I recently had a really interesting conversation with a leader in a mid-sized company. Their company has a strategy of growth through acquisition, so he spends a fair amount of his time looking at companies to buy. I asked him if they ever did a cultural due diligence as part of their work, to see if the cultures were compatible? The short answer? No. The longer answer is one I have heard before. “No, because that isn’t as important as the fit with our product portfolio.” Hmmm.
I am never surprised by the answers I get to that question because they usually speak to a larger issue. Although culture gets a lot of press, companies really don’t see it as impacting the bottom line. That is a huge oversight from where I sit. I can rattle off so many situations I’ve been brought into over the years where culture was THE reason their bottom line was being impacted – usually negatively if I’m involved. If you work in the merger/acquisition and change space, you probably can too.
Culture is a huge part of successful change
Culture is a huge part of change – how you approach it, how you manage through it, how you use it to your strategic advantage. So not going into a merger or an acquisition with a clear picture of the culture you are buying just doesn’t make sense. It also doesn’t make sense that you may not have a clear picture of your own culture either. A critical component to Cultural Due Diligence is assessing your own culture first. That knowledge can be invaluable not only in comparing other cultures, but in understanding what tweaks your own culture might benefit from in the long run.
Cultural Due Diligence
Cultural Due Diligence is simply the assessment of two cultures for compatibility. That’s it. It is simple and complex at the same time. Cultural Due Diligence needs to be part of your Due Diligence process. Some would argue, even more important. As I mentioned, assessing your own culture is a critical first step. The next step is assessing, in detail, the culture of your potential target. If there are a few in the mix, you might want to start with a high level Culture Due Diligence process to help narrow down the choices. After all, if there are several good choices, you might want to use cultural compatibility might become the tiebreaker.
If the cultures are really different you may decide not to buy, but more often than not you will buy, but with your eyes wide open. Then what matters is that you KNOW.
Cultural Integration Plan
Whether you decide to bring the two cultures together to create a third culture, or that you want to completely absorb the new company into your current culture, or even that you want to leave the two companies and cultures separate – it all needs a plan. Your Cultural Integration Plan needs to be part of the overall integration plan. This plan includes people, processes and systems. It can be simple and as complex as the two cultures you are bringing together. Oh, and a word about leaving the cultures separate. If you want to leave them separate, leave the companies separate. Don’t partially integrate, or use a “shared services” model and expect the two cultures to remain untouched.
Start at the Top
A Cultural Integration plan starts at the top with the integration of executives. Then come the entire management team and finally all employees. Some companies make the mistake of thinking that employees come first because they are the largest group, but the opposite is true. It gets easier to implement change in a hierarchy if you start at the top – cultural integration is no different.
The integration at each level is a building block for the next step. Every company, no matter how flat and how egalitarian has a leadership team. Even a Kibbutz, a communal settlement where everyone is equal, has a leadership team. Don’t make the mistake of thinking that the time to become completely egalitarian and leave the “leading” up to the “people” is during an merger or acquisition.
Why Not?
Maybe you think that adding Cultural Due Diligence to your Due Diligence team will just complicate things. Maybe you think it will slow down our breakneck pace or become a road-block. Probably none of those things are true if you choose the right partner. Choose a Cultural Due Diligence partner that works with well with your Due Diligence team – internal or external – and you will see that instead of a hindrance, it will make the end result that much richer.
The goal of Cultural Due Diligence is the success of the merger or acquisition, that’s all. Using your own culture and that of your newly acquired company strategically may be the fastest way to business success. Since most merger/acquisition failures are attributed to cultural issues – you probably have more to gain than to lose.
Excellent article. I have seen first hand the ramifications of the lack of joining cultures from the top down. The interesting thing is that in the process the two cultures never joined and the companies split and both cultures were destroyed. Few weathered the storm the battle in leadership still wages on.
Great article. I will say the change in my store came from the bottom and rippled into the top. They had to find a way to accommodate and sustain our success. We changed how our company does business. That being said your article is spot on in so many ways. Thank you Beth
Great points. I agree that to merge cultures together, you need to start from the top. However, deep planning is also required to align values and principles with communications, visible actions and behaviours. There must be a feeling of consistency, or else the culture you want won’t take root. As a starting point my firm uses themes such as proactive planning, higher productivity, and deeper proficiency as a starting point for new cultures.
Totally agree Chris. Good points.