Simply said, if people don’t want to work together, don't trust “the others” or alienate leaders from the other team, the merger will most likely fail. Actually, 70% of mergers do not reach its estimated prize…
In a large merger of two tech companies, the structure, restructure, processes, and positioning were planned well. However, the culture due diligence had been carried out superficially and without a solid dataset. The finding from that process concluded with “two very similar cultures, amazingly similar, on the criteria measured. We suspected that was not the case.
How could quality culture DD be carried out to decrease the risk of merger failure and support the integration process to get everyone quickly up to speed?
A Small POC was carried out with 20 people spread out in the entire organization. That alone indicated two very different cultures from the two companies. However, the dataset was too small to be weighing in on the conclusion, and the hypothesis of two totally different cultures was strengthened. One culture was based on loyalty, discipline, and control, one was based on collaboration and trust. Not a good match.
Leadership and initiative overload
Leaders in the new organization were constantly making sure people were motivated, engaged, and performing. In parallel, they ran pulse surveys, engagement quizzes, employee dialogues, and performance management training and they developed the new strategy. As people in the organization were starting to get frustrated, they executed more structure. Feedback started to reach the top level, and more structures were initiated. Then it was time to build a culture code where the aspired culture was to be defined.
The new culture code
The next dataset was 500+ people from all corners of the two companies, across geographical, functional, and hierarchical boundaries. The CI solution made it possible to analyze the different subcultures to precisely understand what the key differences and the key subcultures were.
Based on the previously superficial culture definition, the dataset from the 500 people was analyzed over three days with people from the brand, HR, line management, and Culture Intelligence. In a large room, similarities and differences were identified and evaluated. Finally, the new culture code was defined, and coded into the CI solution. The gap between the actual culture and the aspired culture was now approachable, as it was displayed by hard facts and visualized in the solution.
The new CEO communicated the culture code in many arenas and events, and in the annual report, the culture code is described as a significant piece of work. It was not, however, taken into leadership development programs or made mandatory to communicate in their teams. The culture code was more for branding and communication, it seemed.
Activation of the new culture code
Two teams were first movers in applying the culture code. One team was the executive team in one of the business lines. They went through the survey, compared their actual culture with their culture code, and identified a pair of key elements they needed. A development program was initiated in one of the business units to start eliminating the gaps and developing the leaders.
A second team was conducting a full survey and team development analyses with their individual reports and team data. The 1to1 dialogues were done on eight people, and the team then discussed their findings. The team leader initiated development activities for the team to grow.
Both teams were expressing a deeper insight and understanding of their own situation, both as executive leaders and as section supervisors. The culture code worked as a direction indicator for how to work together.
Results after one year
The case points to the key to doing data-driven culture DDs. The data should be made available for leaders in a way that matters and can be used. Just taking the survey will get you nowhere.
The company was fighting a profit and loss battle due to the merger processes and of course the marked effect from the pandemic. The combination of the two different cultures trying to make it together without getting enough leadership attention, acknowledgment that there were difficulties in integration, and a hard focus on cost control, had a deep impact on motivation and engagement. The wrong people started to leave and the frustration grew.
Lessons learned
This case confirms how important values and culture are for people, and how much energy/cost gets lost if it is not taken into account. As a comparison, in another merger some years ago, the culture was first and foremost defined based on market ambitions, customer feedback, and existing values in the organization. The focus grew quickly towards not only where we were heading, but how we were supposed to work together to get there.
If leaders are not willing to give people a chance to learn how to work together, the merger may be the wrong action. In any mix of two parties, there is a need to first of all understand the differences, then agree on how to benefit from them and move forward in that plan.
In a merger, every leader knows in their heart that change is necessary. They also know that chance of success is strongly correlated to the culture. Yet, only 32% of leaders have a plan for working systematically on their culture. (McKinsey, 2021).
Why do leaders neglect the culture Due Diligence in a merger?
Pitfall 1 – no culture data
Not gathering the right cultural data to get a quality insight into what the two cultures really are, how they align, and how they differ. This insight is critical for the team and the implementation processes. It is also the first step to demonstrate to the two organizations that their views and votes on what is important to them are taken seriously.
Pitfall 2 – no culture code for the merged company
Not taking the time to use the datasets to create a culture code for the new company. If the culture is defined out of nowhere, people will not see how this new culture is relevant to them. The culture code will be a direction and a platform for everyone onboard to climb onto and grow an identity for the new company
Pitfall 3 – cost before values
Stressing the cost cut before people are on board the new organizational identity/brand. Ownership is not created by emails or simple pulse surveys, it is created by letting people understand what is merged, and what the new culture is going to be
Pitfall 4 – Lack of culture preparations for leaders
Not giving middle leaders a safe way to work with the two cultures together in their teams. Training them for change processes, culture gaps, and values dilemmas takes time initially but is rewarded further down the lane as engagement and ownership
Pitfall 5 – Executives not living the culture code
Executive leaders communicate culture codes and brand values without processes for people to get on board with the new values and culture. This will create cynicism and the divide between the top executives and the no-reports are growing.
More than 70% of all mergers fail to deliver the prize. That means that for every ten mergers that are planned, done, and evaluated, only three deliver according to plan. That is the exact same stats as for startups, only three out of ten are predicted to make it and become a profitable business. When mergers are planned, every leader involved realizes that there are cultural differences. It turns out that very few take that awareness seriously, and the stats are as they are.
So what is the solution? The recommended “M&A culture kit” contains a survey to map the culture, culture code generation for direction and simple processes to activate the part og the culture code that is missing. In one hour it is possible to gain insight in your actual culture. That again can be the core of the new culture code. It is hard to argue that that is not well worth a risk reduction in huge budgets and leadership merits at stake…
