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Lean early and hard into corporate culture for M&A success

Another day, another deal in the health and life sciences industries. Healthcare mergers and acquisitions have been a major headline in recent years, occurring at a record pace and changing the face of the industry.

The number of M&A deals in 2018 significantly exceeded those in 2017 with the majority of these deals occurring in the U.S. Early predictions—made even before deals were announced by major pharmaceutical players Eli Lilly and Bristol-Myers Squibb—are that the increase in M&As shows no sign of abating in 2019.

Unlike in other industries, where M&A often just creates bigger companies, healthcare M&As typically are different. These deals often are intended to drive transformation through new business models. Unusual pairings force the innovation and collaboration that creates groundbreaking discoveries, products and services.

The number of M&A deals in 2018 significantly exceeded those in 2017 with the majority of these deals occuring in the U.S.

One example is healthcare system Intermountain Healthcare, which teamed with 100+ healthcare provider organizations to form a nonprofit biopharmaceutical company to manufacture generics. And the industry was shocked when CVS Health and Aetna announced a merger to reshape how primary care services are delivered and consumed.

These and other deals hold promise to improve care, cost and access and catalyze innovation. But the companies that succeed in achieving a vision are those that successfully integrate their corporate cultures. Absent this, the financial benefits upon which an M&A business case is based fail to materialize.

Why? More than one-third of M&As fail due to culture clash, according to the Society for Human Resources Management.

Culture is particularly important in healthcare where employees often connect personally to their organization’s mission. Culture also is important in healthcare given the often direct connection between the consumer and services or product provider. The negative impact of employee disenchantment can be easily magnified and have a lasting, negative impact on the bottom line. According to author Simon Sinek, “Happy employees ensure happy customers. And happy customers ensure happy stakeholders—in that order.”

If an M&A isn’t handled properly, talent and customer satisfaction implications can be significant. The National Association of Corporate Directors released data showing that culture is a corporate asset in that strength or weakness of culture has a “lasting impact on organizational performance and reputation.”

Preserving or strengthening corporate culture through an M&A is critical to success. Yet often integration efforts focus only on technology, process and human resources, ignoring culture.

One critical area of culture sorely in need of attention is corporate values—which can align employees and culture to optimize organizational performance. Our company’s research indicates that nearly half of American workers don’t know their employer’s core values, and among workers that do know their company’s core values, 89 percent said that the values steer their decisions and behaviors at work.

A few key best practices can optimize culture during an M&A:

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Consider culture from the earliest stages of a deal. Include it in the due diligence process and establish a distinct workstream for culture integration activities.

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Conduct a culture reboot. Assess the culture and core values of all entities to be integrated, and develop a culture and core values strategy with leadership at the table.

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Produce a sum that is greater than its parts. An M&A can be an opportunity to create something better than what existed previously. Identify and blend the most desirable attributes from each entity to create a culture that is more effective.

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Connect the dots. Use this event to marry strategy, culture and core values, and incorporate these things into your organization’s dialog.

How you step into an M&A-driven integration—and the role you define for culture as you do—directly influences what you get out of it. It’s imperative to start in the right place, with the right mindset and ask questions you might not otherwise ask.

Planning for an initiative that directly engages corporate culture takes strategic thinking, time and hard work. But getting culture right will pay long-term dividends on employee engagement, customer service, reputation and the bottom line.