Know Thyself: 5 Steps to Mastering Your Company's Culture for M&A Success

In today’s fast-paced business world, where mergers and acquisitions (M&A) are almost commonplace, there's a critical, but often overlooked factor that can make or break the success of such endeavors—the human side of M&A.

As the dust settles on multimillion-dollar deals, it's not just financial statements and market shares that need alignment; it's the intricate tapestry of corporate cultures that must seamlessly weave together.

Too many times I’ve looked at a private equity company’s last fund, and when I ask about the portfolio companies that were bad investments, the common element is almost always culture. Not enough attention was paid to the company culture when it was merged with another portfolio company, perhaps. Or, for instance, the company president’s divisive nature wasn’t fully appreciated for the impact it would have on those around him until six months after the papers were signed. Each failure has its own story of people-related issues and culture clashes.

What can you do to avoid this cultural misalignment? 

My recommendation would be to first understand your own organization’s culture before you try to figure out some other organization’s culture. Here are the five steps to get you down that path toward truly understanding your company’s culture:

Step 1 - Conduct a Cultural Audit

Objective: Identify Existing Values and Norms

Begin with a comprehensive cultural audit, involving surveys, interviews, and focus groups with employees at all levels. Use these methods to explore shared values, beliefs, and behaviors that characterize the current culture. Assess how well the stated values align with actual practices. Does your organization “walk the talk”?

Step 2 - Leadership Reflection and Alignment

Objective: Assess Leadership's Perception of Culture

Now that you’ve got a blurry snapshot of your culture, engage leadership in discussions about the organization’s culture. Compare leadership perceptions with employee feedback to identify alignment or potential gaps. It’s important to ensure that leaders embody and champion the desired cultural traits.

Step 3 - Employee Involvement and Feedback

Objective: Gather Diverse Perspectives

Now, move further into the organization and involve employees from various departments, levels, and demographics in the cultural assessment process. Collect feedback through surveys, focus groups, or anonymous suggestion boxes. Work hard to encourage open and honest communication about the existing culture.

Step 4 - Document Core Values and Behaviors

Objective: Define Cultural Elements

Based on the information gathered, document the organization's core values, and expected behaviors. Clearly articulate what is important to the organization, and how these values translate into day-to-day actions. If your organization has already identified core values or competencies, compare them to what you now know and update them as necessary. Create a document or visual representation that can be easily communicated to all employees.

Step 5 - Assess Cultural Fit and Evolution

Objective: Align Culture with Organizational Goals

Evaluate the current culture in terms of its alignment with the organization's strategic objectives. Identify areas where the culture may need to evolve to support new goals or changes. Continuously assess and adapt the culture as the organization grows and evolves. Much like the people who comprise it, as the organization grows, its culture will change and evolve. 

By following these steps, organizations can gain a deep understanding of their existing culture, allowing them to make informed decisions during times of change, such as mergers and acquisitions. Without this level of understanding of itself, the organization can never really know what to look for when making these critical M&A decisions. 

About the series:

Mergers and acquisitions (M&A) are complex processes that often involve myriad legal, financial, and operational considerations. However, one often overlooked aspect of these transactions is the psychological impact on the individuals involved - on both the acquiring company’s side and the company being acquired. Knowing these psychological factors can have a significant impact on the success or failure of the deal, and this series aims to equip readers with insights to navigate the complex terrain of M&A with strategic foresight and resilience. 

Delve deeper: The rest of our M&A blog series can be found here. 

Article contributed by Dr. Gary Kustis