One of the major reasons that M&A fail is the lack of integration between corporate cultures, experts say. That was the case when Daimler-Benz and the US-based Chrysler Corporation tried to merge in 1998. That attempt, which amounted to billions of dollars in revenue lost, failed in part because of the differences in management styles and corporate cultures.
“Corporate cultural integration is one of the most critical success factors in any M&A deal, yet failed cultural integrations are a regular outcome of M&A activities and often result in declined productivity, disenchanted employees, and a severe erosion of organisation culture and values,” says Theresa Hall, Head of Asia, Global HR Recruitment, Frazer Jones.
Employers and experts explain that for a seamless integration between companies, HR and management should consider the cultures and values compatibility between the organisations from the first negotiations.
“In the initial stages of the transaction, there is such a high focus on just closing the deal that, very often, little consideration is given to the cultural and values compatibility of each entity,” Hall adds.
Lay the groundwork
In the McKinsey Global Survey, Organizing for M&A, nearly a third of respondents said that their companies put off integration planning until after negotiations have begun. What’s more, 29% said their organisations were not willing to make changes or launch targeted interventions to address cultural gaps. The authors of the study also noted that this failure to manage integration and cultural differences may be due to a lack of resources and formalisation.
Experts agree, saying that HR and management must act as enablers to ensure that the integration process between merging companies goes smoothly, especially through proper integration planning. “HR and business leaders should have an effective pre and post-integration transition plan, and ensure robust targets and milestones are in place around cultural harmonisation, ideally led by an experienced project manager allocated to the project,” explains Hall.
She adds that some issues that HR and management should look into include maintaining clear and regular communication with affected parties to create a transparent and consistent message about the merger or acquisition, and identifying what changes in existing organisational behaviours need to take place for the post-deal organisation to be successful.
James Loh, Chief Accountant, Lenovo Worldwide, whose organisation went through a successful alliance with IBM, says that management should “make a decision on which aspects of culture from both companies should be kept, and which new common areas can be developed to form a new company culture.”
He adds that leaders should look at establishing corporate values and corporate culture early in the game. Ideally, this should be part of the structured plan in building the new company quickly and efficiently within the first 100 or so days. Loh says that this will enhance the probability of success, and could encourage the building of trust and help to bond new team members together into a productive unit.
Another organisation that had a successful merger was Nokia Siemens Networks. Before the integration was carried out, both organisations (Nokia and Siemens) laid the groundwork. Ciaron Murphy, Business Partner for the Eastern Hemisphere and Head of HR Asia-Pacific at Nokia Siemens Networks, says: “The culture had to be one that would serve our customers and employees and that would be distinct from both Nokia and Siemens and yet acceptable to both. We leveraged the ‘wisdom of crowds’, as in it was not created in a vacuum but with significant input from our people”.
Re-emerging stronger than before
Laying the groundwork was all well and good, but how did these organisations – Nokia Siemens Networks and Lenovo – achieve the corporate culture integration as successfully as they did?
Loh says that during the merger period between Lenovo and IBM, there was a lot of uncertainty and angst at every level throughout the organisation. “Everyone was relying on stereotypes and pre-conceived notions about the other company,” he says.
He adds that senior managers in the early part of the merger adopted more face-to-face meetings and workshops. Also, there were lots of senior level engagements to increase familiarity, understanding and to jointly establish an organisation structure that would work for the new company.
“As leaders, we tried our best to reassure employees and project a positive outlook, trying our best to encourage them and pulling the team together as best as we could,” explains Loh. Moreover, the possibility of what the new company could achieve served to excite and energise staff into achieving a shared goal and mission, he says.
An interesting thing to note was that it was not just a merger of two technology giants and their corporate cultures, but also of two very different national cultures: Lenovo, a Chinese company, merged with American IBM. When asked if the differences in cultures made a difference in the merger, Loh replies: “Lenovo during 2004 was a very forward looking company, in terms of company vision, HR practices, diversity, and employee welfare. In fact, IBM and Lenovo were alike in so many ways, such as respect for the individual, employee welfare and care, innovation, and engineering of products as a key focus.”
Nokia and Siemens pulled out all the stops during the merger period to achieve a seamless integration. “We leveraged IBM to create a ‘culture square’ where people could get their thoughts and feeling out in the open (100,000 hits, 8000 postings),” states Murphy. After reviewing the data for key themes and messages, the companies had a ‘cultural jam session’ that had 9000 people online discussing, chatting and thinking in real-time with each other. This included most of the senior leaders in the two organisations.
The organisations also segmented employee population according to role, organisational tenure, and degree of change expected – as some roles or functions changed significantly, while others changed very little – and then tailored different interventions for each segment, explains Murphy.
Another interesting thing to note was that an artist was employed to actually draw the culture on both a good day and a bad one. “We asked a focus group from each country to describe their culture to an artist who then transposed these impressions into pictures of Nokia and Siemens on a good day and a bad day,” Murphy says. “These visuals really got traction and were used in employee engagement sessions to discuss differences across the company,” he concludes.
The Daimler and Chrysler collision
It was talked about as one the biggest business mergers in the century, when automotive giants Daimler-Benz and Chrysler Corporation decided to join forces in 1998. However, the deal proved to be a disaster. In 2000, the Daimler-Chrysler organisation suffered a third quarter loss of more than half a billion dollars. Analysts felt that though the merger made good business sense, different corporate cultures and management styles were the major reasons for the failure. In the study, Cultural Conflict and Merger Failure: An Experimental Approach, the authors argued that the corporate cultures ware extremely different between the companies. Daimler-Benz’s culture stressed a more formal and structured management style, while Chrysler favoured a more relaxed, freewheeling style of work.
Culture alert: M&A checklist
Theresa Hall, Head of Asia, Global HR Recruitment, Frazer Jones, says that HR and management should take note of the following to ensure a successful (cultural) merger or acquisition:
• Make certain reasons for the deal are explained to staff, and the degree of integration is clearly defined and communicated;
• Ensure communication is clear to all employees, stakeholder groups, vendors and partnerships, and the external marketplace. Communication should take place early and very regularly and it should also be transparent and have a consistent message;
• Organisational cultural differences should be identified and the attributes of the going-forward culture should be clearly defined, and critical behaviours should be reinforced. Identify what changes in existing organisational behaviours need to be made;
• Develop a clear branding strategy and employee value proposition and ensure this is well-promoted;
• Secure key senior management with agreed roles and a clearly defined organisation structure;
• Potential employee morale issues should be considered and addressed early, and incentives and interventions developed, authorised and utilised wherever appropriate;
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