Speaking about culture in the context of an acquisition, people are often on the defensive. Employees in the acquiring company generally believe their culture is good, or at least that it need not be changed to accommodate an acquisition. Those in the target company are fearful about the impact of impending changes that might challenge their long-held cultural norms and values. On both sides, people tend to defend the culture they know, and conversations about culture tend to be unproductive.
Defensive discussions about culture are often conducted with the tone of an imperative that makes them hard to question. As one CEO recently told me, “We are controlling. We have to be controlling because our industry is so regulated. We could be in a lot of trouble if our people do something wrong.” Statements like this above are hard to challenge, particularly when coming from the CEO. Instead of creating more understanding, for example by asking the “five whys,” those who hear statements such as this tend to accept them at face value.
Ironically, this company had just bought another, one that was also in a highly regulated business. But this one operated with a completely different culture, one defined in part by collaborative problem solving. In that organization the CEO and leadership team had granted considerable autonomy to those closest to the work to devise solutions to client related issues. Each organization believed its culture to be essential to its success. It took many months for the initial prejudices and fears about the cultural differences in these two companies to lessen. Meanwhile, a lot of energy was consumed in struggles over culture, especially in the upper management ranks. In general, uncertainty around culture induces a drag on progress during post-merger integration, just when it is especially likely to come with a high cost.
We believe there is a simple solution to this problem, but first let’s look at the relationship between culture and performance
Organizational Culture
Culture is, in the words of one of its foremost scholars, Edgar Schein1,
“A pattern of shared basic assumptions learned by a group as it solved its problems of external adaptation and internal integration, which has worked well enough to be considered valid and, therefore to be taught to new members as the correct way to perceive, think and feel in relation to those problems.”
The culture we experience in an organization is a snapshot at a point in time along a journey that leaders and employees are experiencing together. It is the result of learning from what worked and what did not as the company developed and prospered.
It follows that culture is directly linked to the organization’s performance. Most strategic acquisition targets today are superior performers, and the culture they exhibit delivers this performance. So understanding this linkage is essential for acquirers, lest they inadvertently destroy what made the target company a good acquisition in the first place.
Misunderstandings around culture are often blamed for M&A failures, but we believe that the issue lies elsewhere, in the realm of conversation and communication. We believe that the solution to culture clashes isn’t defensive talk that reinforces the status quo in each organization. What we need instead is to tell stories that get to the deeper assumptions and beliefs that drive behavior and results. That brings us back to how we speak about culture.
Telling Stories
There are many opportunities throughout the life cycle of a deal to tell stories about culture. Telling carefully selected stories from an organization’s past helps to describe not only the different dimensions of culture – behavior norms, assumptions, and the like – but also the logic or pattern of events that led to the norm or assumption being widely held. Here are several ways to use stories to explain the relevance of one’s own culture:
Acquiring firm leaders ought to begin by making obvious the connection between their own existing culture and its consequent impact on performance. In addition to the practical value of this exercise, it makes the leaders more open to exploring the culture-performance link in every potential acquisition candidate.
Then, during due diligence, selected interviews should focus on understanding the same mechanisms in the target company. If an acquisition agreement is signed, leaders of both companies can come together to reveal more of the underlying beliefs and assumptions that are expressed in each company, sharing with each other the specific historical experiences that led to these beliefs becoming dominant.
Later still, integration planning should include discussions about the appropriateness of the current cultures to the mission, vision and strategy of the combined company. This might lead to a determination to shift the culture in some ways over time to better support the strategy.
Meanwhile, the development of a common set of values and expected underlying behaviors represents another opportunity for meaningful discussions about culture and its impact. After deal closing, these discussions can be expanded to all employees as one part of the integration effort.
Exchanging stories will strengthen the ties between people, reducing resistance to change and greatly improving the odds of generating growth synergies that are otherwise hard to realize in an acquisition. Doing any of these well can have a tremendous impact on acquisition success. Doing many of them is the kind of commitment that sets the most successful acquirers apart.
Summary
The key to avoiding the negative drag of cultural uncertainty is to discuss the topic early, openly, purposefully, telling and listening to stories of the culture creation journey. Once exposed to the stories, the underlying reasons for observed behavior in the other organization, individual anxiety falls, mutual understanding increases, and the integration process moves forward with more collaboration and greater respect.
1Schein, Edgar H., Organizational Culture and Leadership, 4th Edition, 2010, p. 22.