Accretive. Synergistic. These are both words that get bantied about board room presentations on the business case justifying a strategic or opportunistic acquisition or merger. Many smart people pour over financials. Extensive preliminary due diligence is done. Financial models are built. So then, why do the overwhelming majority of M&A activity fail to produce the projected value?
Often it boils down to a failure to consider the cultural fit or integration of the new organization. That’s right, culture.
In their book, Competing Values Leadership: Creating Value in Organizations, Cameron, DeGraff, Quinn, and Thakor show through their research that assessing cultural fit has a 90% success rate at predicting the outcome of a merger or acquisition — 90 percent! I’ll take those odds.
So, how many integration plans have you read that speak to the cultural integration of the new organization? Most do not. They talk of systems integration or migration, business practices, and consolidated org charts, but very rarely do they address culture or the values of the two companies.
Why are values and culture so important?
The values of the organization will drive the culture. Assuming the necessary resources are available, culture will determine the effectiveness of sustainable strategy execution. The right culture can even overcome the scarcity of resources to some extent. If the values are closely aligned, then the culture can be aligned between the two organizations. If the values are out of alignment, let me suggest you walk away. More often than not, the target organization won’t be around long, and you’ll end up with their best customers and employees anyway. If it’s IP you are after, then see if you can narrow the purchase to the desired assets and key personel. At the very least, you need to factor in the cost of cultural transformation.
Cultural integration acts as a catalyst for the operations integration phase that creates the accretive financial value. Cultural integration help to break down the barriers, cut through the fear, uncertainty, and doubt to create common goals. Rather than two entities, you’ve got one entity with a common purpose.
Another thing I encourage you to do is to be honest and open with key employees in both organizations that are not a part of the post acquisition plan. Create an incentive plan for them tied to the success of the integration and provide them a soft landing.
While there are many other considerations that need to be accounted for to insure success, by considering values and cultural alignment on the front end, much money, frustration, and possibly your job can be saved on the back end.