Integrating cultures in M&As

Understand what behaviours need changing and how to change them

Say the word “culture” around people familiar with merger and acquisition (M&A) deals and two reactions will be forthcoming. One, everyone will acknowledge how important it is to the success of the deal and two, everyone will proceed to offer a harrowing example of the consequences of a cultural misalignment they witnessed or experienced.

Yet, despite these accounts, very few organizations actually do something about culture during M&As. Why? Because “culture” is a problematic concept. It’s multi-faceted, “soft” and difficult to define and measure.

The problem often lies with the executives who simply don’t see the value of spending time and money on cultural integration and cultural change — at least, until they have been badly burned by it. As IBM’s Louis Gerstner wrote in his book, Who Says Elephants Can’t Dance?, “I came to see, in my time at IBM, that culture isn’t just one aspect of the game –– it is the game”.

Defining “culture”

While there are many definitions for culture, in the M&A world it helps to look at it practically rather than academically. The issue is less about culture and more about three intertwined elements:

•factors that influence individual behaviours;

•the individual and organizational behaviours; and

•the business outcomes they produce.

In describing an organization’s culture, phrases such as “paternalistic,” “collaborative,” “hierarchical” or “conservative” are often used. And they might very accurately describe a resulting group characteristic. However, the real question is what do people actually do in a paternalistic culture or a consensus culture? In the latter, there would presumably be much discussion, frequent meetings with everyone having a say, seeking to gain agreement among everyone and very high levels of communication.

On that basis, an organization’s culture is defined as the aggregation of those individual behaviours that make up how work gets done. Therefore, if a different culture is needed, behaviours need to change. Whether a culture is good or bad depends on the environment within which that culture exists and the outcomes that result from the behaviours promoted in that environment. Logically, a culture is considered good if it produces the desired outcomes and bad if it doesn’t.

The third element is those factors or drivers that influence behaviour, both individually and on the aggregate. There are four basic categories of behavioural drivers –– personal, social, organizational and models.

Changing drivers of behaviour

It is difficult and perhaps inappropriate for corporations to attempt to change personal drivers, such as personality, genetics, gender and ethnicity, and social drivers, such as national origin, religion and local customs. However, it is not only appropriate but necessary to help individuals and organizations understand them and to be skilled at resolving or acknowledging these differences.

Organizations can and should, however, aggressively manage the other two drivers: organizational and models. Organizational drivers, both formal or informal, include vision, values, programs, policies and work environment. Model drivers represent the behaviour of others, whether peers, leaders, coaches or role models. Behavioural models are first and foremost the leadership of the organization starting with the very top leader.

If an organization desires a different set of outcomes, individual and collective behaviours will have to change. And if individual behaviours need to change, then different drivers must be in place to cause different behaviour.

The M&A change event

When a merger or acquisition occurs, the parties to the deal expect a different set of outcomes, such as more revenue, less expense or greater market share, which requires some level of behaviour modification and therefore some modification of the behavioural drivers.

In effect, the three elements –– drivers, behaviours, and outcomes –– are inextricably intertwined and one can’t be changed without impact on the other two. Successfully dealing with a change event like an M&A transaction requires not only considering the behaviours, but also the outcomes and drivers of behaviour.

The cultural integration process

Cultural integration must consider a process where all elements are accounted for:

•outcomes are well-defined and understood in the context of the deal;

•behaviours are clear in terms of the culture of the parties involved in the deal and the culture necessary to deliver the outcomes;

•drivers of the desired behaviours are well-understood, prioritized and designed appropriately to influence the desired behaviour; and,

•an effective change management program is planned and executed.

The reality of large-scale M&A projects is that they are always complex and each party coming to the table will have their own unique cultures and behaviour patterns. These patterns are aggregate of individual behaviours and are shaped by personal attributes, the uniqueness of social structures, the organizational environment and the behaviours of co-workers.

For a business transaction to achieve the expected outcomes, acknowledgement of the impact that behaviour patterns will have on the probability of the transaction’s success is the first step — but it’s not the only step. To accelerate the impact of culture necessary for successful integration requires adherence to a process that must include clarifying the context of the deal, identifying the right behaviours, pulling the right levers to drive those behaviours and managing the change required.

Steps to success
Eight steps to a successful cultural integration

Consider the following eight steps as a framework for developing a process to increase the chances of successful cultural integration:

1. Build transaction context and rationale;

2. Determine the degree of organizational integration;

3. Assess organizational behaviour;

4. Develop a change hypothesis;

5. Determine drivers of behaviour;

6. Design appropriate drivers of behaviour change;

7. Implement change; and

8. Measure and reinforce change outcomes.

Step one is to assure a full and comprehensive understanding of the context of the deal. Step two is to translate that understanding to a clear statement of the degree of integration at the enterprise level, as well as by geography, function and program.

Once there is a clear understanding of the outcomes, clarity around the behaviours to run the combined business is needed.

This is achieved through step three, a behavioural assessment of both organizations and an assessment of its future state, and step four, developing the change hypothesis or, more specifically, what changes must take place to achieve the behaviours needed to run the business.

Once the needed behaviours are defined, step five is the identification of the drivers needed to influence those behaviours and, in step six, the programs behind the drivers are designed. Step seven is to then implement the designed drivers through an effective change management process, which includes step eight, the appropriate measurement and reinforcement of changes.

While the eight steps are described as a linear process, the realities of applying it in a given set of M&A circumstances will likely dictate that they be done out of sequence and possibly repeatedly.

Bob Bundy is a worldwide partner with Mercer Human Resource Consulting and leads the firm’s global mergers and acquisitions consulting services business. He may be reached at [email protected].

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