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May 8, 2023

The HR Practitioner’s Guide to Cultural Integration in Mergers and Acquisitions

Cultural fit has become increasingly, as more companies are embracing diversity and inclusion, and acquirers must mitigate cultural differences early on during post-close integration. When two companies fit together, people are more likely to be productive and satisfied with their work. In this article, Klint Kendrick, HR and M&A Leader, gives us a view on the HR practitioner’s guide to cultural integration in M&A.

“It’s important to identify areas of potential culture clashes as early as possible because they should shape your integration plan.”Klint Kendrick

Cultural due diligence

According to Klint, cultural due diligence must begin before the letter of intent. Confidentiality shouldn’t be a problem, as there is a plethora of publicly available information that can be used to assess the compatibility of two companies such as:

  • Social media platforms
  • Glassdoor
  • Target’s website
  • Yelp
  • Interviews
  • Press releases
  • Confidential information Memorandum

As the deal progresses and proceeds to the formal due diligence process, continue to ask questions regarding the target’s decision making processes. Look thoroughly through documents that could help identify how the target company treats their people, such as an employee handbook. 

Cultural assessment should not begin and end with the management team. Everyone makes up the culture of the company, including the sales, product, and operations team. 

Culture clash drivers

Culture is the way people get things done, and it encompasses everything that happens in a company. Klint views the following as the main drivers of culture clash in M&A.

1. Decision making

Every decision involves a variety of stakeholders. Functions will struggle to make prompt decisions in the most basic situations if it's unclear who has the authority to decide what. Therefore, establishing the delegated authority for decision-making at different levels will help align functions with what they're permitted and prohibited to do. 

2. Team collaboration

In every company, teams collaborate differently. Acquirers must bridge the gap between the two companies, especially if the teams are a critical deal value driver. Take a look at some of the cultural artifacts, like traditions, operations, and other processes, and understand the why behind each one. For example, look at how teams handle conflict when it arises and how the organization allocates limited resources.

3. Operational expectations

Processes and practices also vary from one company to another. Determining which process to follow will affect employees and their jobs during integration. Operational expectations also includes how the companies treat people who are failing at their job, or how they promote the ones that are thriving. Find a common ground when it comes to employee experience.  

4. Communication styles

How the organization talks to itself matters a lot. Is the target company communicating formally or informally? How do they convey a positive versus a negative message? How different will the communications be depending on the level of stakeholders? By simply asking these questions to stakeholders, one can understand how the organization chooses to communicate.

5. Organizational self-concept

Organizations, like every individual, have a self-concept about who they are and how they operate in the world. If the organization's self-concept changes drastically for the target company, there will be a culture clash. This will result in unhappy employees, especially those who are working for a purpose. 

Hurt feelings will have financial implications, and acquirers must avoid ignoring them. When employees leave, they take institutional knowledge and customer relationships with them. 

Deal-specific factors that affect culture

There are also deal-specific factors that greatly affect cultural integration. Companies that can identify and mitigate these risks will make a huge difference. 

1. Synergies

Realizing synergies will almost always impact how people work. For revenue synergies, the two big components are sales people and cross-selling, while cost synergies will most likely involve laying off people. Identifying these changes and doing them properly will set acquirers up for success. 

2. Secret sauce

During an acquisition, the acquiring company is often drawn to the unique capabilities of the target company that make it an attractive investment. However, acquirers need to recognize the potential impact of preserving the target company's unique strengths, or "secret sauce," throughout the integration process.

3. Sacred cows

Acquirers must be able to distinguish what is considered sacred to the target company - such as aspects of the company's culture, operations, or offerings that are critical to its success and deeply valued by its employees and customers. Failing to recognize and preserve sacred elements can lead to significant disruption to the business and its people, ultimately jeopardizing the acquisition's success. Therefore, identifying and safeguarding sacred elements is a key component of deal success. 

Overcoming culture clash

There are many ways to overcome culture clash, but the most important is to have leaders who care and plan. Post-close success is dependent on an empathetic leader who understands what's really going on in the organization and has an integration plan to make all the processes run smoothly and efficiently.

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