Cultural Integration: our perspective
Getting culture right is core to successful M&A. Research has shown that failing to integrate organisational cultures leads to 30% of M&A deals missing their financial targets, due to productivity losses, disruption of customer relationships, attrition of talent and delayed synergies. However, despite the increased recognition of its importance, culture is often an afterthought, and is addressed in ways that are insufficient, incorrect, or late.
Today, most approaches address cultural integration using standard frameworks and tools that do not account for the complexity and uniqueness of culture. To lead and manage cultural integration successfully, companies must map the root causes and interdependencies of it.
ReD Associates offers a systematic, deep, and bespoke method for managing the complexities of cultural integration, based on the application of world-class humanities and social science-led thinking developed specifically for M&A activities.
When is cultural integration relevant in the M&A cycle?
Cultural integration of two organisations is relevant across all phases of M&A activities.
ReD Associates has extensive experience supporting M&A activities. A deep, qualitative approach enables us to understand existing cultures at depth, systematically analyse what happens when they meet, and carefully define the desired culture to nurture after the deal is closed. ReD can be a trusted advisor across all phases described above; identifying risk factors, planning cultural integration, and designing culture implementation initiatives.
What is organisational culture?
Our perspective on culture is based on a rich body of research from the humanities and social sciences on how culture is built, spread, and changed. We believe that a company’s alignment of its formal and informal factors is a vital piece in being fit to execute on its overall strategy.
The formal factors – what we define as structure – are those that the company has the most control over. These are often tangible factors that can be seen or captured in writing, such as strategy, operating model or job descriptions. They are typically the result of explicit decisions by leaders in the company and can be changed.
The informal factors, or culture as we define it, consist of a collective set of beliefs, values, and norms that shape how we understand ourselves in relation to others, how we behave, and what is important to us. To better understand these informal factors, we study more intangible aspects of an organisation: what is considered meaningful work; definitions of ‘us’ and ‘them’; myths and origin stories; work practices and habits.
The alignment between structure and culture is crucial for the long-term resilience, flexibility, and coherence of the organisation, as well as its ability to execute on its overall strategy. In an M&A situation, the alignment of formal and informal factors, or structure and culture, is highly complex and it can be hard to foresee and manage all potential risks and opportunities.
What happens when you get culture wrong?
When cultural integration goes wrong, we often see three different situations play out, each representing a different kind of misalignment:
The hidden problem: when two organisations look like a well-suited and complementary match on the surface with highly similar core competencies, technologies and market focus, but actually have two very different value systems and behavioural patterns. In this situation, it is critical to highlight and map out the main cultural differences and find ways of reconciling them to avoid internal tensions.
Lost in translation: when two companies look very different in terms of structure, strategy and capabilities, but actually share many of the same cultural traits in terms of what is believed, celebrated and trusted. In these situations, success relies on aligning and consolidating the two formal structures and using culture to build bridges between the two organisations.
Culture clash: when both the formal and informal structures are misaligned, seen across both organisations in for example collaboration models, incentive structures and communication styles. The potential tensions will most often be clear, and the job at hand will be to manage them while identifying and highlighting the potential for synergies.
What can ReD offer?
Due to the complex makeup and interconnectedness of organisational culture, we at ReD Associates believe that culture needs to be understood and addressed qualitatively and at depth – a survey and a standard framework is not enough. In line with this, we offer a range of services that can mitigate risk and maximise value across the M&A process.
Interested in discussing how we can help?