Exploring the "Cultural Iceberg" Model

Mark Herndon headshot
By Mark Herndon
Chairman, M&A Leadership Council
Apr 12, 2017

Last week we introduced our “Cultural Iceberg” model that we’ve found to be a practical and meaningful way to think about culture during M&A (see Defining Culture – An Integrator’s Model). In sum, this model says that culture is best defined as the norms and expectations as driven by these three “levels,” or types of cultural elements: Symbols & Strategies; Work Processes & Protocols; and Core Values, Beliefs & Behaviors. Before getting into application -- what to do with culture during integration-- several folks have asked for some additional illustrations of the types of things that might be encountered in each culture level, so here are a couple of my favorites:

...be courageous in aligning what and where value can be created, but be OK with differing non-essentials!"

Symbols & Strategies

One of my early mentors in the M&A integration business always said, “There’s a difference between a 'place to work' and a ‘working place’.” That was his way of saying that the readily observable physical atmosphere and work environment sends a powerful indicator about an organization’s culture. Let me illustrate. One client in a mature, heavy industry was headquartered in a downtown office building in a major city. The building took up nearly the entire city block and the top two floors were reserved for executive offices. Since there were eight principal executives in this company at the time, each of the executive suites covered approximately one-quarter of one floor, with four executives on each of the two executive floors.

Now, I say “executive suites,” but honestly, they were more like executive “palaces.” Each had an outer lobby with a dedicated executive assistant and a large waiting area, replete with flat panel TV, original artwork and antiques. Once inside “Mr. Big’s” office the vast space and opulence almost took your breath away. There were floor-to-ceiling windows looking out on some of the highest priced real estate in the country. Then, there were four major “spaces” within each office including an informal sitting and entertainment “lounge” with the latest electronics; a fully equipped conferencing space; a totally decked out executive desk and “cockpit;” and finally, a “personal retreat space” with private bathroom, bar and sofa.

The kicker was that both executive floors were decorated with museum quality collectibles of almost every type. What a “place to work!” But here’s the point of all of this. As that famous M&A consultant, Yogi Berra, once noted, “You can observe a lot just by watching,” and that one meeting told us pretty much everything we needed to know about power and authority, decision styles, the hierarchical nature of the organization, the leadership behaviors and underlying core values of the business.

Admittedly, this is a very unusual and outrageous (but 100% true) example. But it effectively points up the importance of the first “level” in our culture model. Far more important than the physical trappings of an executive’s office are dead-ringer indicators that every M&A integrator must learn to evaluate in each target company: its brand identity and corresponding customer value proposition; its employment value proposition; its principle “market discipline,” -- for example, cost leadership, product innovation or customer responsiveness -- to use the Treacy / Wiersema model from B-school fame; and certainly, its principal business model and operating strategy. Each of these considerations are likely the true underlying and fundamental drivers that do much to set the context of culture.

 Work Processes & Protocols

As discussed recently in Caution Ahead – Cultural Flashpoints, this is the area that tends to create the most day-to-day conflict and frustration during integration. If not carefully managed, differences between the buyer and target company’s practices become magnified and vilified as representations of everything that is wrong, bad or messed up about you, the other company or the integration itself. In short, a “flashpoint.”  Here’s just one example to get you thinking about things to be on the lookout for.

To set the stage, we are sometimes engaged by the selling, or target company, to support with a variety of integration planning, change management and communication services. In one such instance, we were attending the announcement day “town hall” briefing put on by the buyer’s executives. The buyer was a major global technology firm. The seller, or target company (and our client), was a much earlier stage software company. In the audience that day were a few hundred of the target company’s executives, managers, engineers, developers and other key staff. The buyer’s CEO presentation was actually very good. It covered all the right issues and was both logical, strategic and inspiring from a personal and emotional standpoint.

Folks in the room were definitely getting more comfortable with and excited about what it all meant. When the Q&A portion of the meeting started, everything went well and all the typical questions were answered with plausible and acceptable responses. And then it happened. A respected software engineer raised his hand and asked, “What are you going to do about ‘movie night’?” A little context is important here before telling you the rest of the story. This was a typical “big company buys little company” situation. In this case the little company was a very successful software company in a hot, dynamic sector. Many of the engineers and developers worked 24/7 and camped-out in their offices. On a quarterly basis, and as a means to recognize this “above and beyond” performance, as well as to provide some much needed work-life balance, the software company would rent the local movie theatre and provide a first run movie along with free concessions for all employees and their families. It was a big, big deal. So the question, “what are you going to do about ‘movie night?’ was a heartfelt, legitimate question of great interest to many.

If you’ve ever seen an old Western flick where the wheels come off a wagon racing down a rough trail, that’s kinda what we saw happen next. In effect, dust, shovels, bottles, pots, pans, hats and shirts pretty much flew everywhere. It was a mess. The CEO of the buyer, the global technology company said, “Well, I don’t know what you are referring to with ‘movie night,’ but we don’t do movie night so that’s not going to continue.” Talk about snatching defeat from the jaws of victory! It was very damaging, and very difficult to overcome. In fact, some flashpoints are irrecoverable, and they are almost always very, very long-lasting.

By now you’ve noticed a common theme. Culture due diligence is mission critical. Most folks talk a great game, but fail to deliver the kind of cultural insight and actionable intelligence needed by their executive staff at important integration milestones or decision-points. When you encounter potential flashpoints that are fraught with emotional and historical gunpowder, take action. Acknowledge the importance of the issue. Identify potential alternative solutions. Show the “net-gain” basis of all “gives and gets.” Offer a one-time transition agreement or bridging solution that demonstrates a pragmatic accommodation while maintaining the “non-negotiables” you must have. And finally, recognize that your actions can easily destroy value if they are perceived to “integrate for integration’s sake alone” and not for a compelling business reason. Sometimes you have to pick your battles, so be courageous in aligning what and where value can be created, but be OK with differing non-essentials.

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