Understanding the Role of Organizational Culture in Mergers and Acquisition It’s Not Just a Human Resources Issue

Business psychologists understand how important organizational culture is to the success of integrating two organizations going through M&A. In Watson Wyatt’s study of 190 business leaders, they cited culture clash as being one of the greatest barriers to a successful M&A. Additionally, business leaders also said that organizational cultural compatibility is one of the least likely factors to be measured in M&A due diligence. This is a daunting problem, especially when the greatest barrier for success the least likely topic to be measured.

Many business leaders do not recognize organizational culture as a realistic issue in mergers and acquisitions, partly because of how abstract it is. Many organizational members describe culture as “the way things get done around here”. The fact of is, culture can have a substantial impact on an organizations performance (Kotter and Haskett, 1992). In their ground breaking research Kotter and Haskett found several key indices linking organizational culture that is embodied by all levels of management and economic performance over an 11 year period.
• Revenues were up 682% versus 166%.
• Expansion of workforce by 282% versus 36%.
• Stock price increases of 901% versus 74%.
• Net Income increases of 756% versus 1%

Now that we understand the value culture has in organizations, it is equally important to make sure it is included in M&A due diligence models. Most M&A due diligence focuses on the systems and operations integrations, one of the main problems is business leaders think of organizational culture as being one of the system components. The main issue is organizational culture is not a component of the system, but rather a result of the system (Carleton and Lineberry, 2004). When determining organizational compatibility between two organizations, it is essential to evaluate at the overall system in both organizations specifically:
• Strategy: Does our organization gain competitive advantage from competitors through cost leadership or differentiation of product.
• Technology: Does the organizations use of technology match our strategic goals of gaining competitive advantage.
• Culture: Is “the way we do things” as members of organization related to the organizations strategic goals and how technology is used in the organization.

Jonathan Konstan-Pines
2013 Business Psychology Psy D Candidate