Through all the mergers he’s been a part of, Mike Sprouse has yet to see one that doesn’t entail at least a few hiccups.”I don’t think I’ve ever heard of any colleague of mine who’s gone through a combination who said it’s easier than they thought,” says Sprouse, chief marketing officer for Epic Media Group, a digital marketing company that last year merged with a smaller ad network. “Most people say it’s more difficult than they thought.”
Many of the problems come from the sometimes-awkward mash-up of two distinct corporate cultures—a relationship that experts say is like the first day of high school or a new marriage, because you have no choice but to navigate the unfamiliar situation.
Mergers and acquisitions can create strange bedfellows, but the drawbacks of companies’ cultures not meshing together can have an impact on the bottom line.
“The biggest thing it does is it hinders morale,” Sprouse says. “When that happens, there’s a tendency to hinder relationships with clients, vendors and that sort of thing.”
Follow these tips from merger experts to figure out how to prevent your new marriage from ending in a quick divorce:
Do Your Due Diligence
Nancy Rothbard, a management professor at Wharton School at the University of Pennsylvannia, says recent studies show the failure rate of mergers is close to 75 per cent, and the majority don’t produce the expected financial returns for years after the merger has taken place.
“In some of the research, there’s been a lot of discussion on how the culture piece has been really central to why they fail,” she says.
That happens because most companies don’t consider the differences in corporate cultures when analysing a potential merger in the first place.
“Often the things that are harder to assess are the qualitative aspects,” she says. “It often can create a lot of challenge for getting the best out of employees.”
You can get a jump on this problem by thinking ahead: While the legal team is scrutinizing the proposed merger, have someone elsetake a look at the cultural differences between the two companies. This way, you’re not just plopping new employees into an unfamiliar environment and expecting them to sink or swim.
Culture clash is too often a scapegoat when mergers go wrong, says Joe Aberger, the president of Pritchett, a strategy firm that specialises in mergers and corporate culture and is headquartered in Dallas. Factoring it into the preparations for the merger helps avoid scapegoating.
“Executives would rather blame culture than shouldering the blame for destroying millions of dollars of shareholder value,” he says. “You can’t get lost in analysing culture. You need to keep your eye on the bottom line.”
One mistake companies often make is assuming they need to completely throw out the pre-existing cultures after the merger. In fact, companies that do it successfully converge on a few shared values, some common operating principles, and standard processes, but leave other aspects as they were.
“You don’t need one common culture for everyone to work together,” Aberger says. “Sometimes value can be squandered in pursuit of unnecessary consistency between companies.”
Experts say there’s no such thing as a merger of equals: one company always brings the dominant culture. Smart companies will go out of their way to be protectionist and preserve certain parts of the smaller entity, Rothbard says.
“There may be certain aspects of the culture you want to preserve and value in the firm you’re merging with,” she says. “Make sure you don’t destroy what made that company a really great company to buy or to merge with.”
Start by identifying which aspects of the culture are most important to the bottom line; the rest you may be able to leave untouched.
“Don’t try to change everything,” Aberger says. “Be very mission critical in your approach.”
Rothbard says to make sure not to establish a system of “haves” and “have nots” in the office, which can quickly create tension.
To combat that “first day of high school” feeling after a merger, communication is key. This can be done through regular updates, employee surveys, one-on-one lunches, and meetings.
“You absolutely have got to empower people to have a voice in defining what the new corporate culture is going to be,” Sprouse says. “What you want to do is find aspects of both cultures that work in the new combined culture.”
Rothbard says something that often sinks mergers is when employees don’t know what’s expected of them in the new environment.
“When people move from one firm to another, they have cultural baggage they bring with them, in terms of how you think you should be behaving to be effective in their job,” she says. She cited a hypothetical example of discount insurance company Geico merging with a higher-end insurance firm. Should employees of the new company go after a few high-premium customers or stick with Geico’s model of signing on lots of low-end customers?
“That can be a very, very delicate operation,” she says.
Sprouse says to make sure not to focus just on the central office either. If you have sites outside the main headquarters, make an extra effort to keep them in the loop.
Most of all, don’t expect all this to happen right away. Like any new relationship, it takes time to settle in, usually much longer than you may be expecting.
“Often times we don’t know what it is about the culture that may be incompatible,” Rothbard says. “It takes time: When we have these skirmishes as things flare up, values and behaviours pan out.”
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