Research shows that up to 9 in 10 mergers and acquisitions fail to meet their objectives. Why do so many M&A projects fail, and what can organisations do to avoid the pitfalls of blending two cultures during a merger?
Joining forces with or acquiring another business can be a tantalising prospect. Mergers and acquisitions (M&A) are invaluable tools to grow and evolve a business model, and they are tools that Australian companies are putting to good use. In fact, 2021 was a record year for merger/acquisition projects in Australia.
However, navigating a successful merger is no mean feat. According to global collated research by the Harvard Business Review, 70-90 per cent of M&As fail to accomplish their business objectives.
The authors put this down to a number of factors, including failure to align businesses with the strategic purpose of the deal and unrealistic targets for growth after a merger or acquisition. In their words, “Almost nobody understands how to identify targets that could transform a company, how much to pay for them, and how to integrate them.”
Sandra Morrell, Strategist and former Chief Operating Officer of Entrepreneur Resorts, has navigated complex M&A projects all over the world. During her time as COO, the Entrepreneur Group’s hospitality arm acquired businesses ranging from game lodges in South Africa to resorts in Indonesia and hotels in the Czech Republic.
While Morrell has worked on a huge variety of M&A projects, there is one common thread that unites them all: the issue of blending company cultures.
“The people factor has always been the part that can hold you back, and also the part that can fast-track you,” she says.
“It’s very difficult – almost impossible – to change a culture. So it’s important that [a merged business] has a new culture to work towards.”
In order to do this, organisations need to have clear and common goals to work towards during an M&A project. Morrell offers HRM best-practice tips for setting and reaching these goals.
1. Think like a GENIUS
A culture must be clearly defined and visible in order for it to be successfully adapted to fit different organisations, says Morrell.
The approach she applied in her merger projects utilised what the Entrepreneur Group called the ‘GENIUS model’, with six key characteristics to embody:
G – Global
E – Entrepreneurial
N – Natural
I – Inspirational
U – Unique
S – Smart.
Global and entrepreneurial thinking were crucial to initiating the acquisitions, but once the process had begun, Morrell’s focus was on the human elements of the framework.
“It was natural because we weren’t going too fast,” she says. “I was focused on [the inspiration aspect]; I was always looking at how we could do things differently and in an inspiring way.”
While the framework offers a sense of structure to the process of blending your culture with that of another business, Morrell says it is intended to be adapted based on what the organisation’s culture looked like pre-acquisition – this is where the ‘unique’ factor kicks in.
“Everywhere we worked, whenever people came in, we said, ‘This is our culture, but how would you in your, for example, safari park, attach that culture to what you’re doing?’ So they put their own slant on the culture and made it really unique to them.”
2. Collaborate on change management
When going through a merger, employees on both sides of the deal might experience anxiety or trepidation, whether it’s related to their sense of job security or their desire to preserve the culture of their existing team.
If leaders don’t proactively initiate conversations about how employees want and expect the blended culture to look, they risk an ‘us-versus-them’ mentality creeping into the newly merged workplace.
“When you’re bringing two companies together, you’ve probably got different age groups in there and different experiences,” says Morrell. “We need to position upfront that there’s going to be some compromise and that there’s going to be some change.”
“Culture is not something that you just bring out and dance around. It’s something that has to be lived every day.” – Sandra Morrell
She suggests hosting one or more ‘culture creation sessions’ where employees are encouraged to express their wants and expectations, and reach a clearly defined middle ground between the two parties.
“Culture is not something you just bring out and dance around. It’s something that has to be lived every day.
“So we ask: ‘How do you want to feel when you show up to work? Do you want to feel like you’re part of a family, or do you want to feel that it’s very professional? Do you want to see everyone dressed formally, or everyone wearing jeans?’ If everyone is verbalising these things, you can come to a clear agreement.”
3. Use a merger as a chance to improve
While employees and leaders can often feel protective of their cultures and ways of working, Morrell says merging with another company should be seen as an opportunity to combine your strongest elements and trim the fat from less efficient processes.
“You’re not just looking at the teams, you’re looking at the technology, the accounting systems, the CRM – every little part of it. And we might say, ‘Hey, you guys have got a better system than us. We’re going to keep yours.’
“It [also] gives you a chance to easily identify and potentially move out team members who aren’t performing as well.”
The process itself can also have a marked impact on the performance of existing employees, she says.
“When they get some competition coming in, team members that have had performance challenges can step up,” she says. “You see some team members start to shine because they’re seeing someone come in from another organisation and work faster and more efficiently, or with better ideas.”
“When you hire, don’t just hire on skill, hire on cultural [alignment],” says Morrell. “You’re better off hiring on cultural [alignment] with less skill, and knowing that you can upskill them. The mindset is more important than anything else.
“People are walking out now and finding another job very easily. We need to make sure there is a great culture that they’ll stay for and that they will love working within. So create one, and take ownership of it to make sure it’s maintained.”
Need help navigating workplace change? AHRI’s short course will arm you with the skills to understand change dynamics at an individual, team and organisational level.