The other evening we began an interesting conversation around mergers that I want to elaborate on today. 1 Specifically, I want to touch on a few different strategies available when integrating two cultures and the pros and cons associated with each.
This strategy is best used primarily when there is a significant difference in the size of two companies coming together. In an absorption situation the smaller company is brought completely into the fold and made to adopt the cultural norms and values of the larger/parent firm. I think the biggest pro of this strategy is that it doesn’t expend considerable time and resources trying to mesh the norms and values of two (possibly very different) companies. The biggest con is of course that the merger could end in total failure if the culture being forced to adopt the values of the parent company is materially unable to do so without losing core elements of its value to customers (though if this is the case one wonders why a merger would take place to begin with). The more likely negative outcome of the absorption strategy is that turnover ends up rising considerably as employees unable or unwilling to cope with the culture change leave the organization.
Preservation of Independence
Another option is for both merging companies to maintain their independence. While they become one enterprise from a P&L / share price (if publically traded) perspective, in day to day operations both businesses would behave as seperate companies. The biggest advantage of this approach is that the two companies will maintain what makes them both great, and the biggest disadvantage is that by failing to synergize a lot of value is being left on the table.
Marriage of Culture
In this “Best of Both Worlds” approach, both companies look at what works in their organization while also evaluating what the other company does better. This is a great idea in theory since – as is implied by the title – the companies maximize synergies. In practice, however, the time and resources required to do this the right way are seldom available – and even when they are generating buy in from leadership in both organizations can be very difficult. Even if both companies are of a similar size, the ability to do an honest assessment on both sides requires leadership teams from both firms to set aside hubris and look frankly at strengths and weaknesses. This is easier said than done…
Going to wrap it up here, but as always please share your thoughts below.