Don't play the blame game

2006

It's time to stop blaming "cultural problems" when a merger fails to work and look beyond the smokescreen for the real reason for failure – namely that management has failed to make the deal work properly.

A new report by KPMG has launched a broadside at dealmakers who blame failed mergers on cultural issues, arguing that 'culture' has simply become an easy catch-all excuse for M&A failure.

Two-thirds of M&As fail to deliver the expected benefits, the research found, with cultural differences invariably blamed for the failure as a convenient way to absolve management of any responsibility.

Moreover, it agues, the word 'culture' itself now means so many different things to different people that it has become meaningless.

"It's time to stop blaming culture – it's like blaming the weather," said John Kelly, Head of KPMG's Integration Advisory Practice.

"As Billy Connolly says 'there's no such thing as bad weather – only the wrong clothing.

"The real issue is that when contemplating venturing out into M&A, be prepared for what the real issues are – rather than attaching a label that absolves you of responsibility."

But as KPMG found in interviews with 101 corporate executives and 20 private equity houses, difference in organisational culture are invariably cited as the single biggest challenge during post-deal integration.

The majority of respondents – some eight out of 10 - felt underprepared to deal with the problem. However, those that did give early attention to so-called 'cultural issues' were more likely to realise synergies and took control more quickly.

Look more closely, however, and the biggest issues faced by acquirers is getting the top team structure right and coping with different working styles. The ideas that national culture is the most important issue proved not to be the case.

"I believe the focus on top team structure reflects the PE [private equity] house influence," John Kelly said. "Getting the management team right is by far the biggest concern for private equity whereas it's not in the top five for corporates.

"Our research showed that corporates, on the other hand, struggled more with overcoming different working styles as they brought together the new businesses."

In other words, Kelly added, instead of blaming cultural issues, the parties in a merger need to identify their differences in working style and come up with pragmatic ways of dealing with them.

"What is perceived as a cultural clash is really prompted by someone not knowing how to be successful in the new organisation. When you clearly communicate the vision and their role in its achievement, everything else falls into place."

On a broader level, he added, buyers need to accept that they won't be able to completely change the culture of their acquisition and instead identify the 20 per cent of things you can change to make the biggest difference.

"What you can do is identify the new behaviours you're looking for and value and reward them highly. Spend the time to understand the different styles such as approaches to performance management and decision making and explain to both parties what will and won't work.

"There is no doubt that culture and cultural differences play a huge part in the success of M&A. However, culture is something that everyone blames and no one explains. Successful integration demands we stop hiding behind the label and stop blaming culture."

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