Cultural Mismatch Kills Deals…And is Completely Preventable

PSMJ Resources, Inc.
Posted on: 02/03/20
Written by: PSMJ Resources, Inc.

 

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In a people-based business like architecture or engineering, the cultural fit between two organizations can really make or break a transaction.  But, unlike the financial mechanics of the deal, a company’s culture can be quite difficult to truly define and measure.  Your culture is so much a part of your daily life that you may have trouble describing it.  In fact, it might be more visible to people outside the firm than it is to you.

Put simply, your culture is the way your firm does business every day.  It’s the practical expression of your firm’s values, its core drivers, and the beliefs your people hold about the nature and value of their work.  It defines how you relate to each other and to your clients.

In more practical terms, a firm’s culture must be consistent with its purpose and vision.  Let’s look at an example.  Most architecture and engineering firm Principals want their firms to grow their business.  Growth brings greater opportunity on several levels.  But, and this is a big but, most architecture and engineering firm Principals also exercise so much control over so many areas in the organization that they (whether intentionally or not) inhibit their people from taking the very actions necessary to create growth.

Most design firms lean toward having either a culture of empowerment or a culture of control. In our experience, as illustrated in the example above, it is the empowering firms that often achieve the highest sustainable levels of growth.  In an empowering culture, all individuals know that they directly influence the success of the company.  Information, including financial information, is shared widely; people understand the big picture and their role in it. They have the freedom and the authority to act to achieve their objectives, and they expect to be held accountable.

Of course, many firms are probably somewhere between the two ends of the spectrum.  PSMJ’s M&A experts use a mix of proven tools to measure cultural fit between two organizations.  While we don’t have space here to dig into all of the details, here’s a quick peek at some areas to examine if you want to start defining your firm’s culture:

OPENNESS OF FINANCIAL INFORMATION

Empower: Staff members know financial results; each person understands how he or she contributes to profitability.

Control: Only the owner knows how the firm is doing.

RECOGNITION

Empower: Rewards are given frequently and publicly, achievements are celebrated, people understand what behavior is being recognized.

Control: Recognition is less frequent, often secret, and may seem arbitrary.

OWNERSHIP

Empower: All people are encouraged to become owners.

Control: Owners control large shares, prohibit others from owning until they have "earned" it.

WORK BALANCE

Empower: People have fun, party; the atmosphere is dynamic.

Control: The atmosphere is serious; the focus is on productivity alone.

TRAINING

Empower: Training is abundant, frequent, for everyone; as much as 15 percent of the budget is invested in training.

Control: Training is an expense to be restricted; partners decide who will benefit.

Here’s a guarantee. If a controlling firm acquires an empowering firm, most of the seller’s smartest people will want out within a few months. If an empowering firm acquires a controlling firm, the seller’s people will spend several months in total confusion. In such a case, you’ll have to accomplish a complete cultural turnaround before the arrangement can succeed.

 

Need some more ideas for building an acquisition pipeline and get to a winning transaction?  Check out our popular two-day A/E/C Mergers and Acquisitions Senior Executive Roundtable designed exclusively for A/E/C firm leaders!

 

Other M&A Related Posts

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Growing Revenue = Growing Valuation?  Be Careful What You Wish For!

Expert Interview: Assessing Current M&A Market Conditons and Trend

 

 

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