As with any marriage, corporate or individual, differences are bound to create friction. But when the marriage in question is a billion-dollar merger, divorce is not easy. Rather, it is not even on the table. In today’s highly competitive market, mergers and acquisitions are here to stay.
So, it is best for everyone involved to get along without letting culture clashes destroy what could be a unified, superpower. Easier said than done. With global deal value hitting a record high of $5.9 trillion in 2021, it is unavoidable that the business world will abut more mergers and culture clashes.
Mergers & Clashes
Often CEOs identify the problem very late in the journey – by when morale has corroded and key employees have started leaving the organization.
A recent example of a merger gone wrong is Amazon’s acquisition of Whole Foods. The online retailer’s data-driven approach was vastly different to Whole Foods’ approach that emphasized personal touch and quality.
“The two companies may have seen value in capitalizing on each other’s strengths, but they failed to investigate their cultural compatibility beforehand. They now stand on a fault line where tensions often erupt in mergers. This fault line is what we call tightness versus looseness. When tight and loose cultures merge, there is a good chance that they will clash,” writes Michele Gelfand and her colleagues in an article for Harvard Business Review (HBR).
The different approaches to workplace culture resulted in a breakdown of the company’s goals as people on both sides were unable to adjust to the other side. An HBR survey collected data on over 4,500 international mergers from 32 different countries between 1989 and 2013. The researchers found that on average, the acquiring companies in mergers and acquisitions with tight-loose differences saw their return on assets decrease by 0.6% three years after the merger, or $200 million in net income per year. Those with especially large cultural clashes saw their yearly net income drop by over $600 million. However, if diagnosed early, this problem can be prevented.
In a survey by Bain & Company, executives involved in mergers and acquisitions stated that culture clashes were the number one reason the deals failed to achieve their true potential.
Workplace Culture and Innovation
Experts recommend negotiating over culture before finalizing a mergers and acquisitions deal. Executives can start by carrying out a company-wide cultural assessment to better understand people’s expectations and management practices.
CEOs need to acknowledge that mergers are just as much about people as they are about numbers. After all, the people make the company. Their knowledge and skills are essential for the new company’s success. Transparency and honesty about upcoming workplace changes is key to gaining the trust of employees. Nobody enjoys change but it can be a smooth transition when leaders make themselves approachable and tackle difficult questions head-on.
Gelfand stresses that leaders must be “culturally ambidextrous” and capable of drafting a plan that will make employees from both sides feel welcomed and valued. The greater the transparency, the better the morale.
First and foremost, before implementing any workplace changes, leaders must prioritize employees’ needs. The new style of working must interfere as little as possible with their day-t0-day working. Diagnostics is key to measuring the differences among people, units, geographical regions, and functions. Before solving a problem, it is essential to have the correct diagnosis.
Managers sometimes lean heavily on a few star individuals to run integration efforts, but that can leave them feeling burnt out. Unable to handle the mounting pressure and constant changes, can push them out the door faster than you can blink.
While mergers and acquisitions are usually made keeping the bottom line in mind, it is noteworthy to remember that people drive culture changes and innovation. And nothing can replace skilled human capital.
