Cultural Integration

'The only thing of real importance that leaders do is to create and manage culture. If you do not manage culture, it manages you,
and you may not even be aware of it.'
- Edgar Schein

Research indicates that senior executives rate underestimating the importance and difficulty of integrating the two cultures as a major cause of M&A failures. According to a 1999 study of global mergers & acquisitions by KPMG, 83% of all cross-border deals produce no added value for the shareholders and over 50% actually destroyed value. Interviews with over 100 senior executives involved in some 700 deals between 1996 and 1998 reveal that the overwhelming cause for failure is a lack of focus on the 'soft keys' including people, culture and communication. While most firms tend to focus on 'hard keys' such as due diligence, integration project planning, financial and legal challenges, choosing to focus on cultural integration was shown to have more significant impact on the likelihood of generating shareholder value from the deal.

According to A.T. Kearney a common problem is that the more powerful partner imposes their culture on the less powerful one without evaluating which culture would be more appropriate for the new organization. Cultural assimilation may lead to a successful integration under some conditions but in other cases, this approach will destroy much of the value that was expected to be generated from the merger. The approach chosen for the cultural integration process should flow directly from the vision and strategy of the new organization. If the business has recognized the need to balance local autonomy with global collaboration based on an integrated network or global matrix organization, the most appropriate approach is to develop a new common culture. This is cultural integration.

In an ideal world, cultural integration means keeping the best elements of both organizations. In reality mergers and acquisitions often follow a different path with a collision of cultures, resistance from employees, management crackdowns, conflict escalation, breakdowns in communication and relationships and even the failure of the business integration. Integration means significant change. Change creates fear and resistance. Successful cultural integration will engage both the hearts and minds of the people affected.

Learning for cultural integration does not mean that people will not experience fear and that there will be no resistance to the business integration process. This is a natural part of the change process. Many organizations that adopt a 'business as usual' approach to organizational change are either postponing the inevitable confusion and frustration that will come when the changes are felt at an individual or group level or are ensuring that the announced changes have no chance of ever being implemented. Denial is common in the early phases of a merger/acquisition.

Cultural Integration Diagram

An effective cultural integration process accelerates the process of change by effectively identifying potential resistance and managing the emotions involved. This reduces the level of resistance, gains acceptance and commitment sooner and minimizes the overall impact on productivity and the potential destruction of shareholder value.

Learning for cultural integration also helps clarify and communicate the new vision and strategy, generates real synergies through diverse thinking and supports the development of a common organizational culture and identity. This ensures that the cultural integration and the desired business results are sustainable in the long-term.

This is the Return on Learning (ROL).

For more information contact us