Avoiding M&A Failure: More than a Numbers Game

The power of culture – and how it can make or break an organization’s strategy

Subscribe

Sign up for our eNewsletter, Good Sense, to get updates on financial, strategic and operational best practices for financial institutions.

Subscribe

Get the latest information on legislation, tax reform, business guidance and on farm optimization strategies from your K·Coe Isom Ag Experts.

Subscribe

Get the latest information on legislation, tax reform, business guidance and biofuel manufacturing optimization strategies from your K·Coe Isom Biofuels Experts.

Reading Time: 4 minutes

By Vikki Nicometo

From a high-level view, what is the number one goal for a bank or organization? Speak with any bank executive and she or he will tell you that what they really want is what most every business leader wants – to ensure the profitability of the business and have a strong return on investment to shareholders.

There are several strategies leaders in the banking industry employ to achieve those goals; including, growth by acquisition or mergers. While mergers and acquisitions can be a smart strategy for growth, oftentimes these acquisitions result in inconsistent cultures across the banks’ various branches and locations. A disconnected culture can make or break the deal. Think it won’t happen to you?

Here are some real statistics to digest:

According to a KPMG study, “83% of all mergers and acquisitions (M&A’s) failed to produce any benefit for the shareholders and over half actually destroyed value”.

According to SHRM, over 30% of mergers fail because of simple culture incompatibility.

The High Cost of a Poor Culture

Culture is the character and personality of your organization. It’s been said that culture is “what makes your organization unique and is the sum of its values, traditions, beliefs, interactions, behaviors, and attitudes.” Corporate culture is the only truly sustainable competitive advantage for an organization, and it is often the root cause of any merger’s failure or success.

To boil it down to its simplest essence: Culture is how we treat each other and “how we do things around here,” and it becomes the most important element to organizations because culture is what drives an organization’s performance.

How much does it matter?  One Harvard study of more than 200 companies showed that a strong culture increased net income 765% over 10 years. Bottom line: The outcome of happier, more productive, more engaged employees is better financial performance for the organization.

“Culture Eats Strategy for Breakfast.” – Peter Drucker

As mergers and acquisitions have become more popular as a growth strategy for banks, one hazard is that in many cases the acquiring bank doesn’t give much thought to the culture of the banks acquired.

Often, these banks work on integrating technology and systems but forget to work on culture. Integrating the newly-acquired bank into the purchasing bank’s culture is crucial to employee retention and engagement, and becomes instrumental in insuring that customers have a consistent, positive experience during the transition.

Performing Due Diligence around Culture Integration

Ensuring an acquisition target is a good fit and/or helping to integrate cultures following an acquisition is just as important of a component as aligning the numbers. Organizations will need to create a cohesive culture to ensure all employees are metaphorically in the same boat, on the same river, rowing in unison toward a common direction or goal.

One key to a successful merger is determining exactly how to merge cultures. There can be a variety of strategies to employ when looking at integrating cultures. One strategy example is to take the best from both and create something new. Another strategy is to try to change the acquired bank’s culture to match that of the acquiring bank’s culture. The toughest part is trying to choose a strategy that takes two existing organizations and turns them into one unabridged, cohesive, and winning culture.

It’s times like this when bringing in a third-party consultant can be helpful. As a neutral party with no vested interest in either culture, a consultant can help bank leadership teams impartially evaluate both cultures and create a strategy to blend the cultures successfully into one.

Whether your bank is merging with or acquiring another bank, or is growing organically, the key to success is a strong culture. If your organization doesn’t currently have a culture initiative, or an ongoing plan to cultivate a cohesive culture, starting a culture initiative will be your first step.

You might start with something as simple as an employee survey to check the pulse of your organization.  If you are acquiring or merging with another bank, you can use your survey results to more assuredly compare and align your culture with the other’s to evaluate how the two organizations might integrate successfully.  Following the deal, you can implement a comprehensive culture program.

Here are 4 Key Factors for Successful Culture Integration:

  1. Make creating a cohesive culture a priority. If your bank has acquired other banks or intends to as part of its growth strategy, but has not yet worked to create an integrated culture, make an integrated culture a top priority. Even in cases of very stable organizations where there hasn’t been any acquisition, a culture that is left on ‘auto pilot” can become not only stale, but worse – it can eventually become toxic.

 

  1. Create a common language. Part of a unified culture is developing common language that everyone uses. HR consultants often train and consult with clients on tools to help create a common language by using assessment tools like DiSC personality styles or StrengthsFinder. When employees learn about their peers’ DiSC styles or top strengths, it helps to understand how to communicate and work more effectively with them.

 

  1. Physically integrate employees. Gathering employees from different offices for training and events helps them to be comfortable together and learn to trust each other. One of our clients allows their employees to work in other branches to help cover vacations and other time away. This helps to ensure processes and procedures are consistent across locations, and ensures your culture remains “cross-pollinated.”

 

  1. Empower culture through employee enthusiasm. Create a culture committee comprised of employees from each location. Let them work together to ensure that you have a cohesive culture across the organization.

Organizations will need to define value creation and fully integrate the businesses as part of merging cultures, and not treat them as separate entities. Make clear choices about the new, combined entity’s behaviors, relationships, attitudes, values and environment. Then insist on embracing those choices and continue to nurture your culture.

 

K·Coe People, the HR Consulting arm of K·Coe Isom, provides expertise and HR service solutions for businesses.  If you are interesting in learning more about the effectiveness of implementing culture initiatives, or need help with culture integration, contact a K·Coe People HR consultant.

K·Coe People Related to this Post