Every company has their own culture – basically, the manner in which employees behave, follow common norms and interact with each other – this includes values, behaviours, assumptions, and the understanding of a common mission. The culture makes up a company’s ‘personality’. Within that, you will find teams and departments that have their own slightly different culture from the overall company culture, ‘mini’ cultures of a sort.
Typically there are many similarities between the two, although it is possible for companies with a highly competitive culture contain mini cultures of collaboration and entrepreneurial kinship. For example; where the operations are somewhat cut-throat yet the development team isolate into a unified and solid group of collaborators.
Most companies have a pretty good unwritten understanding of their own culture and with just a few questions are able to define the existing culture fairly well and then work with us to identify areas of needed growth or change. It is when companies merge or an acquisition has been made that culture becomes a significantly different conversation. Sadly, few mergers and acquisition (M&A) pre-work evaluates the differing cultures to identify risks associated with the merger or acquisition.
The greatest risks associated with bringing two companies together often lay within the strongest reasons why two companies want to join forces in the first place:
Financial – M&A selection is vital to understanding the financial benefits and possibilities due to a complimentary, formerly competitive or growth opportunity into play.
Brand Association – There are some great benefits to leveraging a solid and well-loved brand to create a stronger and more powerful company offering to the customer.
Knowledge – Picking up or combining forces to obtain or grow the technical or industry knowledge for a company, add technical competency or expand an offering based on an additional functionality desired.
All the above sounds pretty great, but what’s great on paper is not always deemed so great by the people being asked to live the change. In fact, the people with the greatest power to make or break a merger or acquisition can be middle management through to front lines and yet those areas are the most often ignored within the M&A transition plan.
Understanding cultural risk, cultural collision and people strategy are vital in making certain that large investments such as M&A actually realize their return on investment.
Transitional planning is needed right from the beginning of a merger, preparing for culture clash or shock, planning around every small change that affects the manner in which people from both organizations do their everyday work, creating a change plan that involves a solid communication strategy, all of these are vital in an M&A program.
Based on research, where does a good transitional plan begin?
- Organizational Culture Assessment: a system of shared assumptions, values and beliefs which govern how people behave in organizations. Evaluate each company and determine any commonalities.
- Evaluate the 8 Organizational Cultural Characteristics: evaluate the priority that the company values would assign to each of the following organizational characteristics.
- Innovation – risk orientation – evaluate priority high, moderate, or low.
- Attention to Detail – precision orientation – high, moderate, or low value?
- Emphasis on Outcome – achievement orientation- high, moderate, or low?
- Emphasis on People – fairness orientation – high, moderate, or low?
- Teamwork – cohesiveness orientation – high, moderate, or low?
- Aggressiveness – competitive orientation – high, moderate, or low?
- Stability – maintenance orientation – high, moderate, or low?
- Agility – change orientation – high, moderate, or low?
- Develop a transitional plan based on a comparison of both companies developing action items that address commonalities and friction points.
These are steps for the beginning while the purchasing company is assessing financial risk. Companies putting out money to purchase or merge with another company should understand the cultural risks of the deal. Comparing the two organizations is vital in knowing just where to begin with a transition plan.
Do you have examples of organizations that have merged and failed to do the cultural assessments and develop a solid work it into a solid transition plan?
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(Note: 8 Organizational Culture Characteristics from Professor Roger N. Nagel at Lehigh University – our assessments and research utilizes these characteristics in addition to other organizational research.)