• Jeff Doolittle

Mergers & Acquisitions: The Importance of Creating a Shared Culture


EXECUTIVE SUMMARY

Mergers and acquisitions (M&A) is a key growth strategy for many organizations: entering new marketplaces, acquiring new technologies, leveraging scale and size. Culture is acutely critical during times of notable change, such as M&A, which offers an opportunity for a renewed start on culture. However, when two organizations are brought together through mergers and acquisitions for economic reasons, it is doubtful the two cultures will remain precisely the same. According to research, 50% to 85% of mergers fail to deliver on shareholder returns despite the best intentions. To achieve the desired economic goals of the new organization, and avoid a clash, the two cultures must harmonize. Anyone who has endured an M&A knows how stressful it can be for everyone. Clashing of organizational culture is the most cited reason for the failures. The leadership challenge is to figure out the best way to manage the formation of a blended new shared culture. Without intervention it is most likely the culture will evolve on its own over time and the dominant culture will assimilate or reject members from the other culture. The best method to achieve the goals from the merger or acquisition is to identify the best parts of both cultures and create a new harmonized culture.

HOW TO READ THIS WHITE PAPER

This white paper has five sections. All sections are essential to an understanding of the importance of creating a shared culture. The white paper starts with understanding culture and a summary of the role of culture in organizations. The challenges and proven steps to take to harmonize the two cultures are then discussed. The white paper ends with a discussion of the significant benefits to creating a shared culture and a conclusion.

The purpose of this white paper is to provide an understanding of why creating a shared culture when bringing two organizations together is essential. As designed, this white paper presents a clear picture of the organizational culture and ultimately a leader’s role in leading culture harmonization for the merger or acquisition.

UNDERSTANDING ORGANIZATIONAL CULTURE

Culture has been studied for many years resulting in many different models and definitions. Also, within organizations, if ten employees are asked to define the company culture, there may be ten different answers. The concept of culture is abstract and not well understood. Organizational culture is complicated because it involves individuals, their interactions, teams, and the organization as a whole. A working technical definition of organizational culture is an often hidden shared pattern or system of beliefs, values, and behavioral norms. A more simplified working definition of organizational culture is the way things get done within the organization when no one is watching. Culture lives in the stories that are passed on from employee to employee. An organization’s culture reflects the various lessons that an organization has learned through its history and incorporates the many behaviors and processes that have developed over time. Often many elements of an organization’s culture are not visible to its employees. It is comparable to breathing. Breathing is essential to life but controlled unconsciously. Likewise many elements of culture drop into the background, and become automatic. However, highly visible and disruptive events like mergers and acquisitions can make cultural differences striking.

UNDERSTANDING THE LOCAL CULTURE CONTEXT

Today many industries and organizations operate on a global scale. Understanding the dynamics of organizational and local cultural context is imperative for leaders in these organizations. Not understanding the impact of local culture on organizational culture can lead to grave miscalculations. Local culture is learned at the beginning stages of childhood, and reinforced by local social, spiritual, economic, and education systems. Local culture is held deeply and typically changes slowly over generations. It influences the ways employees perceive and judge the actions of the organization and leaders. Also, local culture affects employee communication both verbally and non-verbally. Organizational culture does not replace local culture. Therefore, the opportunity for leaders is in harmonizing local and organizational cultures. Leaders have to be experts with the paradox of local versus organizational culture. The diversity of employee and customer interactions are two significant issues that most global organizations face. One company in the casual dining industry that has navigated some of these issues well holds to company quality standards and values but allows local flexibility on its customer menu. For example, rice is a substitute on the menu for fries in Indonesia and roasted pork for hamburgers in Korea.