Understanding a company’s culture is key to fostering healthy and rewarding working environments that people want to be part of. This is vital to effective M&A, particularly when two companies and their cultures are coming together. Establishing early on where cultures are likely to align or clash, and developing mitigating strategies, can make all the difference between ultimate success or failure.
At Acacia, we are continually learning about how to better understand and address the role of culture in driving strong and sustained business performance. As part of that endeavor, we work with Dr David Ballard, a leading psychologist who has built a career on helping business leaders understand the human behaviors that form a company’s culture and lead effective cultural change.
In this conversation with Acacia partner Tim Matthews, David gives us his insights and observations about navigating such a highly complex subject.
It's common for business leaders to talk about culture today. But how do you define it?
Given that human behavior is complex, so too is culture and it’s challenging to put it in a box. In business, I see culture as the set of shared assumptions that guide behavior in an organization – the norms, values and beliefs that develop over time based on what has worked in the past. Those things get communicated to people as they join a company, and are reinforced as the correct way of doing things.
You’re right that many business leaders talk a lot about “cultural change”. Achieving that is easier said than done because culture functions at multiple levels. There are clearly visible things like workspaces, strategies, products and services and values statements. But there’s another layer which is less easy to observe – the unspoken rules that operate below the surface. They can be so ingrained and taken for granted that it may take someone from the outside to be able to identify and verbalize them. They may also be in conflict with how a business presents itself to the market.
How have you seen this conflict manifest itself?
A couple of examples spring to mind. I worked with a company that said it valued teamwork, but in the same breath pitted employees against each other through its compensation system. In another case, business leaders espoused the importance of employee input, but then labeled outspoken people as not being team players. So when we speak of companies having a “strong culture”, that isn’t necessarily a positive thing – unspoken rules and norms can be dysfunctional and don’t always align with stated values.
Leaders need to take great care to understand where these conflicts exist and address them. They can have a serious impact on business performance and lead to employee disaffection. It also creates a major opportunity for businesses that get this right as the competition for talent intensifies.
How is a company’s culture established – bottom up or top down?
It’s a combination of both. Senior leaders play an important role in shaping culture. They model the values and behaviors and set strategic priorities. But that doesn’t mean that these things become embedded in the culture of the organization. Employees have to live the experience of what leaders say and believe it’s sincere before it becomes ingrained and accepted.
For example, you see lots of organizations talking about the wellbeing of their workforce, and they put robust wellness programs in place. But there can be a big difference between how people perceive these things and whether they feel like their employer actually cares about them.
You mention the competition for talent, which is perhaps as intense as it’s ever been. How does culture play a role here?
I’d say there are two big considerations in making culture a genuine selling point to talent. First, it’s obviously important to understand the positive characteristics that are going to be a good fit for the employees you want to attract and keep. That might include opportunities for development, collegial relationships, flexible scheduling and meaningful work. Second, those things can only truly be described as part of a company’s culture if the organization delivers on what it promises. That means that the policies and practices, management systems, benefits, and most importantly the day-to-day employee experience, need to align with the characteristics that motivated someone to join an organization.
Has its role changed in the context of the pandemic?
The pandemic has made many people re-evaluate what they want from their work and what they expect from employers. Businesses with a positive culture that treat people with dignity and respect and have done their level best to support people through such a challenging time have a clear advantage right now.
How do business leaders go about evaluating the nature of their corporate culture and identifying any conflicts?
“Measuring” culture is complex because there’s no single variable to interrogate. But it is possible to assess a variety of things related to culture. Those things will vary upon the organization and the circumstances. You can assess the strength of the culture and how aware and aligned people are with it. You can evaluate particular cultural characteristics and how they relate to important business outcomes. You can investigate employee, client and job applicant perceptions and whether the business is actually walking the talk.
A lot of consulting firms tout their cultural surveys, but often they’re measuring different things that aren’t related to culture at all, so you can’t take them at face value. If an organization is serious about assessing its culture, it should start by being clear about the reasons for doing so, for example some area of consistent concern such as high attrition, an inability to attract the right people, or perhaps a strategic acquisition. Any meaningful assessment is going to be multifaceted – a combination of surveys, focus groups, a review of materials and observations of day-to-day practices.
Sometimes an external expert can be really helpful in discovering issues that may otherwise remain invisible. When that’s not practical, businesses can start small by organizing safe opportunities for employees to provide unfiltered feedback. Employee input and involvement often gets overlooked and things just end up being done to them. Simply asking them how they feel and what they need is a great starting point. But you must act on what they tell you!
Acquisition can be accompanied by fear of cultural change. How can business owners on both sides of an acquisition get ahead of that challenge?
The long-term success of an acquisition will always come back to people and culture. At a basic level, the seller obviously needs to think about what will happen to their people post-acquisition. That’s about being thoughtful about who they’re selling to and the implications for their employees. Is the prospective buyer committed to long term growth? Are they going to bring their resources to bear on taking the business to the next level? The answers to these questions are important signals of whether or not there is going to be cultural alignment.
Another way of dealing with fear of this kind of change is just to be open with people. Obviously, that’s difficult in the midst of a negotiation, but I’ve seen great examples of business leaders being very open with their employees about selling the company as a strategic option in achieving their growth objectives. That helps people prepare for the possibility of change, and gives the owner the opportunity to reassure people about selling to the right buyer where there is cultural alignment.
In my experience, it’s rare that the culture in two organizations is so similar that there is no potential for friction when you bring them together. But you can anticipate and prepare for that – identify the barriers and have a plan for reconciling any cultural differences that exist. Ultimately though, bringing two organizations together is a dynamic process that unfolds over time. You can’t predict every challenge, but you can address them openly and involve employees in solving problems.
Post-acquisition, it’s about clear and regular communication, creating opportunities for people to get to know one another at a professional and personal level, acknowledging where problems exist and being seen to act on them. Acquisitions that happen in the dark tend to fail.
Finally, any practical tips for business owners thinking about how they manage change in such a dynamic market environment?
I’d say that to handle change well a business needs a clear strategy that communicates to employees why change is needed, how it’s going to be accomplished, how it’s likely to affect them, and what their role will be in achieving it. Senior leaders need to be committed to change, and they need to model that for the rest of the business. The company should involve employees in the change process so that they have a voice and an opportunity for input.
As the change process progresses, the key is to ensure that you continue to provide people with opportunities to engage in work that’s interesting and meaningful to them. The top two reasons why people say they stay with an organization through all the ups and downs is that they enjoy the work and the people they work with, and that their job fits well with their life outside of work.
In many ways the most important cultural facet of any organization is an environment that’s supportive and positive so that people can function at their best on and off the job. This fosters a stronger commitment to the business and better performance.
About David Ballard
David specializes in applying psychology within a business context. He works as an independent adviser to business leaders, helping them to better understand the employee behaviors that define their culture, and develops evidence-based strategies that support wellbeing and improve business performance. David previously spent 16 years as senior director of applied psychology at the American Psychological Association where he ran the Center of Organizational Excellence and the Psychologically Healthy Workplace program. Find him on Twitter @DrDavidBallard.