Culture is a consistent thorn in the side of successful M&As. By all accounts, up to 70% of M&As fail and culture is a major component of those failures. If you have read anything about deals such as AOL–Time Warner or Google/Nest–Dropcam, you understand the challenges that disparate cultures can have on deal success. This is the reason for a cottage industry dedicated to cultural assessment in M&As. Large consulting firms like Deloitte and McKinsey, as well as, smaller firms like CultureFactors and Denison Consulting have designed their own approaches and methodologies for cultural assessment.
In the last several months, while speaking to prospective clients, we have discussed their use of cultural assessments in their M&A deals. In all cases, these assessments were recommended to them by external consultants to help enable deal success. As I continued to explore their insights, it was apparent that the cultural assessment work was vital and, yet, was missing something. It eventually surfaced that cultural assessments get presented as key areas to address on paper, but are hard to “see” or “experience.” So, it made me ask the question: Is there a better way to bring cultural dynamics to life for acquirers and targets in any deal?
How Business Simulations Bring Cultural Dynamics to Life
After absorbing these informative conversations and and reflecting on my own experiences, I had an “ah-ha!” moment. The use of business simulations to make cultural dynamics real and observable. Business simulations reveal many of the same critical cultural factors as consulting companies cultural assessment instruments do, and makes these factors tangible because of observation during the simulation, and, then, the discussion of the differences in these factors. Cultural factors that can be brought to life, observed, and discussed in a business simulation include:
- Leadership Styles
- Communication and Collaboration Styles
- Strategic Thinking
- Personal and Corporate Values
- Teamwork Tendencies
- Innovation and Risk Management Attributes
- Decision-making Approaches
- Employee Engagement Emphasis
The best approach for business simulation during M&A integration is to divide people into teams of acquirer and target leaders to allow cultural factors to be identified and then discussed in depth. With the richness of debriefs and discussions in between simulation rounds on these key aspects, leaders from the newly combined company start to get to know each other and start to build alignment towards the new organization’s future.
To make these game-changing investments in success a reality for companies going through M&A deals, Potentious has partnered with the business simulation company Abilitie to use its business simulation, Executive Challenge, to help bring cultural dynamics to life. Executive Challenge is a simulation in which teams run a computer manufacturing company. Teams are comprised of C-level executives and other key roles in manufacturing, R&D, and marketing. Together, teams develop a business strategy and values, and use the simulations resources to design new computers to manufacture and sell. During each round of the simulation, “events” happen, such as a hurricane approaching the manufacturing facility or blown power supplies in laptops (think of Samsung Galaxy Note 7s). The winning team is determined by the amount of revenue generated as it runs the company and deals with these events.
The power of business simulations, like Executive Challenge, are in understanding the cultural dynamics of acquirer and target companies related to cultural factors. While typical approaches to cultural assessment in M&As are still an important component to deal success, making culture a tangible and observable aspect in new leadership teams and then discussing differences is a true game changer that can improve the probabilty of success.
Change the mindset. Change the model. Change the outcome.
Dr. J. Keith Dunbar is founder and chief executive officer of Potentious. He can be found connecting and sharing knowledge about M&A leadership on Twitter and LinkedIn.