Mergers and acquisitions (M&A) are often seen as opportunities for growth, market share, and innovation. However, these ventures are complex and have the potential for both success and failure. Surprisingly, research shows that M&As have a failure rate of 66-73%, primarily due to inadequate integration strategies and cultural differences.
Even if due diligence is adequately conducted during the pre-merger stage, it fails to guarantee success in post-merger integration (PMI). Slow implementation and lack of autonomy for acquired entities can hinder progress. Moreover, since most M&As involve cross-boundary transactions, remote working can exacerbate the challenges.
Leadership and cultural differences often pose challenges to M&A success. Hubris, bias, and poor communication can hinder collaboration. Notably, merging distinct company cultures presents the most significant challenge. These disparities can lower morale, stall productivity, and impede synergistic benefits if left unaddressed.
The Importance of Culture in PMI
Company culture describes values and norms, and depending on the extent to which employees identify with them, it shapes the sense of belonging. The parallel existing "water cooler culture" is often seen as an unofficial set of rules and serves as a guide for “how things are done around here”. This informal culture harbours a multitude of elements: different perspectives, ideas, approaches, and solutions. This diversity, also referred to as cognitive diversity, fuels innovation - one of the promises of M&A.
Cognitive diversity encompasses a broad range of thinking and problem-solving approaches. It encompasses distinct work styles, learning styles, personality traits, perspectives, and diverse backgrounds. When individuals from different organisations collaborate, drawing upon these varied attributes, they enhance their ability to achieve desired outcomes effectively.
In the context of mergers and acquisitions, collaboration across boundaries is essential. Leaders must step out of their comfort zones and actively seek diverse and unfamiliar perspectives. The ability to embrace cognitive diversity is crucial, as it can accelerate the post-merger integration process when leveraged appropriately. It is essential to measure and make this diversity visible and integrate it into the change process.
Stop guessing. Start measuring.
It's essential to stop guessing and start measuring in any project. When it comes to change management, the success of a PMI largely depends on the "human" factor. Recognising cognitive diversity is critical to this. It facilitates target-specific communication strategies at all hierarchy levels and helps create a new shared culture, promoting a collective "we" feeling. It reduces uncertainty and maintains the momentum of the merger.
Research has identified identity elements to measure cognitive diversity. Eight of the twelve identity elements form the foundation of cognitive diversity and play a crucial role in building effective working relationships. This data is translated into values such as succeeding in global markets and delivering quality work. These values are indispensable for cross-border collaborations and contribute to the success of M&A integrations.
As individuals, our perspectives, approaches to work, learning styles, performance, and overall working relationships are significantly impacted by identity elements such as "well-being" and "geopolitical influences". These elements shape the emerging culture and foster innovative ideas. Measuring these concepts helps us identify similarities and differences in our thinking, enabling us to collaborate and innovate more effectively.
Engage, collaborate, and innovate
A successful PMI programme requires a precise structure that fosters a culture of collaboration, innovation, and engagement. The programme should consist of three steps:
In the first step, employees' cognitive diversity and priorities are recorded and clarified.
In the second step, the programme focuses on the team's cognitive strengths, which helps refine their priorities. This step links personal and organisational values and generates measurable positive results.
Finally, the third step elaborates on the macro perspective of the organisational culture that results from the aggregated team's outcomes.
The programme is based on co-creation, where everyone actively contributes to creating a new company culture. Each contribution is crucial. Although the algorithm that measures cognitive diversity is fixed, the integration programmes must be specific to the requirements of mergers, acquisitions, or successions for established companies and start-ups. It is equally important to consider the existing due diligence findings. Ideally, the programme should begin with a proof of concept (PoC) to allow possible adjustments during the roll-out.
The early bird catches the worm
Planning ahead during the pre-signing phase is recommended to ensure a thriving cultural integration. One effective method is to initiate one-on-one mentoring sessions with leaders from both companies, A and B. These sessions will help to raise awareness of cultural differences, identify potential opportunities, and prepare leaders to tackle upcoming challenges. Throughout the integration process, it is crucial to encourage managers and employees to discuss the outcomes in terms of future collaboration and come to binding agreements. Once the concept has been validated, the program can be extended to other teams and implemented company-wide. The ultimate goal is to foster the creation of a new culture and optimise essential processes.
Proactive and timely PMI measures mitigate risks and lay the foundation for seamless integration. With cognitive diversity, you can realise the total value and potential of the merged companies. Leaders should
prioritise early engagement
acknowledge cognitive diversity, and
grant acquired teams autonomy to ensure successful integration.
By doing so, organisations can unlock merged companies' full potential and value, achieve desired synergies, and sustain long-term growth.
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