Beyond the numbers
While ‘culture’ is commonly a challenge in transformations, more often than not, it is an underestimated, and seldom understood, concept. There is a reason for writing about culture in a paper intended to be for a financial audience. Simply put, culture is often the reason for success or failure. It can be the reason why sales ramp up, and it can also be the reason for stalled progress, slow decisions, and disorganization. All aspects of financial transformation are sensitive to cultural differences. It can have an impact on the way data is collected, systems are implemented, and staffing is developed. Transformations require fast, concise and clear execution which can be inhibited, or aided, by culture. While it is not a hard, tangible, measureable item like most financial concepts, culture is one of the most important aspects to success.
Culture cannot be easily identified, changed or blended with another culture. Two companies merging will find it difficult to try to work out differences. To address this, the culture for each unit should be defined, then differences should be identified, and finally incompatibilities need to be eliminated.
A. Define cultures: you can only identify cultural traits by closely working in the company, or extensively interviewing workers. Perceptions also play into culture. Several traits may be interpreted differently by individuals, depending on their position in the organization.
In acquisitions, while being familiar with the traits of the cultures of each company is important, it is more important to be sure to understand the culture of the acquirer company (presumably the company you work for.) This is because, when all is said and done, this is the culture that will prevail. To narrow it down, some of the cultural traits that influence performance and compatibility are:
Decision making and authority:
- Are decisions made top/down or are they made collaboratively?
- Are decisions concentrated with a few individuals or is broader consensus required?
- Are inputs for key decisions accepted, or are decisions made in isolation ?
Empowerment: How much autonomy is granted at the executive, management and sole contributor levels?
Communication style: What is the predominant form of communication? email, texting, phone, face-to-face ? Style of communication is important as it facilitates execution and comprehension of ideas.
B. Identify differences: Once culture is defined, mapping out where there is commonality and where there are differences is a useful exercise, particularly for traits of decision-making, empowerment and communication.
C. Eliminate incompatibilities: There are three avenues to deal with incompatibilities.
i. One approach is to work to change one party or to ‘meet half-way.’ In this approach both parties compromise. A problem with this collaborative method is that it creates policies that neither party views as favorable and will require long adjustment period– where time is not available.
ii. Superimpose policies of the acquirer. This approach is the most realistic way to execute quickly. Retention concerns arising from having to accept a new way to work are important but should not take precedent over the need to remove incompatibilities. One drawback is if existing cultural traits do not lend to speed or accuracy of execution. For example, in an environment where one person makes decisions in isolation, the risk of making the incorrect decision is high. Conversely, if a decision requires multiple ‘votes,’ decisions will be slow and timid.
iii. Use the acquirer’s policies, but blend logical improvements from the acquired. This approach works if there are existing cultural traits that prohibit progress. On a longer-term basis some of the traits of the acquired company will seep into the culture of the acquirer.