According to the Association for Corporate Growth (ACG), eighty five percent of mergers and acquisitions fail. Why is this? Strategies and financial data of merging companies are thoroughly researched, but culture is rarely brought to the table. As a result, these perfectly planned strategies become stagnated by competing cultures. In 2014, the Arizona Healthcare provider, Banner Health, noticed this trend and chose to be proactive. Before their next merger with the University of Arizona Health Network (UAHN), Banner called on Work Effects to help create a purposeful culture for the new organization. To share this journey of transformation, Michael Stewart, Managing Director of Work Effects sat down with client and partner in change, Tracy Kennedy, the Senior Director of Organizational Effectiveness of Banner Health. Tracy and her team were onto something when they realized they needed to focus on culture. We believe every organization is unique and culture isn’t uniform across organizations. Work Effects identifies Mergers & Acquisitions, Change in Leadership, Brain Drain, Slow or Unexpected Downturn, and Exponential Growth as the key scenarios where a purposeful culture is critical for success. Here’s how we moved from crisis to create strategy culture alignment.
Culture from the Ground Up
Many times when we ask organizations, “what is culture,” we get all different answers. We believe culture is the values lived out, the unspoken way things get done, but it’s often hidden in the shadows.
In order to understand, measure, and change culture, one must understand the difference between health and culture. Often times, the definition of culture is focused on what an ideal culture looks like.
However, we think of anything that can be measured bad-to-good as health. When we look at purposeful culture, it is a continuum of good-to-good.
Tracy found executive leaders may not know the drivers of organizational health, or how that is different than the drivers of organizational culture.
This differentiation plays an important role in the Strategy Culture Alignment Planning Session. Work Effects uses a poster listing our ten dimensions of culture. Each dimension is on a spectrum, with no place being the “right” or “wrong” way to approach culture. Participants at Banner indicated on each dimension where they believed the organization currently was by placing red dots, and discussed how their points of view varied. The teams then used green dots to indicated how they believed their organization needed to be approaching these dimensions in order to reach their strategic goals.
Through facilitation, the teams needed to deliberate what cultural shifts are priority for executing strategy. Tracy explains this process, stating, “We felt that Banner was very healthy, so we should automatically create health in the organization we’re merging with, but that’s not necessarily the case. We ended up working parallel with UAHN; they were able to focus on building health while we focused on creating a purposeful culture.” To understand the point of view throughout the organization, we administered our Phase II Organizational Health + Culture Assessment for specific groups within Banner to understand the current culture.
The assessment was administered a second time with the University of Arizona Health Network, but through the lens of where their culture needed to be. The comparison between the data gave their teams an understanding of the gap between the organization’s culture and strategic goals.
“Culture change happens slowly. Change happens daily. People need time to take that in and understand how these small changes add up to the bigger picture of where we are and where we are going,” Tracy explains, “There’s still new information that appears daily that you have to take in and understand- through the filter of what does this mean for us culturally, and how do I feel about it culturally.”
Creating Sustainable Change
The first dimension of Culture, Customers, is on a scale of transactional to intimate [shown below]. For Banner, these were their patients. Through the Planning Session, Banner and UAHN found they were on opposite sides of the spectrum for their patient relationships.
The teams discussed what it would take to accomplish something strategically where they were drastically misaligned. As a result, they decided to wait on some of those strategic decisions until they were more aligned.
This speaks loudly to if the strategy and the culture are not aligned, it is very difficult to achieve the strategic goals. How drastic of a shift is needed in culture also impacts what is possible. As a result, culture can very much influence what strategic goals will be attainable.
“Purposeful culture was fascinating to our business partners as well because they knew you couldn’t successfully cram strategy through a misaligned culture,” Tracy says, “The possibility of what could be accomplished begun to look much grander to us. What we could accomplish as a misaligned organization was not as exciting or as thrilling as what we may accomplish in a year or 18 months when we’re purposefully aligned.”
Having shared a language around culture and values became really empowering to executive leaders, as well as everyone throughout the organization. This is how trust was built internally and teams grew to understand each other on a deeper level.
Culture in M&A
Banner’s strategic growth model led them to merge with a number of organizations over the past few years. Typically, that activity has been focused on smaller hospitals and smaller communities, organizations with 100-200 people, maybe up to 500.
However, the merger with University of Arizona Health Network constituted about 7,000 employees. In the past, an effective change management effort made for smooth transitions, but with this much larger merger, they knew we had to talk specifically about culture.
The Five Scenarios Where Culture is Critical
Banner had experienced all of these five scenarios at different times during their various mergers.
This merger also proved unique due to value differences between the UAHN academic viewpoint and Banner’s traditional healthcare model.
Tracy shares, “In M&A, people hold strong to what they value and they look to see how those values will show up in a new environment. So as we saw this, we tried to make connections back to what was important to them.”
The University of Arizona Health Network had also experienced all of these five scenarios over multiple years. They had gone through M&A themselves at least 3 times before Banner, had significant change in leadership, experienced some financial downturn, encountered competition with retaining talent, and the organization was growing.
“Prior to our work, we didn’t realize the impact these five scenarios had on them strategically and culturally,” Tracy recalls, “They weren’t aligned culturally or in terms of value, their culture truly was in crisis.”
Once both organizations understood that, they started to approach strategy. They had talked strategy several times, but started to have those conversations through the lens of culture. The organizations determined what they wanted to accomplish this strategically, and analyzed how that will feel in the combined organization’s culture.
Tracy explains, “We were specific and deliberate with what is the same, what is different, what are the natural synergies that we can capitalize on.”
Banner found it’s not always strategy that you need to focus on. The organizations had more that needed to be learned and appreciated about culture before they could truly merge and cultivate lasting competitive advantage.