In 100% of deals where significant value was lost, senior leaders in corporate and private equity firms reported that culture issues were the root cause.
If the data shows a 100% correlation, then optimism about cultural integration in mergers and acquisitions (M&As) seems, at best, negligent and, at worst, self-sabotaging.
According to PwC’s research report “How to Create Value Beyond the Deal,” senior leaders identify culture as critical to business success and essential for value retention in M&As. Yet, many proceed as if “this time” it will all work out, despite lacking a full understanding of cultural integration.
Better options exist than leaving money on the table due to optimism, inertia, or lack of expertise. The unnecessary suffering and permanent damage caused by poor cultural integration demand a new approach to help leaders merge separate cultures more successfully.
The Importance of Culture in M&As
“Buyers and sellers both are saying culture and people need to be the highest priority from day one.” — PwC
Culture is a well-known driver of value, but many leaders overestimate their competency and underestimate its importance—only recognizing its critical role in hindsight.
Key findings from the PwC report include:
- 65% of companies (and 57% of private equity dealmakers) said cultural issues hampered value creation.
- 83% of deals that lost significant value saw between 21%–30% of key talent leave the business.
McKinsey & Company agrees: “Understanding culture and proactively managing it is critical to a successful integration. This requires a comprehensive approach. Yet leaders often overlook culture, leading to poor results.”
Leaders typically excel at technical and tangible aspects of integration but frequently neglect the human side due to a lack of cultural competency—a costly oversight.
What Usually Goes Well (But Isn’t Enough)
Some aspects of integrations are often well-executed:
- Dedicated team-building time: Teams demonstrate openness, share concerns, and discuss opportunities.
- Strong leadership in action: Leaders step up to tackle challenges and drive tasks forward.
- High business knowledge: Both sides understand the business well but often lack knowledge of the human side of change.
- Role modeling by leaders: Some leaders intuitively embody the desired culture.
What Gets in the Way of Cultural Integration
A successful integration requires working from the inside out. Key barriers include:
- Ineffective mindsets: Shifting from fixed to growth mindsets and fostering new habits requires deliberate effort and practice.
- Poor listening skills: Leaders need to “listen to understand” and differentiate between opinions and facts. Miscommunication often creates barriers, despite good intentions.
- Lack of empathy: Teams need support to enhance self-awareness and practice empathy. Even well-meaning reassurances, like keeping existing processes, can unintentionally create disappointment.
- One-size-fits-all approaches: The acquirer’s methods may work well in some contexts but can become liabilities when dealing with different cultural values.
- Leadership impact: Leadership styles heavily influence how inspiring and engaging leaders are perceived to be. Many leaders lack self-awareness of their impact on others.
Starting Strong as One Team
To preserve the best of both cultures and create value together, here are key steps:
- Design a compelling vision: Make the merger a symbol of commitment to innovation, people, and long-term success. Use proven models like the Organizational Culture Inventory (OCI/OEI®) to build alignment and tell a cohesive story.
- Align culture and strategy: Engage joint leadership teams in exploring culture readiness and developing high-performance teams through individual and collective learning journeys.
- Co-create a culture plan: Empower leadership teams to collaboratively design a new organizational culture with expert guidance. Align the desired behaviors with senior leaders’ mental models.
- Integrate with business execution: Treat cultural work as a prototype in a business context. Implement a culture champions program to model behaviors, gather feedback, and ensure communication aligns with a common vision.
- Measure progress: Define tangible metrics to assess cultural integration and track progress effectively.