Cultural Integration in an M&A remains as the greatest challenge for most integrations. And the main reason is the lack of understanding of what organizational culture is and most importantly, how to handle it. Here is a parable on one of the elements of culture that often create friction during integration, the professionalism levels of acquired companies.
Susan Pack, a 34-year-old operational leader consistently finds that employees of acquired companies are not professionals. Over the last five years, she has been involved with eight acquisitions and her views have only strengthened.
Susan works for a large FMCG company based in the US. In the past, her company grew quite rapidly through market share and the development of more products. Of late though, the growth has primarily come through acquisitions. They have been bolstering their product portfolio by buying small and medium-sized product companies. Some of their favorite acquisitions have been family-run product businesses.
The first company that Susan was involved in, was a 120 people company owned by a family from Ohio. They had a set of niche products and were very strong in the local market, often giving large companies a run for their money. Outside of their region, they were unknown. Most of the employees came from within a 100-mile radius.
Susan was quite surprised when her active interactions started with the acquired company. Having worked with large corporations throughout her career, she considered herself a complete corporate professional. In her interactions with the managers of the acquired company, she found them lacking professionalism and a lack of basic understanding of operational management principles. She struggled to explain standard management processes like multi-year strategic planning, talent management, and succession planning. She found that most managers fell short of their grasp of fundamental aspects of operating in functions and management by numbers. The most surprising fact for her was that most of the employees just followed the orders of their managers and performed basic functional tasks. They were very seldom involved in projects, improvement initiatives, and skills upgrade programs.
That acquisition was not a unique one. Susan encountered similar challenges in most of the subsequent acquisitions.
Susan consistently found that acquired company employees were not professionals. Susan’s case is not an isolated one. If you have spent any length of time involved in the M&A space, you are likely to have come across several Susans during your stint.
So what’s wrong with the picture?
Is it really true what Susan is claiming about professionalism? Is it really that the people are not professionals or is there a fundamental issue that gets overlooked? How about the acquired company employees themselves? Do they feel that they are not fairly evaluated?
Whatever the case is, there seems to be a deeper problem at work here.
Here is the thing. We know that most employees want to do a good job most of the time. Unless there are specific issues, most employees want to give their best to their roles. And this is for companies irrespective of where they are located in the world, what industry they belong to, or the size of their companies. We know that there is nothing to suggest that employees of any company are not professionally committed.
So why do the likes of Susan feel like that?
The answer lies in the “culture” of an organization.
Different businesses are at different levels of evolution. Some are entrepreneurial and others focus on stable operations. Some are small where the feeling is that of a family whereas others are mega-large where you are part of a human resources system. Some companies have highly developed and expansive written policies and procedures and others follow unwritten practices.
These differences get manifested in the culture of that organization and the employee behavior is a derivative of it.
What is interesting is that the greater the difference between size, industry, or geography, the greater the cultural difference is. And this cultural difference also manifests itself in the way people do their jobs.
For the same job, while the functional and technical aspects may remain the same but the way they interact with others, the way they get work done, their performance measurements, reporting of updates and progress, communication, business etiquette, approach to problem-solving as well as level of formality involved, tend to be different.
The reason why Susan finds some employees of acquired companies lack professionalism is likely to be based on the way they behave, their levels of informality, their interactions, and their communication styles. These are going to be different due to cultural differences.
And now, let us look at the fact that a large number of acquisitions range between 5 to 20 times smaller companies. So, a billion-dollar company is likely to acquire between 50 million to 200 million dollar companies. A billion-dollar company is likely to have a highly defined portfolio of policies and procedures, a robust control structure, and an evolved management structure that is collaborative manages by metrics, and focuses on profitability. A 50 million dollar company is likely to have a small number of policies and procedures, control is balanced with an entrepreneurial approach and the focus largely remains on increasing revenue for their business. So, people working in the billion-dollar structure are likely to focus a lot more on compliance and adherence to standards whereas, in the 50-million-dollar structure, it will be driven by the need to meet revenue growth demands.
People in these different businesses are hardwired to think and behave differently.
And that is what, M&A and integration teams need to recognize. The cultural difference must be respected and acknowledged and specific interventions created to bridge the gap. It is not that people lack professionalism, it is that they are oriented differently. You need to extend your hand to take them through this cultural transition journey and support them. By branding them unprofessional, you are not only doing a disservice to the integration and demotivating people, you are doing a disservice to the very essence of running a business due to your ignorance about culture.
Real value gets created only when people come together and collaborate. And existing values get destroyed when dissonance happens between employees. Culture is an extremely sensitive area. If handled right away, it can yield benefits for years to come. You handle it wrongly, and you end up destroying millions of dollars of value in a matter of months.
This parable is based on the factors described in P.R.O.M.I.S.E., M&A Cultural Integration Framework. For more details, visit cultural integration in M&A