Keys to M&A Success...Culture and Strategy

The role that culture and strategy plays in the success or failure of M&A’s is more significant than many realise. Having experienced M&A’s first hand over the last ten years, both as an employee, and a contributing strategist/consultant to the M&A process, I suggest that the implications of not considering the cultural and organisational strategy factors as highly as the economic, financial and market factors is a big reason for the failure of M&A’s.

At best, it seems M&A’s are considered a 50-50 chance as to whether they will succeed.  Sometimes they are a raging success; take Disney and Pixar for example, or Exxon and Mobil.  However, despite best intentions and the robustness of the decision-making process, many of these marriages fail, sometimes within a matter of years, as in the case of Mattel and The Learning Company or Daimler Benz and Chrysler (though this dragged out for a number of years before Daimler off-loaded Chrysler); all despite the sizeable investments that go into M&A’s.

Often the decision to come together makes complete sense in terms of product and market focus; however culture and strategy are often overlooked and many times it is these factors that can bring a complex deal unstuck. Let’s come back to the Daimler Benz/Chrysler story as an example of how cultural misalignment impacts on strategy in the M&A process.  

On paper the deal looked sweet; for Chrysler they would aim to extend their international reach and for both parties, significant savings could be achieved by combining research and development functions along with combining purchasing and other operations.   However the cultures of the two organisations couldn’t have been more different.  The ways of working, conducting business and managing employees was significantly different between the German Daimler Benz employees and the approach of the American group, Chrysler.  The German half of the partnership was more hierarchical in terms of management style and favoured quality and reliability in manufacturing as the way to the hearts of their clients.  On the other hand, the American management style was more egalitarian and team based, and their client orientation hinged on the look and feel of the product, including the slogans and terminology used.  

Such a divergent cultural approach impacted the sales strategy of organisation.  This in turn had a negative impact on the production arm the business who were receiving conflicting messages and directions.  In addition, over the life of the relationship the natural style of Daimler was to impose their management style on the relationship which in turn reduced the levels of trust and engagement from the Chrysler team.  These issues, along with other similar factors, underpinned the ultimate result - the share price dropping by over half in less than two years.

This is a well known case that helps to illuminate the importance of taking a little extra time to assess the cultures and business strategy of each organisation, in order to identify synergies on that level and not just product, market and revenue.  The issues that faced Daimler Benz and Chrysler are not exclusive to this situation; we see them time and again. 

So what are the steps that can underpin a higher likelihood of a successful M&A outcome?  

Firstly; take the time to get an independent assessment of the culture of each company; not just the organisational culture (eg; innovative vs bureaucratic), but the national culture as well if it is to be a multi-national M&A.  If there are significant differences, it’s not the end of the world; however the differences are known and can be worked with from the outset rather than invisibly eroding the deal until it’s too late.  Implementing a simple process of high level alignmentbetween key stakeholders from each camp can help to determine a shared approach to working with, and leveraging, the different cultures for success.

Secondly, assess the strategies of the different organisations; look at the principles of manufacturing, project management, innovation and client interaction.  How different or aligned are they?  There may be a synergy in product strategy or a symbiotic effect in terms of market position, but if the way the product is conceived, created and brought to market is disjointed then the impact will be noticeable quickly - in terms of order intake, client satisfaction and share price. Strategy can be explored in conjunction as part of the high level alignment process mentioned above.  The strategies of the two organisations can be explored to the extent that there is a new and shared strategy created that optimises the best of both worlds.

Finally, don’t be afraid to look beyond culture and strategy to the philosophy of the two organisations.  Who were the founders of these organisations and how have their organisations evolved as a result of their intent?  They may not be with the organisation any longer, however their philosophy on why, where and how business  is conducted can still be regarded as the heart and soul of the organisation.  Importantly, if they are still with the organisation, then this is an important element to be acknowledged and worked with if the M&A is to be a success.

There is no reason for your M&A to start out on rocky ground; take the time to understand the cultural, strategic and (if brave enough) philosophical factors.  If there is difference, then realise that it is in the differences where success can be created; even if the success is that you choose not to move beyond the first couple of dates and commit to marriage!