Great Question!! Culture is critical to the long-term success post-transaction close. It should be assessed as part of the Human Capital Due Diligence and if the discrepancies are too significant, that should send a red flag about if the transaction should even occur. Cultural discrepancies alone likely will not derail the transaction, but they should not be ignored. Cultures that are too disparate have an incredibly high probability of causing a deal to collapse within the 1 – 3 year period post-close, and if that is the case, perhaps the deal should not go forward no matter how lucrative it appears in early phases or even during overall due diligence.
Recommendations:
1) You should collaborate with key leaders in each HR department and key executives to identify a unified set of values for the combined entity that align with the transaction thesis. This could include development of a new mission and new vision statement as well. This should be done before any other tools or human capital due diligence data is analyzed and assessed. These form the yardstick against which cultural alignment will be measured.
2) Using those new values (and perhaps mission and vision to), you should map necessary changes that will impact all merged entities in the transaction. Success increases dramatically when there is buy-in from leadership of all entities. Some areas to map include, but are not limited to:
a) Decision Matrices
b) Total rewards Philosophies (comp, benefits, and variations by role, job family, department, division – Lead, Lag, Match)
c) Recruitment practices
d) Promotion criteria
e) Career pathing alignment
f) Workflow
g) Work Environment – Ex: how and where employees work, mission critical onsite vs. flexibility for remote work, technology to facilitate work, etc.
3) Messaging about the merger and values expectations should be frequent and consistent. Employees adapt easier to the change when there is clear, constant, and consistent messaging. Always show employees What’s In It for Me (WIIFM).
As for tools, there are a few that will help to identify elements of a business’s culture, measure employee engagement, and even conduct skills analysis. We have a process that identifies critical behavior traits for roles and functions enterprise wide and then conduct a series of interviews to assess alignment to those behavior traits. None of these tools alone will do what is necessary but using a combination of them will provide clarity around the current state of the human capital and enable one to compare it to the desired future state of the human capital.
The closer the alignment, the higher the probability of culture integration success. When there is disparity, if you can work out an integration plan to shift minds and hearts to embrace the desired new culture, again you should have greater success at integration. It is tempting to focus on the financials to the diminished consideration of cultural fit but doing so tends to be a leading cause of transaction failure 1-3 years post close.
