8 Dimensions of Organizational Culture in M&A
Contributor Anirvan Sen
By Anirvan Sen
Industry experts define the culture of an organization as the “way we do things here”. In other words, practices, interactions, behaviors, rituals, politics, performance management, career development, rewards, and recognition form a heady mix of attributes that form the “culture” of an organization.
Practitioners who deal with business transformation, mergers and acquisitions, and change management, need to thoroughly understand the culture of an organization since it is the bedrock on which employees operate. Understanding culture is the key to understanding people, middle management, and the top leadership of an organization.
Culture defines the pattern in people’s behavior and practices in an organization. Interestingly, culture is often misunderstood and pushed under the carpet as business leaders do not know how to deal with it.
Misconceptions
Let us explore a few of the misconceptions that exist in the industry.
Many business leaders perceive culture as fluff. Culture is difficult to measure and may not yield tangible results directly. This is a special challenge during an integration as most of the M&A activities are tangible and measurable whereas culture can be intangible.
Culture is not a single event. Sometimes these changes can take months. You can compare culture with habit in this regard. Changing habits is not easy and it does not change overnight. Changing culture needs effort, focus and resilience to stick.
Culture is not an absolute value. When measuring culture in M&A, it must be done for both the companies as often they are relative values. Openness in two different companies may have different values when measured against each other.
Culture is not native in origin. Culture is an outcome of the influence and impact of several factors. It could be geographic, industry-specific, individual-driven or political factors.
So, how does one measure culture?
Let us start by dividing the factors impacting culture into two categories: causal factors and demonstrated attributes (dimensions)
The first category, we will look at is the causal factors.
Causal Factors
Competing values
These are the values that an organization adopts in order to compete in the market. As you know, different positions in the market warrant different behaviors. For startups and scale-ups, the focus is on external markets and on innovation. For large companies, the focus is on internal organization and profitability. And then there are companies that are a cross between innovation and internal focus. Depending on the competing values, organizations develop their own practices, procedures, and cultures accordingly.
A great framework for this element is the competing values quadrant developed by Kim Cameron and Robert Quinn
Growth evolution
The maturity of an organization defines a cultural configuration. An early-stage company is usually entrepreneurial and management focus is primarily on revenue generation. The management systems are not well defined. Rewards and recognition are based on revenue increases. Decision-making is restricted to very few people.
In more mature organizations, it is common to see structured performance management for their employees. There are special structures for rewarding people. The decision-making is usually a consensus-driven approach amongst the top leadership. Their main focus is on stabilization and controlling the cost of operations
Greiner’s growth curve can be used effectively to manage this aspect
Geography
Most of you would be familiar with the cultural differences between different geographies so won’t go into details in this article. Geography is a big factor that influences the culture of an organization.
Hofstede’s cultural dimension is an effective framework to measure geography cultural differences.
History
A company’s history also influences the culture of an organization. Companies that have existed for decades exhibit historical-cultural remnants. Pride in workmanship in Toyota started after the world-war two but it still gets practiced today. Innovation in General Electric has been at the core of the organization for years. While GE may have a strong command-and-control structure due to its large international size, its focus on continuous innovation still continues with the same vigor as it did fifty years back.
Demonstrable Attributes
Let us now look at how the above impact factors get revealed as the culture in an organization.
Culture in an organization resides at least at three levels: Organization, Department, and Individuals. The following attributes are applicable to all the levels.
Organizational Culture can be divided into the following eight demonstrable attributes (dimensions) which are particularly relevant in an integration.
1. Vision, Strategy, and Goals
This element defines the purpose of an organization. Companies should explore the elements for both the acquiring and the acquired company during an assessment. The assessment should assess the current state as well as the future state of the consolidated organization. This provides visibility on the effort and strategic mission changes that need to be brought about.
2. Structure, Systems, and Processes
Every organization has structures, policies, procedures, and practices. Some of them are captured and articulated in documents and others are followed as practices. These structures are put in place as “means” by which the organization operates, pursues the strategy, and competes in the market. Structures include organizational hierarchy, governance, compliance processes, market interactions, and operations.
3. Measurement System
The process to measure operations, performance, error-detection, escalation, and dispute resolution are all part of a measurement system. Operational metrics, key performance indicators (KPIs), and Objectives and Key Results (OKRs) are some measurement indicators that are used by operations to manage themselves whether you are a function, business unit, department or a process.
4. Common Language and Practices
Many companies especially the large ones have their own vernacular vocabulary. The knowledge of the company-specific vocabulary is considered one of the pillars that define a culture of an organization. Similarly, there are practices that define the culture of an organization. Annual performance reviews, periodic team events, and 1-on-1 lunches with executive leaders are a few examples. Leaving work after the boss leaves is a common practice. So, is the idea of the birthday celebration of team members. Happy hour and dress-down Fridays are also common ones.
5. Groupism and Influence affiliations
Every organization demonstrates groupism and favoritism. There are always some influential employees in every organization. More than the executive leaders, it is these influencers that define the culture of an organization. By driving groupism and political affiliations, these influencers are able to manage their influence over the organization. In an M&A process, these influencers may not be visible during a due diligence process. They must be identified during the initial stages of integration to manage the cultural transition.
6. Authority and Relationships
Exercise of authority can be formal in some companies and informal in others. This aspect should be articulated properly in the assessment toolkit as different companies may approach employee relationships differently. Integration teams must understand that small companies may have informal relationships and reverence for authority is minimal. Large companies, on the other hand, maybe strict about following protocols and conventions.
7. Status and Recognition
While it may not be as important in small companies, status can be a big part of the culture of a large organization. Status may be defined by the position they hold, the influence they cast or the knowledge/expertise they carry. The other aspect under this element is individual recognition. In small companies, all individuals are known and their existence is acknowledged by the others in the organization. As the company grows, this individual attention gets diluted. The challenge is when top leaders of an organization completely overlook giving any attention to the employees as individuals. It is very common to see business leaders from the acquiring company treat employees of the acquired company as numbers and statistics rather than individuals. Lack of existence acknowledgment can be a massive demotivator for any organization.
8. Benefits and Awards
This is probably the most important cultural aspect of integration. Most cultural challenges arise when specific benefits are altered or taken away. Examples include favorite parking spot, own office, personal assistants, and business class travel. They can become major irritants and distractions. At the face value, it may look trivial but in deep-dive, the impact of benefit changes can be huge. The cost of irritation and demotivation can far outweigh the business case benefits.
The other aspect of this category is rewards and recognition. Companies regularly use rewards and recognition to motivate the workforce. "Employee of the week", management awards, leadership awards, and other forms of rewards can be adroitly used as an employee engagement tool. Each organization has their own mechanism to manage this process which may be different from the others.
Conclusion
Human beings are creatures of habits. It is very easy to fall into the trap “this is the way we do things” and follow it blindly. In an M&A, people often expect the same obedience from the acquired company employees when the integration is initiated. Without a robust cultural transition planned, the same obedience expectation can lead to massive resistance that can radically impact revenue and the cost of an organization.
Organizations must take-out time and conduct comprehensive cultural assessments to understand the demonstrable attributes as well as the underlying causal factors. Only when the team develops a good understanding, can they come up with relevant and effective interventions for transition. Anything short will end up in a disaster.
Cultural transition is a journey that touches the core of an organization, its people. That is why, cultural integration plans must be well-structured, empathetic, inclusive, and more importantly, collaborative in nature that will bring the teams together.
Culture is not fluff when you approach it logically. Developing a good understanding to conduct cultural assessment holds the key to bringing people from the two companies together.
And as you know when two parties collaborate together and play to their strength then it can quickly achieve one plus one equals six!
End of the article
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