Culture can be a strong and unique differentiator. Like an iceberg, the bulk of it lies below the waterline, things you can’t see, such as implicit norms, values, hidden assumptions and unwritten rules, says Edgar Schein in The Corporate Culture Survival Guide

He believes culture is a vital, powerful and often “unconscious set of forces that control individual and collective behavior, including strategies and goals.”

Dale Stafford and Laura Miles in the Bain brief, “Integrating Cultures After a Merger,” say three key elements define culture—behavioral norms that are exhibited at every level within the organization, critical capabilities that define the corporate strategy, and the company’s operating model, including structure and accountabilities.

Companies often face culture challenges as they grow. No time is this more obvious than during a merger or acquisition. When companies join, two cultures meet. One of three things can happen. They can coexist, one can dominate or they blend.

In 2013, Bain did a survey of executives who managed through mergers. They found that the number one reason for a deal’s failure to achieve the promised value was a clash in cultures. Dr. Nancy Rothbard, professor of management at Wharton, says recent studies show a 75% failure rate in acquisitions, and much of the research points to an inability to merge the cultures.

You may be wondering why this would happen. Several reasons have been identified. In a merger/acquisition, it’s much more difficult to assess the qualitative aspects of an organization.  It’s not easy to determine where the cultural incompatibilities may be because they are considered “soft” and not easy, if not impossible, to quantify. “One mistake people make …is assuming they need to completely throw out the pre-existing cultures after the merger,” says Tim Donnelly in the Inc. Magazine article, “How to Merge Corporate Cultures.” Another error is making the assumption that the acquired company will readily accept the acquirer’s culture.  Often, the companies’ fundamental ways of working are so disparate they lead to misinterpretation, which leads to frustration, demoralization and reduced productivity.

The bottom line is culture counts. If decisions are made without considering culture they can lead to unanticipated and undesirable consequences. So what can be done to ensure a successful integration of cultures? Stafford and Miles recommend the following:

  1. Set a cultural integration agenda. This is a job best done by the CEO. There are some difficult choices that must be made. The CEO needs to explain the “what” and “how” of the new company, including the value creation this merger will bring. Executives should avoid vague or inflated statements.  They need to clearly define the culture they want to emerge.
  2. Diagnose the differences that matter. There are a number of tools that can be used to identify and measure the differences among people.
    a.  Management interviews can be used to reveal managerial styles and priorities.
    b. Video and audio recordings of people in their jobs allow side by side comparisons of different ways to work.
    c. Process flow maps indicate how the work is being done.
    d. Customer interviews identify the differences in customer perceptions of each organization. It is critical to pay attention to this important group of stakeholders and not be too inwardly focused.
    e.  Employee surveys identify accepted behaviors, attitudes and priorities.
  3. Define the culture you are trying to build. The senior team must determine any critical gaps that need to be closed. They must also create a detailed picture of the future culture. This should go beyond vision and value statements. Merged companies should adopt a performance contract that states how the new entity should treat customers, manage process and make decisions. Agreeing on performance criteria early in the process can mitigate differences.
  4. Develop a sustainable culture change plan and measure progress. It’s very difficult to co- create a new culture. Intent Workshops can be a valuable tool to help with this. An Intent Workshop brings people together to plan how they will behave collectively and what they will achieve. An important part of the discussion is how the new behaviors will generate value.

Another way to ensure cultural integration is a process called A Six Source Diagnosis, which is defined by David Maxwell in “How to Effectively Merge Company Culture” in Crucial Skills. It identifies the influences that are keeping problem behaviors in place. The six areas to be examined include personal motivation, personal ability, social motivation, social ability, structural motivation and structural ability.

Leaders who have been through a merger know that mergers are challenging and never perfect. It’s important to recognize that culture is deeper, broader and more entrenched than you might think. But if you treat the existing cultures of both firms as a source of strength, it can enhance the chances of success.

McDaid is The Council’s SVP of Leadership & Management Resources. elizabeth.mcdaid@ciab.com

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