mergers & acquisitions brochure
TRANSCRIPT
Culture Management & Change LeadershipDuring
Mergers & Acquisitions
Mergers & Acquisitions (M&As) :
Most research on mergers and acquisition processes has traditionally focused
on ‘post-merger cultural integration’; suggesting that efforts need to be
concentrated in achieving the successful post-merger ‘acculturation’.
However, the main focus is always the economic, financial and management
characteristics of the companies, glossing over the more cultural aspects
of the integration process.
Since the cultures of the two organizations are very different, one of the first
things that the Culture & Change manager / Consultant should do is meet
with the new Top management to clearly identify the vision, mission, values
and culture that the organization wants to perpetuate going forward.
Doing so is critical for organizational success, customer and employee
satisfaction and employee relations.
Mergers and acquisitions play a key role in the growth and globalization
strategies of multinational companies. However, many M&A initiatives fail to
deliver the expected financial and strategic results when leaders do
not consider the people dimension of post-merger integration.
These situations are particularly challenging when they are across borders
and include complex reorganizations.
Cultural Fusion and Integration Creating a ‘Third Culture’
Successful cross-border M&As are often those that embrace cultural diversity
as a creative and fertile source of positive new ‘ways of doing things’ and go
on to create a ‘third culture’ that is shared by all employees and embraced by
external stakeholders.
Awareness of language, cultural values, attitudes and behaviors are critical
success factors of the integration process.
Organizations involved in cross-border M&As need to have a firm understanding
of, and sensitivity to, often hidden and implicit values and an ability to reconcile
cultural differences and harness similarities to create positive outcomes for the
new organization. Failure to do so will significantly reduce the likelihood of suc-
cess.
The combination of different cultures in international acquisitions generally
occurs in the post-acquisition integration stage when the involved
organizations are forced to work together. Prior to an acquisition, acquirers
usually undertake financial due diligence to determine the proper transaction
price and payment method. While financial issues are commonly seen as
having great importance, a large number of acquirers neglect to attach equal
importance to cultural issues.
Post-merger/acquisition concerns - Cultural integration :
The Merging companies have to face the change in cultural difference which
is known to be very ordinary reason for merger failure, reinforced when it
comes in cross border combinations. Definitely, both of these partners
incorporate in the new merged company the national and the corporate
cultures.
Cultural integration is not simply merging different cultures into one, but it’s a
process that involves establishing a new company model; by selecting,
absorbing, and integrating cultures. Solving cultural differences early on is
crucial, since it’s one of the primary reasons acquisitions fail ,due to :
Attributing difficulties of integration to difference in national culture resulted in
obscuring the tension regarding the different ways of working at
market/industry level.
Both organizations attribute the failure (slowness) to find an ‘integrative’
definition of what the new company’s focus is going to be, to not having the
‘right people’.
When the managers from both organizations refer to the structure and
configuration of the new entity, they talk about its ‘segmentation’
at several levels and the problems this causes.
The organization’s reputation and self-identity of excellence in the field,
both in terms of quality and standards are also being challenged.
Hazardous implications of Un-managed culture in M&As :
Intense complexity needs to be managed effectively during the integration
process. The integration of organizational culture, cross-cultural,
and leadership aspects of change management is imperative.
Ineffective management of cultural differences that may be the main reason for
the high failure rates of international acquisitions. It is therefore important that
organizations consider the need to successfully combine different cultures in
order to improve the performance of these transactions.
The ability to successfully integrate an acquired organization is one of the most
important determinants of acquisition performance. Business practice has shown,
however, that a large number of acquirers do not have a clear strategy of how to
integrate culturally different organizations, which may have caused the high
failure rates of these transactions ,due to the culture clashes emerged .
Cultural clashes’ hazards:1. Lower people commitment and cooperation.
2. Complicate the post-merger/acquisition integration process.
3. Employees are often resistant to change, and during these periods they’re
more concentrated on surviving rather than serving the company’s goals.
4. People might feel threatened, and in return they communicate less and
pass less information vertically.
5. Productivity declines as people become more consumed with the change
being introduced.
6. Employees become disinterested in the current state and the future state
after integration.
7. Many types of risk are created – risk to the project, to the organization,
to the employees involved and to the individuals supporting the change.
The Process of ‘Integrating’ Cultures :
“85 % of companies reported that they did not have a specific
approach to assessing and integrating culture in Mergers &
Acquisitions”
Survey 2011, Aon Hewitt
In the context of acquisitions, two dimensions of culture are particularly
important: national culture, relevant for international acquisitions, and
organizational culture, relevant for both, domestic and international
acquisitions. The latter is generally defined as an interrelated and
interdependent system of practices, norms, assumptions, and beliefs that
members of an organization collectively bear.
The organizational culture plays a vital role during mergers as the managerial
styles, organizational practices and structures to a great extent are determined
by the organizational culture. The new organization will have a culture,
whether it is by default or by design a culture that may be distinct by conflict
or a culture that may be strongly accepted.
The procedure of building the new culture goes on long after the combination
phase. Enterprises should openly discuss their respective business cultures to
determine whether a suitable fit is even possible. Differences must be
recognized, accepted and should be dealt.
Cultural Risks facing Mergers & Acquisitions :Although international mergers and acquisitions constitute the most frequently
used means through which multinational corporations undertake foreign direct
investment, the majority of these transactions are not successful.
Main reasons for failure are generally to be found in the people issues which
often arise from mergers. These include job loss, restructured responsibilities,
derailed careers, diminished power, and much else that is stressful. Another
common problem is the lack of commitment from top management to drive
through the merger and little clear understanding of the cultural dimension of
the merger.
Performance of mergers and acquisitions is a function of successful cultural combi-
nation during the post-merger/acquisition integration process. Cultural due
diligence, cross-cultural communication, connection, and control are discussed as
major determinants of successful cultural combination.
From the moment an acquisition has been announced, employees of the
involved organizations, especially those employed by the acquired company,
begin fearing the loss of their jobs. This may create hostile feelings against the
workforce of “the other organization”, but also fuel employees’ fears of losing
their jobs.
Lack of effective cross-cultural communication in such situations may exacerbate
uncertainties, fears, and rumors about layoffs among the involved workforces.
Structural ties refer to the official communication and reporting channels that are
comprised of the formal connections within the hierarchy of the combined
organization following an acquisition.
Culture M&As analysis & OCEA® :
Systematic cultural due diligence prior to an acquisition may determine
whether the cultures of the acquirer and target organization are compatible,
and how the different cultures may best be combined. Such a sound cultural
analysis lays the foundation for the management of cultural differences, and
therefore may contribute to successful cultural combination during the
post-acquisition integration process.
Organizational Culture Effectiveness Assessment (OCEA®)
The OCEA® is an analysis & benchmarking tool created to help organizations
identify the challenges and opportunities they face in their Organizational
Culture during big changes and transformations ;such as mergers &
acquisitions , especially those changes which are directly affecting the
Organizational performance & effectiveness.
The OCEA® tells how people view their current Organizational Culture and
compares that reality to the optimal Organizational Culture desired for the new
entity after mergers & acquisitions.
The “gap” between data on their current Organizational Culture and the desired
culture instantly reveals key opportunities for Culture development & Change.
Change Management & Leadership during M&As :
As any Change processes need, M&As are mostly need both Change
management & Change Leadership sciences to be perfectly suitable to handle &
manage this hard & challenging multi-dimensional process ;whether it is a
change in system ,strategies or culture .
Effective change management is the key to seamless post-merger integration.
Thoughtful planning and flawless execution may mitigate most of the identified
risks. Appropriate change management program may be put in place to manage
the change before and during the integration, and to institutionalize the change
after the integration.
Managing change is of utmost importance when completing integration during
M&As processes. Companies need a detailed plan for change so that it’s an active
process that they control, and not a passive process that simply occurs to the
organization without a goal in mind. Also Leadership of change is one of the
single most important defining parameters of successful post-merger integration.
M&As are considered one of the biggest change organizations can go through in
its life-time .Although they are rarely happening, yet they are considered the most
crucial change process that can occur in organizations.
Culture and Change management in post- M&As integration :
Culture and Change management are essential during M&As, as they help to:
• Develop the intercultural competence of the new staff.
• Manage cultural change efficiently.
• Accelerate the M&As process, particularly post M&As integration.
• Reduce misunderstandings and frustrations.
• Avoid potential failure of the M&A and consequent loss of business and
reputation.
• Help the involved parties understand the specific cultural values, attitudes and
behaviors of their new counterparts.
• Increase awareness of each party’s own culturally driven behaviors and their
impact on others.
• Develop greater intercultural competence and sensitivity.
• Form long-term relationships and improve collaboration across territories.
• Build practical techniques and strategies for creating a shared vision and a ‘third
culture’ enabling both organizations to work more effectively together.
• Improve communication to increase trust and transparency for employees and
management across both organizations.
• Increase trust and well-being across all parties involved.
• Speed up effective communication.
• Decrease employee disengagement and attrition.
• Diminish direct financial losses.
LANDMARK & COMPANY’s methodology for Culture Management in M&As :
LANDMARK & COMPANY Think Tank helps organizations to
manage the cultural issues of change during the M&A process;
through working hand-in-hand with Top Management & the
Board of Directors to:
Prepare an internal League of
Change Leaders to manage
Transformation process during
the M&A processes.
Implement the Organizational
Culture Effectiveness Assessment
(OCEA) prior & during the M&A
processes.
Implement the TRANSFORM
Model to manage the culture
during and after the integration
process.
Manage & control the progres-
sion of the people-side of
change during the integration.
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