Companies may seem completely compatible at the beginning of the merger or acquisition process. The legal and financial process moves forward and the merger and acquisition. However, cultural incompatibility can convert what was an excellent opportunity for growth into a mediocre or dismal result.
Regardless of which symptoms of culture-clash reveal themselves, the result is that cultural failure destroys the value of the acquisition or merger. The supposed value of the merging entities fails to appear.
Cultural Mismatch in the Management Suite
Even when roles and responsibilities might be clearly defined and assigned to management within both companies, it is still common for management suite culture mesh between the two organizations to fail.
When cultures clash, the unfortunate outcomes can include these mostly-measurable impacts.
- Sales, gross margins, and productivity that fall far below expectations
- Supposed operating efficiencies and synergies that don’t appear
- Delays in integrating joint product development
- The significant loss of key personnel
- A noticeable decline in morale
Frequently, cultural meshing in the management suite fails for reasons like these:
- The failure of former competitors to work together
- A difference in the level of workplace formality
- Fundamental philosophical issues on compensation and expenses
- Differing operating and management styles
- Inability to merge cross-organization strategy and technology
Cultural Mismatch in the Product Development Teams
Even when harmony exists in the management suite, there are cultural issues unique to the product development teams that can sabotage mergers and acquisitions in subtle but deadly ways that management may be slow to recognize.
These show up as:
- Missed delivery dates and increased time to market
- Incompatible products within the same product line
- High defect counts and lowered product quality
- Increased product development cost
- The failure to retain in-market product leadership
- Declining profit margins within the same product line
- The departure of key development staff members
Common reasons include issues like these:
- Disparities in compensation, benefits, and vacation day policies
- Lack of willingness to adopt better technology from the “other organization”
- Choosing to ignore advice from experts at the acquired company – including product technology, feature sets, and deployment methodology
- Different development culture and work style
- Different leadership styles
- Different goals between the combined organizations
- Different views on spending and urgency of results
- Incompatible models of and perceptions of the customer and the nature of product features the customer wants
Ensuring Acquisition Success When Cultures Differ
Leading the Acquisition or Merger from the Management Suite
The good news is that there are ways to merge companies successfully. Some high-level steps can be taken at the management suite level to ensure success.
First, recognize and identify cultural differences during the assessment phase. For example, one company might be focused on process, position, and hierarchy. In contrast, the other company might be very marketing-oriented, with a flat structure and fluid career movement within the company. This kind of cultural difference is not unusual.
Where two cultures differ, decide and choose which of the two cultures is best for the combined entity, and then merge one of the companies into it. Don’t be afraid to transform the acquiring company culture into a culture of the acquired company that is lighter, faster, and more market focused. Doing cultural change costs a great deal of time and effort, but results can protect the value of the acquisition or merger.
Next, seek out shared common values and how they are expressed in the everyday work life of the employees as well as how it informs corporate strategies. Find the influential voices in the organization and gain their support for the shared values of the combined organization so that the influencers can spread these values throughout the organization early.
Listen to the concerns of top talent to resolve problems and retain the top talent. Keeping top talent on board helps prevents the demoralization of the rest of the organization as well as further employee losses.
Facilitate communication between groups across the organizations so that they begin to develop relationships when the merger or acquisition starts. The most important things to remember are to be thoughtful about the culture of both companies and to encourage open communication from every group of both organizations.
Reducing Development Team Culture Clash
Success in joining product development teams can be achieved by addressing each of the most likely issues in advance. Enjoying success also requires using a great deal of well-considered communications to ensure that all product team members share the same perspective.
It may be difficult but work with HR to iron out disparities in compensation, benefits, and vacation day policies. Be especially careful to give equal credit for accrued vacation days when offering cash compensation to reduce the accrued balance.
Lead a technology workshop for senior development team members to understand differences in technology, feature sets, development methodology, and deployment technology. Choose the best toolset for each product line and provide a pathway for all team members to reach competency in new tools adopted.
Also, work through differences in development culture and choose a single style and approach.
Work with development managers, product managers, and development leads to gain a shared understanding of the customer, how the customer uses each product, and what features the customer wants and needs. Establish and communicate common goals shared by all teams. Work out a common approach to budgeting and planning to be shared among teams.
Recognize particular goals that must remain as unique team goals. For example, a team that develops a product for a military market may have a few goals that are unique and distinct from goals that belong to a team developing a similar product line for the commercial market.
Killed by Culture: Why Culture Matters in Mergers and Acquisition LINK
George Bradt, Forbes Magazine, 29 Jun3 2015, The Root Cause of Every Merger’s Success or Failure: Culture LINK
Cohaesio: Understanding the Impact of Organizational Culture Upon Mergers & Acquisition: So What Next (Part 3) LINK
Makhlouk, H. and Shevchuk, O., University of Kalmar, 2008 “The Importance and the influence of corporate culture in a merger and acquisition context” LINK
About the Author
Bruce Brownlee is a data scientist and product manager with an undergraduate math and engineering degree and an operations research graduate degree with a focus on stochastic processes and mathematical optimization. He’s worked as an industrial engineer, software developer, marketing director, data scientist, and product manager across a broad range of industries where analytical skills are required. His special interests include financial modeling and machine learning applications.