Mergers and aquisitions – a culture trap
Photo by: TT
Mergers and acquisitions are considered beneficial for companies as they can bring growth, value, market access, and a global presence. However, many mergers have not successfully delivered these benefits, resulting in lost value for shareholders. One of the common reasons for failure are culture differences.
The integration of cultures can be challenging if the merging companies do not recognize each other's cultures or do not take adequate measures to blend them.
One example that stands for failed mergers was the merger between Daimler and Chrysler. The cooperation lasted from 1998 to 2007, and during this time, the synergies that were supposed to be achieved by this and that justified this project were never fulfilled.
One of the reasons why the merger failed, described Michael D. Watkins, author, and professor at the IMD business school, in his article in the HBR*:
„Because the two organizations really didn’t like each other, and couldn’t cooperate to the extent necessary to make the combination work. Serious efforts to integrate the operations of Daimler and Chrysler foundered on lack of trust clashes between the mid-market cowboys of Detroit and the high-end knights of Stuttgart. And there were unbridgeable differences in the cultures of the two organizations. As is too often the case in acquisitions, the synergies were all on the surface.“
Yet, despite the significant impact culture has on a company's performance, leaders often overlook its importance and the needs of their employees. M&A is connected to change, and any change affects employees as well. If not appropriately addressed, employees may feel unsupported, isolated, and uncertain about the future after mergers, which can undermine the expected benefits.
To ensure a successful merger, companies must prioritize addressing cultural issues effectively.
Change happens on two levels
Organizational changes take place on two levels: the "level of action" and the "level of perception." Most organizations are trained at the operational level, for example in defining new rules and processes, digitalization, introducing work methods, and implementing training and workshops...
They are less skilled at changing the way employees see things – like the stereotypes, paradigms, and dogmas that make up our construction of reality. For example, companies invest great efforts in internal communication and informing employees about changes in the hope that the changes will be embraced as soon as possible and that the employees will act in accordance with these changes. And yet many of the changes that have been encouraged are not effective or in line with expectations. The reason lies in wrong assumptions.
Perception cannot be changed with the written word, internal newsletters, communication platforms, visuals, podcasts or video messages, and training which are the most commonly used activities. They make it possible to transmit information, and information without personal context is dead letters on paper. To enable change, it is necessary to enter into a meaningful conversation with colleagues. They should first build a shared understanding of the context in which they operate and what the conducted change means for their everyday reality. So the conversation is essential for change, aka change of culture.
The internationally respected author and consultant William Bridges, in his book "Managing Transitions", has pointed out the distinction between change and transition for this very reason. According to Bridges, change refers to a specific event or situation that takes place, while transition is the inner psychological process that people go through as they internalize and come to terms with the new situation that the change brings about. Change can happen very quickly, while transition occurs more slowly. It is the same with the „level of Action“ and „level of Perception“.
If the corporate culture is seen as the way we do things around here, the main questions are:
how to identify different ways of doing things
build an overall understanding of where the newly established company is heading to
allow employees to reorient themselves and get a sense of belonging
how to gain a quick understanding among all employees – on both sides
The list of questions is much longer, yet the answer is always the same. Leaders need to build on the fact that employees are social beings who need to interact with others to gain a shared understanding to avoid feeling insecure, not being heard, and lonely. The employees need a sense of what these changes mean for them as individuals, as a family, as employees, and as a team... and how to take relevant steps. Without high-quality and meaningful conversation, they don't have the opportunity to build the necessary understanding of the changes, reorient accordingly and define their role in the newly established organization.
Although at first glance, conversation and discussion appear as logical solutions, they are incredibly neglected – in M&A processes as well. In the last decades, the exchange of opinions has been promoted, even if they are rarely built on arguments and experience. The same with surveys. They are conducted to gain insight into the existing culture, even if they don't say anything about the employee's needs for collaboration and creating value. The exchange of perspectives and experiences is needed, as knowing how to place them in a certain context and develop a common understanding. The question is, what presumptions need to be fulfilled to make useful work-related conversations possible? How to make a change fast & sustainable?
The conversational approach
Before looking into the presumptions, let's explore why, where, and who should be an active participant in the conversation:
Culture is always complex. It means that it produces surprises, it is only observable from the outside (and not measurable as often presumed), and the interaction between people is dynamic. In a complex environment, conversation and exchange of ideas is fundamental to building a common context and building upon the following steps toward a desired outcome.
Communication in an organization flows in three different structures - formal, informal & value creation structure. Generally, the communication follows a waterfall approach in the first formal structure and is enriched by defining ambassadors in the second informal structure. Most of the communication and attention is directed towards the initial two kinds of structures, but if we desire to be successful in the M&A, we ought to place a greater emphasis on the third type.
Change has a higher chance for success if all employees are invited to participate in the conversation. Research conducted by Kurt Lewin showcased that change is more scalable and sustainable if all people are invited into a conversation and have the opportunity to exchange their thoughts and worries and how they can contribute in the best way to make the change successful and sustainable.
Although there is an understanding that conversation is fundamental, still a few things and presumptions should be considered:
In his concept, William Bridges described that people go through an in-between time when the old is gone, but the new isn’t fully operational. It is when critical psychological realignments and repatterning take place. This is the time between the old reality and sense of identity and the new one. People are creating new processes and learning what their new roles will be. One-off discussion events are not enough to achieve the goal of changing a culture, especially in a demanding undertaking such as M&A. It takes repetition, rhythm, and iterative methods to develop a shared understanding, as well as suitable interaction patterns.
The second presumption for success is the content. Without appropriately prepared content in the context of the M&A the discussion could be diluted, and the aimed result not achieved, so a content led approach is needed.
With decentralized teams spread over the globe, major issues are also time of employees, travelling costs, opportunity costs and availability of facilitators. With thousands and tens of thousands of employees and the aim to achieve the same level of knowledge and understanding to start creating a new culture is making the possible return on M&A investment to wait. In a digital world, a digital content-led solution is needed.
And this is one of the reasons that qohubs was designed.
Do you want to know more how qohubs can help you speed up the M&A process with a desired outcome, write to us at firstname.lastname@example.org.
* Source: Why DaimlerChrysler Never Got into Gear (hbr.org)