Inarticulate ramblings of a management consultant

the day to day experiences of a consultant operating in weird and wonderful client situations

Culture as part of an acquisition – is it worth anything?

Dilbert Core Values

My focus in my last blog was to address some of the myths that exist, particularly around the thorny subject of what might constitute a cultural assessment. To be clear, I believe that these are good things to do…they can be one of the most powerful activities you can do in an integration to create momentum and change. My challenge relates to the methodology and process.

This week I want to address the issue on an altogether more positive note. Let’s start with the fundamental issue.

The culture of the business you’re buying is part of the acquisition, as much as
any piece of real estate, operating system and customer relationship. It has value!

If we consider that the culture of the business acquired is an essential part of the reason for its success, as much as it’s branding, products, operating efficiency, the decision to ‘get rid of’ this asset borders on fiduciary irresponsibility and certainly leadership incompetence. Think about the money being spent on culture change in corporates as a benchmark to understand what that value destruction might be costing.

As a general observation, it seems utterly extraordinary to me that, at the same time as companies around the world are striving to change their culture (two examples I’ve quoted before in this blog are going from manufacturing to services (see this link) and becoming more project based (see this link)), you have businesses who, upon acquisition, appear to have the single intent of eradicating the ways of working (which may well incorporate some very valuable cultural attributes) in the organisation that they’ve just bought.

Now you will say to me, how do I know that what I’m buying is valuable? Let me answer with an example.

There is a particular cultural dimension which has very specific value and is also a very helpful lead indicator. We’ve called it Internal Integration. It comes from a model developed in coordination with Manchester Business School over 10 years ago. As an aside, it is easily quantifiable through an intelligent questionnaire / interview process and a comparison between acquirer and acquired is an easy and very informative way to start.

Chains

To define it, it is the dependence that a business has on its ability to operate across internal borders (functions, geographies). What I’m describing is not a ‘nice to have’ but actual dependence where the success of the business commercially has been driven by this interconnectivity and collaborative mindset. In my consulting career, I’ve found some good examples of this. As a broad generalisation, the relationship based nature of Asian based businesses tends to generate this approach but I have also worked with family / recently ‘ex’ family based businesses in Europe that value this highly. A business with a strong customer focus often has this as a key attribute.

What is extremely interesting is that in more silo based businesses, you find functions whose sole responsibility is to intermediate between different silos. In one large O&G company I worked with, the Sales & Distribution function sat neatly between Refinery on the one side and Customer Services on the other. Its role was intermediation, communication (and translation!) and probably dispute resolution! The need to create this type of function perhaps demonstrates its cultural value most aptly.

Now, as with many of the other intangible assets acquired as part of a deal (intangibles now represent a staggering 80% of the value of the SNP 500!), the value of the culture you’ve acquired can go up as well as down. Internal integration is one of a number of dimensions which, because of the inherent building block that enables it to operate (trust and powerful relationships), can be very easily disrupted by perceived or real changes in the corporate infrastructure.

To give an example, as an employee, the value I personally create is based on my ability to navigate my way around the organisation (turning the concept of 6 degrees of separation to 1 or 2 might be a good analogy) to create / sell / analyse / deliver something which the business needs. If the core of that process is disrupted, either because the individuals with whom I have a strong relationship are no longer employed / or in the same position of influence, or because of some fundamental organisational change, then some of that Internal Integration value is reduced.

Let me be clear…this is not an argument for doing nothing! Inevitably change will / and often needs to occur as a result of an acquisition. My point is that if you’re buying the business for the following reasons:

  • Responsiveness to customer demands
  • Agility
  • A culture of collaboration

…and you’ve observed the following:

  • Frequent movement of employees between functions
  • Historical leadership from a range of different functions
  • Strong project management capability

…then you may well have bought a business with strong internal integration…and I would suggest it’s worth thinking about how to maintain that particular value.

More next week.

Categories: Change management, Corporate Culture, Intangible Assets, Mergers & acquisitions, post acquisition integration, Post merger integration, Value Preservation

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