Cultural managements

Microsoft, Activision Blizzard and the Importance of Cultural Due Diligence in M&A | Item

Cultural considerations rarely play a role in the negotiation process itself, often overshadowed by financial and legal ramifications. Yet culture often plays a critical role in the success or failure of a merger or acquisition.

“We’ve all heard the saying ‘culture eats strategy for breakfast’. This implies that culture plays a central role in the success or failure of a transaction, and it does,” said Angie Gorman, managing director of strategic communications segment at FTI Consulting.

Culture defines a company’s values ​​and principles; how senior leaders communicate and lead by example; how managers manage; how employees are treated, rewarded and disciplined; what benefits are offered to employees; how people invest themselves every day at work; how companies deal with ebbs and flows together; and skills required to achieve business goals.

Gorman put it succinctly: “Culture means ‘the way we do things here’.”

No two companies define culture in exactly the same way, which is why cultural considerations in a merger and acquisition (M&A) deal are so important. “When you negate the culture, it takes a lot longer to create synergies,” said Jennifer Busse, head of M&A integration and separation at RSM US.

Case studies. A company deeply rooted in efficiency and technology is culturally very different from a physical company focused on values ​​and personalization. Take, for example, Amazon’s acquisition of Whole Foods in 2017.

Cultural incompatibility can also arise if the agreement results in a general lack of trust among employees in the management of the newly merged or acquired company. Such situations should be handled delicately.

A recent high-profile example is Microsoft’s planned acquisition of Activision Blizzard, a video game developer marred by a wave of sexual harassment and discrimination allegations. During a Jan. 18 investor call to discuss the acquisition, Microsoft Chairman and CEO Satya Nadella explicitly said culture was his “no.” 1 priority” and that “the success of this acquisition will depend on it”.

“That means we must continually improve the lived experience of our employees and create an environment that allows us to constantly improve our culture every day,” Nadella said. ” This is a difficult work. It requires consistency, commitment, and leadership that not only talks, but walks the talk. That’s why we think it’s essential for Activision Blizzard to continue its renewed cultural commitments.

Nadella said he “supports the purpose and the work that Activision Blizzard is doing,” but also acknowledged “that after the close, we will have important work to do in order to continue building a culture where everyone can do his best”.

The departure of Activision Blizzard CEO Bobby Kotick, who allegedly ignored sexual misconduct allegations for years, could be part of this cultural overhaul. “After the closing, I will be available as needed,” encrypted Kotick said one New York Times journalist.

The Microsoft and Activision Blizzard boards of directors have approved the transaction, which is subject to customary closing conditions and the completion of regulatory review and Activision Blizzard shareholder approval. The deal is expected to close in fiscal 2023.

Due diligence. Given how different the cultures of two companies can be, as in the examples mentioned above, many leaders find it difficult to align the culture in practical terms.

“Aligning and integrating two cultures requires ongoing work, including communication and engagement, leadership development, and strengthening the processes that support ‘the way we do things here’.”

Angie Gorman, Managing Director, FTI Consulting

“We don’t recommend doing a full in-depth culture assessment prior to closing,” Gorman said. Rather, it’s more practical to start with a “shallow dive,” she said, looking for cultural gaps that could create immediate roadblocks and slow progress at a time when the new business needs to capture the value she promised.

One way to do this: hire a third-party consultant to perform an independent cultural assessment of both companies, which will be especially helpful in assessing the perceived culture of the other. “You get some interesting insights into how you not only view yourself and the other party, but also how the other party views you,” said Gabe Langerak, Western Europe manager for M&A advisory at Willis Towers Watson.

Make sure communications, ethics and compliance, and human resources have a seat at the table at this point. They’re going to be able to understand a lot about both cultures just by being part of this process, Gorman said, which will help them be more effective in the integration process later on.

Cultural integration. “After the first 100 days or so is when you want to do the deep dive,” Gorman said. “Make time, at a minimum, to do in-depth interviews with leaders.”

“Now is the time to engage leaders under the C-suite to help define the culture and identify the changes that need to be made to achieve the new vision,” Gorman added. Concretely, this means organizing a series of leadership workshops, for example, to discuss what needs to change in the culture and what should stay the same.

Analyzing publicly available data, conducting employee engagement or pulse surveys, and focus groups can also provide additional culture context and detail. Gorman said employee engagement and pulse surveys should include questions aimed at determining how well employees understand and adhere to the company’s vision and values; how they perceive leadership behavior in accordance with stated values; whether they believe they can do their job effectively in the new environment; and whether they intend to stay.

“One thing you want to do is build enough demographic questions into these surveys that you can identify where you may still have conflicts in the organization between inherited cultures,” Gorman said. “It may be going well in some parts of the business. It may be late in other parts.

Communication, Engagement and Change Leadership. “Aligning and integrating two cultures requires ongoing work, including communication and engagement, leadership development, and strengthening processes that support ‘the way we do things here,'” said Gorman. From a communications perspective, this means continuous reinforcement of progress, which can be released in many forms, including newsletters, town halls or emails directly from the CEO, she said. .

Engagement is also important for building employee confidence, including conversations at staff meetings and workshops about progress made during the implementation phase. An integral part of this step is leadership training on change leadership.

Change leadership is about understanding and supporting employees from an emotional perspective during times of change, helping them see and understand the vision of the new business, and empowering and encouraging them to contribute in a meaningful way. positive to this vision. “Leaders don’t have to be change managers, but they have to be change leaders,” Gorman said.

Key performance indicators. Failing to properly take the time to ensure newly merged cultures align with each other can lead to lost productivity, low employee morale and engagement, and high employee turnover – all metrics key cultural values ​​that need to be audited and monitored. “If you suddenly see your revenue increase, that’s a red flag,” Langerak said.

Busse recommended not only monitoring and measuring turnover, but also raison behind: “Where does the turnover occur? By location? By manager? By team? You must display these measurements together.

Exit interviews can be another valuable performance indicator. Understanding an employee’s motivation to interview with another company can tell a lot about the culture, Busse said.

Lost productivity is another red flag, Langerak said. Loss of productivity could be a sign of a lack of clarity among employees on how to do things or low employee morale.

In any merger or acquisition, “it’s not necessary to fill in all the gaps,” Langerak said. “Sometimes it’s just being aware of the shortcomings.” Like a marriage, he says, it’s not about taking all of your partner’s values, but rather recognizing how each complements each other and makes the other better and stronger.