When it comes to mergers and acquisitions, the single biggest threat to employee engagement is culture clash. When the two (or more) company cultures that are coming together are very different — and neither party is willing to bend or compromise — turmoil can ensue.
We saw this play out in the headlines recently, with Amazon’s acquisition of Whole Foods. Employees of the health food grocer have been having a particularly hard time adjusting to Amazon’s more stringent culture.
Business scholars say this cultural mismatch was predictable. “The two companies may have seen value in capitalizing on each other’s strengths, but they failed to investigate their cultural compatibility beforehand. They now stand on a fault line where tensions often erupt in mergers. This fault line is what we call tightness versus looseness. When tight and loose cultures merge, there is a good chance that they will clash,” writes Michele Gelfand and her colleagues in an article for Harvard Business Review.
Gelfand and the other researchers studied data on 4,500 mergers between 1989 and 2013. They found that when cultures were mismatched (tight versus loose), they saw a decrease in return on assets — equivalent to $200 million in net income per year. And in cases where cultures were vastly different, those organizations saw yearly income drop by more than $600 million.
In one survey by Bain & Company, executives who’ve been involved in corporate mergers indicated that culture clash was the number one reason the deal failed to achieve promised value.
“In a culture clash, the companies’ fundamental ways of working are so different and so easily misinterpreted that people feel frustrated and anxious, leading to demoralization and defections,” writes Dale Stafford and Laura Miles.
This cultural demoralization can be detrimental to employee engagement. When employees who are used to a certain way of working and a particular set of values are suddenly thrust into a very different dynamic, they may become detached from their purpose and disengaged in their work — leading to lower productivity and poor performance.
In most M&A cases, a very valuable (if not the most valuable) part of the deal is the employees themselves. Their knowledge and skills are an asset that the organization feels it can benefit from. So when the leaders involved aren’t doing everything they can to preserve those employees, they risk losing a lot of the value they expected to gain from the deal.
It’s up to executives to bring together the best of both cultures.
The good news is, acquisitions and mergers don’t have to be a death sentence for employee engagement, even if they do involve very different cultures coming together. If business leaders (on both sides) go into M&As with the protection of employees and culture as a top priority, the transition can be much smoother.
Leaders must be “culturally ambidextrous,” and able to create an integration plan that benefits employees on both sides, says Gelfand. They must also make communications around organizational change very clear. Employees need to understand not only what the changes will be, but the reason behind them. The more transparent leadership is, the less defensive employees will feel.
According to Stafford and Miles: “To integrate two cultures, savvy acquirers first define the cultural objective in broad terms. This is invariably a job for the chief executive — and the CEO has to be willing to sustain his or her commitment until the objective is realized. Setting the cultural agenda necessarily involves hard choices.”
These “hard choices” (that really shouldn’t be hard) include putting employees’ needs first and finding ways to integrate the new cultures with as little disturbance to their day-to-day as possible.
Think about a small software company being acquired by a large multinational corporation. The employees at the company being acquired are used to innovating and moving quickly — something large corporations often struggle with. It’s a shock to the system for those employees who are suddenly faced with the kind of bureaucracy that can occur in large companies. These employees won’t stick around if they don’t see any benefit to being part of this larger organization.
Fortunately, when leaders take a step back and look at the advantages that can be gained from each unique culture, they can find ways to marry them together in a way that benefits both sides.
In the case above, executives can find unique ways to combine the innovative culture of the smaller company with the stability of the larger company. They can show the incoming employees the value of continuing their work while having the added luxury of more people and a bigger budget.
Measure employee engagement before and after announcing organizational changes.
“It can be difficult to pinpoint where, and how substantial, the cultural differences are. Diagnostics can identify and measure the differences among people, units, geographical regions, and functions,” writes Stafford and Miles.
The only way to know how your people are truly impacted by M&A is to analyze employee data. By doing so, you can identify precisely where pain points exist and how to deal with them. There is a multitude of ways in which employees’ work lives can be impacted by big organizational changes. That’s why it’s critical that leaders not rely on guesswork or gut feelings when making decisions for their teams.
By collecting employee feedback and measuring engagement data over time, leaders embarking on a merger, acquisition, or any other large organizational change, will be better prepared to tackle issues as they arise. Employees will also feel more empowered when they feel they have a say in the matter.
Learn more about how your culture can become a competitive advantage in our guide to Developing a Strong Company Culture.