Keep Cultural Differences from Derailing Deal Synergies
Culture reflects how things get done in organizations
Date : March 2, 2015
How can you keep cultural differences from derailing potential deal synergies?

Mergers and acquisition activity remains strong in the healthcare sector as organizations look for new avenues for growth and profitability. But when one organization buys and attempts to integrate another with different DNA and ways of working, challenges often arise. How can you keep cultural differences from derailing potential deal synergies? Are you even aware of the cultural differences? 

"Culture" is a powerful term in business-a concept often credited with having a significant impact on performance and potential. But it is also one that gives many executives pause. Unlike a system or a process or a product, it's one of those "touchy feely" concepts that isn't so easy to grasp and often ignored 

In simple terms, culture reflects how things get done in organizations. Culture guides how people perform their jobs. How they interact, with each other and with customers. How the organization makes decisions. How it communicates direction. How it measures and rewards people. It is the DNA of the organization. 

One way or another, culture should always come into play during mergers and acquisitions. It can be an accelerator of transaction value, or it can have a profound effect on productivity, or worse-it can impact the ultimate value from the deal. 

In fact, history will show that one in five deals fails to achieve the desired results, often due to intangible factors such as cultural integration. Buyers don't adequately consider cultural integration for reasons that range from arrogance ("we don't have culture issues" or "addressing culture won't make a difference") to avoidance ("culture is too difficult to address") to focus ("our primary concern is achieving financial synergies"). 

Applying several "best practices" can drive positive momentum for integration and the value beyond it. 

Cultural Assessment and Planning During Due Diligence
Where possible, an acquiring organization should complete a cultural assessment of both organizations before finalizing the transaction. A cultural assessment provides a clear understanding of similarities and differences on key dimensions, such risk taking, decision making, customer relationships, communication, and more (see exhibits). Having this insight allows the acquirer to anticipate dynamics and focus attention where it is most critical.

Cultural Similarities



Cultural Differences




A common difference in many mergers involves decision-making style. It is not uncommon to have one party that operates with a "decision-by-committee" philosophy and another that drives decisions down, commensurate with responsibility, allowing faster action. Decision-making differences can stifle integration and impact much more than the timeline; it can affect customer and employee morale, trust, loyalty and, ultimately, synergies. Acknowledging key differences such as this can help integration teams address them early on, before they become problems. 

Ideally, the acquirer should engage an independent party to conduct the cultural assessment, as this will lead to the most "honest" input. In addition, a comprehensive assessment should incorporate views from all organizational levels, including executive, management, and line levels. And it goes without saying that a cultural assessment will be more informative and useful if it covers both organizations. In some cases (e.g., a private target), this may not be possible, so the "next best" practice would be to make sure that the acquiring company assesses its own culture and considers where the combined organization will be in the future. This way, two thirds of foundation for cultural integration will be in place prior to the deal. 

Transparency about cultural differences and expectations for the how the future company will operate is also important. It is common to hear about merging organizations' cultural similarities-and it is helpful to call those out. But it is similarly important to acknowledge the key differences (e.g., "We are public while the target is private and not subject to some of the same processes we are"). Doing so can help bring the organizations together to define future culture and provide critical input for integration planning.

Cultural Integration After Closing
Often, responsibility for cultural integration resides with Human Resources. A unique approach is to have a separate cross-functional team devoted to culture; one not bound by a specific function's "territory" or cost/revenue synergies. This allows the team to act as a true and "independent" change agent, working closely with the overall organizational change team. 

While the "culture team" should include people from both the acquiring company and the target, it is not necessary-and in fact, not desirable-to have a "co-lead" from each company. That can create "us and them" barriers, whereas a true cross-functional team is more empowered to work cohesively and beyond boundaries. 

Another best practice is to have an executive-level sponsor, perhaps even the CEO, dedicated to cultural integration. It will be impossible to shape the culture unless the executive team is on board. But most importantly, this signals that a senior leader is paying as much attention to culture as anything else. 

Aligning cultural integration activities with deal drivers will help accelerate integration. As the saying goes, what gets measured gets managed-and measures will motivate executives, employees, and customers during the integration period. Look for ways to measure how the cultural program adds value. Key cultural dimensions, such as those illustrated above, can provide a useful framework for measuring cultural integration. What is the customer retention rate? How is employee retention? Are we trending higher in employee satisfaction? This makes it easier to tie cultural integration to deal drivers-one of which often is simply to "preserve what we just acquired." 

Finally, in acquisitions, lines of accountability often are not clear. People are focused on both their day jobs and the integration and can lose sight of things for which they are accountable. Cultural integration teams can help in planning communication so that people understand their responsibilities with respect to both the integration and the business.

Big benefits: With the Proper Care and Attention
Taking the right steps to manage culture, both before and after closing, can yield significant benefits. It engages employees and can improve retention of both employees and customers. It allows the integration teams to address and move beyond differences effectively and efficiently-and to accelerate integration and deal synergies.

Click here to read the complete article as it appeared on Healthcare Executive Insight.

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