In order to achieve any degree of acquisition integration success, the integration team must first be aware of the acquiree’s culture. Making changes that do not interfere with an existing culture will be far more likely to succeed than those do not. Culture involves a number of issues, including the following:
- Awards and ceremonies. This is the recognition of employees for their performance, and the manner in which they are recognized. Examples are sales awards at an annual banquet, or an employee of the month award.
- Bureaucracy. This is the extent to which formal policies and procedures drive company activities. For example, there may be rigid policies and procedures in place, with strict attention to risk management. Alternatively, employees may be given a great deal of “wiggle room” within a broad set of policy guidelines, and are encouraged to innovate and take risks. The level of bureaucracy tends to increase in older firms.
- Customary events. This is repeating events that have been ongoing for some time, and to which employees are accustomed. For example, there may be a Friday afternoon beer bash, or an informal off-site gathering at a local pub, or a monthly bowling tournament during lunch.
- Customer service. This is an organization’s level of focus on customer needs. For example, a company may have an engineering mindset, where it develops interesting products and pushes them into the marketplace in hopes of making a few sales, or it may have a customer feedback loop for new product development that extends into customer service metrics and goals.
- Decision making. This is the degree to which the decision making process is pushed down within an organization. For example, decisions can be made in an autocratic manner at the top of the organization, or they can be arrived at using a high degree of consensus building.
- Dress code. While seemingly trivial, a company’s dress code provides significant clues regarding the general tenor of management. If the dress code is highly formal, then there is a good chance that the management structure is more autocratic, with a significant amount of bureaucracy. The reverse is more indicative of a distributed decision-making structure.
- Feedback. This is the degree to which management informs employees about their performance and objectives. Examples are formal, structured annual reviews, informal “hallway” meetings, regularly scheduled meetings, or a policy of “open access” to all managers.
- Goal linking. This is the extent to which the acquiree focuses on the achievement of goals. Examples are the specific linking of annual goals with employee bonus plans, follow-up meetings to emphasize goals, and promotions based on the achievement of goals.
- Information dissemination. This involves the amount and type of information issued within the company. For example, who receives financial statements, and how much information is included in the financials package? When there are meetings, is it customary to issue meeting notes to participants? What information is routinely withheld from employees? Are there employee meetings, and what is discussed at those meetings?
- Leadership style. This is the type of behavior exhibited by the management team as a group. For example, they may use an autocratic, military style, or they may coach their employees in making their own decisions.
- Physical environment. This is the working environment inhabited by employees. For example, a company may always use second-hand furniture in order to give the impression of having a cost-conscious environment, or its facilities may be custom-designed, with a focus on high-end employee productivity. There may also be significant differences between the furnishings enjoyed by senior managers and other employees.
- Speed. This is the sense of urgency imposed on a company by its leaders. For example, the management group may use an organized system of imposing meeting agendas and durations, while assigning specific responsibility for task completion within a short period of time. Alternatively, it may ignore these techniques and adopt a more relaxed approach to achieving goals.
- Training. This is the type and frequency of training provided to employees. For example, they may be accustomed to an annual trip to an off-site seminar, or the reimbursement of college classes, or in-house training programs.
Gathering information about culture can be a tedious process, and does not necessarily follow the usual path of formally interviewing people with the assistance of a questionnaire. Though that method will certainly compile a useful amount of data, in-depth information gathering requires a more relaxed and informal approach. The interviewer needs to delve for stories and anecdotes that reveal the acquiree’s culture. This information may be most readily available through lower-level staff people who have been with the company for a long time, and not the usual crop of managers who are more likely to be interviewed.
The integration team should keep all of these issues in mind when deciding upon the proper way to implement changes. By doing so in accordance with the existing culture (especially by matching multiple cultural issues), the team will vastly increase the level of acceptance of its changes. Conversely, the team can roil the organization by ignoring its culture. In particular, implementation teams have a tendency to impose multiple decisions on the acquiree within a short period of time. If the employees subjected to this treatment are accustomed to a collaborative culture, their reaction will not be pleasant. However, if the acquiree’s employees have been accustomed to a top-down, autocratic culture, the imposed changes may not meet with much resistance.
Since the integration team’s mission is all about making a variety of changes, it is reasonable to expect that it will negatively impact the acquiree’s culture at some point. If the level of culture modification becomes too extreme, the team will eventually meet with a higher level of resistance that impedes its progress. To monitor culture slippage, the team can periodically administer a culture survey to determine the areas in which some correction is needed. By using exactly the same survey every time, the team can achieve a considerable degree of consistency in creating a timeline that shows its impact on cultural issues.
But if the integration team must complete its tasks in order to make the acquisition cost-effective for the buyer, doesn’t it have to ram through changes, irrespective of how those changes impact the acquiree’s culture? Yes and no. Integration targets should be considered guidelines rather than concrete requirements, within which the team has the leeway to find the best ways to achieve synergies. For example, the buyer’s integration plan may call for a layoff of five salespeople, due to overlapping sales territories of the buyer and acquiree. Knowing that the acquiree has a team-building approach to decision making, the integration manager brings the five-layoff target to the attention of the acquiree sales manager, who works with his team to figure out which salespeople will be let go. While the layoff goal certainly will not be met with cheering, the method taken for implementing it fits nicely into the acquiree’s culture for decision making.
It is entirely possible that the acquiree’s culture is so incompatible with that of the buyer that the integration team has no chance of successfully completing its task. This is not their fault, but rather that of the due diligence team. An investigation of acquiree culture is one of the most important due diligence items, but is the area most frequently ignored, because it involves “soft” information that is more difficult to collect.
In short, cultural issues form the underlying fabric around which a company is built. Though time-consuming, the integration team must spend time learning about cultural issues in order to find the path of least resistance in achieving its goals. Anyone ignoring an acquiree’s culture will likely meet with a prolonged and less successful integration effort.