It is important to learn to maneuvering culture during M&A Integration. Cultural integration has been highlighted as one of the key reasons why many M&A integrations fail. Alongside insufficient or incorrect integration planning, executives have underscored culture as the biggest barrier for an integration.
So, what is an M&A culture integration?
Various industry experts have given different definitions on the way organizational culture is described.
Is it the way people dress in an organization? Is it measure of openness of leadership to new ideas? Is it geography dependent? Does it have to do with how an organization rewards and retributes people? Is it the level of toleration?
Unfortunately, defining a culture of an organization is not that simple. Some people would describe it as the way organizations behave, the way things are done here. Others would call it values demonstrated by the organization. Similarly, there will be people who would attribute it to the level of tolerance shown by management. And then there are those who describe organizational culture as primarily a manifestation of the leadership culture and in most cases, it means culture of the CEO.
So, what exactly is organization culture?
The answer is not that simple.
Let us explore a few aspects first to help us describe organization culture and to help us understanding how to maneuvering cultural minefields during M&A Integration.
CULTURE: WHOLE VS INDIVIDUAL FABRIC
Culture is not an individual entity. It is a combination of several aspects. Business practices, performance measurement, rewards and recognition and many other elements make up the cultural fabric. It is not an individual strand but a complete drape that compose a culture of an organization.
RELATIVE VS ABSOLUTE
Comparing cultures of two organization is always relative. While many people would say that a certain company is more tolerant, more open, more innovative than the others, but the same company may not have favorable rewards structure, or for that structured consequence management process in place.
When comparing two companies, at best people can say the two companies have a similar culture or a different culture, may be even vastly different culture. So, it is always relative.
IMPLICIT VS EXPLICIT
Not everything is defined or codified in terms of culture. Attitude towards innovation, prejudices, biases are all prevalent elements of culture as much as employee code-of- conduct handbook, policies, operating procedures. Culture is a combination of unwritten practices with written policies and procedures.
ABSTRACT VS DEFINED
Many people consider culture as abstract. There is a certain amount of truth in this statement. However, with the right technics, thinking and assumptions, these abstract concepts can be converted into defined and measurable aspects.
QUALITATIVE VS QUANTITATIVE
Most aspects of culture are subjective. And yet some of them can be given “perceptive” scores for evaluation purposes. Companies use surveys, focus groups, feedback to quantify subjectivity of cultural elements. In general, culture would be comprised of subjective areas and derived measurement based on perceptions.
ORGANIZATIONAL VS DEPARTMENTAL
It is interesting to note that culture demonstrated at an organizational level may be quite different from a departmental one. An organization that demonstrates a strong market- centricity like an FMCG company, may have a very rigid IT department as they constantly need to keep information updated and thus, would need a strong controlled environment.
ASPIRATIONAL VS BEHAVIORAL
This is one of my favorite facets describing culture of an organization. Companies painstakingly try to define their purpose, their vision, their mission, and their brand promise. And they try to make them sounding market friendly. They create soundbites like Customer Centricity, Employee Centricity, Open Culture, a way to describe their culture. In reality, they behave in exactly the opposite way. Employee Centricity is the biggest victim of the lot. For large companies, employee centricity is opposed by P&L and numbers game. In SMEs, market feedback and cost pressures, push employee centricity to the backburner.
So, how should one explore and assess culture of an organization?
Here is a synopsis of 7-elements that will give you the answer.
What is the purpose of an organization? Why does it exist? It is the combination of a company’s mission, it is strategic outlook, its operating model, the goals it wants to achieve, brand and more importantly, how does it want to be seen by the customers, vendors, employees, markets, and the outside world.
Comparing the purpose of two companies during an integration and combining it with the strategic rationale of the acquisition will tell you on how to integrate. If an acquired company is going to be completely absorbed, then the acquired company need to let go of the old purpose and adopt the new purpose.
Means is described as various functions that a company needs to perform, various responsibilities that a company has towards its employees, customers, vendors, partners, shareholders, market, and what are the systems, structures, processes, and management that a company pursues in order to perform the functions and fulfil the goals of a company.
This is a relative comparison and cultural integration points lie in the details. Comparing policies in isolation is not effective but should be conducted keeping the context in mind.
What is the process of measuring and managing company goals and objectives? It is not just about creating fancy dashboard or reprimanding individuals. It is a systematic way of monitoring goal achievements as well as detecting errors as and when they happen. More importantly, how does organization handle the scenario when it encounters an error or an issue. How does it enact upon them and what is the correction mechanism?
Organizations are good at placing systems to monitor goals and objectives achievement but fair poorly across the board when it comes to putting in a good, robust, transparent, individual, independent, and unbiased, correction mechanism.
COMMON LANGUAGE AND CONCEPTS
This element refers to the behavioral practices that exist in an organization. How to dress up? How to behave in meetings? How to behave while interacting with people who hold senior ranks in the organization including your boss and other people from the management team. It includes the vocabulary usage, the tolerance of curse-words and the widely used jargons. Many companies use 3-letter acronyms while other use formal denotation for executive leaders. Some organizations use emails to communicate, others prefer phone, and some prefer face-to-face.
This aspect is again relative. Care must be taken to focus on critical common languages and concepts during an assessment rather than a free-for-all dumping of information.
Every organization have unwritten groups and unsaid clubs. While formal rules do not exist on how an individual can become a member of these clubs, but it is considered highly prestigious, or these inclusions are considered highly coveted. To be included in these groups can show that you have arrived, or you are part of a select few. Being thrown out of one, can mean end of your career in the organization in some cases. Being somebody’s favorite can mean the difference between having a fantastic career versus hitting the glass ceiling.
This dynamism includes Influencers, personal allegiances, groups and camps, movers and shakers, and political alignment.
NATURE OF AUTHORITY AND RELATIONSHIP
This largely refers to an organization hierarchy, the depth of power yielded by management and the command-&-control exhibited by the leaders. The number of approvals required, the degree of intimacy between different layers, the relationship between the executive management with line management, the line management with front-line workers make-up this element.
Some organizations follow a very formal structures of interaction where people do not socialize with their work-colleagues whereas there are others where some of your best friends are your work-colleagues. It is about what can you discuss versus what cannot you. What is the boundary-line for these discussions?
ALLOCATION OF REWARDS AND STATUS
This last section deals with an organization’s approach to allocation of rewards, status, promotions, and career development.
How does an organization use salary increases or titular promotions to retain their employees? How are promotions decided? How are career development paths created? What kind of behavior is rewarded, and what kind punished? How do you know when you have been rewarded or punished?
All these questions determine the culture of rewards and retribution, which help maneuvering culture during M&A integrations.
While most companies have some form of rewards and recognition mechanism, managing and conferring status on individuals are not so structured. Status gets manifested in various forms. Getting selected for an exclusive leadership development program, being sent to a prestigious course, asking to speak at a leading industry conference, all highlight the perks of a certain status.
Organizations must not only analyze the rewards and recognition mechanism, but they must also include approaches that capture the status practices followed in the target company that is being acquired.
Culture is not a singular entity. It is a cluster of several elements that must be evaluated together keeping the context in mind as well as assumptions being explicitly mentioned.
Most companies do a botched job of assessing culture of an acquiring company. As I have mentioned earlier in the article, it is relative and contextual. Cultural assessment in an integration must be conducted keeping the contexts of both companies in mind and must be assessed on their relative strength rather than absolute superiority.
This 7-element cultural framework will undoubtedly, provide one of the most comprehensive organization cultural assessment that you can get.
This article is written by Anirvan Sen.
It is edited and keyword optimized by Blanca Monni.