The Value Killers by Nuno Fernandes

Author:Nuno Fernandes
Language: eng
Format: epub
ISBN: 9783030122164
Publisher: Springer International Publishing

Culture: The Universal Scapegoat

When seemingly good M&As “unexpectedly” go bad, one of the most common explanations given by CEOs is that the organizations’ cultures turned out to be a mismatch. In many instances, however, “culture” is merely a convenient scapegoat. All too often, culture is the “Go-To” excuse that boards and senior management use to mask other explanations for the deal’s failure—explanations that might lay blame at their own feet. (Note: For the purposes of this book, I define culture as simply “the way we do things around here.”)

I’m not suggesting that cultural differences are never (or only rarely) the cause of problematic integrations. Far from it. Cultural alignment is one of many critical success factors in any value-creating transaction. What I am suggesting is that culture is a poor choice as a universal scapegoat because there are many ways for internal and external M&A teams to identify, diagnose, and prevent synergy-killing culture clashes at various stages of the process. Executives who default to “cultural mismatch” justifications are basically asking employees, customers, and investors to believe that there was no way they could have anticipated cultural problems. They are asking to be viewed like the unlucky farmer whose wheat field was just washed away by a rogue thunderstorm. (Who could have predicted that, right?)

Unfortunately, an alarmingly high percentage of acquiring companies put themselves in the position of the poor farmer. According to one survey, most organizations “have not yet developed a structured process to effectively diagnose, manage and integrate organizational culture – even in light of the fact that almost 75 percent regard culture as a key component in creating deal value.”4

Another study reported that, though companies cite cultural integration issues as one of the top two causes of deal failure, 58 percent said they did not have a specific approach to assessing and integrating culture in a deal. Of the firms that lost key talent at higher-than-normal rates during transactions, 68 percent did not have a specific approach for culture.

Most disturbing, none (0 percent) of the surveyed companies reported that its cultural integration practices were effective. In addition, over 50 percent of companies reported that they had failed to achieve their stated objectives in past transactions, and over 50 percent stated that they had lost key talent at the same rate—or a higher rate—than non-critical talent.5

In sum, too few companies analyze the cultural compatibility of the targets prior to the deal, even though most executives recognize the dangers of ignoring this issue. When cultural considerations are left out of the process, the consequences can include plummeting employee productivity, high rates of worker and customer attrition, delayed and canceled orders, and so on.

If we further define culture as the shared values that drive the behaviors of employees to desired outcomes, then the Chrysler/Daimler-Benz merger of 1998 is probably the best—or at least the most infamous—example of a culture clash that led to “epic failure.”

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