How Culture Impacts a Cross-border M&A

Emma Buckby

21 Dec 2015

Would you start something if you knew you had a 30-50% chance of failure? Probably not, right? Why then do companies insist in investing in cross-border mergers and acquisitions when the chances of failure are so high?

Culture Lies at the Heart of the Problem

Merging or acquiring the assets of another organisation can bring many tangible benefits to the newly formed corporation. Yet, M&As can also bring many challenges. These challenges are often centred around differences found between two different cultures – both corporate and national.

What often lies at the heart of these high failure rates is the failure to address the cultural differences of the two international organisations and create a new (and unique) culture that recognises and embraces both parties’ culture.

Cultural Differences Are Costly

This issue is discussed in an interesting article in The Wall Street Journal. It identified senior executives’ inability to bridge their companies’ culture differences and how this undermined even the most scrupulously planned mergers and acquisitions. This statement is backed up by a referenced study, recognising that cultural issues contributes to in excess of 30% of failed M&As.

So what can senior executives responsible for the success of a merger or acquisition do to minimise cultural differences that could hinder their success?

In order to achieve a successful M&A, it is important to identify a path to integrating both corporate cultures

Defining the Goals

When a decision is taken to merge or acquire another company, organisations create strategies and define financial goals. However, they rarely give much thought to creating goals that define a successful cultural M&A.

And, in order to achieve a successful M&A, it is important to identify a path to integrating both corporate cultures. Assessing potential cultural issues and creating a path toward cultural integration with measurable objectives are required.

The Steps Needed to Define a Successful Cultural M&A

The WSJ article recognised the need to build a programme around managing cultural integration in a merger or acquisition. Also recognising that the success of an M&A is judged financially, they looked at steps that could be somewhat quantified and measured, and not just introducing soft skills training.

1. Embed culture into change management

By identifying the need to define and manage cultural change, it becomes important in its own right. Creating an agenda makes culture a marker that is included in the overall success of the M&A.

2. Identify corporate culture ‘owners’

Assigning responsibility to specific change management resources empowers managers to lead their organisation to changes that benefit the new structure. HR or OD (Organisational Development) leaders are often in a good position to assume these responsibilities.

3. Make culture tangible and measurable

Corporate culture owners should also be empowered. This means the ability to strategise and influence the cultural integration process. It also means identifying and managing issues that are well defined and can be managed in a visible way. The article gives an example of merging products into the portfolio of both sales teams, integrating both the sales team and the benefits of having a wider range of products to work with.

4. Consider cultural compatibility

Not all corporate M&As are ripe for an instant immersion into a new cultural reality. Sometimes, cultural differences between organisations can run deep and require time for both cultures to get used to one another before implementing changes that impact the dynamics of the new, merged organisation.

An excellent example is the merger of corporations with different maturity levels such as a start up and an established organisation. Culture clash that is managed slowly and perhaps in phases may be better in the long run than a fast merger that does not give employees enough time to consider a very different way of working.

5. Understand the decision making process

Post M&A organisations often suffer from the inability to make clear and lasting decisions in their new identity. Even the decision making process itself can become blurred if attention isn’t paid. Organisations can improve their chances of a successful M&A by:

a) identifying the decision makers responsible for specific integration results

b) understanding both structure and style each organisation has brought to the M&A

c) communicating how decisions are defined and made in the new organisation.

Getting to know the new cultural identity post M&A is not always easy. But well managed, it can make a big difference to the ultimate success of failure of the new venture.

6. Remember the employees

In business, there are some M&As that are so focussed on the bottom line that little consideration is given to the employees.

In some cases, employees may be factored in as collateral damage. However, organisations that value their employees post a cross-border M&A must consider ways in which to retain them.

This means finding ways to secure their loyalty. Cultural differences within organisations can make this difficult, especially if a retained employee identifies more readily to their old organisation rather than the new organisation created by the M&A. Finding a way to promote common cultural values that existed in both old organisations is often the first step to success.

Ultimately, working together as a new organisation takes time, trust and respect. Getting to know the new cultural identity post M&A is not always easy. But well managed, it can make a big difference to the ultimate success of failure of the new venture.



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