Although we often hear about how mergers and acquisitions (M&A) offer companies exceptional growth opportunities, we rarely hear about how well the cultures of the combined companies mesh. That may be because this combination of corporate cultures is often more like a culture clash – and it can result in extremely negative consequences for many businesses unless it is properly addressed at the onset.
In fact, the Society of Human Resource Management says that over 30% of all mergers fail due to culture incompatibility. However, it is important to note that if the merger is properly structured and negotiated by a professional intermediary, it stands a much better chance at being successful.
Employee recognition leader Globoforce notes six major mergers that were killed by culture clash: New York Central and Pennsylvania Railroad; Daimler/Chrysler; Novell/WordPerfect; AOL/Time Warner; Sprint/Nextel; and HP/Compact.
Reasons why the cultures clashed in these instances include the failure of former competitors in an industry to learn to work together; a difference in the level of workplace formality; philosophy differences on issues such as pay and expenses; opposing operating styles; lack of agreement on advertising strategy and the use of technology; and the failure of a consensus driven culture to combine with a sales driven culture.
How to Merge Cultures Successfully
These abysmal examples considered, experts say there are steps companies can take when they are combining to lessen any anticipated negative effects of culture merging.
First, they should consider the cultural aspects of their merger or acquisition at the same time they consider the other business aspects of the deal. Then, commit to creating a new culture for the combined company that emphasizes shared core values. Get buy-in for these values from the biggest employee influencers and invest time in the process; their positive attitude will likely have a ripple effect.
Understand that negativity among employees can come with big changes, so encourage them to catch each other doing things right. Head-off the destabilizing effect on staff that can happen if top talent exits by listening and responding to their concerns, so they are more inclined to stay with the new company rather than look for other opportunities.
Perhaps most important, facilitate communication across groups and divisions to encourage the forging of relationships across the boundaries of the merger. As these strengthen, so will the merged entity.
When culture differences in merged companies are handled thoughtfully, they can actually benefit the newly formed company, according to an M&A Leadership Council article authored by Board of Advisors member and M&A expert Mitchell Lee Marks: “If properly managed, cultural differences can be a source of value creation and learning in M&A. This is because differences rather than similarities between combining organizations create opportunities for synergies and learning. Cultural differences have the potential to break rigidities in acquiring firms, help them to develop richer knowledge, and foster innovation and learning. M&A also can provide buyers with a competitive advantage by giving them access to unique and potentially valuable capabilities that are embedded in a different culture.”
Marks further notes that “costs and benefits associated with cultural differences and their impact on eventual M&A performance depends on how they are embraced and addressed. Practice shows that, despite the cacophony of a culture clash, the opportunity to proactively build a strong culture remains one of the great benefits of joining forces.”
Actively creating this new, strong culture should be a top priority for all combined companies. Transworld will assist with the entire M&A process to ensure a smooth transition for all parties involved as a properly structure and negotiated deal by a professional like those at Transworld will ensure a more successful merger. Call Transworld Business Advisors today to discuss how we can help you with your M&A.