ruyle - achieving cultural alignment in mergers & acquisitions

Kim E. Ruyle, PhD

Vice President, Research & Development

Korn/Ferry Leadership and Talent Consulting

Achieving Cultural Alignment inMergers and Acquisitions

OBJECTIVES

• Explain how alignment of organizational culturesimpacts the success of a merger or acquisition

• Describe a research-based process for identifyingcultural misalignments between parties in amerger/acquisition situation

• Apply best practices to enhance culture so it isaligned with and supports the organization’sstrategic objectives

A LARGE PERCENTAGE FAIL“70 percent of mergers fail to achieve their anticipated value…”

Weekly Corporate Growth Report

“Most [mergers] fail to add shareholder value – indeed, post- merger, two-thirds of the newly formed companies perform well below the industry average.”

Harvard Management Update

“A Towers Perrin study of 150 mergers of financial-services firms found that 30% of deals substantially eroded shareholder value, and another 20% eroded shareholder value somewhat…”

Best’s Review – Property-Casualty Insurance Edition

“And despite the well-publicized, much-analyzed fact that many of these mergers – up to 70%, according to some estimates – failed to create value, it seems clear that the end is not yet in sight.”

Financial Executive

MANY REASONS FOR FAILURE

• Difficulty integrating back-office systems• Challenges integrating a competing product…or

killing it off once acquired• Lost value in acquiring overlapping brands• Conflicts between go-to-market channels• Dueling management teams in “merger of equals”• Deal seen as an exit strategy by the target and

all the good people leave• Risky merger planned on “bullish” market conditions• Hubris; deal struck to seek glory and/or legacy

THE PRIMARY REASON…“Cultural integration is ignored in the majority of business combinations. This is a major reason why 60 percent to 80 percent of all business combinations undergo a slow, painful demise.”

Journal of Property Management

“By some estimates, 85 percent of failed acquisitions are attributable to mismanagement of cultural issues.”

Industrial Management

“While two-thirds of those surveyed had a systematic approach to sniffing out potential M&A targets, three-quarters of the respondents had no clear process for the integration phase once the merger was consummated.”

Telephony

ANOTHER KEY REASON…

Targeting key talent

In a study by Harding & Rouse, in successful deals, ~90% of the acquirers had identified key employees and targeted them for retention during due diligence or during the first 30 days; this was accomplished in only about a third of the unsuccessful deals.

HIGH PROFILE EXAMPLES

• Daimler-Benz and Chrysler

• Hewlett Packard and Compaq Computer

• Time-Warner and America Online

• AT&T and BellSouth

• Procter & Gamble and Gillette

• Pfizer & Pharmacia; Pfizer & Wyeth

• J.P. Morgan Chase and Bank One

WHEN CULTURE IS IGNORED…

• Anxiety and fear increase – rumor mill runs wild

• Conflicts emerge and tensions rise as differencesin values and work styles become apparent

• Structure, system and process differences impedecommunication and increase misunderstandingand resentment

• Productivity crawls to a halt as people becomeentrenched in their positions and new turf battlesemerge

• Key talent leaves for other opportunities

CULTURE DEFINED

“The way we do things around here.”(Deal & Kennedy, 1983)

“Glue that holds together an organization through shared patterns of meaning.”

(Martin & Siehl, 1983)

“A pattern of shared basic assumptions that the group learned as it solved its problems...”

(Schein, 1990)

ORGANIZATIONAL CULTURE

• A shared set of values, beliefs, & norms

• Developed by Senior Leaders

• A driver of performance

• Tied to strategy and capabilities

• A contributor to employee effectiveness

• Critical component in organizational change

• Influenced by national culture and history

COPYRIGHT 2010 © KORN/FERRY INTERNATIONAL. ALL RIGHTS RESERVED.

A POINT OF VIEW…

Behavior & ArtifactsMost visible; outward manifestation of culture; tells us what

group is doing, but not why; can gain insight to values by

noting the behaviors which are/are not acceptable

ValuesUnderlie and determine behaviours but not

directly observable; there is a difference

between stated and operating values;

people generally attribute their behaviors

to their values

Assumptions & BeliefsThe deepest understanding

of culture is that which gets

at assumptions and beliefs

See, for instance: Schein, 1990; Deal & Kennedy, 1983

Not all aspects of culture are easily measured. Culture can be elusive, intangible, implicit, and taken-for-granted; and what’s below the surface can sink the ship.

Easier to Assess

Harder to Assess



DESCRIBING AND ASSESSING

Analysis of culture structured around 6 KEY FACTORS.

I.

LEADERSHIP •

The extent to which senior

leadership delivers clear values,

vision and strategic plans that lead

to outstanding organizational

success

II.

EMPLOYEE FOCUS•

The extent to which the

organization values its people and

treats them with respect

III.WORKING RELATIONSHIPS•

The extent to which people in the

organization consistently work

well together to achieve desired

results

IV.EXTERNAL RELATIONSHIPS •

The extent to which the

organization is obsessed with

meeting customer needs and

serving the community

V.

WORK ENVIRONMENT •

The extent to which the work

environment promotes the health,

well‐being, and productivity of

employees

VI.POLICIES AND PROCEDURES•

The extent to which policies and

procedures employed in the

organization are meaningful and

help people work effectively

DESCRIBING AND ASSESSING

I.

LEADERSHIP •

Financial Focus•

Growth Focus •

Innovation •

Business Integrity •

Vision and Values

II.

EMPLOYEE FOCUS•

Motivation•

Talent Management •

Empowerment •

Transparency •

Diversity

III.

WORKING RELATIONSHIPS•

Interpersonal Collaboration •

Cross‐functional Collaboration •

Conflict Management •

Accountability


Responsiveness •

Intimacy •

Excellence •

Community

V.


Facilities •

Formality•

Pace•

Structure•

Technology•

Climate


Policy effectiveness •

Continuous Improvement •

Decision Making •

Learning •

Communication •

Risk Taking

These factors are further divided into 30 DIMENSIONS.


ASSESSING AND ANALYZING

QUANTITATIVE

DATA

TARGETED

INTERVIEWS

FOCUS

GROUPS

FIELD

OBSERVATION

Organizational Culture Survey

With Executives and key leaders in departments/ divisions

Cultural Artifacts Checklist: space, symbols, architecture, meeting protocol, dress, etc.

With representative employees across the organization

A combination of qualitative and quantitative methods to yield the most comprehensive understanding of an organization’s culture.


TYPICAL M&A OBJECTIVES

• Expand market share

• Eliminate the competition

• Enter into a new region

• Service a different customer group

• Expand a product line

• Develop new capability

• Realize economies of scale

THE M&A TIMELINE

Due diligence/Exploration

Negotiation/Announcement

Close

Day 1

100-Day Rapid Integration

Long-Term Assimilation

GETTING TO ALIGNMENT

• Leaders have a responsibility to define culture

• Don’t underestimate the complexity of thework – dedicate sufficient resources to theeffort

• Work fast – but don’t sacrifice quality

• Qualitative input is critical

• Identify Quick Wins – symbolic changes canoften be implemented quickly to signal change


LEADING TRANFORMATION

Organizational Culture

Establish burning

platform for Trans-

formation

Define Vision and Strategy

Gather data and test concept

Refine based on analysis

Conduct Culture Assessment

Conduct Gap Analysis & Present Recommendations

Develop Action Plan

VISION & CONCEPT TESTING ASSESSMENT & RECOMMENDATIONS ACTION PLANNING

Review with Stakeholders

Revise and Approve Socialize Vision

& Strategy

Articulate Desired State Assess Current Stateof Both Organizations

Ensure ongoing communication, engagement, and alignment

Organizational Capabilities

Leadership & Talent

Organizational Structure

Systems & Processes

Assess Current Operating Model

A merger or acquisition is essentially an organizational transformation.


DEFINING THE DESIRED STATE


Critical questions…

• What’s the Vision, Mission, Values, Unique Value Proposition, and Strategy?

• What does the organization absolutely need to be able to do to achieve the strategy?

• How does the organization need to be designed to achieve the strategy?

• How should the organization work to do this?

ORGANIZATIONAL CAPABILTIES

ORGANIZATIONAL CULTURE

STRATEGIC CONTEXT

ORGANIZATIONAL STRUCTURE


ASSESSING CURRENT STATECompany A Current State

Company B

Current State

• What values, beliefs and attitudes prevail in Company A? Company B?

• How do they contribute to / detract from the company’s effectiveness?

• How pervasive and how deeply held are these values, beliefs and attitudes?

• Are any so deeply held that they are creating a toxic environment?

• Are any so lacking that they are creating a problematic environment?

• What cultural drivers are particularly strong reinforcers of the current state?

ASSESSING CURRENT STATE

+ +

SURVEY DATA FOCUS GROUPS OBSERVATION of cultural artifacts

DATA

INSIGHTS

ROOT CAUSE

RECOMMENDATIONS

E.g. Awareness of how one’s contribution is connected to the bottom line seems to decrease as one goes further down into the organization

E.g. Leaders lack the skills to communicate with and engage their people; Directors are especially challenged to communicate the connection between day-to-day work and the business plan/strategy to their employees.

E.g. Identify competencies to be developed, assess leaders’

capability and develop them to enhance their interpersonal and communication skills

All Respondents

Vice Presidents

Directors

Managers

Non ‐Managers

0 1 2 3 4 5 6 7

Low

High

Med

Med

Low

AGG

All Respondents

Vice Presidents

Directors

Managers

Non ‐Managers

0 1 2 3 4 5 6 7

Med

High

Med

Med

High

AGG


IDENTIFYING THE GAPS

Desired State

Company A Current State

Company B Current State

What are areas of alignment/ misalignment between desired state and Company A?

What are areas of alignment/ misalignment between desired state and Company B?

What differences exist between the two companies? How will similarities/ differences impact the transformation?


PRIORITIES FOR ACTION

• Where is the greatest degree of misalignment?

• How visible is the issue?

• How deep does it go?

• What will be lost by not addressing it?

• What will be gained by addressing it?

• How much time/effort/resources will it takerelative to others?


TAKING ACTION

I.

LEADERSHIP •

Financial Focus•

Growth Focus •

Innovation •

Business Integrity •

Vision and Values

II.

EMPLOYEE FOCUS•

Motivation•

Talent Management •

Empowerment •

Transparency •

Diversity

III.

WORKING RELATIONSHIPS•

Interpersonal Collaboration •

Cross‐functional Collaboration •

Conflict Management •

Accountability


Responsiveness •

Intimacy •

Excellence •

Community

V.


Facilities •

Formality•

Pace•

Structure•

Technology•

Climate


Policy effectiveness •

Continuous Improvement •

Decision Making •

Learning •

Communication •

Risk Taking

All factors impact each other.


ACHIEVING ALIGNMENT

• Leaders have a responsibility to define culture

• Don’t underestimate the complexity of thework – dedicate sufficient resources to theeffort

• Work fast – but don’t sacrifice quality

• Qualitative input is critical

• Identify Quick Wins – symbolic changes canoften be implemented quickly to signal change


THANKS!

Kim E. Ruyle, PhD

Vice President, Research & Development

Korn/Ferry Leadership and Talent Consulting

[email protected]

1-952-345-3672

mailto:[email protected]

ruyle - achieving cultural alignment in mergers & acquisitions

Business

organizational culture

national culture

aspects of culture

assessinganalysis of

merger of equals deal

risky merger

mergers of financial

key factors