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Cultural integration

Integration will increasingly be a question of culture

Integration will increasingly be a question of culture

GSG Insights

GSG Insights

The GSG Insights contributed by our strategy experts provide further understanding of strategy issues. As the world's operating systems are rewritten, our experts bring their perspicacity, inspiration, method awareness and experience to help clients design winning strategies.

In today’s fast-moving business environment, it is more a rule than an exception that, regardless of the size, core or scope of a business, the organization will, at some point, go through one or more integration processes. They can be the result of mergers, demergers, internal restructurings, growth strategies or strategic reviews, outsourcing or other changes.

In the future, this will only increase. There are several trends driving this development: sectors are converging, companies are seeking and implementing new business models, the network economy and ecosystems are gaining ground.

Therefore, the key to post-merger integration will, in the future, be more and more about cultural integration. As businesses and companies undergo change, organizations and people will continuously need to adapt to and embrace new ways of working, new operating models and new ways of interacting.

KPMG recently carried out a survey looking into the success of post-merger integration among companies in Finland (more than 60 companies that had implemented or taken part in large integration processes in 2017 responded). The respondents named highly similar objectives for their integrations: 

  • To expand their offering into new markets, products and services
  • To expand their customer base
  • To increase revenue
  • To enhance capabilities

In the same survey, respondents were asked about the keys to success and what they would focus more on in coming integrations. Again, the responses were highly similar – the top three were i) internal communication, ii) cultural integration, and iii) better integration planning.

Of these success factors – the key actions that determined the outcome of the integration process – cultural integration stands out. Cultural integration refers to the ways in which organizations interact, the ways teams are formed and work, the ways information is spread and acted upon, and the ways decisions are made. Many respondents felt that, even though the integration process went well and the targets were reached, culture could have gained more attention. 

How should culture be addressed?

1. Prepare for cultural integration early in the process

Perform a cultural assessment of the involved organizations as early as the pre-deal phase. The following issues are particularly important:

  • Are there any differences in management style and processes?
  • Are company cultures growth-driven, efficiency-driven or innovation-driven?
  • Are there major differences in personnel turnover?
  • Are the organizations task-oriented or people-oriented?
  • Are the operating models centralized or decentralized, and how is this reflected in operations?
  • Is decision-making consensus-driven, or are decisions made in small groups or by individuals?
  • Is the culture forward-looking or focused on “here and now”?

The above list of questions is not exhaustive, and not all can be answered during the pre-deal stage. However, raising these issues right at the start can provide valuable insights and guidelines for the new organization and the targeted operating model.

2. Build culture through the operating model

When the new operating model is designed, it is likely that processes, areas of responsibility, capabilities and resources will be rearranged – at least in those parts and areas of the business where synergies are targeted. These are also the areas where change will be the most visible and where cultural issues will be likely to arise. The questions to address will include:

  • If we want a more team-oriented, decision-making culture, how should we set up and build the teams in the organization? What support will they need?
  • If we want to become more customer-driven and innovation-oriented, what processes will we need? What new measurements should we introduce?
  • If we want to become more effective and reduce the number of organizational layers, how will that influence the ways in which people interact and work together? What new mindsets and ways of working will management have to adopt?
  • How should we set up the areas of responsibility and accountability, and what will be the biggest change or new feature? What will be the most difficult for the organization to embrace, and how could we help?
  • If we want to transform from a product-driven to a customer-driven strategy, what will it require of the organization? How will it affect daily operations and decision-making?

The “right” or “best” solution will, of course, vary from case to case. But, whatever solution is chosen, it should be based on a thorough understanding of what will be needed to make it work. Even though operating model blueprints can be designed and introduced on the basis of existing models, if there is no cultural fit, the chances are that not all targets will be reached as quickly as desired.

3. Over time, encourage a culture that is prepared for change

In business contexts, integration primarily refers to post-merger integration – the work needed to ensure that synergies are captured, processes aligned and ways of working agreed. However, integration is more than combining two or more organizations in a post-deal environment. Integration is not a temporary effort – it does not stop after “Day 100”. While integration is usually an intensive, at times even hectic, project undertaking, it is much more than that – integration is a source of renewal and new thinking.

In the survey referred to above, the common aspect mentioned by respondents was that of growth and renewal: to renew, to gain new ground, to expand. It is direction and ambition that are key – integration is seen as a process, a capability, a vehicle for transformation.

The Cambridge Dictionary defines the verb “to integrate” as follows:

  1. To mix with and join society or a group of people, often changing to suit their way of life, habits, and customs
  2. To combine two or more things in order to become more effective

All too often, integration focuses on the first – quickly taking over and forging a new organization and way of working. The key to success is to develop and enable a culture in which people want to integrate and develop. Processes, tools and templates will be needed in the future, but without a culture that wants to develop, tools and methodologies will not be enough.

About the study

Our study about post-merger integration success of Finnish companies is based on interviews conducted with more than 60 Finnish companies, which include listed and unlisted companies that have net revenues ranging from less than €50 million to several billion and that have made one or more acquisitions between 2012 and 2017. The study was conducted from June to November 2017. Take a closer look at the full study here

Contact information

Martin Skrifvars
Director, Global Strategy Group

+358 20 760 3987
firstname.lastname@kpmg.fi