Poor organisational culture has been central to several high-profile scandals in recent years, from FTX to the Post Office and most recently Mineral Resources, leading to bankruptcy, £1.8bn UK Government compensation and double digit fall in share price respectively. In today’s business landscape, organisations often focus on operational and strategic aspects to deliver value, yet a critical element frequently overlooked is organisational culture. This oversight can lead to missed opportunities for performance enhancement and may significantly increase risk exposure, including reputational damage.
Organisational culture encompasses the values, behaviours, and beliefs that shape how people act when unobserved. It serves as the invisible force guiding decision-making, influencing interactions, and, ultimately, determining organisational success or failure. A strong culture can indeed be a competitive advantage.
The importance of culture becomes particularly evident in mergers and acquisitions (M&A). Studies indicate that 60% to 80% of M&A deals fail to meet their initial performance expectations, with cultural misalignment identified as a primary factor. According to Stahl and Voigt (2008), sociocultural integration is essential for merging entities to foster a shared identity, trust, and cohesion. They suggest that companies neglecting cultural integration experience challenges such as high employee turnover, diminished morale, and productivity losses, all of which hinder realising the anticipated benefits of the merger.
Cultural misalignment remains one of the top reasons M&A deals fail to deliver anticipated value. When companies with distinct cultures merge, misunderstandings and conflicts can arise, leading to reduced employee morale, lower productivity, and increased employee turnover. A thorough culture due diligence process uncovers these potential issues early, enabling informed decisions and proactive steps to address cultural gaps.
Our culture due diligence process is designed to identify, analyse, and address cultural differences and similarities between merging organisations or can be applied to a standalone organisation. We employ a blend of quantitative and qualitative methods, including surveys, interviews, and focus groups, to evaluate key cultural dimensions:
Leadership Style: Understanding each organisation's approach to leadership and decision-making to identify compatibility and alignment areas.
Values and Behaviours: Identifying core values and daily behaviours that drive employee engagement and performance within each company.
Communication Styles: Analysing communication practices to anticipate how teams will collaborate.
Work Environment: Assessing factors such as collaboration, psychological safety, and information sharing to ensure a smooth transition.
Employee Engagement: Gauging employee sentiment and engagement to reveal potential challenges in merging teams and building a unified culture.
You will receive actionable insights and recommendations tailored to your unique merger or acquisition or standalone organisation. Our culture due diligence report provides:
A Culture Fit Assessment: An overview of cultural compatibility, highlighting strengths, differences, and areas of concern.
Integration Strategies: Customised plans for integrating cultural elements across the merged or standalone organisation, focusing on communication, engagement, and change management.
Risk Mitigation Plans: Identified cultural risks with targeted mitigation strategies to address potential issues before they impact the combined or standalone organisation.
Ongoing Culture Management Tools: Resources and tools for monitoring cultural alignment post-merger, ensuring continued cohesion as the organisation evolves.
While operational and strategic considerations remain crucial, organisations that prioritise culture are better positioned to thrive in today’s complex business environment. By recognising the culture factor and taking proactive steps to assess and improve it, companies can create a solid foundation for sustainable success, mitigate risks, and enhance overall performance.
Reference: Stahl and Voigt's (2008) research on cultural integration’s impact on M&A success
