Mergers and acquisitions can make both the target company and the acquiring company stronger. The unified company enjoys a larger customer base, reduced market competition, and a value higher than either individual company. However, before companies enter into a merger or an acquisition deal, it’s essential to consider how the decision will affect employee performance.
When two companies merge, they not only take on the objectives, practices, and policies of the acquiring company, but also the more abstract and intangible aspects of internal politics, culture, and company values. There are new checkpoints and people in the hierarchy of command. Employees feel the shift in power and contradictory styles of working can give rise to new problems. All this is enough to ruffle more than a few feathers.
“Cultural incompatibility” is one of the reasons mergers and acquisitions fail to create the value that everyone thought they would. Culture touches each employee at a grassroots level of behavior and experience. Conflicts between the cultures of two companies rarely exhibit at the level of core values. Instead, the differences become evident when the same values are lived each day, and different patterns of behavior are observed. In a merger, it is these cultural patterns that can lead to friction between employees.
The Amazon-Whole Foods Debacle
In 2017, Amazon acquired organic grocer Whole Foods Market in a deal valued at approximately $13.7 billion. This strategic move immediately catapulted Amazon’s presence into more than 450 physical locations and secured a stable position for the e-commerce giant in the grocery segment as a key step to Amazon’s goals to be your “everyday shopping destination.”
However, in a 2018 article in Harvard Business Review, researchers pondered over the less-than-optimal results of this merger (clearly visible after a year of signing the deal). The critical issue was the core incompatibility between the organizational cultures of Amazon and Whole Foods. Researchers evaluated the two cultures on the broad labels of tightness (in terms of control, precision, and efficiency) and looseness (in terms of freedom, innovation, and creativity).
According to the article, Amazon is synonymous with efficiency, records, and data (most anyone who’s worked there–employees, contractors, and consultants will largely confirm this). It uses its high-tech surveillance to monitor its employees in its warehouses. Employees can anonymously “report” their colleagues if they notice something unusual. The core belief is having the right data helps make more efficient decisions.
Whole Foods, on the other hand, had a more empowering and creative culture. While the company supports the use of open data, they used the data to allow teams to make autonomous decisions, like customizing orders based on local preferences.
With such disparity between the two cultures, clashes were bound to spring up between the employees. So, the next question is: How did the leaders of both organizations fail to notice this?
The most obvious answer is that those same leaders focused only on the positive aspects of the two cultures: data-based decisions and customer service. They failed to see the conflicting patterns of behavior that would eventually drag them down a year later.
Effects of Mergers on Employees
Employees are on the front line of any merger or acquisition. Poor employee management is a handicap; it can easily cause a new company to crumble. A few reasons for dissatisfaction among employees during an integration include:
- Employees face uncertainty when they watch their colleagues lose their jobs.
- Instead of working together as a team, employees from the two organizations may compete against each other.
- Overall morale may drop if the organizations have conflicting work styles or cultures.
- Employees may experience low motivation and high frustration due to new roles, co-workers, policies, and procedures.
The leadership teams of both companies should acknowledge the fears and dilemmas employees face and put strategies in place to overcome them. They should not overlook employee sentiment but instead work to turn it in favor of the company.
Fear of Unemployment
The best way to address this insecurity and uncertainty is with information. Job loss is always a harsh reality and a possibility made worse because employees have no means of knowing what new management wants. They have no access to information and don’t know whether their role and expertise are still needed.
What can be done? Create a centralized space for a select few (middle managers who can pass the information down) to access information or submit inquiries about the merger or acquisition. This way, managers can communicate to the best of their ability what employees can expect in the near future and reduce the spread of rumors and misinformation.
Mistrust of Leadership
Lack of information, speculation, and rumors all lead to mistrust. However, if both companies’ leadership teams are visible, easily accessible, and open to their employees, then they can quash rumors with ease.
An easy transition requires complete transparency. New strategies should keep the flow of information clear and constant. The companies should publish and post regular merger or acquisition updates on the employee information portal.
The human resources department can act as a crucial link for passing on employee feedback to leadership teams. This circular communications model will reassure employees as they realize their voices are being heard by leaders who are willing to address their concerns.
When all employee teams are equally engaged and involved, employees will not feel that their own company culture is being overtaken.
Combining two different cultures has its unique challenges. The most appropriate approach is to be proactive rather than reactive. The ideal strategy involves employees and lets them contribute to the development of a new shared culture. Employee training initiatives and a renewed focus on employee engagement activities will help to strengthen the bonds and reinforce the feeling of camaraderie.
Ideally, the leadership team will conduct a cultural assessment to gain insight into how people and management teams practice the company’s policies (tight or loose). They should identify the pros and cons of their current policies and remember the potential threats posed by the impending merger or acquisition. They should ask questions, such as whether letting go of a few policies or remodeling the structure will enhance or harm employee performance. They should identify areas of compromise; for instance, companies which follow tighter rules should be open to embracing the greater flexibility of the other company.
Make a Strategy to Integrate the Differences
Once the two merging companies understand the differences (strengths and weaknesses) between the two cultures, they should develop a strategy to integrate their two cultures. This requires mutual input from both companies: What are the areas of change? How will each company implement the changes? When these questions are answered sincerely, long-term integration success is not far.
Disney-Pixar Success Story
The Disney-Pixar merger in 2006 was reported as one of the most successful mergers of all time. Disney wanted to leverage Pixar’s animation expertise for its vast distribution networks. Pixar, on the other hand, wanted to be a part of the international conglomerate.
The two companies followed all the standard tactics for a successful merger and also came up with some different ones. The leadership team at Pixar identified several things that would not change to preserve its culture. Bob Iger, the CEO of Disney, created a set of ground rules so that all Pixar’s employees could blend in with ease into the new company.
Iger also gave Pixar new tasks and responsibilities to increase creativity at Disney. In fact, he brought many of the transformational creative leaders from Pixar to Disney to lead new creative projects. The result was a whole new wave of blockbuster productions from both studios.
Earn Employee Buy-in
All employees from both companies involved in a merger should be informed about the integration plan. Rather than just explaining what will change in the near future, explain the reasons for those changes–the why. When people understand the reason for the change, they are more open to accepting them.
People who have worked with strict policies may think that their hold and control over things is slipping, whereas people who have worked in a relaxed setting may feel that their autonomy is under threat. Under such circumstances, leaders should be culturally ambidextrous and showcase the importance of being both firm as well as adaptable. This is one sure way of addressing the underlying fear of change among employees.
Revisit and Revise
Whether a merger or an acquisition, it is essential for both companies to periodically reevaluate the integration strategy. A company that prioritizes the following three points will enjoy its employees’ support:
- Create guidelines to address conflicts.
- Clarify key roles to resolve disputes and make decisions.
- Develop performance indicators to promote transparency among employees.