When undertaking mergers and acquisitions (M&A), it goes without saying that a strategic and considered approach is vital to the long-term success of the transaction. In the current climate of economic and political uncertainty, consolidation can provide an effective means of businesses boosting efficiencies and profit margins, expanding into new markets and mitigating risk. However, without a detailed plan regarding how to optimise cultural integration, including a consideration of any implications for people, processes, systems and infrastructure, M&As are unlikely to deliver their full range of business benefits.
Often, mergers are driven by cost and commercial objectives, for example, the desire to gain a competitive advantage, grow market share or drive profitability and efficiencies. Alternatively, acquisitions may allow businesses to diversify their offering and gain new expertise by acquiring smaller, specialist teams or a shift into a new or connected market sector. However, with these areas at the top of organisations’ M&A agenda, the issue of culture integration is often neglected, which may result in problems months or years down the line, undermining the objectives of the M&A.
The main pitfalls experienced by HR professionals when looking to deliver a common company culture will depend partly on whether the business is undertaking a merger or an acquisition. During a merger, where multiple different companies are being consolidated, often through mutual agreement, HR leaders will have to think carefully about the future culture that they wish to adopt and ensure that this becomes consistent across the various organisations. On the other hand, during an acquisition, companies may prioritise existing customer relationships by retaining the brand and values of the business or may subsume the business into the culture of the acquiring company. In both cases, involving HR in mitigating any impact of culture change on employees is key to the long-term success of the M&A activity.
A lack of consideration around culture during M&As could have a direct and significant impact on workforce performance and wellbeing. Unless time is invested in ensuring employees understand and support the process of change, productivity levels may drop, potentially compromising the achievement of business objectives. Similarly, not taking steps to ensure a unified, consistent approach may result in individuals feeling alienated from the organisation, leading to a high employee turnover rate soon after a merger or acquisition is completed. This in turn could have unforeseen HR and financial implications if, for example, investment in recruitment is required to address skills gaps across the organisation or greater investment in marketing is needed to attract new talent.
As part of the culture integration process, a crucial first step for HR professionals is to work with the business to identify an ideal target culture. Appropriate due diligence should then be undertaken. This should firstly involve evaluating elements of the existing culture and conducting a business health-check, assessing employees’ levels of motivation and commitment to the existing brand. A thorough and holistic impact assessment should then commence in order to determine how cultural changes will affect the business in four key areas; people, processes, systems and infrastructure. For example, if looking to introduce new technologies to enable flexible working, staff training may need to be put in place to ensure innovations are adopted effectively.
Management of change, supported by a Portfolio Management Office (PMO), can also help HR departments to mitigate some of the common culture problems that can arise from mergers and acquisitions. Providing stakeholders with increased visibility across change initiatives can help business leaders to pick up on any HR issues quickly, allowing them to be addressed before they have an impact on the day-to-day running of the organisation. Similarly, by facilitating communication between various parts of the business, change management can help to ensure that individuals have a clear understanding of any changes to working practices, facilitating a smooth transition.
A common pitfall for organisations is not allowing enough time for changes to company culture to become embedded following a merger or acquisition; in reality, this can take up to 12 months. The lack of time allocated for employees to acclimatise to a new culture could ultimately make the difference between business success and failure. Additionally, seeking quality third-party advice at an early stage in M&A activity will help to give businesses the best chance of getting culture transitions right the first time, rather than risking mistakes which may prove costly in the long term.
Across a range of UK industries, the trend towards consolidation shows no signs of going away. As such, business leaders should waste no time in making sure that culture integration is considered carefully as part of their M&A success plan. By keeping culture and associated organisational impacts at front of mind when conducting a merger or acquisition, companies can put themselves in the best position to navigate consolidation activity smoothly with minimal disturbance to employees and enjoy the commercial benefits that follow.