“Culture isn’t just one aspect of the game. It is the game.”
– Lou Gerstner, former IBM chairman & CEO
Pritchett conducted a study of 135 executives from public and private companies and found that, on a 10 point scale, cultural due diligence rated a mean importance factor of 7.45. Privately held companies and private equity firms generally rated the importance higher than public companies. Yet, the same population rated their organizations’ success in blending cultures as only a 5.62. What does this mean? Have you ever heard the phrase “lip service?” It is one thing to acknowledge the importance, but something altogether difference to act in a way that supports that belief.
The study authors go on to note that, while culture is perceived as a key factor in merger success, there is not a consistent approach to measuring effectiveness, let alone the components that comprise it. Slightly less than half (49%) of organizations make an effort to measure. Privately held mid-cap companies and private equity companies set the pace in this arena. Non-profits and publicly-held large cap companies make far less effort to measure effectiveness post-merger or acquisition.
Given, again, the relatively high value placed on the importance of culture to integrating two companies, it is dismaying that culture is not normally a part of the due diligence process. Of the executives surveyed, 4% say their teams ask specific questions about culture during vetting. Similarly, only 5% attempt to assess compatibility through some standardized means, with less than half of those administered by an objective outsider.
It was observed that, when assessment is attempted, it tends towards subjective intuitions rather than a strategic metric. Furthermore, HR is excluded from the cultural discussion 94% of the time. On a high note, organizations that consider themselves savvy with regards to cultural due diligence perform assessments 70% of the time.
While the results for pre-merger analysis and process are not good, those for post-merger are dismal by comparison. Only 21% of organizations surveyed have an established, repeatable process that is used consistently to facilitate seamless blending of organizations.
The broad findings of the study were:
- Culture should be a more strategic consideration in the merger process. It deserves far more weight in the initial targeting of potential acquisitions or merger partners.
- Due diligence should scrutinize cultural aspects of the deal with the same discipline given to financial and legal issues. This simply cannot be done via a traditional culture gap analysis or compatibility survey.
- Culture integration should be driven from the CEO/President level. This initiative cannot be delegated effectively. The architecture of culture strategy, plus the critical first steps of execution, belong to the leader.
- Organizations should be more astute in crafting their merger communications relating to cultural issues. Both the substance and timing of these messages are crucial. Management needs to be fine-tuned in managing people’s expectations, all the while shaping workforce behavior in the desired cultural direction.