason for failure in as many as 30% of M&As(Dixon, 2005).

Indeed, Aperian Global’s research reveals that executives involved in M&A activities tend to overestimate similarities, underestimate differences and engage in “groupthink.” (Gundling, Cvitkovich & Caldwell, 2015)

Culture and M&A Integration

Three aspects of culture are worth particularly close attention in a cross-border acquisition:

  • Reading the Country Environment (National Culture)
  • Integrating Cultural Patterns (Organizational Culture)
  • Teamwork at the Top (Team Culture)

Cultural Layers and Cross Border MA

Teamwork at the Top

In a recent post-merger integration engagement that Aperian Global supported for a firm in the global mass media & entertainment industry, the leader of the combined entity’s regional management team identified early on that she needed to create a unified and aligned team with a common vision if the integration was to succeed. The management team consisted of 50% members from the acquiring firm, which exhibited a collaborative, participative company work pattern, and 50% from the target firm which valued a more “top-down” leadership approach. The team lead recognized that if “teamwork at the top” was not present, the integration would not succeed. In her words, “If we do not address leadership and cultural integration, employees of the two merging entities will have an experience that they are working with two different companies.” The combined entity needed to create a “third culture,” drawing upon the best of both of the organizations.

After the new team had worked together for several months, Aperian Global facilitated an Executive Team Integration workshop supported by survey data from several sources including the GlobeSmart Teaming AssessmentSM (GTA). Through the process, both the leader and the team members reviewed quantitative and qualitative data that revealed both the leader’s and the team’s work-style preferences, strengths, weaknesses and priorities. While building on the team’s strengths, the group identified that it needed to improve in two key challenge areas: better leveraging of its valuable cultural diversity, and improving how it resolved conflict. With these areas in mind, the team developed an action plan to drive change.

Six months later, after conducting a reassessment with the GTA, the results revealed a marked improvement in these areas. To quote the team leader at the team’s offsite meeting,

“Now there is no going back into old behaviour-pattern for the group, as we have a tool to better understand each other, agreements on channels of optimized communication, more clarity on leadership and a shared vision and common goal that we are ALL contributing towards. It has been a turning point for our team and also for me in understanding how I need to adapt to be the leader they need.”

8 ways to improve the performance of merging teams

As mergers and acquisitions continue to provide a vehicle for global growth, it may become necessary to ask: what can you do to improve the performance of your merging teams? Below are eight ideas:

  • Avoid assumed similarities, underestimated differences, and groupthink.
  • Consider in due diligence: country and regional characteristics, infrastructure, human resource practices, and competitive environments.
  • Be alert to the key M&A problems in national, organizational, and team cultures.
  • Demonstrate respect for your new partners and learn from them.
  • Leverage cultural integration strategies such as leveraging team diversity and challenging unspoken assumptions
  • Build a unified team atmosphere at every level.
  • Set shared goals and execute them effectively.
  • Focus on mutual benefits for the combined organization.

Aperian Global’s GlobeSmart Teaming Assessment was successfully used during this global M&A consulting project. Click here to find out more about the tool.

More on Post-Merger Integrations

References:

EY Report: October 2015, Capital Confidence Barometer

Bloomberg News, January 5, 2016, 2015 Was Best-Ever Year for M&A; This Year Looks Good Too

Gundling, Ernest, Cvitkovich, Karen & Caldwell, Christie: Leading Across New Borders: How to Succeed As the Center Shifts

Dixon, Isaac, “Culture Management and Mergers and Acquisitions,” Society for Human Resource Management, March 2005.

Further Reading:

An interview with Lenovo’s Chief Diversity Officer Yolanda Lee Conyers on their M&A approach

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