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10 Gaps to Assess for Merger Success

Mergers have the potential to be marvelous drivers of growth. More often than not, however, mergers fail: 80% of them don’t meet objectives, and 60% destroy shareholder value.

According to research, this thoroughly avoidable situation is the result of culture gaps and confusion that emerge when business leaders concentrate on the functional aspects of integration plans, such as finance and IT, but overlook the human issues of the organizations they’re bringing together.

Mergers Don’t Work Like the Brady Bunch

You may hear people talk optimistically about bringing “corporate families” together in a merger. But unlike the parents in the 70′s sitcom The Brady Bunch, business leaders can’t assume that the two sides simply have to go through a few misadventures and chuckles before ending up happily ever after together.

All the financial, IT, and operational integration planning in the world can’t save a merger. Successful integrations require identifying and understanding the differences and divisions between the cultures and operating styles of the two organizations and developing intentional plans for resolving them.

Discounting these issues leads to the risk of severe delays in hitting your synergy targets, disengaged employees, loss of key talent, frustrated customers, and exposing yourself to competitors who see your merger as their opportunity to pick up market share.

The First Step

Based on decades of experience, we can definitively say that one of the best places to start is to convene leaders and key employees in a workshop dedicated to operating styles and culture.

Gather people from across functions in both merging companies, ideally off-site and away from daily distractions. Ask each participant to answer the questions below. Allow enough time to “peel back the onion” to deeply probe the what and why behind each answer.

Question 1
On A Scale Of 1-10, How similar do you consider our merging cultures to be? (One = Completely Different, 10 = Identical).

The point here is not that successful mergers depend on having similar cultures. Instead, success depends on knowing the level of likeness or dissimilarity so that adjustments can be made.

Question 2
How would you describe the operating styles of the two companies – in terms of leadership, decision-making, financial management, philosophies, etc.?

As with personal relationships, opposites often attract in mergers. For instance, a well-established, buttoned-down firm may be seeking the innovative spark of a free-spirited start-up. Understanding where there is potential friction or misunderstandings about how the two differences will work to complement each other will help keep that spark from becoming a distraction or, worse yet, being snuffed out.

Question 3
How do you view the basic orientation of each organization: market-driven or customer-driven?

Customer-driven companies do whatever they can to serve and support each customer, often creating customized services and solutions. Market-driven companies tend to look at the needs across the market they serve and develop solutions that fit the needs of most customers, not necessarily tailored to the specific needs of any individual customer.

Having your leaders compare answers to this question will help clarify the motivations behind their philosophies, priorities and decision-making styles. This gap is critical to align on and address in your final integration plans.

Question 4
How “Customer-Centric” would you describe each of the two cultures?

If the customers of one company are accustomed to very personalized and high-touch service, and the merger sweeps that all away in favor of automation and efficiencies, these buyers may get swept away, too. Understanding these differences can inform go-to-market strategy, customer service policies, performance reviews, and the related financial and operational requirements needed to support these changes.

Question 5
How would you describe the “energy levels” of each of the two cultures?

Consider the hypothetical case of two marketing agencies:
A family-owned traditional marketing firm acquires a young boutique creative agency known as a bunch of no-holds-barred iconoclasts. The family-firm is looking for a shot of creative adrenaline – but also looking past the side effects of such a shot. Perhaps the boutique go-getters like to take frequent breaks for ping-pong, hold office-wide celebrations for client successes, and work late into the night, while the traditional firm clocks in at 9 am, works heads down for eight hours then goes home at 5 pm for family dinners. Unless both organizations come to recognize, respect, and create a plan for reconciling the different energy levels, a potentially debilitating culture clash is inevitable.

Question 6
Do you consider the decision-making style of each organization to be Centralized or De-Centralized?

In a merger situation, the manner of how decisions get made can impact whether they get made at all. If there are different styles, agreement on a unified approach to decision-making must be established as early as possible to avoid stalling the merger integration process and frustrating the newly combined team.

Question 7
To what degree does each company recognize and reward positive employee behaviors and contributions?

Employees from both organizations have established expectations about how they should be treated. Differences must be understood, respected, and addressed. These expectations must be carefully managed during a merger – especially if reward and recognition programs are going to change and affect high performers.

Question 8
What is the experience level with M&A integration of each organization?

Experience can be both helpful and hurtful. For instance, if the acquiring firm uses frequent mergers as a core growth strategy, long-time employees may develop a “here we go again” cynicism that prevents them from completely entering into cultural and operating style changes driven by this merger. And of course, if the acquired firm is new to the merger dance, it may need extra help to stay in step.

Question 9
Do mid-level managers on both sides have significant experience with M&A integration, and how would you describe their knowledge and skills?

Here’s the overlooked truth about what makes or breaks a merger: It’s not ultimately about what happens in the strategic planning sessions or big town hall meetings. Success is lost or found in day-to-day interactions between employees. Mid-level managers have the best visibility to, and insights about, those interactions. They represent your best chance to directly address issues in-the-moment, the time when they are most effectively managed.

Question 10
How do you rate the risk of losing key talent and/or customers due to differences in operating styles or culture? (Low, Medium or High)

Save this question for last. After discussing all the above, your leaders will have better-informed perspectives on one of the most critical challenges in any merger – keeping your best people and customers.

Yes. Most mergers may fail. But yours doesn’t have to.

Once armed with the insights and information collected from this gap assessment, you can identify critical issues, establish clear priorities and finally, develop and implement a culture-change plan.

By looking ‘deeper than the deal’ and intentionally designing a plan for your culture, you will unify your organization and propel success.

Of course, we’re happy to help if you need us. Reach out anytime. We create and implement culture, brand and go-to-market strategies purpose-built for the specific needs of mid-market B2B companies in or entering an M&A integration.