Organizational culture can be described as a pattern of shared values, beliefs, assumptions and behavioural norms. Although this definition sounds complicated, in simple terms, it can be compared to the personality of an individual. Culture, much like personality, is formed through the exposure to positive and negative outside influences that shapes behaviour. Over time an organization will form its own cultural DNA, which is basically its own way of doing things.
An organization’s “way of doing things” is unique to every organization and plays a vital role in determining its success or failure. Many mergers and acquisitions are unsuccessful because they failed to fully understand the importance of organizational culture.
The most important aspects that must be determined when evaluating an investment opportunity is the value and risk associated with a potential investment. Most due diligence processes attempt to quantify value and risk in order to make an informed decision. This approach however fails to take human capital into account.
An organization is more than just the sum of all its parts. One cannot determine the value or attempt to predict the future performance of an organization by simply looking at numbers. We believe that the true value of an organization lies in its people.
In order for the human capital of an organization to reach its full potential the leaders have to create an engaged culture where employees are able to reach their full potential.
Unfortunately, this is not always the case. Many companies appear to be well run and profitable from an outside perspective, even though they have a culture that incentivizes employees to focus on short term profitability instead of the long-term sustainability.
There are many other examples of toxic cultures that will have a major impact on the fair value of an organization. Understanding culture is however not just about mitigating risk. It can also help identify investment opportunities in companies that have growth potential, but are under-performing due to their culture.
As stated previously, every company has their own unique “way of doing things”. Quite often the cultures of two companies going through a merger or acquisition are totally different. If attempts are made to change the cultural DNA of one/both the organizations, without a proper change management process, it will cause anxiety among the employees and could have the following unintended consequences:
It is not surprising that the uncertainty caused by mergers and acquisitions often have a negative impact on levels of employee engagement. It seems only natural that individual needs would supersede the goals and targets of the organization during this time. This normally leads to a sharp decrease in productivity.
Sometimes disgruntled employees don’t physically leave a company even though they have checked out emotionally. They join the ranks of critics who actively try to undermine the integration process.
Retaining top talent is an essential part of any successful merger or acquisition. The value that human capital brings in the form of knowledge, experience as well as institutional knowledge must be retained at all cost.
What we do
As part of the due diligence process we measure and analyze the human capital of an organization in order to better understand its fair value as well as the risks and opportunities associated with a possible merger or acquisition.
We ensure that merging organizations are properly integrated through a change management process that is based on a cultural gap analyses and compatibility study.