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Arranged Marriage

Arranged Marriage

If you're headed for a merger or acquisition, don't leave cultural issues out of the proposal.

Many companies aver that the most expedient path to bigger market share or an expanded product portfolio is through a merger or acquisition. Some statistics courtesy of Right Management Consultants reveal the prevalence of the M&A trend: In 1998, some 7,700 mergers valued at $1.2 billion occurred in the United States; worldwide, 23,000 corporate marriages totaled more than $2.4 trillion in value.

Before companies make any legal agreement to join up, they compare balance sheets, evaluate marketing strategies and identify operational redundancies.

They may go through gyrations to appease shareholders or to get a thumbs-up from the Federal Trade Commission or another appropriate regulatory agency.

But all too often companies neglect to evaluate corporate cultures-a synergistic element at least as important as the financials-until well after the ink is dry on the binding agreement. Let's get the numbers and marketing pitch in sync, the prevailing sentiment goes, and worry about the people part later. "There's just not a lot of due diligence done on cultural issues," says Paul Wesman, director of corporate communications at Right Management, a phenomenon he clearly views as a serious misstep. Ignoring the so-called soft stuff upfront has a nasty habit of creating problems down the road. In a survey of 179 newly merged organisations, Right Management found that only 30 per cent of respondents feel their companies have successfully integrated cultures following the merger. For the 70 per cent that haven't done such a great job, the fallout can be mettlesome. Nothing subverts the promise of a strategic merger like plummeting morale, high turnover and an inability to attract top executives. One of the most notorious cultural mismatches occurred in 1994 when Quaker Oats acquired Snapple; after three years of marketing and distribution clashes, Quaker ditched Snapple and took a $1.4 billion write-off.

The idea that culture is important shouldn't be news to any executive. (All those reengineering projects didn't fail because of bad karma alone.) So why do so many M&As proceed without so much as a nod to the cultural implications? Because business is still grounded in numbers that can be quantified and strategies that translate nicely into soundbites. Culture is ambiguous, amorphous, often messy. And the way we describe organisational culture doesn't get to the heart of the matter. One company is team-oriented. Another thrives on hierarchical command-and-control. One company is results-oriented, while another is process-oriented. How those descriptions translate into employee conduct and morale remains a mystery to most people.

But it's time for executives to evaluate corporate culture at the same time they take a fine-toothed comb to the balance sheet. Mark D. Arian, leader of the mergers and acquisition practice at Hewitt Associates in New Jersey, notes that certain cultural data points can indeed be evaluated with the exactitude of a hard science. A look at the leadership hierarchy, reporting relationships, compensation plans and benefits policies will go a long way toward informing executives about the nature of a corporate culture. Those are the kinds of issues that deserve a place at the negotiating table. By the time companies are legally entwined, it's too late to start wondering if disparate cultures can be melded into a coherent whole.

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