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Culture in M&A: A source of opportunity


April 16, 2021

During a merger or acquisition (M&A) employees face extraordinary amounts of change. Coupled with the external pressures associated with the global pandemic and recent civil unrest, culture is a crucial success factor for M&A. Indeed, in a 2020 Accenture survey of C-suite executives, 75% agreed that getting the talent and cultural aspects of a merger or acquisition right has increased in importance in light of the COVID-19 crisis.

At the same time, the merger or acquisition can be an opportunity for the C-suite to set a cultural course fit for the future. C-suite leaders need to be aware of both internal and external forces affecting employee beliefs and values. Led by messaging from the CEO, the C-suite can then move in tandem to set the cultural values and norms for the combined organization.

Culture integration is critical for the combined, future company to be successful. Beyond setting the foundation for success, leaders must ask themselves:

  • Which culture integration strategy will best serve the company in the long term: the best of both or a culture of cultures?
  • Is our culture adapting to meet the evolving needs of our workforce?
  • How can we create an environment that fosters employee productivity, effectiveness, safety and well-being amidst uncertainty and disruption?

Does your talent approach fit your deal? Learn more.

The value of culture

Culture is not one program, one center of excellence, or a single effort owned by Human Resources, but a set of actions and beliefs that build upon each other to create a movement within a company’s workforce. These actions and beliefs shape the invisible hand that guides employees to make decisions and take action. In an integration, the C-suite must move synchronously to set the cultural values and norms. Appreciating cultural differences is paramount to the success of a deal; companies who pass over them pay a steep price. Acquiring companies in mergers with a particularly wide cultural disparity between the acquirer and the acquiree saw an average net income drop of more than US$600 million per year. Companies looking to complete a merger often fail to follow through with assessing and creating a long-term strategic roadmap for merging cultures, thus creating an opening for deal failure.

After due diligence, companies must immediately set the strategy for culture integration. One strategy takes a ‘best of both’ approach, where the acquiree’s culture is absorbed into the acquirer. Conversely, a ‘culture of cultures’ approach sustains the culture of the acquiree. The C-suite needs to determine which strategy will achieve the long-term business outcomes being sought from the deal. Remember, the intent of a deal is not to immediately hit growth targets, but to retain and harness capabilities, whether they be from new tools, products, or people to support long-term value creation.

Beliefs and values are increasingly influenced by the workforce―and as a result culture is no longer dictated only by leadership and HR. Recent research shows C-suite executives are feeling the pressure from an emerging supergroup of employees dubbed Pathfinders. According to Accenture’s “Whole-Brain Leadership: The New Rules of Engagement for the C-suite”, Pathfinders are a powerful group of employees framed by self-perceived empowerment and motivations, and by their belief that they can effect change within companies they work for and buy from. Their demographics defy convention, spanning across generations from Gen Z to Baby Boomer. Given this population’s significant influence on their employers, C-suite executives should embrace Pathfinders as positive change agents to ensure the culture of the company shifts with―or even spearheads―society.

There are also opportunities beyond the C-suite. Boards that have a high involvement in workforce strategy are 3.8 times more likely to have a strong pulse on the workforce health of businesses they guide, and therefore can respond quickly to indications of falling employee statistics such as productivity, health and safety. A modern board can use culture to enable actions that guide the workforce through challenges in an uncertain world.

    Appreciating cultural differences is paramount to the success of a deal; companies who pass over them pay a steep price.

    – KATHERINE LAVELLE, Managing Director – Accenture Strategy, Talent & Organization, North America

    Address critical challenges

    The workforce undergoes large amounts of change throughout an M&A integration. This, coupled with the pandemic, is likely affecting employees. To mitigate exhaustion, leaders must identify the source from the perspective of the employees, and how they’re experiencing their work.

    For example, companies can find ways to pause efforts when necessary. One global biopharma company, in the middle of an integration effort, found employee exhaustion was at an all-time high. Leaders made the decision to implement days of rest and meeting-free Fridays to refresh and revitalize the workforce. While this decision was not without delay to some efforts, it brought significant long-term benefits to the employee-to-company relationship.

    In a merger or acquisition, companies should prioritize culture interventions related to the integration in three steps:

    1. Focus on strategic levers. Embed your cultural foundation into the employee lifecycle, incentives, and leadership.
    2. React to short-term challenges. Address immediate needs impacting your workforce (e.g., fatigue, remote work).
    3. Develop long-term opportunities. Learn from your short-term challenges and examine the opportunities to adapt for the future (e.g., employer brand, employee well-being).

    Merging M&A and cloud journeys. Learn more.

    Chart your path

    Today is the slowest rate of change we will ever experience, according to thought leader and author Jonathan Macdonald. Companies should build a cultural foundation from the C-suite to the employee level and lean on culture as a buoyant force that can rise to the challenges of external and internal pressures.

    It does not come naturally to challenge how a company works, especially during a time of disruption such as a merger or acquisition. However, the promise lies in recognizing that true culture transformations are disruptive in nature. Friction produces heat: Inherent tension and challenge are necessary for defining the future of the new organization.

    I would like to thank Srron Graham for his contribution to this post.