Why culture is key to mergers and acquisitions

It's no secret that cultural integration and alignment are critical to success in mergers and acquisitions (M&A). Many studies have highlighted how cultural alignment and integration have a major impact on an M&As success.  

According to the Society for Human Resource Management, the vast majority of M&A failures are due to misaligned organizational cultures. In a study of over 4,500 international mergers from 32 different countries between 1989 and 2013, companies with especially large cultural mismatches saw their yearly net income drop by over $600 million.  

Yet despite the evidence, culture is often overlooked. M&As are complex and often very fast-moving business maneuvers. Whether it's because of the deals being made, or conflicting priorities, culture often isn’t the top consideration. This is especially true when business topics like organizational and resource structure, process and operation changes are in question or need a redesign.  

We’ve seen what can happen when an organization does or doesn't plan ahead for their culture before an M&A. When culture is left out of the picture, symptoms of disruption quickly begin to surface and show up in employee engagement and the broader employee experience. 

Though it’s never too late to address cultural integration, the recommended move is to get ahead of it. In this post, we’ll explore some of the benefits of making culture a priority.  

What is cultural integration?

We often describe culture as the DNA or operating system of an organization. It touches every part of the business and directs both explicit and implicit ways of being with each other. It informs how we behave with each other and the decisions we make. Culture is how you know what "feels right" at an organization, but it isn't as tangible as a vision or even a purpose, sometimes it can be described as the "smell" of a place.

So when two cultures come together during an M&A, people often assume that one culture will just overtake the other. It’s akin to thinking that if you combine red and blue paint together, you’ll end up with an unchanged red paint. Bringing together two or more cultures requires thought and care for how deeply rooted unspoken beliefs and behaviours will merge (or clash). And it’s a great opportunity to identify and highlight the unique cultural super-powers and/or challenges both organizations bring.   

How culture can help your M&A succeed

Organizations miss an opportunity to be proactive and intentionally set the direction of a new integrated culture. Here are just a few of the ways considering culture as part of your M&A process will help you in the long run:  

Identify cultural gaps

One of the first things we do to support cultural integration during a merger or acquisition is to talk to employees to find out how they are understanding and experiencing the change. Can they clearly describe the company’s culture? Are they ready for the change? What pieces are they missing? People can experience an M&A differently depending on their role, location, legacy organization and other factors. You’ll likely often uncover areas of alignment in employees’ behaviours, motivations, and beliefs, as well as gaps.

There are many activities you can employ to gain insight into the employee experience. In our practice we leverage a combination of empathetic research in the form of workshops, interviews and surveys. Workshops and interviews provide in-depth insights and stories direct from employees that expose their beliefs and behaviours, while surveys give us broad data that can be used to validate our findings.

Gaining clarity on your current cultural landscape will help you make smart decisions going forward. For example, we recently supported a merger where the organizational cultures were fairly well aligned. What the employees were lacking was clear direction on how to move forward together. The organization used this knowledge to craft on-target messaging that gave their people the clarity they were looking for.  

Keep each culture’s key strengths

It’s common for employees experiencing a merger or acquisition to feel some apprehension about how the change will impact them. We’ve found that what employees often fear most is losing the best parts of their organization. It doesn’t have to be that way.

Through research, you can identify those unique, admirable aspects early on and intentionally carry them forward into your merged organization’s new ways of being.

If you do this, you’ll also be reassuring employees that one culture won’t “eat” the other. Instead, you’re creating a new culture together that’s greater than the sum of its parts.

Align around a shared vision

Cultural integration work helps you define a shared vision and strategy that ensures everyone is moving in the same direction. When everyone shares a clear vision, decision-making becomes easier. People are empowered to act, and they’re less resistant to change within the organization, because they’re clear on what’s driving it and where it’s headed.  

Articulating this vision starts, again, with understanding employees. What are their hopes around the company’s vision for the future? What concerns do they have around an integrated culture? A strong vision uses language that resonates with employees and feels authentic to their experience.  

There are many approaches you can take to craft storytelling around your organization’s future state, such as journey maps, experience maps, blueprints, a “day in the life” and more. Through frequent and clear communication, you can build a narrative of unified strength rather than letting an “us vs. them" mindset take over.  

Strengthen collaboration

The activities we facilitate as part of cultural integration serve multiple purposes. While they provide valuable insights to us, for participating employees, they’re time to connect, share, and learn about each other’s experiences.

Our workshops and conversations around what matters most to people enable them to connect more to their organization and each other. The process also helps them feel like their opinions and experiences matter to their organization, which is a key engagement driver and helps them feel they are part of the change that is happening. We hear time and time again how energizing and positive these experiences are for participants and that they can often be the highlight of the day or even the week.

In the early transitional days of an M&A, it’s important to be transparent about the coming changes. Create a source of truth that employees can refer to to learn who is accountable for what, as well as who they reach out to for guidance or collaboration.  

Increase trust in leadership and vision  

During an M&A, it’s critical for leaders to articulate the vision for the integration and tie their decisions back to that vision. Employees will be asked to navigate a lot of change and uncertainty, and the more leaders can be honest about this the better.  

We’ve seen how frequent, transparent communication from leaders to employees throughout an M&A can build lasting trust. Open forums, like town halls or panel discussions give leaders a chance to speak directly to employees’ most pressing questions. It can be especially impactful when leaders share stories of their own personal connection to the organizational purpose, values, vision and culture, or provide examples of how they see these themes show up in the workplace. Employees are often inspired to reflect on their own relationship to the culture and how they can bring it to life within the flow of their day-to-day work.

Improve team morale

When employees feel like they hold the big picture (and can find themselves in it), it can be incredibly motivating. They know their efforts are supporting great change. While it’s critical for this line of sight to exist at the top of the organization, the energy and messaging also needs to make it to the front line. Ensuring those with direct reports have the tools and resources they need to care for and support their teams during this time of integration will help everyone feel a higher sense of belonging, engagement and connection to the organizational purpose.  

To support culture integration during M&As, we strive to engage employees across the organization, so they’re driving the change rather than being subjected to it. Employees can have their voice heard as research participants, in a working group, on a project team or as culture champions, who act as future ambassadors of the project. Culture champions extend the core team’s reach and act as a powerful tool to onboard employees to the change and help them feel part of defining it.  

Take strategic action

Intentional culture integration is grounded in the present but focused on the future. It helps you determine what needs to change and what employees need in order to move towards as a unified organization. This ensures organizations focus their efforts in areas that will have the biggest, most positive impact for employees and their business. 

A common outcome of our culture integration work is a backlog designed to help the organization evolve its culture continuously. A backlog is a dynamic roster of high-impact activities, prioritized so the organization is empowered to advance cultural integration through learning, measurement, and organizational listening. The backlog makes sure the team is focused on what matters most to employees while encouraging experimentation in the opportunity areas identified during research.

The start of your journey

The scale of change sparked by an M&A requires attention from leadership, resources and time. It’s a journey that takes continuous engagement. In the short-term, it helps bring employees together, builds trust and heads off the disengagement and frustrations that can often accompany M&As. The long game is that by starting this work early and grounding it in the employee experience, you’re building a strong foundation for your new culture. And the cultural attention and care you invest eventually become evergreen – just a part of the regular employee experience and culture of your organization.