November 15, 2012

Dustin Seale, Senn Delaney Partner and Managing Director EMEA, provides expert insights into the importance of culture integration in large mergers and acquisitions in the Business Reporter Report on Mergers and Acquisitions 2012 published in The Daily Telegraph.

View expert panel: overcoming obstacles to successful M&A deals

View the article: Helping East meet West

View the article: Tackling culture clash

View the full Report on Mergers and Acquisitions

The following is a summary of articles by Dustin Seale that appeared in the publication.

A more emotional, mindful approach is needed for gaining real buy-in and synergy

Organisational culture, by its nature, is incredibly difficult to change. We all like the feeling of stable familiarity, and it is human nature to resist changing our habits and behaviours when change is trust upon us. Strategy can be, and often is, changed very easily. So, during mergers and acquisitions, why do acquiring companies tend to mould culture around strategy, and not the other way around?

Mergers and acquisitions are a key part of many organisations' strategies. Unfortunately, up to one third of mergers fail within five years, and as many as 80 percent never live up to their full potential. Culture clash is the key culprit. I was recently interviewed for two articles and an experts column that are in the new report on mergers and acquisitions published in The Daily Telegraph. Here is a summary of the key points I make in the report.

Most people we've worked with have done a very good job of looking at the strategy of the combined entity, the financial reasons for putting it together and how they're going to gain the results. But eight times out of 10 they've only given a cursory thought to how to bring two cultures together; it's mostly often the blind spot in terms of integration.

Address culture integration at a human level

Acknowledging that culture clash is a real challenge is important, but acting to methodically address the cultural integration at a human level is critical to M&A success. Developing an approach for tackling this takes a different way of thinking.

No matter how strong your strategy, any newly merged organisation – whether it is the acquirer or the acquired company – will be impacted by pervasive fear and uncertainty. In M&A, the first thing to recognise is that fear is going to be a part of the equation, and you cannot change fear with logic. It is our primal brain that deals with fear. The decision and assumptions we make, the behaviour we display when coming from fear, are a survival mode. This is very different to the higher order brain, our logical brain.

Leaders must articulate and engage with different stakeholders about M&A goals and vision, but to gain real buy-in and stability from staff, a more mindful approach is required. Yet, most companies approach this with little success. They go tell employees that there's a brighter future, that we're a bigger, stronger company together, and we value you all. This is a great communications platform, but it only addresses the logical part of the brain, not the emotional part.

Addressing the human side of M&A requires a shift in behaviour and alignment around new, desired behaviours

So, how do you address the human side of M&A to avoid culture clash? Senn Delaney, as the first firm in the world to focus exclusively on transforming cultures, has guided major merger integrations, helping companies involved with M&A to bring two or more cultures together by a process that initially includes ‘unfreezing' – melting away old habits and patterns of thinking – and then aligning people to a unified set of defined values and guiding behaviors, starting with the executive leadership team.

The only way to unfreeze, because we're all pretty hard-wired in our ways, is to have an experience that creates insight deep enough to break the old thinking. This addresses the emotional part of the brain, which is the source of the real buy-in you need to deliver on the pre-merger promises.

Helping East meet West: Understanding the differences between Asian and western markets during merger deals can avoid a culture clash

Right now Asia is the leading market in the world, with people and businesses all vying to be a part of that growth engine. But whether you want to join somewhere like China to be a part of the growing consumer market or whether you want to invest in foreign assets to improve efficiency, M&A in Asian companies means the issue of culture clash becomes doubly challenging.

Imagine if you chose a marriage partner purely for hair colour, height, or city of origin. Chances are it wouldn't really work out in the long-term, if at all. The failure of many cross-border mergers into Asia can be attributed to an integration strategy with similarly shallow considerations.

If you look at acquisitions, the depth of the connection often stops at the superficial, whereas in any relationship it's actually the operating system, the history, the thinking, the culture behind it, that either makes it work or not. Understanding these things requires much more depth.

Addressing culture from a principles-based approach is essential in cross-border mergers

With the excitement around Asia, it's also concerning that organisations buying into the marketplace often abandon their acquisition principles. The same acquisition principles that have guided you in the past will work in Asia, with the addition of examining culture more carefully. But abandoning your principles at the outset is never advised.

Any company, when first looking into a cross-border merger within Asia, needs to know its own principles and not break them, because that is going to guide your success. Be clear about where you can be flexible and where you cannot.

Standards around respect, formality and decision-making are also very different in Asian cultures. Communication issues arise even with the best English speakers and translators, so you cannot rely on all the same techniques to engage with people. Be assured that making the acquisition a success will require you as the acquirer to be 50% better in terms of communication and engagement.

You have to approach culture integration from a principles standpoint. There are human principles that exist everywhere in the world – I don't know of a culture in the world where they say 'listening' or 'working together collaboratively' or 'being accountable for results' is a bad idea.

Note that principles and behaviour are two different things, with acquiring companies often entering into integration with western behavioural statements, which will make perfect sense to the rest of the western world, but when translated are actually quite confusing or even disrespectful in an Asian context. But this is a challenge that can be overcome if you address culture at a principles level.

If you have a principle of accountability, and you allow for expression of accountability through the local culture, people can make sense of it in their own context. It requires a disciplined integration process, but approached this way, acquisitions in Asia can meet and even exceed pre-deal expectations.

Here are more resources to understand the culture implications that can either accelerate M&A success or cause your merger to fail or not live up to its full potential.

See article by Senn Delaney Chairman Dr. Larry Senn:
Culture clash in mergers and acquisitions

See Senn Delaney news release on avoiding culture clash