Planning a successful cultural alignment in an M&A project

Planning a successful cultural alignment
in an M&A project
Although aligning culture to business strategy plays
such an important role in creating value from an M&A
deal, many companies do not have an approach to
implement and monitor culture in their M&A projects.
Companies can get the most out of their investment by
identifying an approach for successfully planning cultural
integration in their M&A projects.
The purpose of all M&A activity is to create
additional value
The number of M&A deals involving German companies
has steadily increased over the last decade. In 2015,
approximately 1,500 deals involving German companies
were closed (see fig. 1). As deal volumes continue to
rise, M&A transactions involving German companies
have also become more international due to an increase
in cross-border transactions.
Based on a survey of 7,000 business and HR leaders
in 30 countries, Deloitte’s 2016 Global Human Capital
Trends report revealed that 87% of leaders believe
that culture is important to achieving business success.
However, only one third of leaders think that they truly
understand their company culture. This can explain
why deriving the desired value out of a deal can be
challenging. Furthermore, a global study on culture in
M&A found that 30% of companies surveyed identified
culture as one of the most influential factors behind
failed integrations. Why? Culture defines how people
work together to achieve business goals. Cultural
misalignment can disrupt the established way of
working in an organization and it can also hamper the
decision-making processes of leaders. This can lead
to loss of productivity, loss of key talent, a decrease
in employee engagement, delayed integration and
even failure to achieve the desired synergies from a
deal. Although culture plays such an important role in
creating value, more than half of companies surveyed
did not have an approach to implement and monitor
cultural alignment in their M&A projects.
How can you successfully plan cultural integration in M&A?
Companies can get the most out of their investment by
identifying an approach for successfully planning cultural
integration in their M&A projects. A high level approach
for planning cultural change in an M&A deal begins with
four essential steps: (1) assessing culture, (2) identifying
all relevant stakeholders, (3) defining the desired culture
and (4) designing a detailed change and communication
concept. Such a structured approach can remove a lot
of the mystery surrounding culture and it can help the
project team mitigate risks that usually derail organizations from their course during the implementation phase
(see fig. 2).
When planning for cultural change, we recommend
taking some important factors into account: (1)
assessing the cultural compatibility between both
companies during due diligence, (2) defining the desired
culture that will fit the business strategy, (3) establishing ownership through dedicated resources and (4)
involving management on both sides throughout the
change process.
Fig. 1 – The number of M&A deals involving German companies has steadily increased over the last decade
1,800
1,633
1,600
Number of transactions
1,400
1,507
1,305
1,200
1,000
1,239
1,249
2008
2009
1,287
1,331
1,360
2010
2011
2012
1,334
2013
1,099
1,007
991
2005
2006
800
600
400
200
0
2004
2007
2014
2015
Source: Statista – http://de.statista.com/statistik/studie/id/10100/dokument/mergers-und-acquisitions-statista-dossier/ (original source: Angermann 2015)
1
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an at
ch nic pt
gn u e
si m nc
De com co
De
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es
As
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Fig. 2 – Sustainable cultural change in M&A
Assess the cultural compatibility between both
companies
It is often difficult to assess one’s own culture.
Completing a cultural assessment of both companies
based on available information can provide initial
insight into the fabric of both company cultures and the
cultural gaps that could present roadblocks in the future.
During the due diligence phase, valuable information
can be collected by analyzing public data or by holding
interviews with focus groups. Cultural differences, such
as the existence of centralized versus decentralized
decision making in an organization, will not only be
established in business processes. This information will
provide an indication of the future effort required to
align both cultures, which should be considered during
deal negotiations. Later on, during the implementation
phase, collecting further information will be helpful
for steering change management and communication
activities.
Define the desired culture that will fit the
business strategy
Different deal outcomes entail different types of cultural
alignment. Consider what the desired business model
will be after the deal and how this will impact people
and processes. Will both companies remain separate
entities maintaining their already existing company
cultures or will one company dominate and absorb the
other? Or will a new company culture be necessary for
driving the new business strategy forward in a newly
merged entity? Once defined, the desired culture can be
translated into concrete behavioral anchors that will be
communicated and integrated into business processes.
This will help people in the affected organization(s) to
understand what is expected of them and how to align
their behavior in the new business context.
Establish ownership for cultural change through
dedicated resources
Responsibility for implementing cultural change should
be allocated to representatives from both companies
involved in the deal in order to ensure ownership. As
part of a dedicated integration team, they plan change
management and communication activities while taking
into account the specific organizational contexts and
the steps needed to achieve the desired culture. Such
a heterogeneous team is better equipped to handle
unexpected events that threaten the change process.
They are also responsible for demystifying cultural change
by providing progress reports based on measurable
business outcomes in project steering committee
meetings on a regular basis. Measurable business
outcomes could be reporting the number of employees
reached through communication initiatives and training or
through the integration of the new cultural values in the
employee lifecycle (e.g. recruitment and onboarding).
Involve management from both sides throughout
the change process
Involving management of both companies ensures
their buy-in early on as architects of the new business
strategy. As role models and decision-makers in the
organization, leaders define the culture of an organization. Change inevitably starts with them because they
understand how people and processes work in the
organization. Given their knowledge and their degree of
influence in the organization, having their commitment
and active involvement in the cultural change initiative is
vital for effective and sustainable change.
Executive Summary
M&A deals aim to create value through the implementation of strategic goals resulting from a deal. Business
strategy will only be as effective as the people who are
implementing it. Company culture defines how people
get things done in an organization and, in this way,
culture should be considered when negotiating and
implementing M&A deals. Culture is easier to grasp if
time is taken to assess it, define the desired future state
and design a detailed concept for reaching this objective.
At Deloitte, our expertise in cultural assessment and
solutions helps our clients gain insights into their organizations and actively define an effective approach to reach
their business goals.
2
Ihr Ansprechpartner
Dr. Cora Luckner
Manager | Total Rewards Human Capital Advisory Services
Deloitte
[email protected]
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