Done Deal: Your Guide to Merger and Acquisition Integration
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Deal and to purchase.
A Successful Organizational Marriage:
Cultural Integration is the Secret to a Successful M&A
By: M. Beth Page
Merger &Acquisition Overview
acquisitions (M&As) are a significant activity for many
organizations. Yet most mergers are not successful, primarily
because the “merger of two organizations is actually a merger of
individuals and groups.” Buono and Bowditch, authors of The Human
Side of Mergers and Acquisitions: Managing Collisions Between
People, Cultures, and Organizations.
A merger means that two previously separate organizations are
combined into a third new entity. An acquisition involves the
purchase of one organization by the new parent firm. M&A activity is
characterized in the academic literature as an “organizational
marriage,” complete with courtship. Cultural integration is often
linked to a metaphor of a family where a parent who has departed is
replaced by a step-parent. These relationship and familial metaphors
illustrate the significant impact M&A activity can have on
organizational life and its members.
Unfortunately, few M&As make any effort to integrate different
cultures and workforces, even though M&A activities bring about
significant change involving employees, organizational entities,
systems, shareholders, customers, and many other stakeholders.
Companies initiate M&As for numerous business objectives, ranging
from achieving market entry to gaining proprietary technology.
Companies that want to expand strive to acquire businesses that
enhance their product portfolio and secure additional employees with
specialized skills. But too many enter into M&A activity without
recognizing the impact on the organization and the overall impact on
the human element within the two merging companies. M&A activities
that are improperly managed can result in lost revenue, customer
dissatisfaction, and employee attrition.
Honor is their Due
The traditional M&A approach has included financial and legal
evaluations of the acquisition target with little attention paid to
the people and culture. Successful M&A strategies acknowledge and
honor the importance of organizational culture as a critical element
in the long-term integration success.
Cultural compatibility can have significant impact on the ultimate
success of M&A activity. A number of credible cultural assessment
tools, such as culture surveys and facilitated focus groups, are
available and should be utilized. As Dr. Edgar Schein points out,
the challenge of assessing an organization’s culture “is more a
matter of surfacing assumptions, which will be recognizable once
they have been uncovered.” Identifying cultural compatibility on
such core values as corporate ethics and quality are important
considerations in the assessment of the M&A. The impact of not
assessing the degree of cultural similarity might have significant
consequences for the combined firm, as cultural tensions and clashes
between merging organizations are a common cause of combination
related difficulties (Buono and Bowditch).
Cultural Integration is one aspect of the integration process that
is often overlooked. It’s necessary to initiate cultural assessment
during due diligence This cultural due diligence assessment should
be made before the deal is finalized, to avoid culture clashes that
diminish the potential of the deal.
Placing Cultural Due Diligence on the M&A Agenda
Conducting culture due diligence allows the acquiring company to
assess cultural compatibility with the target firm.
Cultural compatibility and all of its ramifications need to be
understood completely to ensure a successful M&A. The literature on
M&A activity used familial metaphors to describe mergers and
acquisitions. This is powerful language that further emphasized the
significance of organizational members’ experience as a result of an
M&A. One internal M&A expert encouraged companies to be capable of
articulating the key facets of cultural compatibility to the
acquiring company. Identifying the “must haves” of cultural
compatibility is like assessing marital compatibility; some
compatibility issues are negotiable, while others could be
Executives who worked on a high-profile computer-technology merger
participated in cultural due diligence activities. They made the
results from their culture surveys available as the selection
process for executives of the combined firm began, and the survey
results became a component of the selection process. They also
introduced “fast-start” workshops to welcome the thousands of new
employees to the acquiring company, and articulated the approach to
Unfortunately, because M&A practitioners often fail to link
integration with pre-combination activities such as due diligence,
they neglect questions of organizational fit in the early stages of
management of a company decides to merge with or acquire another
company, it checks the financial strength, market position,
management strength, and other health indicators of the other
company. Rarely checked, however, are the “cultural” aspects: the
company’s philosophy or style, its technological origins which might
provide clues to its basic assumptions, and its beliefs about its
mission and future.
(Schein, 1997, pp. 268-269)
The greatest barrier
to successful integration is cultural incompatibility. According to
Edgar Schein, “The poor performance of many mergers, acquisitions,
and joint ventures can often be explained by the failure to
understand the depth of cultural misunderstanding that may be
present.” Research on cultural factors is the least likely to be
undertaken as part of due diligence.
Integration planning, which takes cultural factors into account,
should coincide with the initiation of due diligence. When these two
are strongly linked, new corporate knowledge can facilitate
Four-Step Approach to
Cultural Due Diligence
Researchers have identified the following steps for conducting
cultural due diligence:
Integrate cultural criteria early in the
Prepare due diligence teams with
Have the due diligence teams collect
data on culture.
Use tools to assess potential culture
fit and issues.
How companies choose
to deploy this model depends on their own structure and culture.
Acquirers are encouraged to operate under the assumption that
cultural differences exist, and they must actively work to manage
these differences throughout the integration process. Companies are
also encouraged to create joint projects that allow the teams to
build success together. One large telecom company that actively
engaged in M&A activity, tasked one of its HR professionals with
strengthening the company’s acquisition process by educating
executives and due diligence teams on culture.
Exploring Cultural Integration
According to academic and business thought-leader John Kotter, “The
biggest chore associated with an acquisition of any size is to merge
the two (or perhaps more) different cultures. If this part of the
transformation is ignored or handled poorly, problems will surface
for years, maybe decades.”
The importance of an organization’s culture, particularly as a risk
factor in M&A integration, cannot be underestimated. Researchers at
Harvard Business School found that firms that managed their culture
realized a nearly seven-fold increase in revenue, compared with a
166% increase for firms that did not manage culture.
Yet specific, focused efforts to integrate different cultures and
workforces remain the exception rather than the norm in M&A
activity. Poor cultural compatibility continues to be cited as a
factor in M&A failure. Cultural signs of the so-called “merger
syndrome” include a “we versus they relationship, with a natural
tendency for people to exaggerate the differences rather than the
similarities between the two companies.” (Marks & Mirvis, 1998). The
key to a successful Done Deal, is selecting a culturally
appropriate model of integration.
An organization’s culture consists of the underlying values,
beliefs, and principles that define an organization’s management
system, as well as the firm’s management practices and behaviors
that reinforce those principles. (Denison, 1990). A more detailed
definition of organizational culture comes from Dr. Edgar Schein,
who defines it as the pattern of basic assumptions a given group has
invented, discovered, or developed while learning to cope with
external adaptation and internal integration challenges. The
assumptions, says Schein, should “be taught to new members as the
correct way to perceive, think, and feel in relation to those
Successful Cultural Integration
Successful cultural integration begins with an early understanding
of the cultural differences and processes that exist between the
acquiring and target companies. Stages of culture clash include
employees reevaluating the way they do things, followed by viewing
their way of doing things as superior to the other company. This is
followed by attacking the other’s way of doing things while
defending their own. For a successful cultural integration to occur,
each company should be coached to look at how the practices of the
other company might be beneficial in the new entity. Conducting
cultural due diligence early in the M&A process helps prepare the
integration team as well as the companies’ leadership for the
efforts that are required to join together two distinct
M&As emerge from a managerial approach that values process,
structure, formal roles, and indirect communication over people,
ideas, and feelings. (Buono & Nurick, 1992). Despite the importance
of successfully integrating an organization’s people and culture
into a new entity, the published literature is filled with reports
pointing to limited involvement from HR professionals in the early
stages. This restricted involvement, in turn, limits HR
professionals’ ability to effectively influence the process.
Unfortunately, legal and financial issues are given precedence over
the possible traumas that might be experienced by organizational
members impacted by M&A activity.
Another strategy for facilitating cultural integration is
through the use of transition teams.
(internal practitioners prefer the term “integration teams”) that
involve employees from both the target and the acquiring company
ensure a successful deal completion. Consider the transition team a
lever to share cultural intelligence between the two companies.
To improve M&A cultural integration efforts, the following action
steps must be taken.
Conduct extensive due diligence surveys; look at the cultural values
of potential leaders being retained from the target company;
evaluate the underlying cultural factors and values that determine
long-term success for the M&A; and determine the key facets of
cultural compatibility important to your company.
Business leaders and M&A practitioners have rich opportunities to
humanize what is often treated by companies as merely a business and
financial transaction. Organization development practitioners have
the tools and resources necessary for the successful navigation of
all kinds of change management projects, including M&A activity. Any
M&A should be viewed as an activity good for both the organization
and for the employees rather than as a time of employee uncertainty
and insecurity. The focus on the human dimension of M&A will
significantly impact the bottom-line success. It will also result in
less organizational turmoil, and ultimately determine the overall
success of the M&A transaction. All practitioners working on the
M&A have the opportunity to serve as role models by working
collaboratively from the outset to realize the possibilities of a
to learn more about Done
Deal and to purchase.