Mergers are a fact of life, but the biggest obstacle to their success is also the one thing people overlook the most, according to a talent management firm.
"Internationally, more than half of all mergers fail to deliver the expected benefits because of a clash of workplace cultures," says Nick Grage-Perry, principal consultant at Right Management.
"With so many physical issues to work through during a merger, like relocating people or equipment, the question of culture can easily become an afterthought."
All organisations have their own conventions about how to communicate, or when and how to make decisions.
Mr Grage-Perry explains that when organisations come together that differ in these conventions, it can become a source of conflict.
"Mergers are often just a nice way of saying 'takeover'. There's almost always a dominant partner, which ends up imposing its way of doing things on the other.
"In some cases factions remain for years after a merger. We often see this when organisations attempt to retain multiple brands or identities," Mr Grage-Perry says.
In New Zealand, mergers in the public sector are firmly back on the agenda, following a Treasury report earlier this year that concluded the sharing of backroom services and general restructuring could save the country $230 million. The Government has confirmed plans to merge nine agencies, with more planned on the horizon.
Mr Grage-Perry says while savings are viewed as critical in the current economic climate, we need to keep focus on the main reason for reform - creating more effective and successful organisations.
"In other words, the cost benefits of mergers are compelling, but the pitfalls in terms of effectiveness are equally great. The real danger is ending up with new organisations that are less efficient than ever."
There has been little research on the impact of culture on mergers in New Zealand. However Mr Grage-Perry can point to several examples both here and abroad where neglecting culture has led to poor outcomes or outright failure.
"The classic example is AoL Time Warner, which lost $148 billion in value following its merger of old and new media companies. This was widely attributed to a lack of awareness of the different workplace cultures at play."
In New Zealand, even mergers that have met with broad success can come unstuck on issues of culture and identity. Mr Grage-Perry says the new Auckland Council is often referred to as the "Auckland City Council", which technically no longer exists. He explains that this has the potential to create issues for staff who have come from different regional councils, each with their own distinct cultures and conventions.
"It may seem insignificant to outsiders, but the slightest shift in workplace culture is felt very strongly by those involved."
Nevertheless, there are few, recent examples of significant mergers in New Zealand (successful or otherwise) from which today's organisations can take their cues. Findings from large-scale overseas studies reinforce the idea that culture can make or break a merger. An often-cited study by global management consultancy McKinsey and Company found that 50-70 per cent of all unsuccessful mergers are due to culture clashes.
"Ultimately, the process of merger is like a relationship, but let's not pretend that every merger is a marriage made in heaven," says Mr Grage-Perry.
"In the same way clashes of personality lead to difficulties in personal relationships, the same happens with organisations and workplaces."
Mr Grage-Perry says much of the pain associated with organisational culture clashes can be avoided by following three simple steps.
"The key is to start early, well before the merger begins, and follow a process that includes staff at all levels of both organisations."
First, an assessment or stocktake of organisational culture, including values, goals, and overall philosophy should be undertaken.
"It's imperative to recognise what the core elements of your culture are that employees value, as well as the culture of the other organisation and how they might work together. You'd be surprised by how many people fail to even consider their own culture when merging, let alone that of the company they're about to join," says Mr Grage-Perry.
Next, leaders need to be deliberate about which elements of culture will remain or not. Staff need to be told about how workplace culture might change and have a chance to voice their opinions.
On non-critical issues, pick one way of doing things and move on. On critical issues, remember there is no true merger of equals, just the best of both. Select cultural elements most aligned with the new strategic direction of the new organisation.
"Leadership is critical at this point. In some cases, employers have arranged for staff to visit their new worksite to help them determine whether relocation is desirable, or even practical."
Finally, successful mergers involve finding common ground between organisations. This could be a shared passion or commitment to a particular cause, or shared rituals such as after- work social activities.
"This can be done before a merger, but also requires attention to cultural issues that might only emerge once the merger is underway," says Mr Grage-Perry.
"Perhaps the most effective way to avoid the pitfalls of a culture clash is to ensure that as many people as possible in the two organisations get to know each other early in the process."
THREE ESSENTIAL ELEMENTS FOR SUCCESSFUL MERGING
* Take stock of your culture and why it matters.
* Be clear about which elements of culture will remain or disappear.
* Make sure staff are engaged and aligned throughout the merger.
- The Dominion Post