The value of measuring Culture as part of an acquisition due diligence process using the mwah. Culture Dashboard

Culture is not a single score. It is a complex human system.

To deeply assess key people and culture issues through the M&A process, we used the mwah. Culture Dashboard to understand, map and codify both the organisation looking for an acquisition, and the acquisition target across the following culture dimensions:

• Diversity Identity – diversity is who is in the team, and identity is what parts of their personal diversity matters most to them and how they prefer to work;
• Belonging – the key cultural enablers of Purpose, Relationships, Agency, Accountability, Growth, Change/Stability, and Belonging, and the detractors which are Psychological Safety, and Fairness, and,
• Social Mapping – how do colleagues impact each other, how does work happen, between which people, and how do teams interact with each other to deliver work?

This technology gave employees within the organisation a significant voice in defining their pre-acquisition organisational culture, as a key input to the acquisition process, by:

• Giving them a confidential outlet to provide information on themselves, their ways of working, and the complex organisational culture system
• Clear, transparent, and layered communication to all employees throughout the process, in a common language and understanding
• Findings and data were shared transparently and immediately with all employees – building receptivity to the process and trust in how data is used
• Conducting approximately 20 targeted interviews to verify the Culture Dashboard platform insights to deeply understand cultural nuances

Insights from the Culture Dashboard showed the organisation to be:

• Fast-moving and agile
• A group that highly values diversity and inclusion
• Forward facing, highly ambitious and aspirational
• Highly accountable
• Excited for the future, and focussed on values-aligned growth

Armed with this deep understanding of their own organisational culture, our client used the mwah. Culture Dashboard during the formal (and usually financially biased) due diligence processes on two organisations that were both targeted as potential acquisitions. Let’s call them Org1 and Org 2.

They found Org 1 was:

• Slower moving and at times focussed on ‘busy work’
• Had some key representational gaps in their workforce – D&I was not a current priority
• More focussed internally and on the present
• Hierarchical and directive
• Interested in opportunities and development that focussed on financial measures

These cultural markers were very different to our client’s culture – and contributed to the decision not to proceed in the acquisition of Org 1.

This was not unnecessarily critical of Org 1’s culture, but rather, showed sophisticated understanding of the importance of culture differences. Receptivity, support, and enabling work to try to integrate core parts of each business to support sustainable growth would be very difficult and reduce focus on other priorities.

The same analysis on Org 2 found a much more compatible cultural fit. The Culture Dashboard analysis did highlight a couple of issues likely to be encountered when bringing the two cultures together.

Org 2 was:

• More formal hierarchical, corporate culture compared with our client
• Somewhat slower moving and less autonomous than our client
• Strongly purpose-focussed and had a desire to be more agile, more future-focused and more collaborative

With some careful attention to these specific areas, our client felt it would be easier to collaborate with Org 2 and the acquisition would proceed assuming other details were also favourable.

Armed with the insights about the cultural differences between the two organisations, a plan was put together to provide support across the teams most impacted by the merger, and to support the organisational design of the new amalgamated business based on the following principles:

• Designing management forums around the right functions and talent – not hierarchy (avoiding the mistake of simply combining exec teams)
• Clearly defining accountabilities and decision rights for each management forum
  • Exec Team: Vision, Governance, Legal Accountability, Strategy, Investment
  • Org Team: Org Design, Culture, Talent, Rhythms, Trials of new approaches
  • Business Team: Voice of Cust, Day to Day Operations, Communication
• Addressing the known challenges of clarity around decisions, access to communication, and access to the CEO, merging a “new economy” culture with a more traditional culture
• Ensuring both teams had full access to the data and an opportunity and responsibility to play constructively into the merger and its ambitions

It gave leaders and team members information prior to the acquisition, allowing them to plan their way forward. Having these discussions out in the open, and addressed, meant teams were able to consider which ways of working would be best to take forward, and for team members to openly contribute to these discussions.

These open conversations with teams on how they were experiencing their new work environment contributed to the assessment of how successful the acquisition was. This meant the new ways of working and culture were purposefully co-curated by the team rather than being allowed to develop in an ad hoc way.

The time taken for newly formed teams to operate effectively was measured, and was very quick. New teams are already operating at a high level 3 months post acquisition. New management forums have been decided and will be implemented shortly.

Based on this success, our client is now using this exact approach to assess further acquisitions, with both the Board and Executive agreeing that the mwah. Culture Dashboard platform gave them a unique and very clear data basis on which to plan for the future.

Along with the above success, the decision to not proceed with the acquisition of Org 1 saved huge opportunity costs, conservatively estimated at $11 million as follows:

• Estimated transaction costs of this type of acquisition (5% of $100m valuation) = $5 million
• Estimated additional miscellaneous costs = $1 million
• Estimated costs to unwind an acquisition (upon post-acquisition finding Org 1 was not appropriate) $5 million

It is likely that our client would then reincur these costs in a new acquisition! This presents an ROI of over 145X the investment in the mwah. Culture Dashboard platform offering.

Further to the above cost savings and ROI, this work helped avoid immeasurable human impacts (that would have costs e.g., replacing employees that resign, distraction when there is conflict, time lost when leaders don’t meet expectations). As Executive Leaders, Boards Members and People & Culture professionals, we know an incongruent acquisition results in elevated turnover, stress, presenteeism, and absenteeism.

Following the acquisition our client measured the following:

• Employee Retention – there was one person lost from our client and 2 losses from Org 2. This was an exceptional result comparative to most acquisitions.
• Continued Customer Satisfaction – both organisations held or improved customer satisfaction.
• Teams Requiring Support – within the culture analysis, two teams were identified as needing support to merge. This was offered, and worked effectively, with both teams using two months of facilitated merging support, before operating effectively without any support.
• Longitudinal Culture mapping is also in place

In summary, understanding, mapping and measuring organisational culture earlier in the M&A process has huge value to any potential transaction. The mwah. Culture Dashboard platform is a tried and tested approach to doing this, that adds significant value to the usual due diligence methods.