With a number of recent announcements of high profile megadeals, such as HP buying the UK’s Autonomy, and SAB Miller’s bid for Fosters, it seems that mergers and acquisitions are on the up. Jonathan Chocqueel-Mangan, Managing Director at Tyler Mangan, reports.
Culture is difficult to pin down at the best of times, even in times of ‘steady state’. Culture covers behavioural, emotional and cognitive elements of an organisation’s behaviour. It is often described as a combination of norms, values and behaviour patterns. Perhaps most importantly, culture is seen by many as a set of basic assumptions that are adopted by a group to solve problems successfully, and therefore taught to new members as the correct way to do things. INSEAD’s Professor Gerte Hofstede has described culture as “the collective programming of the mind which distinguishes the members of one group or category of people from the other”. It is the association between culture and group identity that means that culture plays such an important role in the bringing together of two organisations, via a merger or acquisition.
“Culture is difficult to pin down at the best of times, even in times of ‘steady state’. Culture covers behavioural, emotional and cognitive elements of an organisation’s behaviour”
Through our work on a number of mergers, both nationally and across the globe, we have seen what works, and what doesn’t work despite the best of intentions. What we have learned is that cultural factors need to be taken into account at every stage of the deal, that the management team has to take the lead, and that designing processes is nowhere near as important as the mindset and attitude of the most senior executives. Culture comes from the top, and employees will watch for signals more carefully than most executives expect, or would like. Increasingly we are seeing organisational culture feature at the due diligence stage, before the merger or acquisition has been announced. Acquirers, or investors, seek to quantify management capability in order to understand the similarities and differences of management style and cultural compatibility.
A number of frameworks, surveys and diagnostic tools are available which provide the basis for a relatively objective discussion about what impact individual and management team capability and organisational culture are likely to have on the success of the transaction. These diagnostic tools often help to identify actions that can be taken immediately post-deal to give the new organisation a better chance of success, including the difficult task of assigning key roles and responsibilities across the new management team.
Once the deal is done, the management team needs to work as a cohesive unit as quickly as possible. JP Garnier, of GSK, described the fundamental questions that the executive team needed to ask and answer in order to secure commitment from the whole organisation: Why do we exist as a business? How will we work and treat each other as colleagues? Where are we going as a business in the future? How are we going to get there? These are easy questions to write down, but all too often CEO’s fail to spot the difference between real consensus and perceived consensus within the team. Conflicts in values, personalities and lack of clarity about roles can all work to create an environment of cultural resistance within the new organisation. In particular, senior executives need to be open to learning from their new colleagues. “If one does not believe anything can be learned from one’s new partners, the venture is doomed to fail”, says Nissan’s Carlos Ghosn.
Of course, once the top team has established the basic principles, a carefully planned process of cultural integration is key. These processes must be designed to convince employees that there is clear leadership and that someone is in charge. Communications must explain the consequences of the merger or acquisition honestly and fairly, and present the new organisation as a positive step in the life of both companies. Remuneration must be designed to ensure that the right attitude and values are rewarded as well as financial results. Finally, cultural integration takes longer than most people expect. Cultural differences can still be evident years after the processes and system have been integrated. We have worked with a bank where people proudly wear their ‘original’ name badges, issued prior to a merger six years ago.
Few organisations continue to evaluate cultural integration for long enough. As one client from a technology company once lamented, “It is not enough to paint the place a new colour and have a big party. No one will change their ways based on that. We have to work harder at it – and for longer – than we really would like”. Research into effective mergers and acquisitions by Roffley Park, back in 2000, was based on the premise that “mergers are primarily the coming together of two organisations on a human and cultural level”. That is as true today as it has ever been. Senior executives need to recognise that culture plays as important a part in successful mergers and acquisitions as finance, technology or market opportunity. As Lou Gerstner, writing about his time with IBM, said: “Culture isn’t just one aspect of the game – it is the game”.
