Home » Insights » The Role of Cultural Fit in Successful M&A Integrations

The Role of Cultural Fit in Successful M&A Integrations

Home » Insights » The Role of Cultural Fit in Successful M&A Integrations

The Role of Cultural Fit in Successful M&A Integrations

by Khadija Tahir

During a cultural fit in a merger or acquisition (M&A), employees face extraordinary amounts of change. Coupled with the external pressures associated with the global pandemic and recent civil unrest, culture is a crucial success factor for M&A.

The value of culture fit

Culture is not one program, but one center of excellence. Or a single effort owned by Human Resources, but a set of actions and beliefs that build upon each other to create a movement within a company’s workforce. These actions and beliefs shape the invisible hand that guides employees to make decisions and act. In integration, the C-suite must move synchronously to set cultural values and norms. Appreciating cultural differences is paramount to the success of a deal; companies who pass over them pay a steep price. Acquiring companies in mergers with a particularly wide cultural disparity between the acquirer and the acquiree saw an average net income drop of more than US$600 million per year. Companies looking to complete a merger often fail to follow through with assessing and creating a long-term strategic roadmap for merging cultures, thus creating an opening for deal failure.

After due diligence, companies must immediately set the strategy for cultural integration. One strategy takes a ‘best of both’ approach, where the acquiree’s culture is in the acquirer. Conversely, a ‘culture of cultures’ approach sustains the culture of the acquiree. The C-suite needs to determine which strategy will achieve the long-term business outcomes from the deal. Remember, the intent of a deal is not to immediately hit growth targets. But to retain and harness capabilities, whether they be from new tools, products, or people to support long-term value creation.

Beliefs and values are increasing in the workforce. And as a result, culture is no longer only by leadership and HR. Recent research shows C-suite executives are feeling pressure from an emerging supergroup of employees dubbed Pathfinders. According to Accenture’s “Whole-Brain Leadership: The New Rules of Engagement for the C-suite”. Pathfinders are a powerful group of employees by self-empowerment and motivations, and by their belief that they can effect change within the companies they work for and buy from. Their demographics defy convention, spanning across generations from Gen Z to Boomers. Given this population’s significant influence on their employers. C-suite executives should embrace Pathfinders as positive change agents to ensure the culture of the company shifts with―or even spearheads―society.

There are also opportunities beyond the C-suite. Boards that have high involvement in workforce strategy are 3.8 times more likely to have a strong pulse on the workforce health of businesses they guide. And therefore can respond quickly to indications of falling employee statistics such as productivity, health, and safety. A modern board can use culture to enable actions that guide the workforce through challenges in an uncertain world.

Critical Challenges in Cultural Fit!

The workforce undergoes large amounts of change throughout an M&A integration. This, coupled with the pandemic, is likely affecting employees. To mitigate exhaustion, leaders must identify the source from the perspective of the employees, and how they’re experiencing their work.

For example, companies can find ways to pause efforts when necessary. One global biopharma company, in the middle of an integration effort, found employee exhaustion was at an all-time high. Leaders made the decision to implement days of rest and meeting-free Fridays to refresh and revitalize the workforce. While this decision was not without delay to some efforts, it brought significant long-term benefits to the employee-to-company relationship.

In a merger or acquisition, companies should prioritize culture interventions related to the integration in three steps:

Focus on strategic levers. Embed your cultural foundation into the employee lifecycle, incentives, and leadership.

React to short-term challenges. Address immediate needs impacting your workforce (e.g., fatigue, remote work).

Develop long-term opportunities. Learn from your short-term challenges and examine the opportunities to adapt for the future (e.g., employer brand, employee well-being).

While cultural fit has been acknowledged to be a potentially important factor in mergers and acquisitions. The concept has been ill-defined, with no distinction drawn between the national and corporate levels of culture. By examining both international and domestic mergers. The present study assesses the relative role of national and corporate cultural fit in predicting effective integration between merger partners. The innovative, nonparametric co-plot method is introduced, and its main advantage-the simultaneous consideration of both variables and observations-is utilized to explore cultural fit in the two groups of mergers. The findings confirm that national and corporate culture are separate constructs with variable attitudinal and behavioral correlates.

Leave a Reply

Your email address will not be published. Required fields are marked *