David Morley was interviewed by InsideHR to get his thoughts on what it takes to get cross-cultural M&A's right...you can read the interview here:
Depending on whose research you rely on, we know that M&A’s have a failure rate of anywhere between 40% - 80%, so the need to understand the factors that can help give your M&A a greater chance of success is crucial. A post in the most recent edition of the Harvard Business Review points to the fact that leadership is a key criteria in the success of M&A’s. In his article, J Keith Dunbar says that it’s not only the leadership abilities of the acquiring company that are key, but the leadership capability in the target company as well. This is a great insight, and a perspective not often considered; at least not to the depth explored in his research.
Interestingly though, the research didn’t highlight two of the key areas that are often cited as the culprits of a broken M&A marriage. Culture and resilience. There is an interdependence that exists between the two, and at the same time they each bring very unique and different qualities to the table that can underpin a successful M&A, JV or partnership.
Culture is as much an individual factor as it is an organisational reality, and in the HBR article there are leadership attributes identified that support the leadership of a healthy culture and that reinforce aspects of a resilient workforce. Motivating and influencing others, relationship building, integrity, adaptability and customer focus. All practical and important aspects of leading a healthy and resilient culture.
However, knowing what we do today about the nature of organisational culture and the links between leading and living the values of an organisation, this is an area that should not be overlooked. Where possible this aspect of leadership should be made explicit in the M&A process, and not assumed that it will inform the way leaders lead in this context. The extent to which a leader adopts M&A leadership values and behaviors is in many respects the extent to which the M&A gains traction on the ground from the very beginning. Too often, as consultants working in this space, we come in years after a merger or acquisition only to find pockets of middle, and sometimes senior, management talking down the whole change process and not completely embracing the new organisational identity. And yet, it is these people who we rely on to embrace M&A leadership behaviours such as:
Landscape Thinking. They seek to understand the bigger picture – the broader landscape, within which the M&A sits. For this reason they are able to calmly and diplomatically deal with issues that arise throughout the M&A process, simply because they understand the broader context.
Assertiveness. It goes without saying that part of the M&A implementation strategy is ensuring that all leaders and employees are provided the bigger picture along with a more tactical layer that demonstrates where they fit and why. But this isn’t always the case, nor does everyone interpret the message in the same way. For this reason it falls back to the leadership to seek to understand both individually and as a group the ‘why’s’ and the ‘how’s’ and exactly what their role is in fostering the change.
Emotional and Behavioural Responsibility. Not everyone, including leaders, will like all aspects of an M&A; as a result there will be many emotions expressed, sometimes unfiltered, at many levels of the organisation. However a key leadership attribute is the ability to balance the tension that exists between how they feel within themselves about the change, and the business reality. Only then can leaders continue to provide a stable style of leadership that is needed to help see in the new ways of working.
When you look at the more successful M&A’s there is an undeniable presence of each of these factors along with a focus on the intersection between culture and strategy as explored in a previous post on strategy and culture in M&A's. Examples over the last 10 years include the CPP buyout of its main Australian distributor, the Publicis Groupe acquisition of Saatchi and Saatchi and the CEMEX buy out of RMS in the cement industry. All of these examples were successful due to a healthy spread of focus across the strategic and cultural factors. One case that truly highlights the value-add of such an approach is the Proctor and Gamble buyout of Gillette. P&G set the scene for success by taking a human and inclusive approach that matched, and some would argue, exceeded the energies invested in the strategic, financial and operational due diligence process. P&G ensured that the Gillette leadership group understood the bigger picture, and involved them in creating the next stage of the journey. Leaders and employees were encouraged to ask questions, and seek to fully understand what was happening, why and where they fitted. Integration teams made up of executives from both organisations worked on the ground to create a shared understanding of the new ways of working and numerous town hall meetings fronted by the most senior of the P&G and Gillette leadership teams kept the workforce across the latest developments. On top of this, full training was provided for Gillette employees in how to build networks and be personally and professionally successful within the P&G organisation. All leaders, especially P&G leaders, were encouraged by the CEO to walk the talk when it came to the emotionally intelligent aspects of leadership. For example, how they connected with all employees from both sides of the organisation; and not referring to ‘sides’ – breaking down the barriers and silos in the way they acted on a daily basis.
The common thread through all of this is that it is ‘how’ the leaders lead in the context of an M&A that makes the difference, and not just that they do. The leadership required in a stable organisation not undergoing significant change is a different context for leadership than that required in an M&A situation. Equally important is that the organisation set it’s leaders and workforce up for success by making the cultural aspects of change as tangible, explicit and important as all other aspects of the M&A 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!