Acquisitions Integration: Company Culture is Secret Ingredient – August 03, 2017

Posted by Matt Steinberg, MBA

Amazon.com clearly has an appetite for acquisitions, as seen most recently in their bid for the upscale grocery chain, Whole Foods Market. Amazon has a track record of being strategic, and like a master chef, Amazon knows that the process is just as important as the ingredients. Turn the heat too high and the filet burns; add too much of the wrong spice at the wrong time and the whole meal becomes unpalatable. It doesn’t matter how great a steak you have if you ruin it during the preparation process. Based on Amazon’s acquisition track record, Whole Foods fanatics can have confidence that the integrity of Whole Foods will remain intact.
 
When Amazon acquired Zappos, an online shoe and apparel retailer, they avoided putting too many cooks in the kitchen. They recognized that a major ingredient contributing to Zappos’ differentiated value was their culture. Amazon preserved Zappos’ culture, allowing Zappos to function largely as it always had; they did not mess with the recipe for success.
 
Many companies with an appetite for acquisitions do not show the same level of restraint. Often, companies disregard culture and try to force feed their policies, procedures and systems on the newly acquired company. This can lead to drained productivity, declining morale and valuable talent jumping ship. This is why, according to Harvard Business Review, between 70% and 90% of all mergers and acquisitions fail. The misguided melting pot does not take company culture into consideration. If Amazon tried to integrate Zappos into Amazon’s existing culture, Zappos would likely have lost its edge and become less profitable. 

Consider the Culture

Company culture has been a hot button issue in recent years, but it’s hard to define, difficult to measure, and it is not always clear how culture impacts the bottom line. This begs the question, does culture really matter that much?
 
According to a recent survey, employees of an organization with a strong purpose are: 

  • Almost twice as confident that their organization will grow and stay ahead of industry competition,
  • Almost three times as likely to believe that clients trust in the quality of their company’s products and services, and
  • Are twice as likely to believe that they are making a positive impact on customers. 

Gallup polls show year after year that higher employee engagement means higher customer satisfaction and higher earnings, overall. Increased productivity and satisfaction, and reduced stress, are additional benefits that can be expected. During an acquisition when morale is on edge, these factors can make a world of difference. 

Flavors of Culture Clash

Success is far from guaranteed in any acquisition. Without a defined strategy for integrating company cultures, an organization is playing roulette when it comes to the odds of success. Below are three inevitable cultural considerations: 

  • Resistance to change. Change can be scary, and we cannot take for granted that stakeholders will automatically recognize the benefits of the integration.
  • Unofficial, unspoken (yet impactful) hierarchies and cliques. These can form to fill the vacuum that occurs when leadership does not clearly communicate evolving roles and expectations.
  • Culture shock! How often is performance reviewed and feedback given? Are employees mostly autonomous or do they rely on specific protocol for accomplishing tasks? Even details like benefits packages and pay dates can be stressors to staff. There will be age gaps and new demographics of race, gender and more that will shake up the structure of the organization. Ignoring these differences can cause culture shock to newly integrated employees, leading to unexpected consequences for individuals and the organization alike. 

A Recipe for Success

Sophisticated integrations start with a strategy and are purposeful in their approach. Once a strategy is determined and the right target is acquired, successful capture of value will be dependent on if and how the target is integrated. While there may not be a right or wrong reason to pursue an acquisition, there are certainly right and wrong approaches to integrating one.
 
There are three steps to driving cultural integration: 

  1. Decide. Be deliberate! Do not leave culture and procedure to chance. Change is guaranteed, so be proactive rather than reactive. Determine the ideal state and drive change.
  2. Align. Get buy in and socialize staff to the desired culture.
  3. Streamline. Know that not everyone will get on board. Do everything in your power to bring people along, but if some prove unwilling to adjust, do not let them drain the rest of the staff and demand a disproportionate amount of management attention. 

Ingredients for Healthy Culture Development

During and after the integration, you must continually nurture a healthy environment: 

  • First and foremost, treat people with respect. It sounds simple, but common courtesy and empathy for where the person is coming from, where they need to go and what is being asked of them can go a long way to getting employees on board.
  • Have a core purpose and core values that people can aspire to and align with. Explicitly defining and communicating these is essential to aligning staff. Purpose and values also will help problematic staff members self-select and opt-out by clarifying expectations.
  • Communicate clearly and often. Be transparent, consistent and clear in your communications. Do not be afraid to sound like a broken record. It is better to have a mantra than mass confusion.

Company Culture is just one piece of the acquisition pie. When making an acquisition, it helps to have systems in place to unify data, processes and people. Read more in 2 Critical Steps in Mastering an Acquisition.”
 
Contact Matt Steinberg at msteinberg@cohenconsulting.com, Jim Boland at jboland@cohenconsulting.com or a member of your service team for further discussion.

Cohen & Company is not rendering legal, accounting or other professional advice. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts and circumstances.