The Importance of Conducting Cultural Assessments

I'm Kisam Patel and you're listening to M and A Science, where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies, and what actually happened during M and A Deals. Today I'm here with Don White to discuss the importance of conducting a cultural assessment for successful integration and deal outcomes. That as well as the strategies behind effective assessments. Don, how are you doing today?

I'm doing great, Kaizen. Thank you for inviting me here.

Thanks for joining me. Maybe we could just start off and hear a little bit about your background.

Okay, so I've been at Corning for eight years. I started off in the shared services group as a project manager and I'm a Six Sigma black belt and I also specialize in change management. And about two and a half years ago, I moved over to the corporate Development group and joined the M and A Integration Center. And we were tasked with the objective to launch a center of excellence and integration across Corning. So I've been doing that the last two and a half years. And before I even came to Corning, I served in the military in the US Military for nine years as a healthcare manager and as a recruiter. And then I worked at General Motors on the manufacturing floor. So as you can see, I have broad background across very many industries. But I truly think I found my calling here working in the M and A center.

Tell me about Corning's integration Center.

Okay, so Corning's Mergers and Acquisition Integration center has been around maybe two and a half years. We're coming up on our third year anniversary. The center has about four core people and then we have around 24 part time integration leaders that work out in the field amongst our different businesses and staff groups. And some of the things that we do is we support Cornea integration teams with forming their strategy. We offer team training, we offer integration leadership training. We have a section called performance tracking, and then we also help with early stage integration support.

Gotcha. So you're really supporting a lot of activities around integration of the companies requiring.

Absolutely. We gather best practices and we keep track of lessons learned so that all of the active integration teams, past teams, future teams, can all refer back to this material.

Great. Well, today we're here to talk about cultural assessments. Can you tell me why is a cultural assessment important for an M and A deal?

Sure. Well, first of all, Keith, cultural factors can be deal killers. Right. It's not inherently clear to management how different the two company cultures may be and its impact on integration. So at the beginning, when it's time to launch an integration. I just think it's important to sit down and look and understand that personality of the company we're acquiring. You know, let's understand how they work. Because if we don't pay attention to some of those factors, it can actually kill the deal.

When during the M and A process do you start considering culture as early as possible.

Right. The earlier the better. So during the target expiration period and due diligence stages, teams should be paying attention to the different know nuances that the acquired company is showing. It's really difficult, I think, to get access to some of the cultural information early on. But one thing that teams can do is just pay attention, you know, be mindful of the different conversations, listen to what their leaders and employees are saying about different matters. Even early on during due diligence. It would be nice if we could have, if you had time to do a mini 5 to 8 question survey, I think on cultural fit it. If you could do that early on, sometimes a lot of your material gaps will be identified and that way it could be on everyone's radar.

Interesting. So trying to get some of the surveys out, what are other possible areas you can start assessing culture on that really early onset when there may be only a few people aware of the transaction, involved in the transaction and maybe there's one person out there doing on site visit. But what are some of those cultural cues that maybe you could see early in the onset?

So one thing that comes to mind is their management style. Right. Some companies have a hands on management style where they are very involved from the top down. And then other companies may have an indirect management style where it's kind of the leader puts out strategy and objectives and then they pretty much stand away. So when you're dealing with them early on during the due diligence period, you can kind of tell how they operate and, and you want to be very mindful of that.

Interesting. So almost just how you're working with them in diligence can be part of the indicator as well, right?

Absolutely. And also like their decision making style, some companies, they tend to make decisions at the top. Right. And then you have others that empower their managers to make decisions. And I think that's important for a company to understand too as you move down this path because once you acquire those employees, you want to know what type of decision making approach that their employees use. For example, we acquired a company once and their approach tends to be top down. Managers didn't really have the authority to make a Lot of decisions. Whereas Corning, that's a little bit different. We try to empower our managers to make those type of decisions and when they were in positions to make a decision, they were reluctant to do so. So, but because we did a cultural assessment, we understood that that was going to be part of their nature. So we tried to account for that and we made sure we spent time talking to them and telling them that, hey, it's okay if we ask you to make a decision or to do X, Y and Z, you are empowered to do that. And us just being proactive and reinforcing that with them went a long way.

I can see how picking up on the management style early could be really helpful in understanding the culture.

Right? Yep. You got to know how to interact with them and how they work.

Interesting. Is there situations where you wouldn't want to do a cultural assessment?

Right. Yes. Well, you always have to look at the deal type. Right. And the strategic value or reason for doing the deal. Sometimes, you know, up front the acquired company will be left as a standalone to operate as is. Right. In this type of situation, you wouldn't need to do a full blast comprehensive culture assessment. But I do think that it's still helpful to show how people at the acquire company work to meet their objectives so that when we interact with them, it's in a way that can be perceived as positive and supporting to creating value. Right. So perhaps you could just make a mental note about certain organizational characteristics and interactions and ensure these learnings are being shared with other leaders. Whenever you're in a situation where you are acquiring a standalone company, that's interesting.

So you can vary the scope according to the situation as well?

Absolutely, absolutely.

What is your approach to conducting a cultural assessment?

When I first began working in this field, I took time to research various approaches to this work and I looked at the things that I found from my research and kind of coupled that with my six Sigma black belt background to create a wide ranging cultural assessment framework. I typically have five key sections to my cultural assessment report. An executive summary, a similarities and differences section, a cultural themes section, a paradox section, and a recommendation section. And then all of this information is gathered via one on one interviews, focus group sessions, surveys and on site observations.

Can we walk through your checklist that you went through and just elaborate on each section to make sure I get an understanding of each? You mentioned an executive summary. What goes into that?

Okay, so the executive summary, it presents an overview of what the whole report would detail and it provides more information on the purpose the objectives, the approach, and the conclusion of the assessment. It's kind of that one page view as to everything you're about to dig.

Into, sort of framing the goals of why we're doing this and what we hope to get out of it.

Right, exactly.

Okay, so we start with that. And then you mentioned similarities and differences. Tell me more about that.

So this section calls out key similar attributes that companies share. And it also calls out key differences between the company cultures across a spectrum of touch points like management style, decision making style, financial accountability, work environment, you know, is it structured more rigid or more free? The customer service approach, adaptability to change. How has this company experienced change in the past now? Employee demographics? You know, we have now this big generational differences in the workforce. So we call out how each company is coming to the table and I may even look at things like community involvement.

Interesting. Now you mentioned a few different approaches to start collecting this information. What do you typically do?

The first approach I had mentioned was one on one interview. And that's where I would work with say maybe the HR or the leadership team to identify key people in different roles, you know, not just senior leadership, but mid level, you know, managers and also frontline employees to help identify people, to give me a broad array of answers. And then I also do focus groups where a lot of times we may use the people who are from the company who are working on the integrations to participate in it, but not always because once again, it all depends on how that company is set up. We just want to make sure that we get different people at the table to talk. And then also we do surveys, so they're not really long surveys, but you know, maybe one to three surveys where you ask very specific questions and then you can calculate how the people responded. And then also on site observations. Right. As a part of the integration leadership team, you will have the privilege of spending time at that location. So it's important to watch and see what they do and take notes on how they work.

Okay, these are interesting approaches. I'm curious to know what do you think is most effective?

I love them all. You know, I think when I'm in one on one settings, they open up and they are very honest and truthful in their answers and they're not worried about, you know, if other people know what they're saying or sharing. So I see great value in the one on one, but I also see value in the surveys because it lets you look at it, you know, from across the board and you may have one particular question and you can see exactly how they answered it. If I had to pick, it would definitely be the one on one interviews and the surveys.

Obviously I'm going to come at this with some cognitive bias because running a tech company we're always talking to clients and trying to understand their problems, to build solutions. And I find the one on ones to be the very qualitative approach where you're getting the root of the problems and understanding it. And that's my sort of favorite pick. And on the survey aspect of it, I've always had this impression that it's typically the people, that there's a certain profile of people actually take the time to answer surveys. I'm curious if you have an aspect of that. Where are you looking at who's opting in and completing the survey and if that sort of fits in a demographic or is it more. Let's get some general high level information. If people are just generally happy or not and maybe what buckets of those potential reasons are not happy would fall into.

I like the target a specific participation rate. And I've been very lucky in the past to get, you know, high participation. If I have 95 plus percent participation, then I'm confident the results of that survey versus if I only get half the people. And when we did a survey on this last project, I actually worked with leadership to make sure that we had, you know, everyone participating and I think we had a 99% participation participation rate. But I felt very confident with that.

So that could be a key factor. Is really aiming to get a high participation rate to avoid that. Sort of my reason for not advocating for it. So that could be a better goal for us to work on is focus on the participation rate.

Right. But you got to keep in mind I was there on site. I was able to walk around and kind of give them a heads up that they're going to get this survey from me. And then the people who worked on the plant floor, I actually printed copies of the survey and handed it to them just to make sure that we got it. So we've been very creative and proactive in making sure we reach that high participation rate.

That's good. I think that's a good lesson to take away is really putting the extra effort to make sure if you're going to do a survey, get the full coverage. What about the focus groups? What's your dislike around that or how come that wasn't one of the top choices for you?

It's not a dislike. I love the focus groups, but I would say if I had to pick because just like you said, the survey will provide that quantitative analysis. So I know that it's important to show leadership that and I knew that the one on one would provide just that true candid feedback. But the focus group session actually was great in helping us to really start working together as a team. Because one focus group session that we did where we picked representatives from each company to kind of assess each company on where they're at across the different categories of organizational characteristics, we did it separately, brought one group in, and that way they could feel comfortable in saying everything that they wanted to say about how they were interpreting the integration thus far. And then we went and brought the other group in to do that. And then we brought them together to share the results. And breaking them up like that and bringing them together was truly beneficial because they had a chance to really see what the other side thought about them. And then we had a chance to together look at some of the gaps or some of the red flags and talk about how we move past them.

Right, that's interesting. So there are some benefits of having it in more that group setting and the collaborative conversation.

Absolutely. It opens up the channels of communication with the team because you get a chance to really sit in a room and talk about how you are truly experiencing the integration. So that aided the relationship building part as we move forward. And then it also helped, I guess, open up the doors of trust as far as with me, because they truly knew that I was giving them all a platform to speak. And they knew if they weren't comfortable enough to do it in the focus group session around each other, they had the one on one. And even, even if you weren't comfortable enough in one on one, you knew it would be an anonymous survey that you can do.

Right. So you're really mixing all these different things when you're doing this.

I'm taking different approaches because you never know which one approach will work best until you get to know the organization. So starting off, you just want to mix it up and kind of do all of them and see what you get back. It's kind of like casting your net out there and just seeing what you catch.

And then would you get to a point where you see one thing working best and lean more on that?

I'm not there yet where I can say I see that. I really see using multiple approaches working best.

So I remember a while back I had a great conversation with the CEO of a company that spearheaded 36 acquisitions and a conversation around culture came up because I Was always curious how he figured that out in terms of what the cultural fit is and how his perspective was around it. And the interesting thing he mentioned was that it would take him five minutes to walk around the office and get a sense if there was a cultural fit or not, just by looking at the target company work environment. And I know you mentioned on site observation. I'm just curious on your take about that and what your perspective or approach on on site observation is like.

Well, that's true. You can get an idea. You can look at maybe the way they follow health and safety regulations, right? You may look at the way they interact with one another, the language that they use. You may learn that, you know, they hang out at work together afterwards. It's all kind of things you can pick up once you walk around the office and just pay attention, interact. So I absolutely agree with him with that.

How do you do it? Do you walk around the office just hanging out?

I do, but I talk, I engage with the employees at all level. I sit down and I ask them, you know, what are they working on? What role do they have in the company? I explain to them who I am or why I'm there. So yes, I do that.

Interesting. I remember reading a Lean Leadership book and one of the parts was talking about how they'd have a new hire sit literally in the same square all day and just take notes on every little thing that could possibly be improved.

Well, it's not so much as sitting down, taking notes on what can be improved, but it's about engaging with them and just learning them and getting to know them and letting them get to know us, you know, And I notice when I'm having those one on one conversations, they'll tend to ask me very specific things that they may not feel comfortable asking in a group session. And the simple things, maybe it's our company homepage, the website, you know, as far as navigating through there. Or maybe they want to learn more about our leadership here back at headquarters. So they will ask me specific things on, well, where do I go on the website to do this? I remember one visit after we rolled out our employee expense process with the credit cards. I had multiple ones just sit down and say, hey, can you help me get this on my phone? Get the app on my phone. Can you help explain to me when I'm doing this expense report how this works? So yeah, it's very helpful to walk around and build that bridge of communication in person.

So be engaging and don't just sit.

In a square Be engaging and don't make them feel like you're there to study them.

Going back to your checklist on cultural assessment, one of the other items was cultural themes. Can you tell me more about that?

Right. So in this section I highlight common threads or key themes about the culture that emerged from the data collection. Now, oftentimes I find that employee responses to various questions will support a conclusion about how they work together. So for example, one cultural theme could be that the employees share close relationships and get along very well. But one might ask, okay, but why do we care about that? Well, knowing this information up front is important because it can give you a heads up to the fact that they will share private, sensitive information, or they may share things that you may not be that your company may not be accustomed to sharing, like salary, you know, bonus benefits or strategic plans. And if you know upfront that the choir company shares this type of information, then you know to be more careful about who you share the information with. And you also know to stress like in communication meetings that that is not okay in our culture. Right. Or you may even document in writing the norms or policies that around something like sharing salary, benefits and things like that.

That's a good perspective. I never thought about that. What are some other themes?

Some other themes? Well, let's see. So one time I had wrote something around their technical deep expertise and I pointed that out because I thought it was important to know that a lot of their experience had not been focused on the leadership part, but more on the technical part. And then it also spoke to how important that piece was to them, how important it was to make sure that they are following processes and doing things right. So every time you have an integration, the key theme will be different and you won't know what the key theme is until you look at all the information and have time to synthesize it.

Wow. So you're basically creating pretty tailored themes when you're going through this assessment.

Yes. Very, very.

Taylor, do you ever have like negative themes where it's like, hey, these guys are all, I don't know, pot smoking hippies or something?

Call that out as a cultural theme. But it's a page where I say other observations and I would call things like that out, things that need to be on the radar as we move forward because they are very, very different from what we are accustomed to.

Gotcha. Okay, so if it's like something where you notice that a huge portion of people are blown past their vacation days and something like that, or over abusing certain policies that would fall into other observations. Let's talk about paradoxes. What does that mean?

So this is a section that calls out certain cultural behaviors that seem to contradict one another. So, for example, on one assessment I learned that the employees responded very highly, that creative thinking is encouraged. It's highly encouraged at their company, but yet they reported at a high rate that they didn't feel like they could make independent decisions. So that did not seem to match up. And this point became important because as we assign people into leadership roles and realize that many didn't feel comfortable to make the decisions and call, we had to take extra time out to talk to them and encourage them to go ahead and make decisions because that wasn't the norm for them.

That's part of the assessment. And later on you're going to figure out how to help improve that.

Right. That's where we go into recommendations. Right.

Okay. Well, before we go into there, is there anything else on other observations? Because I know that's the next item on your list in order you mentioned just some of the things that a little bit outside the cultural theme aspect would fall into other observations. Is there anything else that would fall under other observations?

Well, yeah, well, sometimes I like to make a little list of items that the employees at the acquired company are looking forward to by joining the new company. And I point those out because to me, those are the benefits, Right? At least of how they are looking at it. They're looking at. These are the strong points for us joining this company. Then I also like to jot down things that they are concerned about because sometimes the concerns, they come back up. And so if we know up front that we are working a certain way that is concerning them, we talk about it because maybe we need to adjust. Maybe the way we're doing things is not the best. Right. Because just because we are acquiring them, it doesn't mean that everything in our culture is the best and necessarily the right way to do it. So it's important to be able to watch and be open to learning from the newly acquired company.

Right, that makes sense. So all those other additional details you throw in this section and then from there, I think the tail end of this would be the recommendations. Tell me what that entails.

So this section documents the so what of the cultural assessment. It lays out a prioritized list of actions to be done to help ensure cultural alignment is attained so that cultural issues won't be a reason why synergy goals aren't met or turnover is experienced.

That makes a lot of sense. And I like the fact that you mentioned the list is prioritized. So you would really go through and say these are probably the most important things and have that go down in terms of the order of importance.

Yes, exactly. And I also assign a timing to each task. I assign owner to each task, and I may even do heat map, you know, so the ones that are really top priority may be red. The ones that we got little time to work on, you know, but still important, are yellow. And ones that we can push out, maybe green.

That makes a lot of sense. And then you're basically building your action plan out of it. What happens next? We went through this whole process, did the cultural assessment. I guess part of it depends on what stage of the deal that this is done on.

But so first of all, let me back up. When you're doing the recommendations, it's important to make sure that you have leadership buy in and make sure that leadership is supporting the recommendation, and that will give you the authority to drive the completion of the work. Because usually the person who oversaw the cultural assessment will most likely be the person that is given the responsibility to drive the completion of the work. So you have to give very. And you have to make sure that you assign a timeline to complete the action, and you have to make sure that you assign a person to own the action. I remember when I first started and I just submitted the recommendations, you know, the action list. I did not assign an owner. I had a timeline, but I didn't assign an owner. And I noticed that the work was not progressing. But once I added a specific name, once I added someone down to be accountable for that action, the work then moved along. So at that point, once you do that, most integration teams, they will have a cadence where they meet as a team. They come together as a team to give updates on how each area is progressing. At each one of our integration team meetings, we would cover this list of recommendations. We would check for progress, we would make sure we're moving forward. And that was truly the key to executing and getting the actions done.

Now, what caught my attention was that you do the cultural assessment, but you're not passing the ball. You stay with it and manage the actual execution of it.

Yes. And I do think that is important too, because you want to have someone managing it that really knows and understands the work. Right. So even though you may end up with 10 different action items owned by 10 different people, but just like any other project, you need a person pulling it together and tying it together.

Right. And then you're involved with the company. They know you, so they're. They're probably going to believe you.

That's right. That's right. So I have the benefit of being a part of the company that did the purging. Right. And I'm able to talk and communicate with them about the list and then I have the benefit of that. I worked one on one with employees from the acquired company, so they are feeling comfortable to come talk to me. So you have this bridge for communication happening on both sides.

Were there any other best practices for managing recommendations?

No, I think that's the biggest one is just making sure you have the leadership buy in and you assign owners and track it and be sure to track the progress until it's complete.

What are the common missteps that stunt cultural assessments?

I think sometimes there's a focus on just senior leadership. They tend to go to senior leadership to learn the things about the company or how the company ticks and works. And when you do that, you're getting a very limited view. Right. Oftentimes there's a big disconnect between the executives at the top and the people on the front line. And the executives at the top have no clue what the people on the front line really think. So I think it's important to look at people across a broad spectrum. Not just senior leaders, not just executives, but the hourly worker on the front line. Their thoughts and their opinions are just as important. When you're doing culture work, how do.

You close that gap?

Well, I think up front you have to work with HR to truly understand the demographic of the workforce. You have to understand, do you have a large presence of plant workers? You have to understand, do you have a large presence or a heavy concentration of executives and not the others? And I think once you understand the makeup of the employee group, then you know how many to target for each group. And that way you can make sure you have a fair and balanced representation on your culture assessment. But the only way you will know that is if you work with the HR leader.

Does this typically fall under HR for cultural assessment?

It all depends. It all depends on how mature a company is in its integration work. Sometimes, you know, by default, HR will probably be the function that is tasked with this. But oftentimes you will find that HR managers have not been trained in this work. So in times like that, you have to make sure you get an expert or someone that has experience in this. But no matter who is doing the culture assessment, I believe it needs to be a strong partnership with hr. Even if HR is not on the front lines executing the work. The change management person that is owning this culture work, they need to be tied at the hip with HR and engage with them and working with them in a partnership. And I would also add the communications group should be a part of it. Those three functions right there, the change management function, the HR function and the communication function should be working together, having meetings on a regular basis and talking about the different findings. Because once you learn all this information, how you communicate the findings back out to employees is just as important.

I want to tie this back to the marriage analogy because I remember last time we were hanging out in Manhattan and it came up, I responded that it's more like an arranged marriage because you got the executives that structured the deal, but then everybody else has to deal with it. How do you make sure that that alignment was there? Because if there's poor judgment in that leadership part, then it's going to be a misaligned marriage. That's not going to work out. I think the goal is to really get that alignment there, get that real understanding for the long term aspect of it and understanding the people involved and how well they're going to be able to work together once they're unified into a single company. I think taking that and really fleshing out the importance to the executive leadership and really surfacing that, I guess what would be the best approach to drive the importance of making sure that there is a strong alignment on the cultural assessment part?

Right? You got to have these frank conversations up front because at the end of the day, mergers and acquisitions are really about people, right? The business leaders lead the charge to make it happen. But it's the employees who ultimately decide if this deal is going to work. And I think you have to drive that point home to senior leadership so that they understand that at the end of the day, it's not about the number crunching, right? It's not about that. Because you are dependent upon people to make those numbers happen, to make your objectives a realization. It's all dependent on the people. So I think the more you educate senior leaders on that piece, you'll see better results there. I know in our center we added a component of training around leadership. We have one piece where we talk to the Corning leader who was acquiring a business and we may provide training on how they should approach the situation. And then we look at it from the standpoint of the leader that's at the acquired company coming in. We talk to them how they can be successful at Corning once they come on board. And then we also have a part where we focus with the functional, lead the managers and talk about if you have a team of people that's going through this integration, things that you can do. So I do believe it's about education and training and giving them the tools to help make better decisions.

So we're looking at an M and a deal together. And in terms of our pursuit of this deal, how much weight should we put on the financial aspect percentage wise versus cultural aspect percentage wise? Just totally Don's world.

I don't know if I can tell you a percent because it's always different. If we know that we're going to get a small startup company out of California, then I think that no matter what, a lot of times if the financial numbers match up, they're going to do the deal. So for me, it's early on in due diligence. If we notice there are a lot of gaps in our culture, then to me, I say spend more time assessing those gaps and doing work to bring cultural alignment. But if we know up front that we're purchasing a company that's very similar to ours as far as culture, then we know it's not as much. So I really can't ever give a percentage across the board. But I will say this, I would hope 100% of the time we are at least looking at culture.

Fair enough. 100% of the time we should definitely consider culture. And it'll vary in terms of the weight of the assessment as well, or what the results are, right?

Absolutely. And even if we're going into a situation where we know that the cultures are vastly different, it doesn't mean the deal won't be successful, it doesn't mean that. It just means we have to do a lot of work. And so you want to know up front the level of work that you have to do in this area, right?

Absolutely. So this definitely is a big factor and is a level of importance that should sit right next to those financials. Don, before we close out, can you tell me what's the craziest thing you've seen doing cultural assessments?

Well, I know of a situation where the employees at the acquired company got together on a regular basis to go to the local strip club. This was considered an after work event and it was a ritual. And it was at an establishment that, like I said, most companies would not approve of. So coming in, that was one of the first concerns that they had. Will you take away our right to go party at a strip club together?

Wow. So this is an interesting one because for them it was something important and if you pull it away, they're not going to be happy because you're like, hey, we got acquired people already a little tipsy about what rules are going to change and things like that, or sensitive. So how'd they end up dealing with it?

Well, I believe she told me they just made sure that they let them know not to use a company credit card when they go there and to know that it should not be considered as a work event because at the end of the day, you can't stop people when they're on their personal time from going to establishments like that. You just have to make it clear that it cannot be done during work hours or work funds cannot cover that type of entertainment. So just a bit of educating them on the policy moving forward.

So a cultural assessment can uncover a lot and teach you a lot of things that the financials can't, is the moral of our interview.

Exactly. Yes.

Awesome, Don. Well, I appreciate your time with this. If anybody listening to this likes this interview, please like and share it so I can convince Don to come back and do some more content with us about change management.

And thank you for giving me this platform to speak about this subject. As you can tell, I am truly passionate about it. I believe in change management. I believe in cultural alignment. So I just thank you for giving me the platform to get out here and share this information.

Thanks Don. Thank you for taking the time to explore the world of M and A with our podcast. Please subscribe for more content and come conversations with industry leaders. If you like our podcast, please support us by leaving a five star review and sharing it. I enjoy hearing feedback and connecting with our listeners. You can reach me by my email. It's Kison K I s o n@dealroom.net M&A Science is sponsored by Dealroom, a project management solution for mergers and acquisitions. Additional educational content is available on Deal Room's blog@dealroom.net blog thank you again for listening to M and A Science. See you next time.