The corporate world is littered with M&As that have crashed and burned for failing to consider one crucial element: corporate culture. Iain Hopkins investigates why this eternal intangible is so important

Despite countless organisations spruiking the motto, 'our people are the key to our success', it's interesting to note that when it comes to major corporate upheavals such as M&As, the people are often neglected. It's assumed everyone will simply go along for the ride, wherever that ride may be heading.

According to research by A.T Kearney, organisations neglecting this aspect of their due diligence are destined for failure. Of 115 global M&A deals researched, failed merger integration was not due to poor operational, financial or commercial planning. Instead, one of the top reasons for failed mergers, cited by 35% of respondents, was cultural differences and how they were addressed in the integration process.

What can go wrong?

Simon Mezger, vice president, strategy practice at A.T Kearney, notes that there are three major pitfalls that organisations fall into when it comes to M&As. Firstly, he says that in the lead-up to Day 1, there is a huge focus on business continuity, which tends to be independent of culture.

Much like a bride and groom in the lead-up to the big day, despite some underlying tensions, both organisations will likely be on their best behaviour, so cultural clashes are not immediately apparent. "Cultural differences take time to become apparent. It's only after the organisations are seeking to influence the way things are done - which is typically well after Day 1 - that variances become apparent. Also, the acquiring organisation tends to assume that their way will prevail and so from their perspective there's no problem," says Mezger.

Finally, unless the acquiring corporate is a serial acquirer, there's a general disbelief that such 'soft issues' as culture can really influence the integration outcome and that people will just adapt. "It's only when major synergies or the core revenue base is under threat, for example, failed attempts at sales force integration - as seen in Fosters/Southcorp - or the incidence of elevated employee turnover, that management realise that culture matters," Mezger notes.

The human element

For Jeremy Nichols, Managing Director Mettle Consulting (www.mettle.com.au), an M&A is essentially about change - in processes, practices, culture, the 'way things are done' - and change needs to be negotiated delicately. "When people go through an emotional shift it creates a whole range of responses, which in turn can lead to thinking, 'my way is better than your way'. You've got a clash straightaway, and when it comes to M&As, often organisations spend time on the wedding and not enough time on the marriage - it's all about the event, rather than about building the basic values for lasting success," he says.