M&A growth strategies promise a multitude of strategic opportunities; from rapid growth, to elimination of competition, to access to new markets. And many organizations are currently, or have, embarked on merger and acquisition growth strategies to varying effect.

When asked about the primary causes of these mixed results, most leaders cite a misalignment between the two organizations’ cultures. This friction can wreak havoc as the members of different groups assimilate to drive the performance gains that M&A strategies forecast.

Nowhere do M&A growth strategies seem as prevalent lately as within the tech industry. Major transactions seem to hit the headlines on a weekly basis, with no end in sight. Amazon’s recent acquisition of Whole Foods for $13.7 billion is just one example.

But the titans of industry are not the only companies engaging in these types of deals. Companies of all shapes and sizes are actively engaged in M&A growth strategies to help position themselves to compete. And organizations of all sizes must be mindful of how company culture plays a role in M&A success.

The Role of Company Culture in Mergers and Acquisitions

Typically, these activities are conducted with a focus on the external. How are we going to gain access to new opportunities? How will this position us better to gain market share? How will this afford us economies of scale to keep ahead of our competitors?

What happens once the deal is complete is quite different, though. People tend to take a laser focus on the internal. How do we sort through multiples payroll systems and integrate our HRIS? Which sales compensation model will we use and how will we ensure that our operations can integrate as quickly as possible?

The risk here is twofold. First, if the transaction was initiated for externally focused reasons, becoming hyper-focused on internal integration can distract people from why the deal happened in the first place. Second, and perhaps more problematic, is that the promises of financial gain can be seductive, leading the organization to find data and examples to support the notion that the organizations are ideally suited to integrate, rather than looking at data objectively.

It’s not uncommon to hear executives talk about how the cultures of the organizations are well-aligned, and how this will facilitate an easier integration.

We’ve seen it play out time and time again as leaders convince themselves that the integration is a marriage made in heaven when, in fact, they have no real understanding or data with which to base that claim. With many millions (or billions) of dollars on the line, it seems ludicrous that companies would roll the dice with something so critical.

Some organizations, however, have a keen understanding of the effect that the integration of cultures has on the wild success (or colossal failure) of an integration effort.

Take Saba Software, for example, who recently acquired HR tech company Halogen Software. “The new, combined organization is now one of the largest independent talent management companies in the world,” according to the press release.

Beyond the headlines, how do mergers and acquisitions of this size become successful? I spoke with Debbie Shotwell, Saba’s Chief People Officer, to understand how they will make this acquisition successful.

A Culture First Approach to M&A

Ms. Shotwell may be new to her role at Saba, having joined the firm less than six months ago, but she isn’t new to M&A transactions and integrations. In fact, she’s lived through over 35 throughout her career, including Oracle’s acquisition of PeopleSoft in 2004.

“Good planning, communication, and being as honest and open with people as possible goes a long way in M&A integrations — these things are always important to people,” Debbie shared.

Now, Debbie is leading the complex efforts of integrating the Saba and Halogen HR systems and processes to drive the behavior of the new organization. This is no easy task, to say the least.

Debbie and her team are wading into the deep end of the integration pool. But they are quite intentional about collaborating with their Halogen counterparts to find a “best-of-both” solution for the integrated organization.

“Both companies share the same customer-centric culture and they are both very focused on customer success,” Shotwell describes. Though, despite their common goals, she also acknowledges that effectively integrating these companies in a way that drives financial performance quickly is no easy feat.

The risk in this situation is that both organizations define customer success differently and how they deliver success looks so different that it can create frustration or anxiety as employees struggle to figure out what the new “right” looks like across the new organization.

Guiding a successful integration through this tricky transition takes intention. Debbie shared with me the key components of her team’s approach to navigating this opportunity.

Take the Time to Really Understand the Cultures of Each Organization:

In all of the excitement of target identification and selection, it can be easy to grab onto the obvious similarities of the two organizations and tout how aligned the two workplace cultures are. Doing this is easy but it’s not enough.

For example, two companies may both value developing employees, but how each company actualizes this in the day-to-day may look totally different. One organization may rely on sending employees to outside training and development opportunities while the other has found success by leveraging internal, on-the-job development and job rotations. Neither is wrong per se, but they are two fundamentally different approaches.

You must take the time to dig deep into what “right looks like” in each organization to ensure you don’t jump on the culture bandwagon and drive yourself into a ditch.

Being Intentional: Take the Time to Do It Right:

“Most leaders want to complete the integration process as quickly as possible in order to reap the financial benefits of the transaction,” Shotwell says. “This can come back to bite them. I believe in taking a step back, planning, and taking your time with your integration strategy.”

Being extremely thoughtful about your integration strategy allows your organization to more effectively manage the human side of the transition process and mitigate many of the risks inherent with using the “ready-fire-aim” approach.

Leverage Transparency to Keep People Engaged:

Integrations are extremely complex. Imagine changing all four tires on your car while driving at top speed on the highway. Oh, and it’s snowing.

Things change again and again and leaders often just don’t have answers to everyone’s questions. Finding ways to engage people throughout the process, to keep them informed the best you can, and to solicit their input helps to create transparency. “Integrations are about the people,” Shotwell says. “Both Saba and Halogen share a common commitment to investing in the long-term success, growth, and development of our people; something that must be acknowledged and honored as we integrate.”

Bring People Together for Purposeful Dialogue:

In the spirit of keeping the lines of communication open, it’s important to bring people along with you throughout the integration process. Creating opportunities for people to come together to look each other in the eye, ask questions, and discuss the realities of the integration in a purposeful way can help people express their anxieties. Dialogue also connects employees with a larger support system as they work through the nebulous days of integration.

Celebrate Successes and Failures:

No integration is ever perfect. There will be successes and there will be failures. Trying to shape the narrative that everything is perfect doesn’t fool anyone. In fact, ignoring the challenges can create a dynamic where employees feel that they cannot share their struggles or failures with leaders. This can have long lasting, negative repercussions down the road when those things grow ten heads and come back to bite you.

Finding ways for people share both their successes and failures allows for the organization to learn from each situation and it creates a dynamic where continuous learning and improvement are valued.

Care About Learning and Development:

One of the primary sources of anxiety for employees during an integration—once they know whether or not they have jobs—is if they will know how to succeed in the new organization. Making an effort to help employees understand how their role and responsibilities will change and providing support with their development can help reduce the stress associated with a transition like this.

Ensure Leaders Are Prepared to Coach Their Teams:

“Leaders are the catalyst that helps everyone else be successful,” explains Shotwell. “Helping leaders understand themselves and each other helps them support their people and teams on an ongoing basis so they can feel valued, accepted, fulfilled, connected to what we’re doing.”

One mistake executives can make is to assume they have to do everything during an integration. This assumption doesn’t scale well when there are so many complexities to navigate. Relying on leaders at all levels to support their teams throughout an integration is a way for them to take an active role, but they must not be forgotten in the process. Finding ways to adequately prepare your leaders to coach their teams through the transformation will pay off in spades.

It’s About Building Connections Between People:

Shotwell believes that people from both legacy companies have ample opportunity to interact and to learn from each other. For example, implementing a buddy program to match up partners from both legacy organizations allows employees to both humanize members of the other company and increase understanding and appreciation for how each legacy organization was independently successful.

In today’s environment, you’d be hard pressed to find a senior business leader who has not lived through (some may say survived) a merger or acquisition in their careers. Why is it then, that we continue to try to convince ourselves that culture is not going to present a significant risk to our future transactions and their ability to drive the financial returns that we hope for?

This article originally appeared on Forbes.

The post Why Company Culture is Critical to M&A Success appeared first on gothamCulture.

2015 was a banner year, coming in at an estimated $5 Trillion (with a “t”) in deal value emanating from activity. And this trend is showing no signs of stopping in 2016, with recent announcements about Alaska Airlines acquiring Virgin America, and Comcast buying Dreamworks Animation. Consolidation seems to be a viable strategy for many leaders in a variety of industries, as Jeff Golman’s article from January explains.

The decision to drive strategic growth through M&A can certainly be alluring. The numbers often drive a pretty hard argument. But as anyone who has experienced the reality of a transaction knows, the road to living up to financial expectations of a merger or acquisition can be fraught with any number of land mines. And one of the more overlooked derailing factors to consider is organizational culture.

I get quite a few calls from business leaders who are several months (or years) into an integration of an acquisition. In hindsight, they realized that they failed to adequately understand the power of culture in the success, or failure, of a deal to achieve its intended targets. The overwhelming majority of these calls is after the deal is done, integration has failed to achieve results and those left behind are struggling to figure out how to turn things around.

These same leaders usually take a very different approach in the future by taking the time to use organizational culture much earlier in the process as one (of many) indicators of future success or failure.

Leveraging Culture During a Merger or Acquisition

Here are a few tips to help business leaders use culture as a tool to help set the stage for M&A success, regardless of where you are on the M&A timeline.

It’s never too early or too late to start. Although most executives realize that culture is at the root of their M&A troubles once they’re neck deep in integration, it doesn’t have to play out this way. Yes, data may be more difficult to come by earlier in the process, but analysis of public domain information can help add insight into the potential cultures of target companies before they even know they are being considered. This type of analysis can be messy and it’s certainly not the only piece of information to consider. But, the data can add a perspective to the discussion to help mitigate risk right out of the gate.

Your approach is dependent on the type of transaction. Is it a complete assimilation? Will the target company remain mostly independent? Or will there be a melding of the best of both to set the stage for the next chapter? The type of transaction can drastically change the approach and how culture can be a useful tool in setting you up for success down the road. Obviously, the more assimilation of the target, the more intensive the preparation to help ensure a successful integration.

Culture is one of many factors to consider. While this article focuses on how organizational culture can be used as a key component in helping to mitigate risk in all phases of the M&A process, this is not to suggest that it be the only factor to consider. Rather, organizational culture (an understanding of one’s own and of targets) should be one of many key data points to help shape conversations and strategy.

There can only be one. This statement goes as well for Highlander movies as it does for the CEOs that lead the merged organization. In all instances where I have witnessed multiple CEOs try to co-lead a company, it has resulted in significant challenges. At the end of the day, someone needs to be in charge. Having multiple CEOs creates confusion for stakeholders and hampers the ability to clearly articulate one culture and strategy in the organizational design moving forward.

Inclusion is critical. For a variety of reasons, inclusion flies in the face of the typical M&A process. Things are usually kept under wraps until the deal is signed, followed by a flurry of one-way communication to stakeholders. This can create massive confusion and increased anxiety as people try to look into their crystal balls to figure out what the change will mean for them. Creating space for people to come together to understand the facts and to process the information together frequently throughout the process can help keep people focused on the business during the process. Even if the deal is done, it’s never too late to start helping your stakeholders understand what’s happening and feel included.

Keep your eye on the ball(s). An M&A growth strategy is typically undertaken in order to increase value to customers. But once the deal is signed, that’s exactly who can get left behind as attention turns internal; toward integrating and aligning people. Success during integration relies on the ability of your organization to focus both internally and externally so that unintended consequences don’t begin to gum up the works.

Mergers and acquisitions are serious business. They are chock full of complexity and, no matter how much planning and preparation goes into them, the experience will never be completely free of unanticipated challenges. But, when millions and millions of dollars are on the line, why not use every tool available to help you mitigate risk and stack the deck in your favor?

This article originally appeared on Forbes.

The post Harnessing the Power of Culture in Mergers and Acquisitions appeared first on gothamCulture.

But this strategy of integrating two cultures may not be the best approach. The companies that do M&A well know this, and now we are able to show concrete evidence to back it up. The research findings of my Ph.D. dissertation found that organizations with dissimilar cultures outperformed competitors between 5-10 years post acquisition.

Why Are Two Different Cultures Better for Long-Term Performance?

First, merging two dissimilar cultures forces the organization to decide on the integration strategy. A key decision will be, do we keep the entities separate, like a private equity holding company? Or do we fully integrate the organizations? Once that decision is made, leaders can chart a clear path for restructuring.

Second, when the organizations have different cultures (and strategies), it becomes easier to integrate during the restructuring, because the stronger culture will dominate. This is true to form of how an acquisition is supposed to work. It’s authentic, and authenticity is critical for maintaining leadership credibility during change.

Why is Assimilation Better than Integration?

There’s no need to sugar coat it. Employees know that M&A is about revenue and earnings growth. When you frame your integration strategy as “we are going take the best of both organizations, and build a unified partnership that strengthens the bond between the company, employee and customers”, and you’re not true to form, you sound inauthentic. Employees will think you’re only telling them what they want to hear.

Employees have a very strong nose for “B.S.” If you tell them you’re building the best of both, but don’t deliver, you could go into an integration tailspin. You’ll lose critical momentum and credibility from employees, leaders and shareholders. Mergers and acquisitions are a confidence game, and it’s critical to go from a state of change to business as usual as soon as possible. The longer you take to try and integrate the two organizations, the less confidence you instill in your stakeholders and shareholders.

In my research, I investigated the role that strategy and culture have on M&A performance. We used regression analysis to determine whether strategy and culture were significant predictors of stock price, earnings per share, and price-to-earnings ratio. What I found was that companies that acquired a target company with a different strategy and culture had higher stock prices than similar organizations between 5-10 years post acquisition.

And with that piece of data, allow me to repeat myself. And this time, I’ll say it with less academic jargon or consultanteeze spin: Don’t marry your companies together. There’s no need to make M&A integration harder than it already is.

When you have to build an integration strategy, here some guiding thoughts to help on the change journey:

1. Determine your strategic intent: Why did you want to acquire the target in the first place? Was it for the whole company? Or just a division? Or maybe it’s only a product? Intent is critical, and a previous article of mine explains in more detail why you start with strategy versus culture in M&A.
2. Identify the kind of structure you will want to build: If you’re fully integrating, research the global and local operations and relationships that align to the strategy. Start mapping out the structure, processes, and design reporting relationships. The key is finding strategy alignment.
3. Design a culture to match your strategy and structure: In the end, your culture needs to align with your strategic goals and structure. For example, if your business is in a highly regulated industry, and your focused on stability, and margin, then it is likely you need to design a culture grounded in hierarchy, processes, and rules, to maintain operating efficiencies.

In the end, not every acquisition requires the parent company to fully integrate the target company’s workforce to be just like them. Just look at companies like PepsiCo (PEP), Omnicom Group (OMC) and General Electric (gE). PepsiCo has a stake in well over 100 different global brands including Gatorade, Quaker Oats, Frito-Lays, Tropicana and Sabra Hummus. The Omnicom Group describes themselves as a strategic holding company with over 1,500 agencies globally, and General Electric once was both a manufacturing company and a media organization with NBC Universal (Comcast now owns NBC Universal).

This shows that companies can acquire drastically different organizations, with very different strategies and cultures, and still “make the marriage work”.

The post Mergers Aren’t Marriages: A New Perspective On M&A Integration appeared first on gothamCulture.

We’ve all heard the stats on M&A, and they only serve to reinforce the idea that deals are destined for failure. So, forcibly combining two corporate cultures into one feels a lot like a mad social science experiment.

Why Not Start With Culture?

The truth is, it’s far too simplistic to say that culture is the only driver of M&A performance during integration.

Culture is defined by the organization’s values and how employees behave. But strategy defines the future direction, which in turn defines how the organization expects employees to behave. By focusing on strategy first, your organization is able to guide the new way employees are expected to behave in the post-acquisition culture.

In my doctoral dissertation, I investigated whether a similarity between strategy, technology and culture was better or worse for M&A earnings, stock price, and P/E-ratio post acquisition. What I found was surprising. Companies had higher stock prices when they acquired companies with a different strategy, and a different culture.

With this in mind, here are some ideas for companies that are looking to tie “the corporate knot”:

1. Different business-level strategies between the parent and target = better results. Yes, it turns out that birds of a feather do not flock together. It’s critical to start with strategy because that defines what direction you want to go in. Second, the evidence suggests that if you, the parent company, gets value by always building new products, your best bet is to acquire a company that is the complete opposite of you; one who creates value by keeping costs down, scaling, and building efficiency.
2. Solving the culture conundrum starts when opposites attract. It is critical to align the organization around one single dominant culture. Remember, my research showed that companies had higher stock prices when they had acquired companies with different cultures.

Why Different Is So Much Better

Different is better because it’s easier to force the acquired company to let go of their culture through restructuring and organization redesign. When a clear choice has to be made, the parent organization can easily dominate the target company. A clear path forward is then set.

Additionally, different organizations showed improved financial performance when aligning strategy and culture starting one-year post acquisition. Strategy first, culture second.

Final Thoughts

Strategy sets the direction of where the newly acquired company needs to go. The structure defines what the organization looks like. And culture defines expected employee behaviors. Culture is critical, there’s no doubt about that. However, until you define where you want to go, and how you’ll operate, you can’t define how you expect your employees to behave.

The post M&A Integration Drama? Don’t Start With Culture! appeared first on gothamCulture.

In this case it was a growth strategy through acquisition. The purchasing company sought to expand its reach and to expand its service offerings with current clients by acquiring a small organization that had expertise in a particular area. The strategy was sound and people approached the situation from a positive perspective of mutual gain through working together.

Through facilitated conversations with the senior leaders of both the acquiring and the acquired company, we were able to make explicit the underlying values and “keystone habits” of each organization. By doing this, the team was able to discuss the role of culture as an enabler or detractor in their collection ability to drive the strategy that they envisioned. Continued dialogue helped the leadership team identify areas in which the culture of the integrated organization may need to evolve in order to reduce risk and increase the likelihood of continued success and growth.

Only time will tell.

The post The Culture Grinder in Mergers and Acquisitions appeared first on gothamCulture.