ECI has helped companies make a smooth transition after merger and acquision. Our studies have shown that the number one reason merger or acquisions fail is because the culture is never fully integrated. Company leaders often think that because they have introduced the cultural expectations to the new company members, that is sufficient for a well integrated culture to emerge.
People change when the pain of change is less than continuing to do things as they always did. So, in the case of cultural integration, some work needs to be done to disable old habits and preferences of the merging organizations, either to come to new consensus on what the culture will be, to impose one of the cultures on the whole organization, or to begin again to devise a new culture. There are no in-between strategies here, folks. This is one you have to make a decision around and then put the plan in place to make it happen.
The best way to do this is to go through the basic steps an organization does as it is devising a culture. Build the mission and vision, decide how to communciate this vision and mission across the organization, execute the communication plan, communicate some more, communicate one last time, and then insist.
Rewarding demonstration of the cultural expectation is a positive way to make sure people follow the new expectations. Enabling teams to determine how they will live the new cultural vision in their teams is another way. And of course, taking action to prevent slipping back to the old ways of doing things is important as well. Always recognize the successes that teams make in this area, as it proves not only to the organization but to all team members that living the culture is important.
We worked with an insurance agency many years ago that struggled with the integration process for some time before they finally developed a new organization. It was painful, as it always is, because of the idea that two different organizations were coming together for very specific reasons. The reasons, however, got mired in the details over who is in charge, what is the chain of command and what are the authority levels of each of the partners. These are key questions that needed to be answered prior to throwing all the people together at one location, but then they didn’t invite us to help until six months after the combination occurred. Lessons learned.
So if you are considering an integration, merger or acquision, think about the questions of which organizations/teams afford the most likely cultural model to follow, who will be in charge, and what is the new level of decision making in the combined organization. And communciate the answers to these, and other key questions, up front before you put the structure and organizational charts on paper. It makes it so much easier when you have the strategy in place and know the answers to these questions.
Filed under: 1 | Tagged: acquisitions, Corporate Culture, cultural integration, merger, Organizational Fit
Beyond Financial Due Diligence
By Cary Tutelman
When companies are considering acquiring another company, they do extensive due diligence. They analyze balance sheets, income statements, debt history, customer lists, physical assets and equipment, the product and/or service offerings, etc. This is done to make sure that the buyer knows what they are buying.
However, there is another aspect of due diligence that is typically not done. I call it the non-financial audit. This is an analysis of the organization: its strengths and weaknesses, biggest needs, strength of management, culture, values, work environment and impact of a sale on customers and employees.
Mark’s Story
I was hired by a company to do a non-financial audit. My client was interested in going beyond the financials and getting an analysis of the organization. Here are the highlights of what I found:
- Mark, the owner/entrepreneur/President, maintained all the relationships with the key customers. The customers didn’t know anyone else in the organization except a few customer care employees who they dealt with exclusively by phone. The key customers told me that they trusted the President and if he left, they had no reason to continue buying from the company because their loyalty was to the President, not the company.
Mark told me that he was only willing to remain with the company for 30 days after the sale. Then he was retiring. He would not accept any consulting contract beyond the 30 days. My conclusions: the financial health of the company was at stake when the Mark left and the new owners should expect significant drops in revenue right away.
- Mark was a typical entrepreneur with the typical command and control style of management. He made all the critical decisions and everyone else did what they were told. The managers were weak, untrained, underdeveloped, not really involved in management matters and took no initiative to improve the company. The employees were complacent and set in their ways. My conclusions: The new owners couldn’t rely on management for guidance or leadership and it would take a massive effort to change a system and the culture that had been build over 30 years.
My recommendation to the client: Don’t buy this company. Although it looked good financially and the market and products were sound, the overall risk was very high and the probability of failure was too great. My client bought a different company.
Non-financial audits are critical to the due diligence process and provide the buyer with a vivid picture of what “life” would be like if they completed the purchase. Yes, some buyers have told me that they can muscle through any organizational situation as long as the company is financially strong. I think this overconfidence is a mistake. A savvy buyer wants and weighs all pertinent information about a possible acquisition. That way, they will make a well-considered decision.
Cary has been a business consultant and the owner of CJT Company since 1981. He works with closely held and family owned businesses in transition. He guides them through the complicated web of ownership, management, board and family issues that transition brings.
Cary is a co-author of The Balance Point: New Ways Business Owners Can Use Boards, a book written specifically for owners of closely held and family businesses. It clarifies what owners do, what boards do and when they are needed and how owners, boards and managers can work together. Cary is a co-founder of The Board School, which helps business owners understand how to use boards in running and transitioning their company.
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