The idea that cultural differences can spoil a merger or acquisition deal isn’t new, but according to M&A consultants at The Boston Consulting Group, cultural differences often show up unexpectedly.
In fact, BCG uncovered material differences in 100 percent of the deals the group analyzed for a cultural assessment, including deals involving companies in the same industry, BCG said in a report titled “Breaking the Culture Barrier in Postmerger Integrations.” The report published on the BCG website in mid-January refers to an examination of more than 20 deals and also notes that cultural divides are greater higher up in the ranks of organizations. “In most dimensions, senior managers showed differences two to three times greater than nonmanagers,” the report says.
Ignoring such differences can put a merger integration process in jeopardy and also jeopardize the performance of the organization after the integration is complete, according to authors Chris Barrett, Daniel Friedman, Jim Hemerling and Julie Kilmann.
The authors outline four recommended steps for tackling culture differences, the first of which is simply to identify them. “Doing so is a critical first step in a post-merger integration (PMI). Ideally, it should happen well before the integration begins—even during due diligence, if possible,” they say.
Noting early on that the vagueness of the term “culture” may be one reason that deal partners put the issue off to the side instead of addressing it, they define culture as “an organization’s values and characteristic set of behaviors, which collectively define how things get done in support of the organization’s purpose and strategy.”
In a sidebar to the article, they describe a culture diagnostic that BCG uses, with strategic dimensions such as flexible vs. structured, individualistic vs. collaborative, and diplomacy vs. directness. The article itself provides an example of a culture clash between companies that had common values, but one was product-oriented and the other was customer-focused.
The article details three additional steps for successful integration: addressing differences early in merger integration, taking a systematic approach, and finally migrating and measuring success.
For details involved with each of these steps, the full article is available here.