mergers: a culture change perspective

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Mergers: A Culture Change Perspective

PM de Kock September 2011

Management Consultant, Mentor and Coach

When a senior manager involved in merger negotiations made the point that structure-related

decisions pale to insignificance if compared with culture integration considerations, the writing for

the upcoming marriage of the two organizations was proverbially on the wall. While consultants still

tried to spin the deal as a dream comes true, the to be partners were already starting to doubt,

not where the honeymoon will be, but whether they will join hands and say, I do." The senior

manager was, however, correct. Merger success more than often does not hinge on the structure of

the financial deal. Benefit realization in the end is a function of the extent to which integration

(more specifically culture integration) can be successful. From a commercial, business and legal

perspective mergers are complicated and risky. From a people perspective, it is a fragile endeavour

that needs to be managed with a great deal of insight and care. Consider the following research on

merger success and the reasons for failure:

a. Consulting firm Towers Perrin indicates that the most important people issue in mergers is toachieve cultural alignment (HR Rises to the Challenge: Unlocking the Value of M&A. (2004).

Towers Perrin HR Services)

b. The Manufacturing Barometer (Price Waterhouse Coopers) report that executives fromindustry rank people issues as the #1 in terms of importance for mergers

(http://www.pwc.com/us/en/industrial-manufacturing/barometer-

manufacturing/manufacturing-mergers-and-acquisitions-issues.jhtml)

c. According to a KPMG study, "83% of all mergers and acquisitions (M&A's) failed to produce anybenefit for the shareholders and over half actually destroyed value". Interviews of over 100

senior executives involved in 700 deals over a two-year period revealed that the overwhelming

cause for failure "is the people and the cultural differences Quoted in CMA Management,

March 2001

With this, less than satisfactory, record there is a need for specifically consultants and advisors to

ensure that merger integration take place in a systematic and coherent fashion. In this regard, the

following provides key requirements to ensure that merger marriage realize the desired benefits

for all parties involved:

a. Clarity about the strategic outcomes that have to be achieved this provides the business casefor the merger. While this mostly has a legal, technical or financial undertone it is important that

the change leaders and consultants take this into account when communicating the intent and

rationale of the envisaged merger. Continuous assessment of the extent to which change efforts


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support the drive to achieve benefit realization is also required. A clear dashboard of the change

journey should enable monitoring, reporting and corrective action throughout the process;

b.

The organizational variables of the target organizations need to be assessed, and a deepunderstanding developed by all parties. In this regard, the following should be considered:

1. Similarity of production technologies;2. Similarity of research processes;3. Similarities in terms of products and/or service offering;4. Similarities in terms of markets.

The above do not only drive decisions such as economies of scope and scale, market power, etc.

but also what human capacity would be required and how the individual efforts should be

aligned to achieve the envisaged merger benefits.

c. With respect to culture, absolute clarity and understanding by all role players are required.Hofstede provides a very useful model and taxonomy to assess culture by highlighting that it is

the deep values emanating from group and even societal level influences. While an

understanding the deeper values is required, change interventions usually focus on the cultural

practices (symbols, leader behaviour and rituals) to effect change. The taxonomy of Hofstede is

particularly useful for assessment and planning of change interventions and is outlined in Table C

below:

Table C : Generalized Value Orientations

Perspective Constructs CommentsHow is inequality dealt

with Power distance Large unequal distribution of powerSmall more equal distribution of powerHow is the unknown

viewed Uncertainty avoidance Extent to which culture feels threatened by ambiguityHow is dependence on

others viewed Individualism Collectivism Individualist ties between individuals are looseCollectivist strong group affiliation and opposeother groups

How is gender roles viewed Masculine Feminine Masculine gender roles distinct and more rigidmen are menFeminine gender roles overlap men can also be

tender Perspective of time Long Short How time is perceived and the effect of this on

perceptions of productive work, environment, ethics

etc.Dealing with natural drives Restraint - Indulgence Restraint curbs gratification and regulates by strict

social normsIndulgence drives free gratification of basic drives

With clarity about the strategic intent, variables and culture of the target organizations, it is possible

to determine the fit and approach to merging the business cultures. While detailed strategizing andplanning of the communication and change management journey will be an outflow of this, the


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following variables will provide insight into the approach to culture change that needs to be

adopted:

a. Need for organizational autonomy and tolerance for multicultural environment;b. Need for strategic interdependence and degree of relatedness of the merging organizations.

The matrix in Diagram D, below indicates the potential culture integration approaches that can be

adopted when the above variables are assessed:

Diagram D: Approaches Cultural Change in a Merger

The need to focus on the people and organizational culture dynamic in megers is possibly best

encapsulated by the following quote:

"Ultimately, what will be remembered long afterwards are the tone and the manner in which

these situations were resolved." Patrick Sweeney is President of Caliper (on mergers)

Sources Utilized:

Culture Development (Schein , Edgar H . Organizational culture & leadership [Web log message].

Retrieved from http://www.tnellen.com/ted/tc/schein.html)

Deloitte, (2005). Cultural issues in mergers and acquisitions. Leading through transition: Perspectives

on the people side of M&A

HR Rises to the Challenge: Unlocking the Value of M&A. (2004). Towers Perrin HR Services.


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(n.d.). Retrieved from http://www.geerthofstede.nl/culture/dimensions-of-national-cultures.aspx

Merging corporate cultures during m&a. (2006). Corporate Executive Board., CLC141Y8EF

mergers: a culture change perspective

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