Throughout this month, we’ve focused on topics stemming from the truism ‘When in Rome’. In Jessica Milloy’s blog introducing us to the phrase, our Chief Operating Officer describes its widespread interpretation as “you should adapt to the environment in which you find yourself”. But what happens when Rome isn’t where your employees want to find themselves? (And of course, we use Rome metaphorically, because who wouldn’t want to find themselves there?)
To learn more about what happens when a company’s culture is tested by major organizational changes, we interviewed Barry Culman, FMP’s Chief Financial Officer. Throughout his career as an executive and a leader of several mergers and acquisitions, Barry has seen cultural changes go very right, and go very wrong.
What kinds of events have the potential to impact an organization’s culture?
My favorite definition of culture is the “internal brand” of an organization. In many cases, people are not even aware of what their organization’s internal brand is until something happens to shake it up. There are lots of events that can cause obvious or subtle changes to the internal brand, like bringing in a new leader (or when an existing leader leaves), adding a new owner or investor, sudden growth or shrinkage of the business, or a merger/acquisition. Especially in the case of a merger/acquisition, almost all of these events occur at the same time, so it magnifies the changes to an organization’s culture and the consequences of trying to merge two cultures that don’t align. This clash is summarized in Richard Kestenbaum’s April 4, 2017 Forbes article, Why Corporate Acquisitions Fail and How to Avoid It, when he says “When you buy a company and change the culture, you are making war on what has made the company successful”.
What are some of the biggest mistakes leaders make when trying to merge two cultures? What are the consequences of “culture collisions”?
When a company is looking to purchase or merge with another company, a tremendous amount of time and scrutiny is spent fine-tuning the projections and negotiating the best purchase price. The due diligence that leaders should be doing to address the culture issue is minimized or completely ignored in many cases, especially with smaller businesses that can’t afford a “bad deal”.
I also believe that there should rarely ever be a merger of two equals: one company should declare itself the acquirer and thus their culture should prevail. In my experience as the CEO of a company that purchased a company of equal size, I mistakenly referred to it as a “merger of equals”. The problem with doing this was that it caused tremendous confusion about who was driving the culture. The cultures of the two companies clashed in many respects, and there was no clear direction from leadership (me, in this case) on which cultural values and norms the newly merged company would adopt. At the time, I was too focused on keeping both cultures, thinking that would keep everyone happy. As it turns out, that was the best way to make everyone miserable. We weathered that storm and corrected the issue by setting clear direction and vision for the organization’s culture, and it led us to a very successful business that ended in a very successful sale.
What do you think leaders should do or think about regarding organizational culture before embarking on a major transformation or change?
A leader needs to be humble enough to accept that their preferred culture may not always work within an existing organization. Said another way, there’s a need to park their ego. Leaders need to understand that a new organization may be different than their experience, probably in multiple ways. But different isn’t always bad, it’s just different. I’ve made a number of mistakes in the various merger-type transactions I was involved with over the years, but I viewed those as lessons learned and took a different approach during the most recent acquisition I led. First, I made it very clear that we were acquiring another company, not merging with it. In many instances, I’ve seen buyers make quick, hasty decisions that end up killing a company’s culture before the organizations even have time to adapt. So this time, I insisted that we would not enact any significant changes for the first six months until we all got to know each other. By taking a longer-term view, our company’s workforce and that of the company we acquired got to know each other, which made the process of integrating elements of the two cultures much smoother.
What kinds of actions and behaviors best set an organization up for success whenthe organizational culture is facing a change?
When an organization is going through a change, the most important thing for leaders to do is take the time to examine the impact it will have on the organization’s culture. The biggest misstep is ignoring how the change might affect employee wellbeing, how they do their work, how much trust they have in their leaders, and how they see themselves contributing to the mission and vision of the newly changed organization. Moving too quickly past that analysis is a recipe for disaster, both for the health of the business and the effectiveness of the leaders.
So, how do you successfully deal with a changing culture? First, understand that there will be some level of short-term pain for those in the organization who want things to stay the way they are. It may sound easy to change some aspects of an organization’s culture, but it’s not always simple. For example, think about how organizations have mobilized their workforce. Relying on hand-held devices and flexible hours can very easily go against your company’s prior norms, especially if the company’s transactions have predominantly been handled face-to-face within established business hours. But by communicating the benefits of making a change like this, acknowledging and accepting the challenges that will come with it, and providing reasonable guardrails, the organization is set up for a much smoother transition. In my past experience as a CEO, I inherited a company with a poor “responsiveness” culture (think: “I’ll email you back when I have time, if I feel it’s important”). I felt that this culture needed to change in order to move the business forward. Introducing the change and helping people understand and accept it took time and patience on my part, but with time, the behaviors changed, and with improved communication came improved results.
If you remember nothing else from this blog, remember this: ignoring how a company’s culture influences its success, and neglecting to do proper due diligence on how changes to an organization will impact its culture, is a direct route to failure.
At FMP, we work with our clients to define and conduct the kind of analysis necessary to make deliberate, informed decisions that lead to successful organizational change. This analysis might include looking at data from employee surveys; assessing the organization’s mission, vision, and values; and conducting a change readiness assessment to gauge the size and potential impact of the change, along with the extent to which the company is prepared to implement it. Because effective leadership is critical to the success of a change implementation, we also help our clients understand their leadership styles and roles and responsibilities before, during, and after the change process.
We have seen the incredible investments that companies make to undergo transformative change. Strategic assessment, planning, and communications are all core elements to ensuring that investment yields the best possible results. For more information or assistance with planning and executing change in your organization, contact us at firstname.lastname@example.org.