Mergers and acquisitions (M&A) are mostly seen through a financial and strategic lens, with companies focusing on market share, profitability, and growth potential. While these factors are crucial, an often overlooked but equally important aspect is organizational culture that can accelerate or slow down the desired results. Let us not forget that when two organizations merge, it’s not just a financial or operational union — it’s also a merging of two distinct cultures and systems. Case in point? Around 70%-90% of M&As fail or underperform, often due to cultural clashes, even if the financial aspects of the deals were thoroughly examined.

Culture plays a pivotal role in the success or failure of M&A, because it influences how well companies integrate, how employees adapt to changes, and how the new entity is perceived by stakeholders.  Like a few of our clients have mentioned for their own integration process, it is like “mixing oil with water”. However, M&A decision makers rarely engage in cultural assessments before implementation, with performance and value creation restricted right from the start.

Common Cultural Challenges in M&A

a. Different Decision Making and Linking Mechanisms

One of the most common sources of cultural clash in M&A is the difference in organizational setups. For instance, if one company is based on formal hierarchical structure and strict role definitions and the other is based on informal relationships and loose internal processes, this can lead to confusion about decision-making processes and authority. In addition, is the decision making based on consensus or top-down? Different decision-making styles can lead to slow decision-making, failure to make decisions, or failure to implement decisions. 

b. Leadership style

What is the leadership style of each company? Is it authoritative, consultative, or affiliative? A shift in leadership style can generate turnover among employees who object to the change. This is especially true for top talent, who are usually the most mobile employees. Differences in between the underlying purposes and values that guide each merging company can exasperate these issues.  Leadership holds the primary responsibility for culture and can lead to different levels of accountability, ownership and trust, which if they vary from one organization to the other, it will be difficult for the different “tribes” to work together.

c. Workplace Norms and Practices

Differences in workplace norms, such as communication styles, work-life balance expectations, and performance evaluation criteria, can create tension. Beliefs regarding personal “success” can also play an important role. In some cases, one organization may have a more formal, process-driven culture, while the other operates in a more relaxed, entrepreneurial environment. These discrepancies can result in conflict and miscommunication during the integration process.

 Strategies for Successful Cultural Integration

a. Conduct Cultural Due Diligence

Conduct initial assessments that can bring forward risks that could lead to a culture clash, opportunities that can be leveraged for cultural synergy and the timing, pace and design of subsequent cultural integration strategies. Do different cultures mean that the M&A should not go through? No. But it does mean that post merge additional effort is needed for cultural integration so that the results on market share, profitability, and growth potential can materialize. We propose separate Health Checks for each organization prior to the M&A.

b. Agree on the Desired Culture

Based on the M&A objectives and cultural characteristics of both organizations, executive teams should align on the cultural archetype that will maximize deal value. Consider what is the “secret sauce” of each company and how each can benefit culturally from the other through a much needed synthesis. Don’t forget to create some space for organizational members to co-create the culture change accordingly as one thing you want to avoid is having them feel  like change is being “done to them” versus “with them”. We propose workshops, questionnaires and interventions that will involve a big part of the organization.

c. Focus on Leadership and Communication

Clear and consistent communication from leadership is essential during the M&A process. Leaders should openly discuss cultural integration plans, address employee concerns, and model the behaviors and values that will define the new organization.  Clarity and transparency in communication is pivotal for any big change initiative even if leadership does not have all the answers. It’s also vital for leaders to prioritize helping people understand ‘the why’ of the change: why the change was necessary and what’s required from them. Only when people understand the need for change, care about it and know what actions are required from them will the transformation be realized. We propose regular updates and town hall meetings along with cross functional M&A working groups as well as having time and space in team meetings to process the change and provide updates.

d. Change Management Programs

Don’t forget that this is a big change. Identify who “owns” programs that will help with the integration, typically allowing representation of both companies. This is also an appropriate task for outside assistance, given the value of external insights in identifying culture. The program might involve training managers, offering resources for employees, providing a clear roadmap for how the cultural transition will take place and long-term support to people so as to understand “cultural” differences and assimilate changes.

e. Monitor & Measure

Continuously monitor and measure the progress of cultural integration and be willing to adapt strategies as needed. This includes soliciting feedback from employees and making adjustments based on their input. Don’t forget to “monitor” and engage in informal talks as these can be part of an influential communication channel.  We propose regular pulse or VOE (voice of the employee) surveys. 

Integrating two organizational systems is a process that takes time and patience. It’s much like a marriage—often, the two entities haven’t had the chance to build a relationship or even ‘date’ before coming together. Organizational culture represents the personality and soul of a company, and acknowledging its significance is key to giving this ‘marriage’ a real chance at success.”