In 2005, Adidas acquired Reebok at an estimated value USD 3.78 Billion. In just a year, Adidas’ sales revenue shot up by 52 percent, the largest in the previous eight years. Seamless cultural blend, despite individual divergence, was a key reason for this success. The German Adidas personified core sports while the American Reebok spelt lifestyle. Yet the cultural aspects of both people and business merged with ease in strategy, execution and integration.
The USD 37 Billion merger of Daimler Benz with Chrysler was diametrically different. In less than 10 years of the acquisition, Daimler Benz had sold Chrysler for a mere USD 7 Billion. Corporate culture clash was the main reason for failure.
Cultural Fit, the DNA of Integration
Culture is an organization’s building block of business systems, processes and people practices. All aspects that form the basis of assessment in an acquisition – brand, performance, innovation, quality, customer service, risk and governance – are shaped by organizational culture.
Evaluating whether the cultural attributes of both the acquiring and target companies align well is critical very early in the decision-making process. How will the sum of the individual cultures align with the dynamics of the industry’s value chain, its future disruptors and opportunity segments?
When Johnson Wax Professional was planning the acquisition of Unilever’s DiverseyLever, the CEO of the acquiring company Greg Lawton spent more than 100 hours talking individually with Diversey executives. It led to identifying members of a new management team before the deal was completed, and a comprehensive program for communicating what the deal would mean for all stakeholders—employees, customers, suppliers, and investors.
Risk Manage for Cultural Integration
Risk management in mergers and acquisitions reveal both hidden opportunities and dangers. In doing so, the cultural attributes that need to be risk-managed are quite impactful. Some of them are:
What is the culture with regard to stakeholders – customers, employees, suppliers and contract resources?
What is the attitude to ethics and business conduct?
- What is the penchant for innovation, diverse thoughts and opinions?
- Is the bias for risk-taking anticipatory, playing safe or reactive?
Focused due diligence from the thought process stage will help identify challenges, reveal relative scales for measurement, and draw up mitigation plans to prevent them from becoming showstoppers. Strong teams, data analysis tools and real-time reporting can lead to insights-driven decisions for higher success rates in acquisitions.
Culture – The Other Side of Strategy
New capabilities, geographical expansion and new technology – these are the primary rationale of strategic fit. In all three, culture is undeniably the last mile closing loop. The best acquisition strategy can achieve gainful value only if people are voluntarily and enthusiastically engaged.
HP’s acquisition of Compaq was marked by early and equal focus on business and people. Product roadmaps were completed even before the integration began. This gave employees huge clarity as they started working as one unit. Leadership kickoff meetings set clear rules of engagement. With a good reading of both organizations’ cultures, short deadlines were set to maximize collaboration. The employee portal was designed to drive extensive communication, interaction and feedback. 50,000 hits from employees were reported on Day 1 the portal went live.
The Ink Never Dries on the Cultural Signature
Actual value creation in acquisitions is a continuous process. All the cultural assessment efforts and integration plans need to be carefully tracked and nurtured for agile course corrections.
Proactive communication is an ongoing effort during and post integration. As the combined workforce gets down to business, project goals and priorities should be made crystal clear. It is very important to create an inclusive environment where the newly added employees feel motivated to work, contribute and grow.
When WNS acquired Denali, we formed a global integration team. The team had a panel of executives from both WNS and Denali, equally accountable for decision-making. The team led the collaboration among the employees from both the companies during process integration – in many cases, we actively incorporated Denali’s processes that were working better. Motivation thus ran high in a successful integration.
Cultural integration is tricky. In many cases it is not an integration of equals, and it is important to decide on the culture you want to end up with. New York Stock Exchange’s acquisition of Archipelago, and Disney’s of Pixar Animation are interesting examples. In both cases, the acquired company became the cultural acquirer that transformed the financial acquirer.
Without a doubt, the right human due diligence can turn cultural diversity into a winning acquisition asset.