There is so much talk lately about acquisitions and mergers.  Seems like everywhere you turn, someone is buying someone or merging with another.  Big seems to be in.  I'm good with that, but with all the focus on the money end, I bet few are thinking about how bringing two cultures together will affect their bottom line.

Let's start with some statistics:

• 70% of mergers and acquisitions fail to achieve their anticipated synergies
• 50-90% fail to meet financial expectations
• 50% suffer an overall drop-off in productivity for the first 4-8 months
• 'People problems' are cited as the top failure factor in mergers and acquisitions

^{[Some information above is from "Culture Management in Mergers & Acquisitions" by SquarePeg.  You can download the PDF here.]}

There are a variety of reasons why mergers and acquisitions fail (TechCrunch has an interesting list - which includes more than a couple of the 7 Deadly Sins), of course.  But the one that often goes under-recognized is the role of organizational culture.

I suppose in some ways it's not surprising that 'culture' isn't addressed more often or more thoroughly:  Typically, the people driving an M&A are the $5000 pinstriped-suit, Bluetooth-obsessed finance guys (and they do seem to be predominantly male) who are more comfortable with variables they can quantify, like shareholder value, than they are with more qualitative concepts like 'organizational culture'.

Except that it's not actually all that difficult to quantify the cost of a culture fit misfire - it's just a matter of breaking it down into its component parts.  Let's look at some ways to do this.

Loss of top performers:

In my experience, it's the loss of senior A-list employees that can cause the most lasting damage to a merged or acquired organization.  It's not just at the VP-level, either.  Losing senior managers - the ones who've been quietly ensuring that their departments run smoothly and productively, but who are often ignored during a flashy M&A and who are left reeling from a sudden, dramatic change in organizational culture - can leave gaping holes in an organization that take months, and sometimes years, to fill.

But let's quantify the loss.  Assuming we lose 5 senior managers with an average annual salary of $110,000 each, and using a turnover calculator from Drake International, this represents a cost of $5.7 million.  (Sure, Drake's a staffing company and they're a little biased, but even the most conservative estimate here is more than $2 million - and that's just 5 senior managers, not the employees who follow those managers to their new employers.)

Loss of market confidence:

If there's one thing M&A people love, it's Driving Shareholder Value.  But culture clash can mean a drop in shareholder value, as Microsoft's acquisition of Nokia last year has demonstrated.  There are probably other more recent one's, but I particularly like this one.

Loss of productivity:

Mergers and acquisitions can cause productivity losses even in the best-case scenarios.  An unaddressed culture fit problem can make the problem much, much worse - and exponentially more costly.

Let's think about it this way:

• 5000 employees
• Each of them spends 30 minutes a week for 3 months overcoming culture fit challenges (either in increased meetings or decreased work product)
• That's 32,500 hours in lost time
• At a blended cost of $150/hour, that's $4.8 million

It's not difficult to quantify the cost of ignoring the ROI of culture in a merger or acquisition.  The bigger question is:  Why are the M&A drivers leaving so much money on the table?  It isn't hard to manage, you just have to pay attention to it and put people on it that understand both culture and business.

I think we can all agree that a positive organizational culture is good for business:  It makes people more productive, it ensures that top performers want to join the organization, it reduces turnover, and it has an important halo effect on the consumer brand.

And a positive culture is palpable.  We can all think of times when we've walked into an organization and the 'buzz' is unmistakeable.  People seem friendly, there's a hum of activity, and you think to yourself:  "This is a business that's really going places."

It's easy to think that this 'buzz' is organic, a natural outgrowth of an accidentally great group of people or set of economic conditions which favor the product/service the company is selling.  But nothing could be further from the truth.

The best workplace cultures do seem organic, because they seem genuine.  People who are happy in the workplace tend to communicate that happiness to visitors, and it's hard to fake a positive 'vibe'.  However, in an economy where people rarely stay in one job for more than 7 years (and often change jobs every 2-3 years), organizations can't rely on accidentally assembling a good group of people who will maintain a positive culture over the long term.  The culture needs to be bigger than any single person or team in order to survive.

So how do you ensure that your positive culture seems unforced but also survives today's job transiency?  Here are 5 tips:

1. To thine own self be true.  The reason the best cultures seem organic is because they're based on the actual values and personality of the organization.  Trying to impose a free-wheeling entrepreneurial culture on a blue-chip investment firm isn't going to work - and it isn't going to deliver the benefits you want, anyway.
2. Recognize that a 'culture strategy' is just as important as a sales strategy or human capital strategy.  Your sales team won't just 'accidentally' exceed their targets this year unless you establish a plan to get there; your organizational culture needs the same attention.
3. Remember that a great culture can't reside in a single person or team.  Smaller companies and functional teams often think they've got a great dynamic going on - until one or two of the linchpin people leave, and the rest of the team sort of falls apart.  Yes, some people will naturally have more of an effect on your workplace than others, but culture needs to be embedded across the organization in order to survive in the long term.
4. Be clear and specific.  It's not enough to sort of vaguely say, "We stand for, um, good service and ethics..." once a year at the company Christmas party.  You need to articulate core values and attitudes, and what this means for employee behavior, in order to foster hte actions that lead to a positive culture.
5. Great cultures require a sustained effort.  Want to launch your new-and-improved corporate culture at a big all-employee rah-rah event?  Fantastic - but don't assume that a single event, no matter how exciting, will be sufficient.  As employees come and go over time, you need to ensure that culture-building activities, large and small, are going on all the time, from appropriate onboarding for new employees to monthly updates for long-term employees.

Want to learn more about developing a strong workplace culture that not only survives, but thrives, in a transient employee environment?  This whitepaper offers some interesting case studies about workplace, culture and brands that might inspire you.

We've all been there:  You work really hard on a project, sometimes over a period of months, and finally it's completed.  You've done it on time, on budget, and it's delivered results in excess of what everyone had hoped.  You think you're in line for public recognition, if not a nomination for Employee of the Year.  But instead, your boss just says "That's done?  Good.  It's been sucking up too much of your time and I have this other thing I need you to work on."

Image from Marc Johns.

People who favor this management style will tell you that it's not a good idea to let employees think too highly of their accomplishments or rest on their laurels because it will result in a low-performing culture where everyone feels like they should be rewarded just for showing up in the morning.  However, the truth is that organizations which never stop to savour success and acknowledge accomplishments are creating a culture of 'never-good-enough' negativity that eventually stymies the ability to innovate and change.

Look under the hood of any successful innovative or creative organization and you'll find a positive culture that takes the time to acknowledge - and celebrate - success.  It doesn't have to be complicated or even cost a lot of money - creating a positive culture is really just about injecting some gratitude into day-to-day activities:  "Thanks for doing such a great job - I appreciate it."

Why is this important for change management?  Because when you create a negative culture of neglecting to acknowledge or celebrate success, it becomes harder and harder for employees to drag themselves to the next project.  When they know that no amount of extra effort is going to win them recognition or appreciation, their motivation to become engaged in a project diminishes.  Change cycles become longer, resistance becomes more entrenched, and eventually the organization becomes bogged down in its own negativity, unwilling and unable to move forward.

What's more, a negative culture becomes precarious:  In a positive environment, delivering bad news doesn't derail existing progress, and resilient employees are more easily motivated to action.  In a negative environment, bad news or additional business challenges become just another depressing headache that further demoralizes employees and gives them another reason not to make an effort.

What can you do as a leader?  Positive cultures don't just happen - they're created.  Here's how:

1.  Remember that taking time to acknowledge and celebrate success will energize employees for the next project - not make them rest on their laurels.

2.  Successful leaders cultivate a sense of gratitude for the people around them, and express that gratitude on a daily basis

3.  You can set an example by having a positive attitude around the office.  That doesn't mean pretending there aren't challenges to be met and work to be done - it just means taking a positive, resilient approach to those challenges.

4.  Employees just finished a big (successful) project and want to have a Friday lunch celebration?  Don't rain on their parade by making a fuss about a 2-hour lunch - join them!

BONUS TIP:  Positive workplaces have less turnover, which is another way they create healthier bottom lines!