The Key To Success for Mergers And Acquisitions –
Cultural Due Diligence
Before the ink dries on any agreement is the right time to start planning your cultural integration. This alone will set a path for a successful merger or acquisition.
According to a 2013 Annual Bloomberg report, global M&A activity totalled USD $ 2.33 Trillion in annual volume. The Americas representing 61% of that activity with $ 1.42T. M&A activity in Australia for the 2013 calendar year totalled USD $65. 5 billion.
Global research, however, shows that four out of five M&As fail to meet their objectives. In the US alone, two out of three are likely to be sold within five years.
So Why Do Such Costly Activities Keep Occurring?
The most critical element for success is overlooked – the people. The people along with the design of the new culture. There has to be one. If any degree of success is to be contemplated, there must be a dedicated plan for the culture integration. And that means change for both parties. There is no other way.
Cultural integration is the major factor. Lack of understanding and effort to involve all parties is the primary cause of failure in most M&As. Therefore, cultural due diligence is even more important than the legal and accounting due diligence processes which are normally so rigidly undertaken.
Why is cultural integration so critical? People support that which they help to create. Simple. Therefore, every person within the two companies involved must be engaged in the culture design in some capacity.
What Is Cultural Due Diligence?
Cultural Due Diligence is the prior assessment of the strengths and limitations of the cultures of the two or more merging entities so that the integration plan can represent their combined essence. The plan needs to incorporate and maximise those strengths to meld with the new culture. This is a process that must be skilfully managed. It is not a document designed in the boardroom. It is not something that can executed from a textbook. Nor is it something that an already stretched or well intentioned HR person can handle on their own, either. It is a dedicated complex process that should be undertaken by a person whose sole purpose is to design, conduct and monitor the procedure over time. Someone who is apolitical will have a far better chance of achieving success. Internal people will inherently be biased. That’s natural, but not helpful.
We need to remind ourselves that what is a strength can also be a limitation in any environment. How we integrate those traits within the new landscape, will ultimately be the mark of our success. The involvement of as many people within the merging organisations will also be a major factor in success. No one likes to miss out on having a say in what will constitute the style of air they will breathe in their new situation.
Capital Or Reputation?
Which is our most important asset in changing or difficult circumstances? In times of crisis, reputation is our most important asset. It is the hardest earnt and the most expensive when it fails.
The process of cultural due diligence also begins the establishment of our reputation and trust within the new order of the combined organisations. Begin the establishment of your company reputation with the people who matter most – your employees. On Day One of the merge, every person should be regarded as a ‘Reputation Manager’ for the business. Ensure that they have the right communication and information to be just that.
The Right Advice.
True success can be designed into the processes of the planning phase. The fall back position of employing a consultant in an ailing situation is not the right way around. The process will take longer and often not yield the best result.
History dictates that prevention is still better than cure. Seek the right corporate cultural advice prior to the ink drying on any M&A contract. Select a consultant with a well proven record of success in this arena. It is not for the ruthless or faint hearted. It calls for extraordinary sensitivity and diplomacy. It necessitates great stamina in the face of adversity and setbacks.
There is only one chance to get it right.
If it fails, any change effort in the future will be met with practised cynicism.
That is a legacy you want to avoid.
The process can be likened to a heart transplant. The planning has to be meticulous with experts ready to perform when the donor organ arrives. Time is of the essence. The surgeons need to operate quickly with delft hands and a skilled team to join one critical part with the other – the new heart with the new body. The surgical team must stem the bleeding and control all aspects of the whole body to counter any rejection. All parts need to begin working together immediately if the transplant is to be successful. The initial period is crucial. A rejection, either now or in time, is fatal. No half measures can be part of the equation. It’s the same with M&As.
The Ability To Forget.
One of the greatest barriers to success is not always the ability to create but the ability to forget. Forget what once worked in the previous landscape. Forget the dynamics that once existed with colleagues who are no longer present. We need to graciously encourage the removal of rear vision mirrors that impede the view forward.
A successful M&A inherently holds the ability to do different things and to rework and enhance what is already going well. A linear progression or extrapolation from past trends may now not be appropriate. Speed is also of the essence. One year’s absolute growth in 1800 is the same as half a day’s growth in 2014.
We can’t pretend to be responsive and adapt to sudden changes with old paradigms and mental constraints. In the world of the fast-paced, success and failure can turn on marginal differences in competence. How our people choose to use their intelligence and discretionary effort to meet the speed of competitor action and reaction will determine our versatility and flexibility. It is their choice, so let’s make it a palatable one for them to make.
Executive teams that understand the market and industry fracture lines driving change, have a distinct advantage over those companies that only follow the rules made by others. These pioneering companies are not shackled by the way things have always been or must be done. Companies that are willing to do the unexpected and even the unpredictable, will be in a better position to succeed. The transformation of an organisation depends on this psychological shift. Imagination, along with willing minds, create the future.
How do we get faster and more creative at the same time?
Apply The 1% Factor.
Don’t try to do one or several things 100 per cent better each time. Apply the principle that you will do a whole bunch of things just one per cent better, each time. Do that consistently, every day and watch the cumulative effect impact on the bottom line. Adopt and promote that as a way of life for your work practice.
Prepare for Emotional First Aid.
Know and anticipate the heightened emotions that will inevitably sweat from the pores of your people. The stages of change within an organisation closely follow the grief process first studied by Elizabeth Kubler Ross. People initially feel shock, before denial, anger and blame. Acceptance follows, but not for all.
Address Employees’ Fears.
People want to know certain things up front. Firstly, why you think they can make it through the change. And, secondly, how management is going to help them. We have to expect that these questions will be foremost in most minds. That is fair enough, too.
It is imperative that these and other questions are clearly voiced and articulated in the early stages.
Appoint your Change Leaders – then dim the lights and raise the curtain. Then go behind the scenes and let your people take the stage.
A good leader in change is prepared to work with the evolving process and accept that the ultimate outcome of the transformation could, indeed, be far better than what was originally designed in the script – given the chance.
Rosabeth Moss Kanter, compares this style of leadership to improvisational theatre: you make the best judgement you can in the moment and remain prepared to adjust to whatever new condition arises.
Leadership does not solely need to be led from the top. On the contrary, sustained change and many successes stem from small change efforts originated at the middle or bottom rungs of a company.
Henry Mintzberg, professor at McGill University of Montreal, contests the notion that change as only effective from the top. He declares it a fallacy, driven by ego and the cult of heroic management. Mintzberg advocates “the brilliance of knowing when to lay off.” Keep a firm focus on the horizon, know what is not to be compromised and allow the sensitively gloved hand to manage loosely. I have often taken that advice for the better.
Just like the riverboat captain who steers his boat from one bend to another, one must rely on point to point navigation. Our climate today necessitates we closely monitor pulses at every moment and make those constant refinements. Encourage your people to challenge conventional wisdom and ask impressive questions. Keep them informed and enlist their support in the integration plan.
This process will reward you well with a realistic expectation of success.