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How merging firms can manage culture change

Addressing the potential problems and finding the solutions

M&A illustration

The pharmaceutical sector is no stranger to mergers and acquisitions (M&A). However, there are still challenges faced by both merging parties that are often overlooked. Culture change can be seen as the soft underbelly of the process and is therefore one of the most vulnerable and prone to failure. Mixing two, often very different, cultures together can be exceptionally challenging, not least because culture itself is so hard to define. But how can pharma firms overcome these challenges and merge successfully?

You don't have to have been in the sector for long to recognise that it faces a considerable amount of M&A activity, more than almost any other profession. Over the past 12 months, the 10 largest UK pharma companies have spent more than £12bn in this area with both major firms and smaller specialist outfits involved in the dealmaking, which still shows no signs of letting up. Globally, we've seen a deal struck between US firms Abbott and Alere for $5.8bn, while on the same day Stryker agreed to buy Sage for around $2.8bn. That's on top of the monstrous $32bn deal between Shire and Baxalta and the failed Pfizer/Allergan merger, to name just a few. While a number of the proposed deals tend to fall apart before completion, when they do go ahead they can place a huge amount of pressure on the pre-existing culture of the two merged firms. In fact, research from the Society of Human Resource Management (SHRM) found that over 30% of mergers fail because of culture incompatibility.

And it's not as though this is a new concept. Both GlaxoSmithKline and AstraZeneca were formed through dealmaking around the millennium and they don't appear to be doing too badly. The aforementioned Shire is another major contender in the market and has grown significantly through its strategy of merging and buying other firms. It has a strong track record of incorporating new partners into its model and the deal with Baxalta will help it develop even further.

However, while Shire does provide a good example of how to do things, there are also numerous, well-documented examples of mergers that have gone wrong because of culture clashes both in and outside the pharma sector. When Hewlett Packard took over its rival Compaq in 2002, a senior manager from the latter team said he wanted to see a weekly report from his expanded team. While the Compaq employees saw this as a way to stay in touch, HP staff saw it as micromanagement.

The buyer is generally the one that emerges as the culture of the “new” organisation

And it wasn't as if both firms hadn't put in the hard hours working out the best method to tackle the issue of culture clash. The research involved 138 focus groups with 1,600 staff across 22 countries. However, it clearly wasn't particularly successful, partly because until recently there has been no really effective method of assessing cultural fit.

Another example comes from the merger of German firm, Daimler, with US-based Chrysler in the late 1990s in a deal that was called 'a merger of equals'. However this title wasn't set to last and before long both organisations were clashing over a variety of issues including formality, philosophy and operating styles. Daimler became more dominant and the satisfaction levels of the Chrysler staff plummeted. One joke that circulated was: 'How do you pronounce DaimlerChrysler? Daimler - the Chrysler is silent,' which should tell you all you need to know.

However, larger firms are getting better at measuring the impact of cultural clash in M&A and now major IT firms such as IBM are devising complex algorithms purely to tackle such issues. Other methods such as reviewing internal staff emails or mapping the trajectory of employees via online platforms have also been utilised in recent times.

While it's easy to get washed away in the tide of technology, some suggest that the best way to manage culture change is to be a bit more old fashioned. Professor Karl Moore from the Desautels Faculty of Management at McGill University is an expert in global leadership and suggests that fairness still has a part to play. “During an M&A, in my experience one culture tends to dominate. The buyer's is generally the one that emerges as the culture of the 'new' organisation. Given the reality, it's important to reassure people in the firm being taken over that they are valued, that to a large degree they are the reason that a great deal of money was paid to acquire the company - and that retaining them is critical. Thus making sure that the process of merging and creating the new organisation is done in a way which is very fair, and seen as fair by the employees being brought on board from the acquitted organisation."

Another issue to keep in mind is that often, the more dominant culture will end up asserting itself regardless of what you do, and in those instances it requires strong leadership to navigate the problems. Boardroom friction can have dangerous effects on the M&A process and issues at the top could ultimately have an even greater impact than those at ground level, so ensuring executives are up to the job and are willing to be flexible is a must. In more general terms, there are a number of approaches that businesses can adopt that can have highly positive effects.

It's important to reassure people in the firm being taken over that they are valued ... and that retaining them is critical

One crucial factor is to emphasise the new organisation's core values. According to research by Richard Gallagher in The Soul of an Organization, a business that 'reinforces its core values is more likely to reach the kind of growth and success that nearly all businesses seek'. However, you can't just force values on a workforce and expect them to adopt them, these values need to be deliberated and built on by the employees themselves.

Something else to keep in mind is that you need to do all you can to prevent 'brain drain' and the loss of key leaders and managers from the two companies. This not only leaves a vacuum in the organisation, but also unsettles those professionals lower down the ranks. Perhaps most importantly, it saps confidence and opens the door for other employees to leave. After all, if your boss doesn't see a viable future at the organisation, why should you? Managers should be seen as the canary in the coal mine and any negativity that seeps into them should be quickly communicated to senior executives before it becomes too late. If they really are set on leaving, why not adapt their role, or simply speak to them and find out what the issues are and how they could be resolved. Otherwise, it could have a concerning knock-on effect.

Along similar lines you should also identify who the key influencers are throughout the organisation at all levels and try to spend time educating them and getting them onboard with cultural changes. You'll likely have a good idea of who these people are, but conducting anonymous internal surveys is a great way of finding them if not. In the best possible scenario, this will have a positive knock-on effect and this positivity could ripple through the rest of the workforce.

Really, there are multiple ways to solve the problem of culture clash, but it ultimately tends to come down to being honest and actually listening to your employees and what they want. A happy workforce is a productive workforce and allowing a few professionals to become unsatisfied in their roles could be a lot more dangerous than you might imagine. Get the key influencers onboard, yes, but don't forget about the rest. Work with your staff to build the new culture and you might veer away from becoming the one in three businesses whose mergers fall apart because of cultural difficulties.

Article by
Abid Kanji

is associate director at NonStop Recruitment

30th September 2016

Article by
Abid Kanji

is associate director at NonStop Recruitment

30th September 2016

From: Sales



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