The risk of cultural clashes in mergers and acquisitions

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Understanding the risk of cultural clashes in M&As

One of the major risks that can derail the success of a merger or acquisition is cultural clashes between the acquired and acquiring company. Deeply rooted differences in perspectives or ways of operating the businesses can cause clashes that make it difficult to successfully integrate the firms together. Not only may the progress of the integration be delayed, but clashes may cause employees to depart the firm. 

Dimensions that heighten the risk of cultural clashes

Some of the key dimensions that may increase the likelihood of cultural clashes on merging to firms include:

Differing firm sizes

A key source of cultural clashes can arise when integrating together a very small firm in a much larger company. Companies with only 10 employees are different in so many fundamental ways from a company of 10,000 employees, and the styles of management and levels of formalization are vastly different between the businesses. 

Different levels of bureaucracy

Another source of cultural clashes derives from different expectations regarding autonomy in decision-making. Companies can vary widely in how much autonomy is given to lower employees, and differences regarding what is expected on this dimension can cause clashes when merging together the firms. 

Strong opinions regarding of the other company

Particularly firms that have been strong competitors for many years are likely to have opinions – often negative – about the other company. You have been going head to head for many years, and have potentially been critical of their actions. Such prior perceptions can influence how easy it is to merge the two companies. A belief that the other firm is inferior, or has outdated practices, can make it harder to get employees on board with now adopting those practices. 

Different mindsets about the future state of the industry

Another challenge that can present itself in integration is if both businesses have quite different perspectives on the future state of the industry. Trying to align to different visions is not easy, and may cause tension as people who have been working towards a particular goal are now directed in a different direction. 

Different national cultures

Another potential source of cultural differences is along national culture dimensions – particularly if there is a lack of cultural awareness. Practices can differ on many dimensions around the world. The merger between Daimler and Chrysler is one example of a merger where post-merger integration challenges have been attributed to cultural differences between the firms. 

The importance of considering integration challenges before undertaking an acquisition

An all too common mistake with mergers and acquisitions is to only consider integration challenges after the merger has been approved. This can be a mistake – cultural clashes can make or break whether an acquisition moves smoothly or whether it ends up dragging the firm down. Becoming aware of what these challenges are, and working on an approach to deal with the difficulties can result in a much more successful post-acquisition integration process.