Organizational culture: How does it affect a business acquisition

Productivity, morale and so much more depend on culture fit

4 minutes read

Culture can be a make-or-break factor in whether or not a business acquisition ultimately succeeds.

Kelly McDougald, an Executive Advisor with BDC Advisory Services, defines culture as the “explicit and implicit values of an organization and its people” as well as the processes and behaviours that have been adopted based on those values.

Culture has a tremendous impact on how people go about their daily work, interact with each other and achieve the company’s goals. It’s often what differentiates two companies that offer similar products or services, and it can make a big difference in how well a new employee integrates into a company—and how well two companies fit together.

“What do you reward? What do you invest in? Do you make decisions based on detailed analytics or instinct? Does your team work collaboratively or do you adhere to a strict hierarchy?” asks McDougald. “The answers to questions like those tell a lot about an organization’s culture.”

When two businesses become one

Culture has an especially huge impact in merger situations—when two different businesses fold into one.

If the company you’re acquiring has a vastly different culture from yours, it may be difficult for employees to be productive as they struggle to adjust to new expectations and ways of doing things.

“Even if your stated values are similar, you can run into problems if you approach them in different ways,” says McDougald. “You might both value providing a great customer experience, but if one company achieves that through solid processes and the other achieves it by empowering employees to do whatever they see as necessary, you’ll end up with conflicting approaches and confused staff who don’t know what to do.”

Conduct a culture audit

McDougald says it’s a common pitfall that companies focus on all the ways they’re similar and end up underestimating the amount of work required to bridge the differences.

That’s why she recommends conducting a thorough culture audit of both companies as part of the pre-acquisition assessment process. Because it can be difficult to identify and evaluate your own culture objectively, she advises having a neutral third party conduct the audit.

Culture is an asset, just like facilities, intellectual property, customer relationships and employees. If you handle culture well, you can achieve great things.

How to align business cultures

After a merger or acquisition, leaders really have two choices: Impose one of the two pre-existing business cultures on the newly-merged company or create a brand-new culture. Both have their pros and cons.

Imposing a single, established culture on the merged company (usually the culture of the acquiring company) makes expectations clear and is often easier than trying to create a new culture, but it may be a big adjustment for some employees. However, in some cases, it’s likely your best course of action.

“If your company is recognized as a sought-after place to work because of its culture, you’ll want to think twice before changing it too much,” says McDougald.

Blending two cultures

Creating a new culture that blends the best elements of both companies can be a way of achieving alignment with less disruption to your new employees.

If you acquired a company primarily for its people, this approach can help ensure they don’t leave because they feel alienated. It can also be an opportunity to improve your culture by adopting values and processes from the acquired company or by introducing completely new ones.

Whichever approach you choose, McDougald says the key is to be clear and deliberate. Communicate explicitly what your values are and how you expect employees to behave to fulfil them, and include plenty of examples.

“Culture is an asset, just like facilities, intellectual property, customer relationships and employees,” she says. “If you don’t treat it that way, you can seriously undermine the value of your acquisition. But if you handle it well, you can achieve great things with your newly combined entity.”