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Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter Summaries
Achieving Post-Merger Success:A Stakeholder’s Guide to Cultural Due Diligence, Assessment, And
Integration
J. Robert CarletonClaude Lineberry
2Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Cultural Assessment and Integration Flowchart
3Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Presentation Contents
PART 1: MERGERS, ACQUISITIONS, AND ORGANIZATIONAL EFFECTIVENESS
1. MERGERS, ACQUISITIONS, AND ORGANIZATIONAL CULTURE
2. THE ORGANIZATION AS A SYSTEM
3. ORGANIZATIONAL SYSTEM ALIGNMENT
PART 2: CULTURAL DUE DILIGENCE AND ASSESSMENT
4. OVERVIEW OF CULTURAL DUE DILIGENCE
5. PERFORMING CULTURAL DUE DILIGENCE
PART 3: CULTURAL ALIGNMENT AND INTEGRATION
6. ALIGNING AND INTEGRATING THE EXECUTIVE GROUP
7. ALIGNING THE MANAGEMENT GROUP
8. ALIGNING THE TOTAL ORGANIZATION
9. SUCCESS MEASURES
10. SUMMARY AND CONCLUSION
4Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Part 1Mergers, Acquisitions, and Organizational
Effectiveness
CHAPTERS
1. MERGERS, ACQUISITIONS, AND ORGANIZATIONAL CULTURE
2. THE ORGANIZATION AS A SYSTEM
3. ORGANIZATIONAL SYSTEM ALIGNMENT
Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter One
MERGERS, ACQUISITIONS, AND ORGANIZATIONAL CULTURE
6Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter OneMergers, Acquisitions, and Organizational
Culture
Introduction• The pace of mergers and acquisitions
around the globe is increasing.• Forming alliances – mergers, acquisitions,
alliances, etc., is the growth strategy of choice for large and small companies.
7Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter OneMergers, Acquisitions, and Organizational
Culture
The M&A Report Card• The failure rate of M&As is unreasonable,
unacceptable, and unnecessary.• Between 1965 and 1997, some 55-77%
of M&As failed to deliver their anticipated results.
8Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter OneMergers, Acquisitions, and Organizational
Culture
M&A Failure Costs• Average 3% loss of equity• Loss of external focus• Low staff motivation and morale• Loss of key executives and staff• Loss of brand focus• Decreased customer satisfaction
9Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter OneMergers, Acquisitions, and Organizational
Culture
Why Mergers and Acquisitions Really Fail• Culture clash is primary cause
What is generally done about it• Little or nothing at all
10Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter OneMergers, Acquisitions, and Organizational
Culture
Why so little effort to manage culture• Arrogance that no culture issue existsor• Belief that, if culture clash exists, nothing
can be done about it
This could be interpreted as malfeasance!
11Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter OneMergers, Acquisitions, and Organizational
Culture
Prevailing wisdom is wrong• Body of knowledge exists• Experience
• British Airways – the first successful large-scale corporate transformation
• Many other examples
But …. still the exception, not the rule
12Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter OneMergers, Acquisitions, and Organizational
Culture
Misunderstanding of culture• What is meant by corporate culture
Culture has many components A manifestation of an overall system Cannot be dealt with in isolation Almost every aspect of an organization affects
its culture
13Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter OneMergers, Acquisitions, and Organizational
Culture
Definition of organizational culture• Many different definitions• “the way we do things around here”
A critical aspect of organizational survival and success
14Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter OneMergers, Acquisitions, and Organizational
Culture
Culture and performance – hard dataKotter & Heskett – comprehensive
study• Adaptive vs. non-adaptive cultures;
Revenue increase of 682% versus 166% Workforce expansion of 282% versus 36% Stock price increase of 901% versus 74% Net income increases of 756% versus 1%
15Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter OneMergers, Acquisitions, and Organizational
Culture
National Versus Organizational Culture
Outside scope of this book, but;• Well-researched subject• Different national cultures add complexity to analysis of
corporate culture• References:
Rhinesmith (1996) A Manager's Guide to Globalization Medina-Walker (2002) The Guide to Cross Cultural
Success Hofstede (1991) Culture and Organizations
Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter Two
THE ORGANIZATION AS A SYSTEM
17Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter Two The Organization As a System
Organizations are systems and obey the following:• The behavior of each element of a system has an
effect on the behavior of the whole system.• The behavior of the elements of the system, and
their effects on the whole system, are interdependent.
• However subgroups of the elements are formed, each has an effect on the behavior of the whole and none has an independent effect on it.
18Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter Two The Organization As a System
System thinking awareness• Almost all agree organizations are systems• Little awareness of what this means at
executive level – executives must:• represent and champion their functionand • be an advisor to the CEO of the group on overall
organizational system effectiveness
A critical skill during change
19Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter Two The Organization As a System
The individual as a performance systemGeary Rummler’s six areas of analysis critical to
understanding individual performance
•Skills & knowledge
•Feedback
•Individual capacity
• Performance specifications
• Task support
• Consequences
20Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter Two The Organization As a System
Winning the battle while losing the war
Without systemic thinking:• Rational changes in one department can
cause adverse effects in another• Net result is worse than before the
change
21Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter Two The Organization As a System
Non-systemic working puts individual team needs before the needs of the whole organization• Unresolved conflict between departments
and teams• Members of senior management teams
thinking only within their silos
Optimizing each part of a system does not optimize the system.
22Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter Two The Organization As a System
Synthesis before analysisWhen examining a “problem area”:
1. Understand how the problem area fits into the overall system and how the overall system affects the problem area
2. Analyze the problem area
23Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter Two The Organization As a System
Culture is not a system component, but:
• It is embedded in the system• It is a product of the system• It cannot be taken out of the system
or dealt with in isolation
Culture is a result, not an element, of the overall organization system.
24Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter Two The Organization As a System
Daily managerial behavior
People notice• Not what managers say, but• What managers do
"What you do speaks so loudly that I cannot hear what you say!"
Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter Three
ORGANIZATIONAL SYSTEM ALIGNMENT
26Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter Three Organizational System Alignment
Organizational AlignmentBased on diagnosis – data-based, not
solution-based• Systemic and systematic• Organizational Scan process• Helps determine best and most effective
actions to take to resolve the issues confronting the organization
27Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter Three Organizational System Alignment
Systemic approachTwo keys to effective change:
1. First - ascertain what factors, both formal and informal, are driving the current system
2. Second - plan for altering or modifying those factors needed to support and sustain the new desired performance
28Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter Three Organizational System Alignment
• solid, proven, and highly intuitive diagnostic template for initial diagnosis of the organizational system drivers
Organizational Alignment Model
EXTERNAL ENVIRONMENT
MISSION/VISION
STRATEGIC GOALS VALUES
INFRASTRUCTURE (Structure, Systems,
OBJECTIVES Processes, Policies, etc.) PRACTICES
ACTIVITIES BEHAVIORS
RESULTS
STAKEHOLDERS
29Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter Three Organizational System Alignment
Organizational System Model• A model to sort out the complexity
considering an organization as a system • Gives guidance as to what to look for and
where to look• Incorporates the industrial engineering
model of work with the sociological model of work
30Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter Three Organizational System Alignment
Combines the•Industrial engineering model of work - a set of conditions exists within which a process operates to deliver an output
With the•Sociological model has work being performed by people within an organization
Organizational System Scan Model
CONDITIONS
PROCESS
OUTPUTS
ORGANIZATION
Direction - Business Situation - Mission/Vision - Strategy - Structure - Goals
Systems - Planning - Policy/Procedure - Support - Information Systems - Budgeting - Monitoring
Results - Success Measures - Profitability - Competitive Position - Stakeholder
Satisfaction
PEOPLE
Values and Beliefs - Ideal Values - Actual Values - Climate - Objectives & Demands - Expectations - Politics
Leadership- Management - Practices/Behaviors - Selection/Development - Reward/Recognition - Skill/Knowledge - Motivation/Feedback
Productivity - Performance Levels - Morale - Empowerment
- Loyalty/Commitment - Business Awareness - Continuous Improvement
WORK
Resources - Workload - Schedules/Cycles - Tools/Equipment - Data/Information - Physical Environment
Methods - Work Processes - Resource Allocation - Process Monitoring - In-Process Correction - SOP's
Products/Services - Product/Service Delivery
- Customer Satisfaction - Quality - Quantity - Service Levels
31Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter Three Organizational System Alignment
•Experience, research, and advancements in the understanding of organizations showed an adjustment was needed•The development of another row of three boxes, focused on External Factors of the organizational system•This new row represents the organization’s perception of and direct response to the external environment in which it finds itself operating
Organizational System Scan Model – additions
EXTERNAL FACTORS
CONDITIONS
PROCESS
OUTPUTS
Marketplace
- World Economy - Geopolitical Climate - Regulation - Competitors - Technology - Location - Business Cycle
Investment
- Strategic Alliances - Partnerships - Mergers & Acqui- sitions - New Product
Development - Privatization
- IPO
Positioning
- Market Share/Dominance
- Economies of Scale/Scope - Reduced Vulnerability - Increased Revenue - Globalization - New Markets
32Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter ThreeOrganizational
SystemAlignment
• The organizational system model reflecting our current understanding of the dynamics of an organizational system
CONDITIONS
PROCESS
OUTPUTS
EXTERNAL FACTORS
Marketplace - World Economy - Geopolitical - Climate - Regulation - Competitors - Technology - Location - Business Cycle
Investment - Strategic Alliances - Partnerships - Mergers & Acqui- sitions - New Product Development - Privatization - IPO
Positioning - Market Share/ Dominance - Economies of Scale/Scope - Reduced Vulnerability - Increased Revenue - Globalization - New Markets
ORGANIZATION
Direction - Business Situation - Mission/Vision - Strategy - Structure - Goals
Systems - Planning - Policy/Procedure - Support - Information Systems - Budgeting - Monitoring
Results - Success Measures - Profitability - Competitive Position - Stakeholder
Satisfaction
PEOPLE
Values and Beliefs - Ideal Values - Actual Values - Climate - Objectives & Demands - Expectations - Politics
Leadership - Management - Practices/Behaviors - Selection/Development - Reward/Recognition - Skill/Knowledge - Motivation/Feedback
Productivity - Performance Levels - Morale - Empowerment - Loyalty/Commitment - Business Awareness - Continuous Improvement
WORK
Resources - Workload - Schedules/Cycles - Tools/Equipment - Data/Information - Physical Environment
Methods - Work Processes - Resource Allocation - Process Monitoring - In-Process Correction - SOP's
Products/Services - Product/Service Delivery - Customer Satisfaction - Quality - Quantity - Service Levels
33Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter Three Organizational System Alignment
Purpose•To gather current data on the "organizational situation," as perceived by its functions and people, for use in decision making by top management •The Organizational Scan clarifies organizational intent and direction and captures information about the "real organization’s" alignment with that direction — its values and belief system, day-to-day life, priorities — in short, its culture. It also assesses relevance and helpfulness of organizational systems, policies, and procedures.
Benefits•Provides the CEO/Top Management with an efficient and comprehensive diagnostic scan of the organization at all levels•Identifies areas of potential greatest leverage for increasing organizational effectiveness as desired•Indicates priorities for action to move/transform the organization, which focuses and facilitates planning•Provides an assessment of the organization's readiness for change, and the adequacy of the organization's leadership and management to effect that change and, perhaps most significantly•Enables the alignment of the organization's strategy, culture, and infrastructure to the business reality confronting it
Uses of the Organizational Scan Model
34Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter Three Organizational System Alignment
• There is very little in organizational life that has broader impact and a greater number of potential changes in daily operations than the merger of two organizations into one new, integrated organization, as happens in a merger or acquisition.
• This is system change at its fullest, where a system model like the Organizational Scan Model can be extremely valuable.
• The issues are many and complex, and an organizational system model can be invaluable in helping to sort out and organize all of the data and information that must be considered.
35Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Part 2Cultural Due Diligence and Assessment
CHAPTERS
4. OVERVIEW OF CULTURAL DUE DILIGENCE
5. PERFORMING CULTURAL DUE DILIGENCE
Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter Four
OVERVIEW OF CULTURAL DUE DILIGENCE
37Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter FourOverview of Cultural Due Diligence
Due Diligence• The investigation of one party by
another party to gather information that will assist in decision making and risk analyses
• In conjunction with transactions between people or companies
38Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter FourOverview of Cultural Due Diligence
Traditional Due Diligence considers; General Corporate Information Management Industry, Market, and Competitor Assessment Financial Information Assets and Facilities Intellectual Property Contingent Liabilities Tax Information Legal Information Insurance Sales and Marketing Customers Strategic Alliances
Rarely if ever gives any consideration to the dynamics of the two organizations’ cultures, their degree of compatibility, or the potential culture clash problems that are almost sure to arise after the deal is done.
39Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter FourOverview of Cultural Due Diligence
The case for CDD• Culture clash is the main reason why some
55-77% of mergers and acquisitions fail in meeting their intended results
• By assessing the characteristics of both organizations’ cultures as soon as possible in the merger process, potential culture clash problems can be predicted, prioritized, and focused on in a comprehensive Cultural Integration Plan
• Proactive problem solving in advance
40Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter FourOverview of Cultural Due Diligence
Cultural Due Diligence is appropriate in a number of key business situations, including:
• When considering mergers and acquisitions as a growth strategy
• When selecting a target company for merger or acquisition• When finalizing the decision to do the deal or not with a
target company• Immediately after execution of the Letter of Acceptance by
the target company• Immediately after finalization and approval of the merger or
acquisition• As "cultural triage" after the merger or acquisition becomes
effective, to deal with culture clash problems that surface
41Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter FourOverview of Cultural Due Diligence
CDD activity sequence• Acquirer self-assessment
Objective assessment of “own” culture• Assessment of target companies
High-level initial CDD of a number of target companies• Detailed cultural assessment of selected target
company A full and detailed cultural assessment of the target
company and comparison with that of the acquiring company
• Alignment/Integration Planning Informed, data-based design of the overall
Integration/Alignment Plan
42Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter FourOverview of Cultural Due Diligence
CDD by attributional model• Off-the-shelf survey type assessment
• No single assessment model of organizational culture exists
• Lack granularity or depth in their findings• Does not differentiate between value-based and
non-value-based differences• Daily behaviors still need to be determined by
interview, focus groups, and observations
43Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter FourOverview of Cultural Due Diligence
CDD by customized assessment model• Based on a functional model of culture• Comprises
Interviews and focus group Workplace observation Document review Subsequent web-based large-scale
customized surveys
44Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter FourOverview of Cultural Due Diligence
1 Intended Direction and Results
2 Key Measures
3 Key Business Drivers
4 Infrastructure
5 Organizational Practices
6 Leadership/ Management Practices
7 Supervisory Practices
8 Work Practices
9 Technology Use
10 Physical Environment
11 Perceptions and Expectations
12 Cultural Indicators and Artifacts
CDD cultural domainsTypically, the data is organized and presented within
the following cultural domains, where the organization's culture is on display every day.
45Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter FourOverview of Cultural Due Diligence
CDD Deliverables• Detailed Cultural Profile of Both Organizations• Baseline Perceptions of Various Constituencies of Both Organizations
About Current Culture and the Merger or Acquisition• Specification of Cultural Similarities Within the Twelve Cultural
Domains• Specification of Cultural Differences Within the Twelve Cultural
Domains• Prediction, Specification, and Prioritization of "Culture Clash"
Problems and Their Impact on the Merger• Specification of Degree of Difficulty in Integrating the Two Cultures• Specific Recommendations on Avoidance and/or Minimization of
Culture Clash Problems in Integration• Integration Road Map for Implementation of Recommendations
46Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter FourOverview of Cultural Due Diligence
Legal restrictions to due diligence• Full CDD can generally only occur after
Letter of Intent or Acceptance Access to people in target company limited
before this
47Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter FourOverview of Cultural Due Diligence
Pre Letter of Intent or Acceptance activities
1. self-assessment of the acquirer 2. high-level estimate of the probable
cultural characteristics of potential target companies
3. assessment of the potential compatibility with target company executive teams
4. information to inform recommended retention strategies for key people at the target companies
48Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter FourOverview of Cultural Due Diligence
Self-assessment of the acquirerIdentify and manage• Things that are not going all that well
internally, have not been dealt with, and are not desirable to take forward into a new, merged operation after an acquisition
• Areas within the acquiring company that are less than supportive of an acquisition in general
49Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter FourOverview of Cultural Due Diligence
High-level estimate of the probable cultural characteristics of potential target companies
• High-level assessment of the target organization's culture
• Very detailed review of any documents that directly or indirectly give indications of aspects of the organizational culture
• Compare notes with other, non-culture, DD teams
50Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter FourOverview of Cultural Due Diligence
Assessment of the potential compatibility with target company executive teams
• Series of visits, meetings, and social events in the pre letter period
• Enable objective assessment of future key managerial positions
51Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter FourOverview of Cultural Due Diligence
Information to inform recommended retention strategies for key people at the target companies
• Structured interviews of key people – both managers and individual contributors
• Understand what they value in their current organization
• Enable design of strategy to engage their hearts and brains in the new merged organization
52Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter FourOverview of Cultural Due Diligence
Assessing degree of difficulty of cultural integration• Preliminary estimate of the degree of
difficulty and resources required in integrating the two companies possible
• Allows intelligent and informed comparison with several potential target companies
• Informs the design of the eventual full CDD of the selected target company
53Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter FourOverview of Cultural Due Diligence
Getting it right – H-P / Compaq merger• CDD early in the merger process• Cultural integration team from the start• Studied previous merger problems• CDD and cultural integration planning
played a major role in this successful merger
• After a full year of operation, success measures of the new hp are positive
Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter Five
PERFORMING CULTURAL DUE DILIGENCE
55Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter Five Performing Cultural Due Diligence
The CDD Process• Qualitative
Interviews Focus groups Workplace observations Documentation review
• Quantitative Web-based survey(s) Related to domains or characteristics of the
culture identified from the qualitative process
56Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter Five Performing Cultural Due Diligence
Typical components of a CDD process1. Qualitative - High-level interviews2. Quantitative – Web-based surveys to sample of
the whole population3. Qualitative – Interviews across the
organizations4. Quantitative – Web-based surveys to entire
populations
Each stage is informed by the previous stage(s)
57Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter Five Performing Cultural Due Diligence
1 Intended Direction and Results
2 Key Measures
3 Key Business Drivers
4 Infrastructure
5 Organizational Practices
6 Leadership/ Management Practices
7 Supervisory Practices
8 Work Practices
9 Technology Use
10 Physical Environment
11 Perceptions and Expectations
12 Cultural Indicators and Artifacts
CDD Data organizationTypically, the data is organized and presented within the following cultural domains, where the organization's culture is on display every day.
58Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter Five Performing Cultural Due Diligence
1. Intended direction and results• Ascertain, from the top of the
organization on down, what the company intends to accomplish What is the business plan about, what is the
strategic intent and purpose of the organization, what results are expected from the business activity of the organization, and, most importantly, how are these things talked about, described, and communicated?
59Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter Five Performing Cultural Due Diligence
2. Key measures• What the company measures, why, and
what happens as a result The key measures say a lot about the manner
in which the company and its executives and staff are driven, particularly when the consequences for each measure are considered.
60Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter Five Performing Cultural Due Diligence
3. Key business drivers• What are the primary issues driving the
business strategy? Is the focus on competitive edge and, if so, how is that defined — price differentiation, quality, market share, service, reliability, or what? This tells you how the company views its
industry and its subsequent efforts within the industry – that is, how it defines success
61Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter Five Performing Cultural Due Diligence
4. Infrastructure• How is the company organized?
For example, are people expected to “go directly to whomever you need to talk to” or must proprieties be observed between different levels or functions? Are business units supposed to drive their business priorities first and foremost and respond to corporate, staff, or other unit needs when convenient, or vice versa?
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Chapter Five Performing Cultural Due Diligence
5. Organizational practices• What formal and informal systems are in
place and what part do they play in the daily life of doing the work? How much flexibility is allowed at what levels in which systems? What is the relationship between political reality and business reality? For example, how are budgets developed and
managed?
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Chapter Five Performing Cultural Due Diligence
6. Leadership/management practices• What is the balance between leadership
and management approaches with staff? What are the basic value systems about employees? How are people treated and why? How is the business plan implemented through the management system? How are decisions made? Which approach is predominant in each area /
department of the company?
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Chapter Five Performing Cultural Due Diligence
7. Supervisory practices• What dynamics are involved in the
immediate oversight of the performance of work? Supervisory practices have a major impact on
employees’ feelings about the company and the work they do. The nature of the interaction between the employee and the immediate supervisor is one of the primary climate-setters for the culture of the company.
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Chapter Five Performing Cultural Due Diligence
8. Work practices• How is the actual work performed?
Is the emphasis on individual responsibility or group responsibility? What degree of control, if any, does the individual worker have on the work flow, quality, rate, tools utilized, and supplies needed?
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Chapter Five Performing Cultural Due Diligence
9. Technology use• What is the company's technology base,
and how is technology used? This must be considered in relation to both
internal systems and equipment, as well as the services and products provided to customers. How current is the technology being utilized? What are people used to in relation to technological support/resources?
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Chapter Five Performing Cultural Due Diligence
10. Physical environment• How do the workplace settings differ?
Open work spaces versus private offices, high security versus open access, buildings, furniture, grounds — all can have a bearing on how people feel about work and the company. Changes in these areas, particularly if they are perceived as arbitrary, can result in bad feelings for years.
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Chapter Five Performing Cultural Due Diligence
11. Perceptions and expectations• How do people expect things to happen?
What do they believe is important? What do they think should be important, versus what they perceive the company feels is important? Strongly held beliefs (perceptions) can be at
the core of their inability to work together.
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Chapter Five Performing Cultural Due Diligence
12. Cultural indicators and artifacts• How do people dress and address each
other? What is the match between formal work hours and actual hours spent working? What company-sponsored activities exist and what are they like? Social norms form an important part of
organizational culture.
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Chapter Five Performing Cultural Due Diligence
Values and Beliefs, and Myths, Legends, and Heroes• Often referred to in cultural assessment• Not included as specific domains• In actuality, these are imbedded in the 12
domains• More effective than direct questioning
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Chapter Five Performing Cultural Due Diligence
Qualitative data most important• Rich in anecdotes and examples• Provides breadth and depth• Gives personal meaning to the culture• Eases the task of cultural change
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Chapter Five Performing Cultural Due Diligence
Cultural assessment• the comparison of data and information
about the cultures of the two companies involved in the merger or acquisition
• Inputs Qualitative CDD data Quantitative CDD data Cultural data form Legal, Financial, and other
due diligence processes
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Chapter Five Performing Cultural Due Diligence
Findings• Typical subject headings for CDD findings
The merger Culture Organizational change Leadership
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Chapter Five Performing Cultural Due Diligence
Cultural Alignment and Integration Plan• Includes
Summary of CDD activities and data sources Summary of the results of the CDD activities Summary profiles of the cultures and sub-
cultures of each company, together with any geographical cultural differences
The key cultural synergies between the companies
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Chapter Five Performing Cultural Due Diligence
Cultural Alignment and Integration Plan• Includes (cont)
Identification of areas of probable culture clash between the organizations
Whether Company A and Company B can be merged to create a new organizational culture
The estimated difficulty of cultural integration and the scope of the time and resources required to accomplish the integration
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Chapter Five Performing Cultural Due Diligence
The Cultural Alignment and Integration Plan specifically:
Addresses the leading cause of the failure of mergers and acquisitions - culture clash between the two organizations
Provides detailed information that will facilitate development of an efficient and effective Cultural Integration Plan, which addresses the second major cause of failure - lack of speed in integrating
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Part 3Cultural Alignment and Integration
CHAPTERS
6. ALIGNING AND INTEGRATING THE EXECUTIVE GROUP
7. ALIGNING THE MANAGEMENT GROUP
8. ALIGNING THE TOTAL ORGANIZATION
9. SUCCESS MEASURES
10. SUMMARY AND CONCLUSION
Achieving Post-Merger Success. Copyright © 2004 by John Wiley & Sons, Inc. Reproduced by permission of Pfeiffer, an Imprint of Wiley. www.pfeiffer.com
Chapter Six
ALIGNING AND INTEGRATING THE EXECUTIVE GROUP
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Chapter Six Aligning and Integrating the Executive Group
Cultural integration is an essential factor in:• Implementing the new organization's
business plan• Getting support of and commitment to
the plan rapidly from the organization's people
• Primarily an issue of organizational alignment
NB: At this stage, a target company has been selected and the merger or acquisition is going to happen
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Chapter Six Aligning and Integrating the Executive Group
Aligning the Organization• Clear mission and vision (intent and purpose)• Align, with the mission and vision:
Infrastructure (policies, procedures, internal systems) Strategy (goals, objectives, and daily tasks) Culture (values, practices, daily behaviors)
in order to achieve desired organizational results
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Chapter Six Aligning and Integrating the Executive Group
Alignment priorities• Alignment process
Best begun at the top of the organization Greatest amount of effort and time spent per
employee is generally at the top of the organization
Least amount of time required per person is at the lower levels
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Chapter Six Aligning and Integrating the Executive Group
Nine-step alignment and integration process1. Review business plan and overall organizational intent 2. Discuss with CEO to achieve ringing clarity on
organizational intent and business plan 3. Complete a CDD and assessment on both acquiring and
target companies 4. Review results with CEO and plan work sessions with
executive group5. Conduct issues-based team-building sessions with
executive group of the new organization
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Chapter Six Aligning and Integrating the Executive Group
Nine-step alignment and integration process6. Conduct all-managers sessions with all managers in
the new organization 6.a - If necessary creation of Tiger Team to
investigate and resolve infrastructure issues
7. Conduct feedback-based planning sessions for executives and managers 7.a - Follow-up sessions as necessary
8. Conduct all-staff sessions 8.a - Follow-up sessions as necessary
9. Conduct work process re-engineering sessions as needed
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Chapter Six Aligning and Integrating the Executive Group
Review of all the findings of the organizational scan with the senior executive, including identification of all broad systemic and alignment issues that require immediate resolution and time-sensitive issues that require immediate resolution before any further cultural integration activities can be initiated
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Chapter Six Aligning and Integrating the Executive Group
These time-critical issues and opportunities should be the first activities engaged
in by the merged operation. You might say these represent the “low hanging fruit” that can be leveraged for immediate positive impact.
Once the immediate time-sensitive issues covered in the first part of the integration plan are dealt with, or at least well begun, the alignment activity needs to follow in very short order.
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Chapter Six Aligning and Integrating the Executive Group
Arguably the most critical aspect of leadership and management in a cultural integration effort is the development of a mission, vision, strategy, and cultural values for the new organization and their communication with absolute clarityIssues-based team building focuses on the individual and collective behavior and effectiveness of the new organization's executive team in providing direction, motivation, guidance, and clarity to the new organizationGenerally three to five days of intensive workOutside facilitation experienced in the program is required
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Chapter Six Aligning and Integrating the Executive Group
Issues-Based Team Building• For senior executive team• Achieve ringing clarity on vision, mission,
strategy, and cultural values• Identify time-sensitive issues• Needs honesty and candor to achieve real
agreement• Outside facilitation best• Further meetings may be necessary
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Chapter Seven
ALIGNING THE MANAGEMENT GROUP
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Chapter Seven Aligning the Management Group
It is the management group, ranging from senior managers to first-line supervisors, who are the primary drivers of organizational behavior. Their day-to-day behavior is quite possibly the most powerful form of cultural communication and influence in the organization. It is important that all managers in the new organization be absolutely clear on and committed to where the organization is, where it is going, why it is going there, and how it will get there. Outside facilitation recommended is.
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Chapter Seven Aligning the Management Group
All Manager Session• Attended by;
All who manage people, whether as managers or supervisors
Significant individual contributors• Achieve clarity on mission, vision, strategy,
cultural values – presented by members of the executive team
• Understand consequences of failure, collectively and individually
• Work out how to pass on this information to the teams
• Identify practices for the cultural values• Highly participative cross-functional process
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Chapter Seven Aligning the Management Group
All Manager Session 2• Managers group and regroup for maximum
interaction to create a valid all manager result• Collect issues coming out of discussion• CEO final briefing
Results of session Issues collected Need to communicate to teams Explain that the chosen practices are the basis for
future 360-degree feedback sessions
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Chapter Seven Aligning the Management Group
The investigation and resolution of any infrastructure issues that have surfaced during the CDD or in the issues-based team building or all manager session by3-10 person "Tiger Teams"
Involves lower level management and staff directly with issues
Teams model quick and definitive action
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Chapter Seven Aligning the Management Group
The all managers session is not sufficient to achieve significant modification in day-to-day manager behavior to effectively implement the new management practices that support the new organization's values.A series of feedback-based management-planning sessions is required to help managers identify the change and development that they need to model the values and practices on a day-to-day basis.
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Chapter Seven Aligning the Management Group
Feedback-based planning session• Individual 360-degree feedback on how managers are
perceived in implementing the new management practices in support of the new organizational values
• Enhancement of change management knowledge and necessary skills and knowledge where the CDD or the 360-degree survey has shown a general pattern of deficiency
• Each manager understands what it will now mean to be a manager in the new organization and what is now expected from him or her
• Managers leave with a personal short-term action plan• Event finishes with CEO forum with Q&A session
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Chapter Seven Aligning the Management Group
Typical feedback chart
• The manager is rated by self, boss, direct reports, and peers on each of the management practices.
• The numeric ratings focus on the frequency with which the manager demonstrates the practice, and the importance of that practice from the rater's perspective.
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Chapter Seven Aligning the Management Group
Monthly half-day follow-up sessions for at least six months. Reconnect meetings should be held at 30, 60, 90, and 180 days after the feedback-based planning session at a minimum, with a 360-degree feedback re-survey done in conjunction with the 180-day meeting
These sessions are scheduled and run on a team basis, so the group of 5 to 7 managers who were on a team together become an ongoing support group for individual change. By meeting each month and briefing each other on their individual progress - successes and problems - in carrying out their action plans and amending them as necessary with the support of this group, followthrough is significantly enhanced.
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Chapter Eight
ALIGNING THE TOTAL ORGANIZATION
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Chapter Eight Aligning the Total Organization
Engages every staff member directly in order to gain their understanding of and commitment to the new organization by involving them in the reasons for the merger or acquisition, the direction of the new organization, and the changes that are required for its successCarefully orchestrated sessions where the primary presenters are the organization's executives and senior managers—an outside consultant or facilitator is requiredOne-day events, composed of from 20 to as many as 100 people, organized in groups of 10 facilitated by a manager.
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Chapter Eight Aligning the Total Organization
All-staff sessions agenda• Case for change• Mission, vision, strategy, values, and practices• Management 360-degree feedback and action
plan process• Exercise to create personal engagement in the
change effort – performance improvement suggestions – must be followed up
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Chapter Eight Aligning the Total Organization
When there is a need for major infrastructure changes, can either:• Expanded use of tiger teams• Large group re-engineering session (This approach is much more
effective in dealing with infrastructure issues that cross multiple departments or work units across the organization than are smaller tiger teams or action learning teams)
Rapid and efficient Quick decision making due to complete representation
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Chapter Nine
SUCCESS MEASURES
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Chapter Nine Success Measures
General success measures1. Increase or decrease in share price2. Increase or decrease in revenue3. Increase or decrease in operating profit4. Increase or decrease in profitability5. Payback of capital costs
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Chapter Nine Success Measures
General success measures6. Recovery of any premiums paid7. Increase or decrease in productivity
levels8. Increase or decrease in market share9. Loss of key executives10.Loss of key staff
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Chapter Nine Success Measures
Success measures• Staff opinion/attitude survey• Web-based CDD re-survey• 360-degree leadership and management
survey• Monitoring cust. serv. and satisfaction levels• Current organizational measures• “Listening posts” and focus groups• Customer interviews/focus groups/surveys• Other specific measures
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Chapter Ten
SUMMARY AND CONCLUSION
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Chapter Ten Summary and Conclusion
Achieving Post-Merger Success• Is possible !• CDD and cultural alignment are necessary
components• Stakeholders should be tougher in insisting
on CDD before, and cultural alignment during, a merger or acquisition
• Board members and senior executive accountability require CDD and cultural alignment activities