Companies typically have either generally tight or generally loose cultures. Mergers in which a mix of these two types of cultures must come together may fail if they don’t negotiate their cultures.
Any merger between two companies is a long, detailed, often-frustrating process in which, one hopes, the hard-earned result is a new company that represents a synergistic melding of the partners’ complementary strengths and resources.
Yet, despite the due diligence and careful assessment of what each side brings to the partnership, some mergers will almost undoubtedly fail because one vital element of the partnership was overlooked: the disparity between the cultures of the company — and more specifically, the differences in tightness and looseness of those cultures.
University of Maryland psychologist Michele Gelfand developed the concept of tightness vs. looseness. A tight culture is one in which routines, rules, processes, consistency and conformity are dominant elements. Loose cultures encourage fluidity, experimentation, openness to new ideas, and rule-breaking.
Neither culture is perfect. Tight cultures can be efficient and predictable, but have a difficult time adapting to change, while loose culture are going to more creative but also more chaotic.
Not surprising, as Gelfand notes in a Harvard Business Review article, the merger of companies with such disparate cultures would have a lot of challenges. A team of researchers led by Gelfand confirmed this assumption by studying the results of 4,500 international mergers between 1989 and 2013. When the tight-loose disparity between merging companies was significant, the merged companies had dropped $200 million in net income per year in the first three years after the merger. And if the disparity between the cultures was particularly wide, the net income drop reached more than $600 million per year.
The study results might indicate that companies who are wide apart on Gelfand’s tight-loose spectrum should never attempt to merge. Gelfand disagrees. In the HBR article, Gelfand offers four steps that companies can take — early in the process — to overcome or at least attenuate the cultural mismatch challenge.
Negotiate culture. Start off with a cultural assessment of both companies to determine the amount of looseness or tightness in each culture. Then, as in any negotiation, look for areas of compromise. Where can the tight culture accept some looseness (what Gelfand calls “flexible tightness”) and where can the loose organization accept some tightness (“structure looseness”)?
Develop a prenup. Write up a formal cultural integration plan that identifies the specific areas or domains in the merged company that will be looser than before and those that will be tighter.
Get buy-in. Take the integration plan and sell it to the employees of both companies. Change is scary, and if people understand why some tightness will be loosened and why some looseness will be tightened, they will be more likely to buy in.
Embrace trial and error. No matter how much care is taken to develop a comprehensive integration plan, issues are going to arise. These issues are learning opportunities that will help refine and improve the integration plan. Openness is key: The loose culture may recognize that some tightness may improve performance, and vice-versa.
How Tight and Loose Cultures Wire Our World. Michele Gelfand (2018)
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