Although the number and size of mergers and acquisitions (M&A) continue to increase steadily, these deals often fail to live up to the objectives of the transaction. Typically, the main reason for failure comes down to issues around people and culture. Due diligence before M&A focuses on the financial and structural aspects of the integration, but rarely factors in the critical “human” elements of a merger– employee communication styles, work norms, processes, etc.
While the synergistic benefits and objectives of a merger or acquisition may be clear from the start, how groups across the organizations can work together most effectively and how to measure the progress of integration are rarely defined or established. A far too common example involves two companies whose cultures are not compatible. In this instance, the acquirer, who has a more controlled, hierarchical decision-making culture, purchases a smaller company that’s more agile, flexible, and entrepreneurial. While their assets and skills may be complementary, their modes of working are not. If identified early, however, leaders can achieve effective integration by proactively designing ways to reduce friction and achieve cultural compatibility and assimilation.
This was the case for a multinational energy company, who acquired a small, innovative firm to help with the R&D and production functions of different energy sources. The acquired company had achieved much of its success thanks to their flexible and fast-moving working culture, which was very unlike that of the acquiring organization’s. In an attempt to preserve and benefit from these agile processes, the acquiring organization decided not to fully absorb all new employees into its departments. Instead, they targeted only the R&D department and relocated roughly 1,000 employees to the acquirer’s HQ campus in order to facilitate close collaboration on R&D projects.
After merging R&D departments, the customer needed to measure the integration’s impacts on employee collaboration and behaviors in order to monitor progress and intervene to mitigate risks or sub-optimal outcomes. Since they anticipated that post-merger objectives and employee needs and behavior could shift in the months and years to follow, they also needed a flexible and comprehensive measurement approach to support ongoing, long-term monitoring. Unfortunately, there were not many best practices or trusted tools for effectively measuring cultural integration. Most methods, like employee surveys, tended to be “static” data that’s collected once or in snapshots, reflecting subjective and attitudinal perceptions at one specific point in time. To support a successful long-term cultural integration, they needed a continuously-focused, objective approach that monitors the integration’s impacts and enables ongoing adjustments over time to avoid disengagement risks and productivity losses.
The acquiring organization used Humanyze to quantitatively measure and monitor behavioral changes, communication patterns, and workstyles between the two organizations pre and post-merger. Starting from the “pre-move” quarter leading up to the merger, Humanyze collected anonymous data from the two organization’s enterprise collaboration platforms (including corporate email, audio/video conferencing, meeting scheduling, messaging/chat, and team workspace tools). Humanyze then analyzed this data using proprietary, behavioral workplace metrics that highlight organizational risks and opportunities in two main areas:
Connectedness Metrics measure the degree to which the right people and teams are sufficiently connected post-M&A. Specifically, this consists of metrics that measure the distribution of communication across a group as a whole and between teams, whether there are silos, bottlenecks or critical dependencies, exposure to different hierarchical levels, and the strength, frequency, and number of social connections the average employee has:
Work Culture and Behavior Metrics look to uncover how work gets accomplished across the merged organization. This includes several variables including how much time employees spend using different collaboration tools (i.e. sending emails vs. video calls vs. in-person meetings), the average size and duration of meetings, and available time for focused work:
After continuous measurement for nine months post-merger, there were several key findings:
Co-Location Increased Collaboration Overall
There was little collaboration between the merged organizations prior to the move. After the move, the communication from on-campus acquired employees to the acquirer’s employees who had already been on campus increased steadily. Similarly, those employees in the acquirer company were reaching out to the on-campus acquired employees with higher volumes of communication. There was also much tighter integration among the acquired employees after the move, indicating that they managed to stay connected even after joining the larger campus. The critical connections that needed to be made were with the employees that were selected to move their new workspace, and this was verified by the data metrics.
Table 1: Communication Patterns Based on Communication Volume Across Employees (per 1K minutes)
Managers Adjusted Work Behaviors Faster Than Non-Managers
Additional insights were gained by taking a deeper dive and filtering the data on attributes such as management level, communication channel, tenure, gender, and physical location. For example, when the data was filtered based on if the employee was a manager, it revealed that managers from both organizations were significantly more connected than non-managers. Communication between the acquirer’s managers and acquired managers increased 35% after the move, compared to just 20% for non-managers. After the move, much care went into prioritizing what projects would get the “go-ahead” and developing project scopes. Therefore, much of the initial communication in the merged organization after the move was more strategic in nature.
Acquired Employees Adjusted Quickly to Meeting-Heavy Culture (Not the Other Way Around)
Meetings were the primary medium that led to the increase in communication between the acquired employees and the acquirer employees on campus. The acquirer company had a strong “meeting culture,” as they valued in-person interaction for oversight and project management. The fact that the partner employees had transitioned to more frequent meeting interactions from the other communication channels they were accustomed to showed they were able to adapt and assimilate into the acquirer’s work culture quickly and relatively easily without needing additional support or training.
Takeaways & Why This Matters
In this case, the energy company’s choice to strategically merge a sub-section of the acquired organization went mostly as planned. They were able to absorb the acquired company’s R&D function without forcing other acquired employees outside of R&D to change their ways of working. Through ongoing measurement, they measured where and how quickly behavioral changes occurred, which will help inform future integration decisions. They were also able to validate that physical co-location of teams significantly impacted collaboration patterns, particularly for management. Additionally, they could see objectively that, in cases of co-location, the acquired employees were more likely to adapt to the larger organization’s working norms and not the other way around. Having this level of visibility enabled the customer to confidently validate their strategy while saving time and resources internally.
Initial confirmation of their strategy and its impact is not a guarantee of long-term success, however. As the organization’s needs and strategy shifts, they will need to continue to monitor whether the initial effects of the merger continue, and if all employees continue to work and collaborate in the best possible way. In particular, making connections across subject matter experts, managers, team leaders, and key stakeholders is becoming increasingly challenging, as the structure of work is much more complex. Cross-functional and agile teams that are constantly communicating and experimenting with customers and end-users is becoming the norm. Hybrid teams that have team members working concurrently at the physical workspace and virtually at home also has to be thought out.
Therefore, careful consideration needs to be given to who should be collaborating across the merged organizations. Digital metrics could then be used to quickly assess if this is indeed happening, and help inform management on interventions to be done to achieve the right connections. In doing so, the organization can get the fullest value and ROI out of its acquisition, while laying a strong foundation for future mergers down the line.