Bridging the cultural divide

Transcription

1 Quantitatively assessing the softer side of integration Studies have shown that more than 50% of acquisitions fail to achieve the desired outcomes because of cultural clash or misalignment, yet culture is often the one area focused on least during due diligence and the transition. The most common reason is the perceived difficulty in dealing with soft stuff. Yet, as Larry Bossidy, a well-known businessman and author, says, At the end of the day you bet on people, not strategies. Thus, it would be remiss to ignore culture in a transaction. The fact is that cultural alignment can be objectively assessed, as this article will explain. Culture in integration A typical integration relies on functional and business integration teams to address virtually every function of a target s organization, and how these functions will be integrated. A culture team should also be established with a defined charter, or scope of work. Most integration teams compare and contrast policies, practices and procedures between the two organizations. The culture team is no different. Figure 1 Cultural diagnosis: Practical activities to understand organizational culture Focus groups Observation and shadowing Document review Cultural dynamics survey Professionally and independently facilitated sessions where employees can share their views on corporate culture, values and norms Observation of the practices within the organization identifying how people live and breathe the culture Review of key business documents to identify themes through the use of language, metaphors, corporate stories, success stories, etc. Survey to understand the organizational and cultural dynamics of the business

2 Each integration team should begin with data-gathering and analysis to enable fact-based decisions (discovery). A culture team has the same type of assignment, leveraging the data-gathering methods described in this article. The culture team should be first to complete their analysis and then report findings to the other teams. Other teams can then prepare integration recommendations, while considering the cultural nuances along with factors such as economic impact and potential risk. Independent facilitation and advisement are critical for the culture team so that employees of both organizations view the cultural assessment as comprehensive, fair and impartial. Further, investing in this effort will generate dividends through higher employee receptivity to proposed changes and greater engagement because leadership cared enough to ask. Objectives of integration activities associated with cultural alignment Cultural alignment work has outcome-based objectives, including: Human welcoming (valuing all parties involved instead of a victor versus vanquished subculture, which can often arise if cultural elements of a transaction are ignored) A common understanding of purpose and high-level strategy associated with the transaction Employees choosing to change versus being forced A common identity underpinned by shared values and beliefs, both corporate and localized Support for the anticipated integration activities in order to achieve the stated objectives of the transaction These objectives will be achieved in three stages within the overall integration process: (1) discovery, (2) defining and (3) developing, which are further discussed below. Clues into the underlying values and beliefs of an organization An organization s culture is not readily apparent; it exists and people often take it for granted. A successful acquirer should understand a target s culture, the specific elements that make it successful and the attributes that cannot be compromised. Further, consideration should be given as to how the target s people will fare within the acquirer s culture. Dissecting a culture generally begins with a diagnosis of core beliefs and assumptions. A culture web is a tool used to identify the interconnected series of analysis points. The following are examples: What are the myths and history? What makes the organization what it is today? Is it about the founder s ideals? Is it about innovation or an initial product? What are the stories and language? Is the emphasis on exemplary customer service (think of Nordstrom or Amazon), work-life balance, length of service, the Hall of Fame, pictures in a corridor highlighting those living the company s values? What are the symbols? What symbols or icons are used in the company culture? It may be more than the corporate logo. Are there trophies or awards? What are the rituals and routines? What is orientation like for a new employee? Are there quarterly or annual recognition ceremonies? How are people recognized for achievement? What are the organizational structures? Is the organization flat or bureaucratic? Is it traditional or less so? How much emphasis is placed on teams? What are the power structures? Who holds the power and why? Do power structures follow organizational lines? What are the control systems? What controls are in place? What does it say about the organization? Is it cumbersome? Does it communicate that employees are trusted or not? 2

3 Discovery: Performing an objective cultural assessment At Grant Thornton LLP, we believe that there are four methods that can be used to effectively assess a culture, and that a combination of all four of these should be used to gain a well-rounded perspective and unearth meaningful insights. We also believe this analysis should be completed within both the acquirer s and target s organizations. 1. Corporate document review Reviewing key business documents identifies themes through the use of language, metaphors, corporate stories, success stories, etc. Document review includes an analysis of both internally facing messages, such as leadership messages and meeting minutes, and externally facing messages, such as websites and brochures. How are communications used to influence various audiences? Is there an alignment between written messages and the other observable aspects of the culture? For example: What are the stories in the company newspaper? What does the CEO say in his or her column? How are people highlighted? What accomplishments are celebrated? Is there a booklet on the corporate vision? 2. Cultural dynamics survey The cultural dynamics survey provides a quantitative assessment of the organizational culture, which can be charted visually and provide a snapshot of the current culture. The survey provides an opportunity to anonymously source opinions from a wide range of individuals. The data can be broken down to identify subcultures through the use of custom demographic questions. Figure 2 Key cultural dimensions Organizational culture environment Independence/decision-making Teamwork and collaboration Change and innovation Risk and control Rules and procedures Leadership and power Customer focus and service Quality orientation Proactivity and empowerment Trust and loyalty Open communication 3

4 3. Focus groups and one-on-one interviews Focus groups are one-hour professionally and independently facilitated sessions in which employees can share their views on corporate culture, values and norms. These open and personal forums provide opportunities to express perspectives honestly and without judgment. Sessions are not combined between organizations, but used to compare and contrast perspectives. Typically, eight to 10 standard questions are prepared to capture recurring themes. The high level of interaction provides a greater depth of understanding when viewed in conjunction with other quantitative and qualitative data. Examples of open-ended questions leveraged for focus groups and one-on-one interviews would be as follows: The combination of these four activities helps to objectively look at the organizations through a variety of different lenses and gather a full picture of cultures and subcultures. By consistently tying the culture assessment data points to a culture web (See Figure 3), we are able to identify behavioral, physical and symbolic manifestations of culture, which provide a meaningful framework for understanding the most influential aspects of the target s and the acquirer s culture. We are then able to bring out the cultural dynamics of each organization, the areas of commonality and potential friction points. Further, employees feel engaged in the integration process. Figure 3 The culture web: Evidential indicators of core beliefs what we look at How would you describe the working environment/culture here? What excites you about coming to work here? Myths and history Organizational structure Power structures What kind of person fits into this organization? What kind of person does not fit? What are your perceptions about the other organization? Rituals and routines Core beliefs and assumptions Symbols 4. Observation and shadowing Observation and shadowing is used to validate the information gathered from the focus groups, interviews and surveys. It serves as an opportunity to gather information in a natural setting about an organization s espoused values and beliefs, as well as their actual behaviors. Inquiries into and observations on elements of the cultural web can begin the data-gathering process, which can yield insights into what culture is like throughout the organization and whether the desired organizational culture is what really happens on the front line. For example, the sign at the entrance to the manufacturing plant says, Safety First, but when inside, one observes disorganization and workers without adequate personal protective equipment. Control systems Stories and language 4

5 Defining and developing After the initial data gathering, similar to the other teams, the culture team would define challenges and opportunities and recommend integration programs such as cultural onboarding or assimilation sessions. In addition, the culture team would provide input into communications, leadership training and sessions on how to thrive in the post-transaction culture. Is there a cost of not getting cultural alignment right? One company described a simple culture faux pas where the location manager of the acquirer contacted his counterpart to meet and asked within the first five minutes, What is wrong with this location? How can we fix it? It was reported that initial meeting, a dayone misstep, took one year to undo. Six months to one year is not unusual for repairing damage created in the first days, but that s time that could have been better focused on achieving the critical objectives of the transaction. On the other hand, leveraging cultural dynamics can create momentum resulting in a fast track to combined operating and financial success. CASE STUDY The acquirer and target The following is an actual case study of a large Fortune 150 company s global transaction. The objective of the transaction was to create joint product offerings, leveraging the technological and service delivery expertise of the acquirer with the manufacturing capabilities of the target, while combining the engineering competencies and research capabilities of both. Translation: Bringing the people together was critical to transaction success. Further, this was a significant transaction whereby the target was approximately 25% the size of the acquirer, both in terms of revenue and employees. Coupled with the significant downturn in global economic conditions, there was no room for early missteps that could derail the strategic and financial objectives of the transaction. The following is an overview of the two organizations: On first pass, simply looking at the vision statements and core values of both organizations, it would appear they are relatively compatible. But when delving deeper, it is evident there are significant differences as to how both organizations live out their values. Given the stated objectives of combined product offerings, integration of manufacturing capabilities and combination of engineering skills, the retention of key talent is critical, as is significant momentum in the midst of global economic concerns. 5

6 Description Acquirer Primarily services with some manufacturing support Target Primarily manufacturing (70%) with services Age of company ~100 years ~100 years Public or private Publicly traded Publicly traded Revenue 4X the target s revenue 1x Employees Demographics Hiring philosophy Core values Technology focus Organization structure Culture 4X the number of the target s employees Highly diverse employee base, 140 nationalities in 85 countries Focused university hires from global top engineering schools; high mobility (15%) People, technology and profit (from founders) Highly focused on engineering communities and patent development Very mature matrix structure; decentralized operations Command and control, management by objectives, highly inculcated by long tenure of employees; acquisitions generally assimilated 1x Predominantly U.S. and UK employees (85%) Typically experienced hires (second or third job); limited movement Collaboration, excellence, responsibility, integrity, innovation (began formal culture journey 5 years earlier to create a new corporate culture and overcome business unit divisions) Low number of new patent applications, approximately one-tenth of the acquirer s applications Highly centralized and autonomous business units; matrix is embryonic but evolving Familial culture with high employee engagement; explains the why 6

7 CULTURAL WORK AS PART OF INTEGRATION The acquirer formed a culture team with representatives from both organizations with a defined set of activities. Historically, the acquirer hadn t worried about the culture of target companies, did not have a track record of retaining key talent from its targets, and was far more heavy-handed about targets adapting to their culture with little empathy for differences. However, given the significance of this transaction, the need for rapid integration, the importance of leveraging the capabilities of both organizations, and to improve past results, the acquirer placed significant emphasis on the cultural assessment. Independent facilitation was provided by Grant Thornton on a global basis. The combined acquirer, target and consultant team performed all the discovery activities described above, which included focus groups for comparative operations in different geographies, cultural dynamic surveys, one-on-one interviews and observations. The conclusions from the cultural work indicated the companies were not diametrically different, but had friction points that could not be ignored as part of the overall integration process. For example, the acquirer was heavily process-oriented, and changes in processes were generally accepted as being in the best interests of the company. The CEO prided himself on the fact that any new process could be implemented in the company within one week. Few would question changes, assuming processes were right and well thought out. Contrast this to the target s culture, where the whys and benefits of all changes were explained in order to get buy-in. Elements like this illustrate potential challenges associated with cultural differences in an integration, especially when changes are made to a company s processes. Thus, in these situations there is a high degree of risk associated with early transition missteps simply because of how the acquirer s and target s employees were inculcated into their respective cultures missteps that can easily derail, delay or completely thwart other initiatives that are critical in achieving the transaction s stated objectives. In this particular scenario, given the existing reputation of the acquirer, there was angst on the part of many of the target s employees as to what would happen post-closing. This was partially offset by enthusiasm about the possibility of what the combined organization could become. In this case, the transition could go either way, and addressing the cultural elements was critical for the transaction to quickly move forward in the desired direction. 7

8 OUTCOMES Based on the work performed by the culture team, there were a number of key outcomes, which included: A briefing by the culture team to all the other integration teams regarding findings and observations to be considered when developing integration scenarios. Identification of commonalities that could be leveraged. Identification of differences that would need to be proactively addressed and understood by both sides. Identification of key leading practices in the target organization that would be adopted by the combined organization, as well as key practices of the acquiring organization that could enhance the target s efforts to improve overall efficiency in other words, the transaction was clearly not as onesided as many might have initially thought. A change leadership program for integration team leaders that incorporated identified behaviors to be exhibited when acquirer personnel worked with target personnel and vice versa. Input on ongoing corporate communications to manage expectations the activities being carried out by the culture team to create greater awareness and understanding between the two organizations was communicated on a regular basis, which assisted in quelling concerns about the acquirer s reputation for complete and total assimilation. Input on day-one communications, including leading practices identified in each organization that would be adapted by the other, which acknowledged the effort made by the culture team to study both organizations and develop an appropriate integration scenario a day-one town hall meeting included one PowerPoint slide on the outcome of the surveys, focus groups and one-on-one interviews, which was extremely well-received by employees of both organizations. Tempered policies of the acquirer effective on day-one, which included an explanation of why the policies were important (the latter not done in prior acquisitions). Boot camp for the target s previously identified high-potential employees on how to survive in the acquirer s culture (never done by the acquirer before), with a key success metric being retention of high-potential employees at the one-year anniversary of closing. When the day-one messaging was delivered, the level of effort made to study the culture of both organizations was well received. Employees in both organizations felt their voices were heard, appreciated being engaged from the start and valued the deliberate efforts to assimilate both organizations. Contacts Edward Kleinguetl Partner, Transaction Services Grant Thornton LLP T E edward.kleinguetl@us.gt.com Jennifer Morelli Senior Manager, Organizational Change Management Grant Thornton LLP T E jennifer.morelli@us.gt.com Jessica Ruane Senior Associate, Organizational Change Management Grant Thornton LLP T E jessica.ruane@us.gt.com This content is not intended to answer specific questions or suggest suitability of action in a particular case. For additional information about the issues discussed, contact a Grant Thornton LLP professional. Connect with us linkd.in/grantthorntonus Grant Thornton refers to Grant Thornton LLP, the U.S. member firm of Grant Thornton International Ltd (GTIL), and/or refers to the brand under which the GTIL member firms provide audit, tax and advisory services to their clients, as the context requires. GTIL and each of its member firms are separate legal entities and are not a worldwide partnership. GTIL does not provide services to clients. Services are delivered by the member firms in their respective countries. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another s acts or omissions. In the United States, visit grantthornton.com for details Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd