When Mergers Fail for Personal Reasons

On paper, mergers and acquisitions can make a lot of sense for growing businesses: buying another company can be a quick way to achieve corporate diversity and growth. It’s usually an exhaustive process: an M&A team can spend weeks or months performing the due diligence it thinks it needs to make the transaction a positive one.

Yet at best it appears that only 50% of mergers result in success, and reported financial failure rates are as high as 80%.

One reason is that the primary focus of an acquisition team tends to involve the “hard” issues, ones involving the strategic and financial fit of the parties involved. Decisions to buy or not to buy are driven by availability, price, potential economies of scale, and projected earning ratios.

What many managers don’t realize-or realize too late-is that cultural incompatibility can be a significant factor in poor merger performance. It is estimated that the cost of poor cultural integration may be as high as 30% of the performance of the acquired organization.

Failure to properly manage cultural integration can result in poor morale, stress, inter-departmental conflicts, increased absenteeism, high labor turnover, poor work quality, a “we are right, you are wrong” attitude, and lower productivity.

If you’re faced with an acquisition, no matter how small, there are steps you can take to reduce the impact of a “culture collision”:

1. Acknowledge the importance of corporate culture. An organization’s culture consists of the values and beliefs that guide individual and business behavior. Like societal culture, it fosters cohesiveness and order, and thereby helps workers feel secure.

Every group, corporate or otherwise, has a unique culture that is shaped by its members’ history and experiences. An organization may even have various sub-cultures.

Such attitudes, beliefs, and values are deeply embedded and not easily changed. And when they’re threatened or disturbed or forced to change-as during a merger-it’s natural for people to resist.

2. Flex your “soft” skills. Driving change to new goals and a new culture is a major leadership challenge. For whatever change is necessary (physical, organizational, or administrative) as you bring two cultures together, remember it is the people who must drive the change.

Simply telling someone what to do does not lead to changing his or her mind. In fact, very often the result is confusion and a slowdown as people resist making the necessary changes in perception and behavior. Resistance to change operates unconsciously and automatically to control perception and behavior.

For example, the best technical, administrative, and operating systems won’t work unless the people decide to operate them properly and effectively. Therefore, their values, beliefs, and attitudes need to be taken into account, and often need to be changed in order to have them adopt the necessary behaviors that bring about the desired change.

3. Develop a transition strategy. How will you or your managers deal with the varying emotions-ranging from apprehension to anger-of a cultural transition? What proactive steps will you take to gain a sense of loyalty and trust?

You need to start the process as soon as possible after the transaction. Employees who are left in the dark about changes happening around them may feel especially isolated and uneasy about their future. When those feelings are pervasive enough in a corporate culture, they can undermine the success of the combined enterprise.

Allow time for employees to adjust. Keep your door open, walk around, be visible and accessible. People are resilient (in this day and age, this many not be their first buyout). Given some patience and understanding, trust and loyalty can be re-earned. It’s your responsibility to ensure that employees have the opportunity to do so.