Hidden Sore PointsThat Can Thwart A Culture Match: Combining companies have learned to treat obvious symptoms of culture clash. But what about less-visible flash points that can explode if left undetected?

To an escalating degree, culture clashes are drawing the heat for mergers and acquisitions that don’t work out. An encouraging result is that wise acquirers have placed a priority on postmerger management of cultural differences to prevent them from undermining their deals. Unfortunately, many of the initiatives to handle people problems don’t go far enough. They tend to work on the obvious signs of attitudes, behaviors, etc. when, in fact, the most devastating cultural flash points may be in subtle or hidden areas that have escaped detection. Undiscovered and unchecked, these “invisible” sources of friction may be so pernicious that they can do more damage to the deal than the most easily recognizable points of contention. But they often are allowed to fester because many acquiring managements are ill-equipped to deal with the sub-surface issues of people and culture. In most cases, professionals skilled in recognizing strategic opportunity, assessing financials, or creating agreements cannot be expected to be experts in perceiving the true depth of cultural issues. The difficulty that insiders face in gauging the full range of culture problems both overt and obscure often suggests that the combined firm should enlist help from an outside consultant with experience in managing people issues. This article, based on our long experience working with major organizations on integration, alliances, and change management, outlines suggestions for probing beyond the obvious and attacking unforeseen problems before they torpedo a transaction with great strategic promise. Basically, the process begins with the assumption from day one that there will be cultural differences between the two firms, then takes steps to detect all of the problems and then proactively works to overcome them. Cultural management is so critical because conflicting assumptions, practices, values and beliefs, and the ways in which they are manifested can thwart effective communication, decisionmaking, team-building, flexibility, learning, productivity, and therefore, realization of the very opportunities that drove the union. As mergers get larger, the cultural stakes grow exponentially. When two large firms come together and involve large blocs of people, the potential for culture clash grows. But even small or mid-sized acquirers can be thwarted by cultural management miscues. The good news is that through early scrutiny and planning in the m&a process, debilitating mistrust and confusion a major result of unaddressed conflicts can be prevented. In the optimum, the uncovering and discussion of differences actually can be used to build productive, even innovative, ways of working. At the other extreme, however, there may be cases where the degree and the nature of cultural differences may be cause to reconsider or withdraw from an agreement. With so much at stake, it’s important to consider that the merging of two separate organizations is more than the bringing together of product lines, facilities, and distribution channels. It’s also the merging of world views, belief systems, ways of doing business, and ways of creating and managing relationships. Surprisingly, merger partners that appear closely aligned in expressed goals and strategies can be wildly different in their actual practices and systems. Here’s a real example. A major West Coast-based firm with numerous offices across the nation merged with a similar Southeast-based business that had complementary locations. It appeared to be an excellent match for both firms. Analysis indicated that the transaction promised the combined company an opportunity to expand quickly, enjoy greater market presence, and dramatically increase revenues. The West Coast firm had advanced computing and communication systems that the target had expressed eagerness to adopt, and the two firms apparently had similar cultures and growth strategies. Both firms had clearly expressed commitments to cultural diversity and aggressive growth. However, not long after the merger, a significant number of key personnel left their jobs for other firms. The cost of replacing so many senior people and the loss of their expertise were unanticipated. Adoption of the advanced computing and communication systems at the Southeast firm’s locations fell far behind schedule and related travel and staffing costs skyrocketed. What’s more, the projected costs in adopting the system underestimated how much productivity would slow down during the transformation and how many interruptions in customer service would result. Customer complaints rose sharply. What happened? An internal technical consultant hired an outside consultant to help him and his team in dealing with “the idiots” at the new locations. The outside consultant uncovered a series of issues not originally recognized as significant. Unaddressed for months, the conflicts had led to serious damage. Hostilities, deep mistrust, and turf battles delayed or dampened the willingness of personnel to learn and adopt the new systems, wasted resources, drove up costs, and led to what can only be termed as an attitude of sabotage by some. The outside consultant delivered these observations on the roots of the turmoil: Technology Clash The West Coast firm’s growth was driven, in part, by its commitment to sophisticated technology. Its staff is fully computer literate and flexible in learning new systems, accepting continual changes as part of their jobs. The Southeast-based partner, which had also grown quickly, used accounting and communication systems that it had cobbled together. While the company functioned adequately, the firm used old equipment and employed 60 people to do the same job it took 12 to do at the West Coast firm. The West Coast firm’s technical people who were appointed to work with the other unit’s technical team became frustrated with their new colleagues. It was difficult for them to understand how anyone could struggle with such systems or be so unaware of the ease and superiority of advanced systems. On the other hand, the Southeast firm’s people were presented with the problem of not only learning new, exotic equipment and new ways of working but of letting go of what was comfortable and always had worked fine for them. They also had to deal with arrogant instructors and technical consultants who thought that they knew everything, and with new equipment that apparently threatened to eliminate people’s jobs. Diversity Clash Although both firms had expressed commitment to cultural diversity, the definition of diversity, and actual practice of it, differed at the two organizations. The Southeast firm, with some senior management hailing from military backgrounds, was proud of the number of women and minorities it had placed in supervisory positions. Yet, few women and minorities occupied the most-senior positions. The West Coast firm’s diversity commitment was clearly evidenced by its aggressive recruitment of top-flight, well-educated people, including numerous senior-level women, minorities, and openly homosexual executives. The firm also had created liberal partner-benefits packages that are not limited to conventional definitions of “spouse.” The consultant determined that many people at the target firm made no attempt to hide their disgust at “taking orders from people with San Francisco accents.” Moreover, they ratified their hostility in written communications which were circulated within the organization and “set in stone” their attitudes. Environmental Clash The West Coast firm’s communication and decisionmaking styles and its willingness to experiment with ideas and procedures seemed anarchical, sloppy, and whimsical to the Southeast partner. By contrast, the Southeast firm’s practices seemed overly bureaucratic, hierarchical, and suffocating to its opposite number. A comprehensive cultural assessment of both organizations more than likely could have anticipated most of these problems and proactive strategies could have been developed and implemented to address them before the combined company lost so many people and suffered angst serious enough to cut into its effectiveness. Resolution Over a two-month period, the outside consultant worked with the technical in-house consultant to develop a new approach to dealing with the Southeast group. A key result was that each partner looked at the situation from the other side’s point of view. The consultants then worked to change critical judgments about practices of one side that may have seemed “so stupid” to the other and explain why they made perfect sense to the group that used the disputed techniques. As a result, the two teams began to collaborate, to develop productive working relationships, and to decide together what aspects of the previous system should be retained and what parts of the new system should be utilized. Unfortunately, this resolution was achieved only after a crisis that resulted in three months of lost time because neither group could communicate with the other. During this period, the firm lost its corporate treasurer and one of his key direct reports, both of whom became so frustrated that they resigned. The resolution generally has led to productive relationships and adoption of more-efficient processes. Yet, the firm still has to battle pockets of hostilities, put out fires, and contain damage rather than work full-time to develop productive companywide systems. All firms have different ways of doing business that can make perfect sense in individual organizations. Identifying the best ideas and practices in each firm can be a very productive process, leading to excitement, innovation, and organizational unity. These are best discovered early, rather than by trial-and-error, default, or domination by the loudest, most insistent parties. Generally, up-front investments of resources to identify potential problem areas and create transitional alignment and learning programs to address them will cost significantly less than undoing the damage when the organization is in a crisis and has no such planning and support. Just as nations have rituals and unique ways of looking at the world, firms have distinct cultures and ways of doing business that may seem strange even unfair or unproductive to another firm. In a merger, these differences may surface only when a significant problem arises and the combined organization must react to a crisis. Lack of alignment and productive communication channels may result in inefficiencies duplication of work and wasted resources. Simple communications are misinterpreted, standards misunderstood, time lost. But, more ominously, unexamined cultural differences can lead to seriously adversarial attitudes among staffs, affecting productivity, loyalty, loss of valuable senior professionals representing years of industry expertise, and even damaged public identity and lost customers. For instance, when Bankers Trust New York Corp. acquired Alex. Brown & Co. in a $2.8 billion deal, disagreement and resentment led to the loss of six out of 12 top executives at the company. Senior management at many firms such as investment banks represent a key component of the organization’s perceived core assets. The industry and financial analysts take note of the departures as evidence of possible internal chaos. Soon after, Bankers Trust suffered major losses in its trading operations and its share price dropped dramatically. BankAmerica and NationsBank made headlines with various cultural clashes in their merger. The combined organization lost of 10 of its 12 top-ranking female executives, which led one reporter to observe, “almost an entire generation of top women leaders has been swept away.” They did not go quietly. There were letters to the editor that expressed indignance and included comments such as, “I’m moving to another bank” and “Another mega-merger that serves no one but the financial interests of the board of directors.” In addition, misperceptions of the importance of the community’s expectations of continuation of community lending programs led to additional negative headlines. They created a public identity disaster with untold financial costs to the organization. Just as positive publicity can be invaluable, irreplaceable, and unquantifiable, negative publicity can take years to undo. Differences in expectations, human resources practices, customer relations, communications, product and service standards, and systems affect the flow of information in the organization as well as its ability to make decisions and act. This ultimately will affect public identity and the firm’s value and have a profound effect on the new organization’s opportunity to take advantage of the very goals that the merger was created to accomplish. Abrupt changes in customers’ experiences and fundamental differences in distinguishing and addressing urgent or critical information can lead to real business losses. As we noted earlier, on the surface, two firms may seem to share values. A firm that declares its commitment to the importance of balance in employees’ lives also may require 60 or more hours of work per week from those people. Merge this firm with one in which the staff is used to an eight-hour work day, and significant trust and respect issues may arise, depending on which culture becomes dominant. At an entrepreneurial firm, business plans imply a requisite flexibility brought on by constantly changing circumstances. In a less nimble culture, the plan indicates a promise that, once made, is an unquestioned commitment. The plan may be one of many elements in a complex project which, if not fulfilled, can lead to costly delays or disappointed customers. Frequent schedule adjustments to accommodate customers may be seen as tantamount to great customer service at one firm, and sloppy resource management to another. Exhaustive written reports may be considered basic to conducting business in one organization and a ridiculous waste of time at a firm where verbal communication is valued as being more candid and more expedient. Spontaneous verbal discussion may seem undisciplined and unprofessional to the firm running on paper. In our own experience and the experience of those we have studied, examination of the varying cultures should begin immediately, ideally as soon as a merger or an acquisition is being considered. Information gathered in interviews with various levels of staff and even supplier groups can be used to create powerful communications and alignment tools that will be more effective than what had been in place at either of the merging firms. As a result, the organization can design and invent a new culture superior to what had existed, not only to avoid lost opportunities and waste but to foster innovation, growth, and well-being. GE Capital Corp., with more than 100 acquisitions in five years, and a strategy of continued growth through acquisitions in financial services, is at once a student and expert on this topic. After years of experience, the company has determined that waiting to integrate the merged cultures until after the deal is completed is slow, costly, ineffective, and even damaging to financial returns. GE Capital learned that the earlier the organizations examine integration as soon as the earliest deal discussions the quicker the melding can occur. It also learned the importance of compassionate, honest communication to people at the acquired entity. For example, when issues of security are at stake, and not addressed immediately, productivity and customer relationships are affected because employees focus on their own needs at the expense of the company’s. The firm also utilizes a strategy that includes a structure to facilitate ways in which the newly aligned management can work together immediately to produce a visible, measurable result. The first steps to understanding and working together can be surprisingly simple. They include examining cultural differences, articulating them clearly to each group, and then sharing the divergent assumptions, practices, and values with both groups. We have found a graphical plotting of the cultural differences to be most useful and illuminating. While most organizations will require the assistance of objective outside support, when this process is completed effectively, each organization can on its own begin to see ways of coping with the challenges for themselves. This ownership is crucial to creating systems for working together that will be adopted and will last. The mergers and acquisitions team should consider the following checklist of what to look for and what to expect: Assume that there will be cultural differences that will potentially lead to problems. Look for the differences, uncover them, and clarify them clearly in writing. Develop a plan to address the differences, develop transitional systems, and allow an appropriate amount of time for the transition process. Advise the staffs of the different organizations to anticipate cultural differences. Coach both sides in the importance of patiently and compassionately looking for what makes sense in the other firm’s practices. Often, what we don’t understand we may disregard or criticize. Realize that the groups need direction and support in creating a context for learning how to work together. Accept that the transition may require interim consulting and training assistance that current staff will be unable to handle. For instance, in the previously cited merger of the West Coast and Southeast firms, the internal technical consultant, skilled in programming and developing systems and in directing his technical team, was not skilled in managing the integration challenge, in training, or in holding productive conversations with unsophisticated equipment users. Without these skills, which he hadn’t previously needed, his strategy had been to somehow install the system quickly and hope for the best. Factor in the cost of learning new systems, practices, etc. and plan for it. Anticipate a review of reporting relationships and communications to provide the context and identify the need for any changes Be aware that changes may affect how individuals and groups see who they are, how they understand themselves and other new groups, and how they contribute to the organization. In some cases, people may interpret shifts in organizational structure as loss of status which can affect how they feel about the organization and how they do their jobs. Be open to utilizing alternative techniques for supporting employees in dealing with any perceived losses. At one firm, target employees held a ritual funeral, placing items in a casket that represented what they felt they were losing. It provided an opportunity to acknowledge and face perceived losses together, rather than alone or in side conversations. At another target, in which establishment of the new administration would lead to loss of a cherished garden tended by the company, management harvested roses and distributed them to the staff to enjoy. Realize that there may be cases in which the cost of coping with the cultural challenges may render the deal less advantageous than previously forecast. Ideally, the merged firm should: Think of the merger as a corporate relationship among perhaps thousands of people who now must learn to “live” together. Plan and think with regard for the well-being of the relationship. Support the staff in legitimizing the concerns, beliefs, and behaviors of the two sides. Expect that the executives’ excitement about the union is not necessarily understood or embraced by rank-and-file employees, and it must be communicated to them. Realize that the perceptions of top management and those of staff will not be the same and examine the differing perceptions throughout the organization. Elicit from the newly merged organization in joint discussions what can be conserved and what needs to be changed. Have the group work together in making the choices. Clarify how decisions will be made, and whose standards will prevail. Create an immediate joint project in which the two former groups can provide joint expertise in designing, implementing, and realizing success while accelerating new synergies. Look for ways to include and take care of people. Develop opportunities for each group to learn from each other and appreciate what each has to offer. When Sanofi Inc., a pharmaceuticals subsidiary of France-based Elf Aquitane, acquired Sterling Winthrop from Eastman Kodak Co., the two firms already had a successful supplier/client alliance and an understanding of cultural challenges. After the combination, Sanofi provided English and French language classes, cultural and business practices classes on social etiquette, a bilingual corporate newsletter, “harmonization” meetings, and clear verbal and written directives on “how we will do various things.” The union is by all accounts extremely successful, with results exceeding forecasts. Create a setting and a time to tell each group “the story” of the other organization that reveals how it has contributed to the marketplace and to the lives of employees and other stakeholders. Such stories can reveal deeply held cultural beliefs and values and promote appreciation and understanding. In general, many problems involved in merging separate cultures will stem from the following issues: Inability to anticipate the appropriate amount of time required for change to happen. Failure to look at the cultural identity of key players and what amounts of time and learning are required to shift them. Failure to anticipate the need for comprehensive sophisticated transition and communication programs and underestimation of the spiraling cost of mistrust and rumors. Inability to set a context for an environment of learning that allows cultures to integrate more smoothly. Failure of one or both sides to see the legitimacy of valuing the other firm’s identities irrespective of difference. With active preacquisition examination, firms can address potential problems and create a more viable, new organization with: Proactive plans for identifying and managing predictable breakdowns. Shared values. Shared standards of customer commitment. Shared standards for managing mistakes and broken promises. Communication structures and practices that promote the sharing of ideas, honest communication, and innovation. Enhanced productivity.