…the alchemists’ next quest: The Culture Series. Global M&A activity was weak in 2023, and it’s expected to remain slow this year. But as companies regain confidence and go forth and integrate, what do they need to know about successful mergers?

The biggie is culture. Leaders across industries know that the most challenging—and rewarding—aspect of an integration is merging two distinct cultures. Even so, leaders often don’t give it the attention it warrants. Some 95 percent of executives describe cultural fit as critical to the success of integration. Yet 25 percent cite lack of cohesion and alignment as the primary reason integration efforts fail.

Mark Heimbouch, the president of Worldpay Group, which successfully integrated with Vantiv in 2018, told McKinsey recently: “Frankly, I’ve never seen two companies that have the same culture. Companies work differently, people engage differently. Don’t underestimate the size of that challenge.”

Culture can be defined as the vision that drives a company; the values that guide its workforce; and the management practices, norms, and mind-sets that characterize how work gets done. To put it simply, culture is the soul of any business. When two cultures come together in a merger, a new one must be clearly defined by the C-suite and leadership team, and reinforced by middle managers, communications teams, IT departments, and so forth. And the faster the better.

So how do executives successfully avoid a culture clash?

First, ask yourself how each company makes decisions (centralized or decentralized)? How do they motivate their people (through financial or emotional incentives)? And how do they hold people accountable—individually or collectively? A holistic view uses a combination of diagnostic approaches, from management interviews to employee focus groups to surveys. Much like well-oiled business partnerships, the goals here are to generate a fact base about the existing cultures and to build a single common language around this understanding. Find the similarities, opportunities, and differences that could cause friction.

Once leaders understand the existing cultures they can begin to set priorities, including maximizing the value of the deal (such as moving to a higher-performance culture to achieve ambitious sales targets). After these coherent themes and initiatives have been identified, they can be plugged into the new company’s operating model and daily practices. The redesign of policies, processes, and governance models must reflect these important cultural aspects if change is to stick.

Companies often fall short when they try to realize their cultural aspirations during this third step. But if they track the implementation of themes and initiatives with the same rigor they use for financial targets, all will be well. And, as a bonus incentive, they should remember that treating M&A as a strategic capability can give their companies an edge that their peers will struggle to replicate.

McKinsey insights