Companies have long looked to mergers as a way to gain instant growth and reposition themselves within an industry. The credit unions I work with are considering this option more frequently. Most mergers are predicated on financial advantages. The financial possibilities of the merger may look good – but the merger may still fail. Where are the unconsidered pitfalls and stumbling blocks?
The impediments are almost always found in the cultural differences between the two organizations and how well the employees blend in their habits, expectations and job performance. That critical blending begins with the managers and leaders of the credit union.
In recent surveys, top executives say they have heard about corporate culture but are not doing very much to manage it. Staggeringly, 75% of executives admit they have no plan to manage cultural change associated with mergers and acquisitions. Seventy percent say their business did not assess its culture prior to the merger. These executives are either blinded by the potential financial picture or simply haven’t considered how important culture is to their ultimate success.
When merging appears to be a financial opportunity, most credit unions typically don't consider culture as a warning sign or reason not to merge. However, for the sake of ongoing success, you must weigh potential culture clashes. Look at mergers that did not live up to their promise, such as Hewlett-Packard and Compaq, Mercedes Benz and Chrysler, Time Warner and AOL.
In most cases there was a plan outlining how the merger would be financially successful. Dig deeper, and you’ll see the companies never reached a point where they could work well together because the cultures clashed and nobody found a way to get them to mesh.
According to a survey by McKinsey & Company, close to 70% of merger/partnership failures are a result of culture clashes. The due diligence on culture blending is as important as financial blending.
A new vision for a new entity
This newly merged credit union needs a new vision to help define goals. Leaders need to identify and define this new entity, most importantly to the employees and members of the merging organization, especially if they are going to be operating under a new name. (Unless you are merging a small, one-branch credit union with less than $30 million in assets, a new name for the merged entity is an idea all boards should consider.)
Each department within the new credit union must understand how it fits into the overall combined vision. How will departments set goals and be measured on performance? In the skeptical society in which we live, communication and clarity will be critical to informing employees about their role in the new entity.
Six internal factors to examine closely with a merger
Mergers trigger innumerable adjustments and shifts, from processes to technology to expectations. In the midst of all the focus on these changeovers, the most important transition that can make or break a merger is frequently overlooked: the employees, culture and internal communications.
Here are six factors to be considered when contemplating a merger or in the beginning stages of a merger:
- How will executives establish a clear direction from the top as to why this merger is taking place and what are the expected outcomes of a successful merger?
- What is the new culture for all employees you are striving to establish? Who do you want to be?
- What systems, procedures and policies need to be changed to reflect the new culture? Which established employees will find this most difficult? How will they be brought up to speed?
- There will be a greater adjustment for those employees merging in from the other company. How will you guide their changes?
- What does the rollout plan look like for all of these changes? Imagine the process of building a new branch; there is no need to be installing carpet before it has a roof. Everything happens in a planned order. What's your plan look like?
- How do you get everybody in the organization involved with significant buy-in to be ready for action plans to achieve the many forthcoming changes?
Remember, the due diligence you perform to establish financial viability should set the standard for the effort you spend on your due diligence of cultural merger viability, and how you determine whether your middle managers are prepared to deliver the potential success you see on paper.
Russell J. White is a consultant, speaker and president of Pinnacle Solutions in Lake Wylie, S.C.