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Mergers and Acquisitions: What about Organisational Culture?

Insight

08 October 2015

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In our latest blog we highlight the importance of organisational culture in Mergers & Acquisitions (M&A) and how frequently this is neglected in the process.

Mergers and Acquisitions (M&A) are more frequent than ever in today’s business climate. If you haven’t already worked in an organisation which has been through one, it is likely that in the future you will. M&A are usually intended to encourage growth and create competitive advantage, but often struggle to fulfil these expectations. In fact, the majority of M&A are heading for failure from the word go. Research has found that 83% of M&A fail to create their intended value, with clashes between organisational cultures being one of the most frequently cited reasons for failure. Despite this powerful statistic, organisational culture and the people side of M&A are still more often than not neglected, leaving a crucial element of the process forgotten. 

  

Case Study: Daimler-Benz and Chrysler Culture Clash 

Probably the most well-known example of the failure to acknowledge differences in organisational cultures during M&A is that of German-based Daimler-Benz and US-based Chrysler1. Whilst the culture of Daimler-Benz was described as being conservative, efficient and safe, Chrysler’s culture was more daring, diverse and creative. There was little attempt to integrate the two cultures or to consider the potential emotional reactions of those involved, focus was purely on the formal structures and processes. As a result, share prices plummeted, many of Chrysler executives and engineers resigned, Daimler-Benz employees were unhappy with Chrysler division performance, there was little trust, lack of coordination and the two previously separate companies were unhappy working with each other. It’s therefore no surprise that a recent survey found that 46% of respondents were worried about the risk of top talent leaving following the merger. As this example shows, failure to align organisational cultures can derail the whole merger process.  

Daimler-Benz and Chrysler is not an isolated example of a failed M&A due to misaligned cultures. One of the main barriers to success for organisations is the collision of cultures and not knowing what to do about it.

 

Key Take Homes for Successful M&A: Consider the cultures that are coming together and take action:

1. Cultural Consideration

Successful M&A have an understanding of the cultures that are coming together. Despite this, research has found that only 28% of M&A pay attention to this. An example of a successful merger is between Deutsche Bank and Bankers Trust, where there was a thorough assessment of each of the organisation’s cultures. This included not only comparing the espoused values, policies and codes of practice, but also looking at what really goes on behind this, for example the relationships and networks within the organisations. 

This assessment, for example, uncovered how employees of the Bankers Trust group felt they had lost their identity since a prior acquisition of The Alex Brown Investment Group, with the new acquisition compounding fears that this sense of loss would be deepened.   

This could have meant similar losses of key talent as within the unsuccessful Daimler-Benz and Chrysler M&A. However, the thorough assessment allowed Deutsche bank to plan and take appropriate action to decrease the chances of this happening, as a result the merger was set up for success. 

 

2. Taking Appropriate Action

As a result of the thorough understanding of the merging cultures and listening to feedback, Deutsche bank responded to those who felt they had lost their identity by naming the merged company in the USA the Deutsche Bank-Alex Brown Investment Bank. This meant that the employees felt they were being listened to, which not only helped to build trust, but also ensured that talented employees were less likely to leave. 

What’s more, Deutsche bank recognised that the difficult task of engaging employees within the same vision was unlikely to be easy. As a result, an integration team was created which consisted of heads of divisions, human resources and the CEO. This team looked to monitor the merge closely, whilst also keeping employees informed of any pertinent information related to the acquisition. 

Deutsche Bank and Bankers Trust show how differences in culture don't necessarily mean the merger is doomed to fail. What does put an M&A at very high risk of failure is not considering culture at all.

 

If you would like more insight into the topic of organisational culture then you can watch our webinar here.

 

 

 References

1. Appelbaum, S., Roberts, J. & Shapiro, B. Cultural Strategies in M&As: Investigating Ten Case Studies. Journal of Executive Education, 8(1).

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