Why Merging Cultures is Crucial for Merging Companies

As a company, it is never easy to unify an existing business with a newly acquired one through a merger or aquisition.

In fact, a study by Isaac Dixon, "Culture Management and Mergers and Acquisitions," showed that cultural differences were at the heart of 30% failed mergers and aquisitions. 

The key to a successful merger and acquisition lies in ensuring the separate company cultures become one.

More and more companies are merging in order to increase their chances of survival in the current financial climate. This isn’t always as easy as it seems –  company cultures can vary greatly.

The answer to this merging problem might lie in the unification of business cultures; Mary Teresa Bitti has found two companies that have managed to successfully fuse their business with a new one.

One of these companies is the Vancouver-based Great Little Box Company. This company is growing fast: over the past seven years, the company that manufactures and distributes boxes, displays, protective packaging and the like has acquired six other companies.

The company does not just buy every business that is up for sale: as it is their ‘core business,’ their new acquisitions must have something to do with the packaging industry. In addition, there is another criteria that is very important to the company. Vice president of sales and marketing James Palmer: ‘We will not acquire a company that is more than 25% of our size because it makes the cultural piece that much more difficult.’

Stephen Long, professor of organizational behavior at Royal Roads University in Victoria, believes that understanding this ‘cultural piece’ will determine whether a new acquisition will be successful after it’s been bought by another company. ‘Ultimately, unless you are buying a technology, an acquisition is only as successful as the integration of the acquired company’s people into your corporate culture because it’s the people who will create and deliver the value of the new organization. Until you get everyone on the same page with respect to the values and behaviours you want to see, unlocking that value is not going to happen.’

According to professor Long, many companies do not take their time in figuring out the time and resources needed for a merge.

Ideally, the buying company has to understand its own culture first. Then, it can focus on the culture of the acquired company. This is exactly what RSA Canada – the Canadian branch of the multinational RSA Group, did in 2010 when it acquired the GCAN Insurance Company from the Ontario Teachers’ Pension Plan Board. Mark Edgar, senior vice-president of human resources at RSA Canada, says: ‘We spent a lot of time making sure we understood who the key players were and trying to understand the culture and how things were done there to make sure we understood the impact of an acquisition and the reaction to it.’

The two cultures were clearly different as RSA is a very old, structured company while GCAN has much more of an entrepreneurial spirit. Edgar: ‘When we made the decision to buy it, we were buying that capability. It can be positioned as a reverse takeover really because although we are a bigger organization, RSA had a relatively small team in comparison to GCAN in this specialist space, which added another layer of complexity around cultural integration because we wanted to take some of the bits of that culture and maintain it within RSA.’

A great deal of GCAN’s senior leaders obtained senior positions in RSA Canada. To ensure the whole operation would run smoothly, an independent third party was asked to carry out a cultural audit to discover the differences and similarities of both companies. In retrospect, Edgar is not sure he would use this same strategy again. The company was convinced there were more similarities than differences, which meant the focus on cultural integration was lost in the process.

RSA was keen on maintaining the entrepreneurial characteristic of GCAN and during the ´learning phase´ of the transition and obtained a great deal of knowledge about the acquired company. ´Once we had a better awareness and could see how things were working it was then that we started to think about changes we were going to make around people, benefits packages, the GCAN brand was removed,´ says Edgar. According to him, it was important to tell both new and old employees that they now belong to the same team: ‘Ultimately you want people to feel confident they will be successful in the new organization and that means communicating.’

Professor Long agrees with this view. He believes in open communication; if people are not told what is going on, they will make their own assumptions about, for example, the security of their job. ‘The best thing management can do is to explain what the impact of the changes will be, which means that before the acquisition, good management will have thought this through and then communicate it as quickly as possible.’

The Little Box Company has clearly listened to this advice. For every new acquisition, the company focuses on relationship building. ‘We send a team over the day we acquire the business. At that point we’ve already assessed the business for synergies and problems and if there are any staffing changes, we make them right away and all at once. No one is left wondering what will happen. We meet with the entire staff; explain the reason for the acquisition and how excited we are to have them join the company. We start to build relationships with the remaining people right away. We want to know them personally and build some common ground,’ says Mr Palmer.

For more information on the challenges of cultural mergers, take a look at this great piece of research by Farsi Maneli, (2017).

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Photo by diGital Sennin on Unsplash

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