How Culture Affects Mergers and Acquisitions



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Team Dynamics and Cultural Due Diligence

A Checklist in the Context of Mergers and Acquisitions and Management Buyouts

Cultural Due Diligence Checklist in Mergers and Acquisitions (M&A) and Management Buyouts (MBO)

A Harvard Business School study showed that firms that "actively managed" their corporate cultures realised a 682 percent increase in revenue compared with a 166 percent increase for firms that did not manage corporate culture.

Eighty five percent of failed acquisitions are attributable to mismanagement of cultural issues.

|Team and Group Dynamics |Moving from “I” to “we.” |

| | |

|Team and group dynamics are influenced by: |Check self-awareness within teams. The more self-awareness |

| |each team member has, the more actively he or she can |

|The larger context in which the team operates, |contribute. |

|The organisation, | |

|The team identity itself, |Check interrelations. The more each team member knows about |

|The mix of individuals within the team. |the other team members, the better she or he can tap into the |

| |talents and experiences of others for better team performance.|

|This team identity stems from: |
 |

| | |

|The interrelationship of the larger culture, |Check communication and personality links. This essentially |

|The organisational culture, |involves the key aspects of relationships and communication. |

|The team configuration, |Personality differences show up in how we tend to communicate |

|The nature of the work (purpose), |as well as how we like to be communicated with. |

|The qualities of the individuals. | |

| |Check for common goal management. Take the time, at the |

| |outset, to discuss what the goals, mission, or tasks of the |

| |team are so they are all on the same page. |

| | |

| |Check personality and production links. People of different |

| |personality types will have different preferred approaches and|

| |understanding this can really optimise the performance of the |

| |team. |

| | |

| |Check performance measures. Finally, each team must have some |

| |measure of how they are doing. People of different personality|

| |types will have different perspectives on what constitutes |

| |good and adequate measurement. |

|Clarifying culture |The type and level of participation in decision-making. |

| |The level, speed and process of decision-making. |

|Compare and contrast customer/supplier treatment. |The level of formality and controls. |

|Assessing the culture |What is the corporate history? |

| |How far is the company removed from its founder? |

|It is critical to understand and assess the current culture of|How skilled is the organisation at change? |

|both companies involved. |How well does the organisation adapt to and adopt new |

| |processes? |

|The answers to the following questions will help to create a |When was the last time the company was involved in M&A |

|cultural valuation, and provide information around the wider |activity and what lessons were learned? |

|factors impacting the dynamics of teams in MBO and M&A |What is the company's management style: centralised or |

|contexts. |decentralised? Entrepreneurial, authoritative, or management |

| |by objective? |

| |What is the culture of the competitors? |

| |How effectively does each serve the market? |

| |What is the reason for the success of the company: exceptional|

| |management, marketing prowess, industry growth, new product |

| |innovations, etc.? |

| |What is the work environment of the company: laid back and |

| |casual or high energy? |

| |Are organisational structures and controls responsive to the |

| |company's customers, partners, employees, and suppliers? |

| |What is the policy toward budgetary control: lax, adequate, or|

| |stifling? |

| |What are the standards of performance? |

| |Is there a plan to grow the talent pool? That is, are there |

| |programmes in place to attract, retain, and train good people?|

| |Are there effective processes, policies, and procedures in |

| |place? |

| |Who sets the policies? |

| |What drives new process development? |

| |Are authority and responsibility of functions and personnel |

| |defined and understood? |

| |Has there been any drastic change in management approach? If |

| |so, have employees adapted? |

|More specifically, attention must also be paid to the |Management approach. |

|following issues during the due diligence process. |Budget and projections conventions and strategies for |

| |long-range planning. |

|These, and the balance among these factors, will also help |Management reports and reporting procedures |

|define and assess the culture of an organisation. |Organisational and human resource structures |

| |Procurement processes |

| |Research and development infrastructure |

|Understanding Values |For example, what does the mission statement say about the |

| |organisation and its goals? |

|In every organisation/team, there are human, physical, and | |

|information systems that act as filters for values, through |What values are manifest in strategic statements dealing with |

|which strategic product, market, and capability action plans |future markets, future products, capabilities, and financial |

|are implemented. |expectations? |

| | |

|Examining these systems can provide great insight into the |What does the annual report emphasize? |

|value of the organisation/team. | |

| |For example, in M&A/MBO situations, take a close look at how |

|They include: |each company interfaces with its customers. |

| | |

|Job functions and performance reviews: objectives, standards, |Do employees maintain an external focus, linking all |

|and accomplishments. |activities and efforts to delighting the customer and helping |

|General systems: management information, human resources, and |increase shareholder value? |

|customer records. |Does the company value speed and agility in the marketplace? |

|Quality and service standards. |Are employees alert and responsive to shifts in the |

|Operational long and short-range planning and annual |marketplace? |

|budgeting. |Are individuals biased towards action and confident in their |

|Human resource development and training. |ability to respond? |

|Formal and informal organisation structures. | |

|Advertising and promotional literature. |Examine how information flows and power is distributed. |

|Company publications. | |

| |Are the companies decentralised or centralised in their |

| |decision-making process? |

| |Are individuals empowered to act, with decision-making pushed |

| |to the lowest practical level? |

| |Is there an intensity throughout the organisations? |

| |Is passion evident? Is it supported by a willingness to go the|

| |extra mile? |

|Cultural Integration |Managers will need to: |

| | |

|This process requires consideration of a number of issues, |Establish the strategic context early on. |

|including organisational structure, operating and | |

|decision-making apparatus, reward systems and people-related |What should the integrated company look like in two or three |

|issues. |years? |

| |What are the products and markets that will receive the |

| |highest emphasis and resources? What are the barriers to the |

| |success of this new enterprise? |

| |What will cause us to succeed? |

| |What infrastructure and skills do we need to support our |

| |competitive advantage? |

| |What is the driving force (key strategic concept) that drives |

| |strategic decisions around products and markets? |

|Reducing Uncertainty in Teams |Communicate to all employees, suppliers, customers and |

| |shareholders. They simply need sufficient understanding of |

| |what the goals are and how they can behave to support them. |

| | |

| |Management behaviour - managers can act in a manner completely|

| |contrary to written values and beliefs. This sends a mixed |

| |signal that typically results in no change. |

| | |

| |Identify and resolve important cultural differences early. |

| |Differences in culture and values often lie beneath the |

| |surface and are not identified until it is too late. |

| | |

| |Identify leaders. First is the necessity of ensuring that the |

| |executive team is aligned with the new strategy during the |

| |integration process. Second is the creation -- as quickly as |

| |possible -- of a new management team. |

| | |

| |Have a plan for cultural integration. |

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