Cultural Differences in M&As

HR consultancy Towers Perrin offers five tips to prevent a merger or acquisition from being derailed by differences in national culture.

Saturday, November 1, 2008
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Acquiring a foreign company can accomplish a wide range of business objectives, but cultural differences between the acquiring and acquired companies can present major obstacles to the transaction's success. These obstacles can take the form of decreased productivity, loss of key talent and management conflicts -- all of which can prevent the acquiring company from achieving its goals.

While national culture is difficult to change, organizational culture can be quite malleable. In fact, careful adjustment of organizational culture can ease the conflicts caused by national culture and keep your merger or acquisition on track.

Here are five things you can do to ensure that your transaction is not derailed by cultural issues.

Five Tips for Effectively Managing Cultural Differences in an M&A

1. Know Thyself  

To effectively manage cultural issues that can impede deal success, you must first assess your organization's national and organizational culture (or, if you are already a multinational company, then the culture of the two merging entities). After developing a clear understanding of your organization, assess the national and organizational culture of your target. 

Developing an understanding of national culture requires awareness of broad cultural attributes and their workplace implications. Studies such as Richard D. Lewis's When Cultures Collide: Merging Successfully Across Cultures and Geerte Hofstede's Culture's Consequences: Comparing Values, Behaviors, Institutions and Organizations Across Nations offer general ideas about national cultural differences and how they can lead to misunderstandings, inefficiencies and conflicts in a corporate setting. 

You can develop an understanding of organizational culture by surveying the attitudes and practices of senior leadership, middle management and employees. Written or online questionnaires exploring issues such as management style, decision making, reward philosophy and communications can generate an accurate picture of organizational culture. Some useful areas to focus questions on are:

* Individual Identity/Responsibility vs. Collective Identity/Responsibility: The degree to which individuals are culturally accustomed to caring for and belonging to a social group (such as an extended family or a work team) and as a result the degree to which they are comfortable and effective making decisions independently or within a collective framework.

* Acceptance of Unequal Power Distribution: The degree to which less powerful members of a society accept and expect a degree of disenfranchisement and thus need/resist autonomy and power in the workplace.

* Tolerance for Uncertainty and Ambiguity: The degree to which individuals can tolerate the novel, unknown or surprising without an impact on their productivity; this level of comfort will forecast the efficacy of various structures of communication and management.

The information gathered about the cultures of your organization and those of the target should be used for a side-by-side comparison of the merging entities. This process of "cultural due diligence" is critical because it highlights areas of cultural conflict that, if not managed, can undermine the deal.

2. Align Organizational Culture with Goals of Acquisition

Armed with an understanding of the merging companies' national and organizational cultures, management of the merged entity can plan and grow a new organizational culture that will support its business objectives. Interviews with senior and middle management will help develop this new culture, generate ideas and identify gaps in consensus among leadership. 

You should carefully consider the results of these interviews in designing a new organizational culture that is aligned with strategic priorities. Create a "blueprint" of the new organizational culture that contains an objective statement of its core and supporting elements. This is an invaluable document for maintaining focus during the change process. Share this blueprint with all employees to develop a "one team, one company" mind-set.

3. Communicate Effectively

The key to successfully implementing No. 1 and No. 2 above is effective communication. If messages are not reaching everyone involved or are getting lost in translation, change initiatives will be compromised. In the new culturally diverse organization, it is important to establish, not only lines of communication but also methods of communication that take into account the national cultures involved. 

While distribution of standardized e-mails from headquarters may be effective in one culture, it may cause employees to panic in another where face-to-face meetings are preferred and e-mails from headquarters are rarely used. 

Accordingly, whether the chosen methods are suggestion boxes, dedicated e-mails, employee portals, face-to-face meetings or distribution of written material, these methods should be sensitive to cultural differences.

It is also important to be mindful of the ways in which an organization communicates indirectly, but no less clearly, its cultural messages. The personality, goals, attitudes and style of individual leaders are critical in creating, molding and transmitting organizational culture to all members of the organization.

4. Train Managers and Employees to Understand Cultural Differences

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To avoid cultural conflicts, managers and employees must be educated about cultural differences and how to deal with them. Training should include discussion of specific cultural differences critical to deal success and their manifestations in the workplace.

For example, a nation's dominant religious or political beliefs may be reflected in workplace attitudes; an employee with a relativist orientation (one grounded in the belief that there are many correct ways of doing something) might experience difficulties or misunderstandings working with an employee with an "absolute truth" orientation (one grounded in the belief that there is one correct way to do something). 

Management must be aware of how these different orientations produce drastically different workplace environments and results.

To familiarize employees with areas of cultural conflict and appropriate responses within the new organizational culture, a number of training methods have proven effective:

* Role playing and simulation exercises allow employees to practice anticipating and resolving cultural issues.

* A list of cultural "dos and don'ts" heightens employee awareness about areas of cultural difference and necessary adjustments to everyday behavior.

5. Involve HR Early On

Because the key to a successful international M&A is understanding how the cultural differences will affect the people at the involved companies, HR's involvement in early stages of the deal is critical. 

Creating a "culture committee" within the HR department that is primarily responsible for (1) engaging employees in the integration and change processes and (2) identifying cultural issues that need leadership attention will ensure that cultural differences are spotted and addressed.

Research shows that even great cultural similarity between the acquiring and acquired companies does not guarantee the success of a merger or an acquisition. But organizational culture, properly crafted to accommodate the national cultures involved, can be the glue that holds an international corporation together and ensures a successful M&A. 

Towers Perrin is a global professional services firm that provides innovative solutions in the areas of human capital strategy, program design and management, and in the areas of risk and capital management, insurance and reinsurance intermediary services and actuarial consulting. It has offices and alliance partners in the world?s major markets.

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