In the heat of a deal, too many organisations leave culture to chance because they mistakenly think that they can’t (or shouldn’t) make decisions about it until a deal has been completed.

Certainly I’m not suggesting that every detail be carved in stone before close, but having a clear view about where you’re heading and what type of culture will support expected business and deal outcomes will both smooth and quicken post-merger integration.

When time is money, it pays to prepare.

What do we mean by “culture”

Generically, many would say culture simply is “how we do things around here”. As described by my colleagues at Walking the Talk Pty Ltd, culture is “patterns of behaviour that are encouraged, discouraged and tolerated by people and systems, over time”.

I’m a fan of the Culture = Behaviour link because it means that we, as leaders, can create and manage culture in our organisations by setting clear expectations and influencing behaviours.

Importantly, culture should never be considered in isolation – i.e. “culture for culture’s sake”. Instead we must choose and build organisation cultures that allow us to achieve what we’ve promised to our customers, employees, shareholders and communities.

Who should take the lead on culture in M&A?

In my view, the acquiring organisation must be proactive to drive future culture – aiming for one that will progress it’s business strategy and the deal strategy.

The exception is when there is a genuine “merger of equals”, for which I would recommend a different approach altogether. But this is for another post.

The trick is to have the “gist” of a future culture tested and reflected in early decisions. Of course there will be fine-tuning post close, once organisations are finally free to communicate and work together.

Before you can have a sensible conversation about a culture strategy for combining two organisations, you must first understand:

• Business context for both organisations (external and internal environment, expected outcomes, business strategy and risks)
• Deal context (rationale, expected outcomes, deal structure and material risks)
• Likely business design
• Expected implementation strategy.

 Implementation strategy

When considering how to effectively combine organisations to realise expected value, it pays to take a few steps back. Whilst time pressure to realise value is often the driver of implementation decisions, faster is not always better. Usually the most effective way considers both timetable and the likely impact on people.

Here is a simple discussion guide for setting an implementation strategy, pairing “value” to integrate with “difficulty” to integrate.

Where the value to integrate is low and the difficulty to integrate is high, organisations tend to allow acquired businesses to stand alone. Typical situations that point towards this option include having:

• Unrelated operations
• Geographical distance
• Specialty products or brands
• A unique or valuable culture to be preserved.

Imagine building a typical conglomerate, or expanding into a new geography, or acquiring a biotech start up.

Where the value to integrate is high and difficulty to integrate is low, organisations usually aim to integrate fully as soon as possible. Typical situations that point towards this option include having:

• Compatible products and change-ready sales forces
• Back office overlap and already aligned operations
• Limited downside risk for customers.

Finally, where both value of integration and difficulty are high, the most effective approach is to integrate fully, but to use great care over whatever time is required to maintain value in the organisation. The key here is careful planning and investments in leadership, culture and communication to retain best talent, keep customers engaged and maintain productivity. Typical situations that favour this option include having:

• Complex product mix
• Geographic overlap
• Complicated organisation restructure requirements
• Significant cultural differences (local and/or cross border).

Once implementation strategy is clear then it is possible to develop a culture strategy – to set the foundation for how culture will be created and managed in a future combined organisation.

Culture strategy

There is not a clear-cut relationship between integration strategy and culture strategy, given nuances in deals. But understanding and being guided by integration and culture strategy options makes for a robust decision process.

There are three main choices for getting to a future culture for combined organisations:

The most common approach (whether deliberately or by default) is that the dominant culture prevails and, over time, the non-dominant culture is absorbed. This strategy is amazingly effective when implemented deliberately and swiftly, with cultural links to business strategy communicated well. The biggest risk associated with this approach comes when done by default rather than on purpose. This is especially risky if people in an organisation being acquired expect a “best of both” approach when, in reality, their culture is being absorbed by an acquirer.

The next most common approach is to keep both cultures. This happens when an acquired organisation is left to operate without interference by an acquirer. Strictly speaking, acquiring organisations usually make at least some changes that impact on how work gets done. The level of disruption will determine the impact on culture.

The less common but highly effective approach when done well is to deliberately create new culture for combined organisations. There are two ways to go about this:

• Find common ground and build a culture based on the best attributes of each organisation, which can generate quick wins for integration. A pitfall to avoid with this approach is slipping into “culture for culture’s sake” mode – choosing what people like about each culture without necessarily linking this to business outcomes.
• A more difficult and longer-term investment is to build a new culture from first principles, explicitly linking this to what is required to meet future business challenges together. This approach is most likely to be used when there is a true “merger of equals” in which leaders of both organisations have culture leadership capability and experience.

In summary

When determining culture strategy:

• Make the choice deliberately, driven by your business and deal strategies
• Build a robust culture work stream into your implementation program
• Develop culture capability by preparing and engaging leaders
• Plan employee communication from the very beginning.

Want to know more? Get in touch.