1. Achieving Cultural Alignment in
Mergers and Acquisitions
Kim E. Ruyle, PhD
Vice President, Research & Development
Korn/Ferry Leadership and Talent Consulting

2. OBJECTIVES
• Explain how alignment of organizational cultures
impacts the success of a merger or acquisition
• Describe a research-based process for identifying
cultural misalignments between parties in a
merger/acquisition situation
• Apply best practices to enhance culture so it is
aligned with and supports the organization’s
strategic objectives

3. A LARGE PERCENTAGE FAIL
“70 percent of mergers fail to achieve their anticipated value…”
Weekly Corporate Growth Report
“Most [mergers] fail to add shareholder value – indeed, post-
merger, two-thirds of the newly formed companies perform well
below the industry average.”
Harvard Management Update
“A Towers Perrin study of 150 mergers of financial-services firms
found that 30% of deals substantially eroded shareholder value,
and another 20% eroded shareholder value somewhat…”
Best’s Review – Property-Casualty Insurance Edition
“And despite the well-publicized, much-analyzed fact that many
of these mergers – up to 70%, according to some estimates –
failed to create value, it seems clear that the end is not yet in
sight.”
Financial Executive

4. MANY REASONS FOR FAILURE
• Difficulty integrating back-office systems
• Challenges integrating a competing product…or
killing it off once acquired
• Lost value in acquiring overlapping brands
• Conflicts between go-to-market channels
• Dueling management teams in “merger of equals”
• Deal seen as an exit strategy by the target and
all the good people leave
• Risky merger planned on “bullish” market conditions
• Hubris; deal struck to seek glory and/or legacy

5. THE PRIMARY REASON…
“Cultural integration is ignored in the majority of business
combinations. This is a major reason why 60 percent to 80
percent of all business combinations undergo a slow, painful
demise.”
Journal of Property Management
“By some estimates, 85 percent of failed acquisitions are
attributable to mismanagement of cultural issues.”
Industrial Management
“While two-thirds of those surveyed had a systematic
approach to sniffing out potential M&A targets, three-quarters
of the respondents had no clear process for the integration
phase once the merger was consummated.”
Telephony

6. ANOTHER KEY REASON…
Targeting key talent
In a study by Harding & Rouse, in successful deals, ~90% of
the acquirers had identified key employees and targeted them
for retention during due diligence or during the first 30 days;
this was accomplished in only about a third of the unsuccessful
deals.

7. HIGH PROFILE EXAMPLES
• Daimler-Benz and Chrysler
• Hewlett Packard and Compaq Computer
• Time-Warner and America Online
• AT&T and BellSouth
• Procter & Gamble and Gillette
• Pfizer & Pharmacia; Pfizer & Wyeth
• J.P. Morgan Chase and Bank One

8. WHEN CULTURE IS IGNORED…
• Anxiety and fear increase – rumor mill runs wild
• Conflicts emerge and tensions rise as differences
in values and work styles become apparent
• Structure, system and process differences impede
communication and increase misunderstanding
and resentment
• Productivity crawls to a halt as people become
entrenched in their positions and new turf battles
emerge
• Key talent leaves for other opportunities

9. CULTURE DEFINED
“The way we do things around here.”
(Deal & Kennedy, 1983)
“Glue that holds together an organization through
shared patterns of meaning.”
(Martin & Siehl, 1983)
“A pattern of shared basic assumptions that the
group learned as it solved its problems...”
(Schein, 1990)

10. ORGANIZATIONAL CULTURE
• A shared set of values, beliefs, & norms
• Developed by Senior Leaders
• A driver of performance
• Tied to strategy and capabilities
• A contributor to employee effectiveness
• Critical component in organizational change
• Influenced by national culture and history
COPYRIGHT 2010 © KORN/FERRY INTERNATIONAL. ALL RIGHTS RESERVED.

11. A POINT OF VIEW…
Not all aspects of culture are easily measured. Culture can be elusive,
intangible, implicit, and taken-for-granted; and what’s below the surface
can sink the ship.
Easier to
Assess
Behavior & Artifacts
Most visible; outward manifestation of culture; tells us what
group is doing, but not why; can gain insight to values by
noting the behaviors which are/are not acceptable
Values
Underlie and determine behaviours but not
directly observable; there is a difference
between stated and operating values;
people generally attribute their behaviors
to their values
Assumptions & Beliefs
The deepest understanding
of culture is that which gets
at assumptions and beliefs
Harder to
Assess
See, for instance: Schein, 1990; Deal & Kennedy, 1983
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12. DESCRIBING AND ASSESSING
Analysis of culture structured around 6 KEY FACTORS.
I. LEADERSHIP IV.EXTERNAL RELATIONSHIPS
• The extent to which senior • The extent to which the
leadership delivers clear values, organization is obsessed with
vision and strategic plans that lead meeting customer needs and
to outstanding organizational serving the community
success
V. WORK ENVIRONMENT
II. EMPLOYEE FOCUS • The extent to which the work
• The extent to which the environment promotes the health,
organization values its people and well‐being, and productivity of
treats them with respect employees
III.WORKING RELATIONSHIPS VI.POLICIES AND PROCEDURES
• The extent to which people in the • The extent to which policies and
organization consistently work procedures employed in the
well together to achieve desired organization are meaningful and
results help people work effectively
COPYRIGHT 2010 © KORN/FERRY INTERNATIONAL. ALL RIGHTS RESERVED.

13. DESCRIBING AND ASSESSING
These factors are further divided into 30 DIMENSIONS.
I. LEADERSHIP IV.EXTERNAL RELATIONSHIPS
• Financial Focus • Responsiveness
• Growth Focus • Intimacy
• Innovation • Excellence
• Business Integrity • Community
• Vision and Values
V. WORK ENVIRONMENT
II. EMPLOYEE FOCUS • Facilities
• Motivation • Formality
• Talent Management • Pace
• Empowerment • Structure
• Transparency • Technology
• Diversity • Climate
III. WORKING RELATIONSHIPS VI.POLICIES AND PROCEDURES
• Interpersonal Collaboration • Policy effectiveness
• Cross‐functional Collaboration • Continuous Improvement
• Conflict Management • Decision Making
• Accountability • Learning
• Communication
• Risk Taking
COPYRIGHT 2010 © KORN/FERRY INTERNATIONAL. ALL RIGHTS RESERVED.

14. ASSESSING AND ANALYZING
A combination of qualitative and quantitative methods to
yield the most comprehensive understanding of an
organization’s culture.
Organizational
Culture Survey Cultural Artifacts
QUANTITATIVE FIELD Checklist: space,
DATA OBSERVATION symbols, architecture,
meeting protocol,
dress, etc.
With Executives
and key leaders With representative
TARGETED FOCUS
in departments/ employees across
INTERVIEWS GROUPS
divisions the organization
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15. TYPICAL M&A OBJECTIVES
• Expand market share
• Eliminate the competition
• Enter into a new region
• Service a different customer group
• Expand a product line
• Develop new capability
• Realize economies of scale

16. THE M&A TIMELINE
Due diligence/Exploration
Negotiation/Announcement
Close
Day 1
100-Day Rapid Integration
Long-Term Assimilation

17. GETTING TO ALIGNMENT
• Leaders have a responsibility to define culture
• Don’t underestimate the complexity of the
work – dedicate sufficient resources to the
effort
• Work fast – but don’t sacrifice quality
• Qualitative input is critical
• Identify Quick Wins – symbolic changes can
often be implemented quickly to signal change
COPYRIGHT 2010 © KORN/FERRY INTERNATIONAL. ALL RIGHTS RESERVED.

18. LEADING TRANFORMATION
A merger or acquisition is essentially an organizational transformation.
VISION & CONCEPT TESTING ASSESSMENT & RECOMMENDATIONS ACTION PLANNING
Articulate Desired State Assess Current State
Define Vision and of Both Organizations
Strategy Organizational
Culture
Conduct Culture
Gather data and Organizational
Assessment
Establish test concept Capabilities
Conduct Gap Develop Action
burning
Analysis & Present Plan
platform for Leadership &
Trans- Recommendations
Talent Assess Current
formation Operating Model
Refine based on
Review with
analysis Organizational Stakeholders
Structure
Systems & Revise and
Socialize Vision Processes Approve
& Strategy
Ensure ongoing communication, engagement, and alignment
COPYRIGHT 2010 © KORN/FERRY INTERNATIONAL. ALL RIGHTS RESERVED.

19. DEFINING THE DESIRED STATE
Critical questions…
• What’s the Vision, Mission, Values, STRATEGIC CONTEXT
Unique Value Proposition, and
Strategy?
• What does the organization ORGANIZATIONAL
CAPABILTIES
absolutely need to be able to do to
achieve the strategy?
• How does the organization need to ORGANIZATIONAL
STRUCTURE
be designed to achieve the
strategy?
• How should the organization work to ORGANIZATIONAL
CULTURE
do this?
COPYRIGHT 2010 © KORN/FERRY INTERNATIONAL. ALL RIGHTS RESERVED.

20. ASSESSING CURRENT STATE
Company A Company B
Current State Current State
• What values, beliefs and attitudes prevail in
Company A? Company B?
• How do they contribute to / detract from the
company’s effectiveness?
• How pervasive and how deeply held are these
values, beliefs and attitudes?
• Are any so deeply held that they are creating a
toxic environment?
• Are any so lacking that they are creating a
problematic environment?
• What cultural drivers are particularly strong
reinforcers of the current state?
COPYRIGHT 2010 © KORN/FERRY INTERNATIONAL. ALL RIGHTS RESERVED.

21. ASSESSING CURRENT STATE
SURVEY DATA FOCUS GROUPS OBSERVATION
of cultural artifacts
0 1 2 3 4 5 6 7 AGG
+ +
All Respondents Med
Low
Vice Presidents High
Directors Med
DATA Managers
Non‐Managers
Med
High
Low
E.g. Awareness of how one’s contribution is connected to the bottom line seems
INSIGHTS to decrease as one goes further down into the organization
E.g. Leaders lack the skills to communicate with and engage their people; Directors
are especially challenged to communicate the connection between day-to-day work
ROOT CAUSE and the business plan/strategy to their employees.
E.g. Identify competencies to be developed, assess leaders’ capability and
RECOMMENDATIONS develop them to enhance their interpersonal and communication skills
COPYRIGHT 2010 © KORN/FERRY INTERNATIONAL. ALL RIGHTS RESERVED.

22. IDENTIFYING THE GAPS
Desired
State
What are areas of What are areas of
alignment/ alignment/
misalignment between misalignment
desired state and between desired state
Company A? and Company B?
Company A Company B
Current State Current State
What differences exist
between the two companies?
How will similarities/
differences impact the
transformation?
COPYRIGHT 2010 © KORN/FERRY INTERNATIONAL. ALL RIGHTS RESERVED.

23. PRIORITIES FOR ACTION
• Where is the greatest degree of misalignment?
• How visible is the issue?
• How deep does it go?
• What will be lost by not addressing it?
• What will be gained by addressing it?
• How much time/effort/resources will it take
relative to others?
COPYRIGHT 2010 © KORN/FERRY INTERNATIONAL. ALL RIGHTS RESERVED.

24. TAKING ACTION
All factors impact each other.
I. LEADERSHIP IV.EXTERNAL RELATIONSHIPS
• Financial Focus • Responsiveness
• Growth Focus • Intimacy
• Innovation • Excellence
• Business Integrity • Community
• Vision and Values
V. WORK ENVIRONMENT
II. EMPLOYEE FOCUS • Facilities
• Motivation • Formality
• Talent Management • Pace
• Empowerment • Structure
• Transparency • Technology
• Diversity • Climate
III. WORKING RELATIONSHIPS VI.POLICIES AND PROCEDURES
• Interpersonal Collaboration • Policy effectiveness
• Cross‐functional Collaboration • Continuous Improvement
• Conflict Management • Decision Making
• Accountability • Learning
• Communication
• Risk Taking
COPYRIGHT 2010 © KORN/FERRY INTERNATIONAL. ALL RIGHTS RESERVED.

25. ACHIEVING ALIGNMENT
• Leaders have a responsibility to define culture
• Don’t underestimate the complexity of the
work – dedicate sufficient resources to the
effort
• Work fast – but don’t sacrifice quality
• Qualitative input is critical
• Identify Quick Wins – symbolic changes can
often be implemented quickly to signal change
COPYRIGHT 2010 © KORN/FERRY INTERNATIONAL. ALL RIGHTS RESERVED.

26. THANKS!
Kim E. Ruyle, PhD
Vice President, Research & Development
Korn/Ferry Leadership and Talent Consulting
kim.ruyle@kornferry.com
1-952-345-3672