It’s common knowledge that most M&A deals fail. The statistic most often cited is that 70 percent of them don’t succeed. That is, they fail to achieve the goals that drove the business to acquire in the first place. No matter what the true failure rate is, two facts are inescapable:
According to most CFOs and M&A specialists, cultural problems lie at the heart of many of the failures. Acquisitions involve more than just financial and strategic considerations. Often, the most challenging aspects are the human and cultural dimensions. As companies come together, they bring with them diverse cultures, communication styles and goals. These are significant hurdles that, if not managed effectively, can derail the entire integration process.
68% Integrating cultures
53% Integrating technology and data
35% Limited internal resources
Source: 2023 WTW M&A Barometer
Cultural differences are one of the most profound and often overlooked challenges in mergers and acquisitions. When companies from different backgrounds come together, they bring with them a unique tapestry of communication styles, organizational structures and core values. These differences can create significant obstacles if not addressed proactively. One of the most immediate issues is the disparity in language and communication styles. Misunderstandings can arise from something as simple as the tone of an email to the nuances of body language during meetings. These communication gaps can lead to frustration, delays and misinterpretations that hinder the integration process.
Equally important are the cultural differences in expectations about hierarchy and decision making. In some organizations, decision making is highly centralized, with authority concentrated at the top levels of management. In others, decisions are made through a more collaborative and consensus-building approach. These differing expectations can lead to tension and misunderstandings. For instance, employees from a hierarchical culture might perceive a lack of direction or leadership if decisions are made through group consensus, while those from a more egalitarian culture might feel stifled by top-down directives. Understanding and acknowledging these differences is crucial to creating a cohesive and effective decision-making framework within the merged entity.
The most profound challenge, however, often arises from conflicting values and beliefs. Companies have deeply ingrained values that guide their operations and interactions. These values range from attitudes toward work/life balance to ethical standards and risk tolerance. When these values clash, it can create a sense of dissonance and resistance among employees. For example, a company that values innovation and risk taking might struggle to integrate with one that prioritizes stability and caution.
Communication is the lifeblood of any successful transaction, yet it is often where the most significant challenges arise.
Inconsistent, vague and conflicting messaging must be avoided. When different parts of the organization receive conflicting information, it can lead to mistrust and uncertainty. It is essential for the leadership of both merging entities to maintain a unified front and ensure that all communications are clear, consistent and aligned with the overarching goals of the merger. This consistency helps to build trust and fosters a sense of cohesion among employees, which is vital for a smooth integration.
Moreover, a lack of transparency as well as infrequent, late and inadequate information sharing can be equally damaging. When employees feel uninformed or their concerns are dismissed, it can lead to pushback and disengagement. Transparency is the linchpin; regular updates and open channels for dialogue, where employees can voice their concerns and receive candid responses, can be transformative. Fostering an environment of open communication lays the groundwork for trust and mutual respect, which are indispensable for successfully navigating the complexities of post-merger implementation and integration.
Often, acquiring and acquired companies come to the table with divergent strategic visions, financial aims, market positioning and operational targets. These discrepancies can create friction and undermine the efficacy of the merger. For instance, the acquiring company might prioritize rapid growth and market expansion, while the acquired company may focus more on maintaining its existing customer base and ensuring product quality. Such differences can lead to a tug-of-war over resources and strain employees.
Employee resistance is a common and significant challenge in mergers and acquisitions, rooted in the deep-seated fears and uncertainties that employees often experience. One of the primary concerns is job security. Employees may worry about potential layoffs or redundancies, fearing that their roles will be deemed unnecessary or duplicated in the new organizational structure. This anxiety can be intensified by the lack of clarity about their future roles and responsibilities, leading to a sense of instability and insecurity.
Employees are also concerned about the changes in their day-to-day work life. They may worry about changes to their workflow, processes, company culture and even their colleagues. A lack of understanding of the benefits of the M&A often compounds this resistance to change. When employees don’t see the clear advantages of the deal (to the organization and themselves), they are more likely to be skeptical and hesitant. Additionally, employees may be loyal to their current company. If employees have a strong emotional connection to their company, they may resist changes that they perceive as a threat to the company’s identity or values.
Leadership clashes can be some of the most formidable challenges to overcome. When leaders from merging companies have differing management styles and decision-making processes, conflicts are almost inevitable. These disparities in corporate cultures can create significant obstacles in communication and understanding, leading to misunderstandings and tension among top executives. For instance, a leader accustomed to a highly structured and hierarchical approach may clash with one who prefers a more fluid and collaborative style. Such differences can hinder the integration process and overall collaboration and delay strategic decision-making.
Misalignment of leadership vision and goals further compounds these issues. When the visions of the combined companies are not in sync, effective decision-making and collaboration become nearly impossible. This misalignment can lead to conflicting priorities and strategies, which can derail the integration process and undermine the overall success of the merger. Power struggles and competition for control can arise. This can create a toxic environment in which personal agendas take precedence over the goals of the organization.
Proactively managing cultural aspects in mergers and acquisitions is critical. By fostering transparent communication, implementing training programs and establishing a governance structure, companies can build trust, unity and a cohesive workforce, which are essential for a successful integration process.
