When Mergers Fail: The Often-Over-Looked Issue of Culture

Did you know that 83 percent of corporate mergers fail? According to a study by KPMG, 83 percent of mergers did not boost shareholder returns. Other studies show failure rates between 50 and 80 percent, which means that at least half of all mergers do not result in more value.

In healthcare, some of the biggest mergers in recent years have failed to deliver, as documented by Modern Healthcare. Some of the country’s largest health systems are realizing less value since merging with other entities. And not only shareholder value. Profits are lower, per-patient costs are higher, and quality measures are all over the board, sometimes improving in one area while taking a dive in another.

Fierce Healthcare, reporting on a presentation at the American Hospital Associations’ 2014 Annual  Meeting, noted that quality did not improve in eight out of 11 mergers. Only two of the mergers demonstrated substantial quality improvement and the cost of care typically increases as a result of a merger.

So, why do these mergers fail? I think George Bradt summed this up very well in a 2015 article for Forbes:

“When you merge cultures well, value is created. When you don’t, value is destroyed. While some will suggest other factors – silly things like objectives and strategies and implementation – they are all derivative. The game is won or lost on the field of cultural integration. Get that wrong and nothing else matters.”

Dr. Jaan Sidorov was ahead of his time in observing this same point in his case study about the failed merger between Geisenger Health and Hershey Medical Center, noting that “cultural differences and the impediments they cause can be easily underestimated.”

Culture matters and it is never more important than when two or more cultures must integrate to become one. Even the simple and obvious question of which culture to become can be overlooked. In most cases, the larger, or acquiring organization subsumes the smaller one. We see this scenario repeats itself over and over again when a hospital system acquires physician group practices. Hospitals and Group practices have very different cultures. Physician culture typically values autonomy while a hospital culture may emphasize efficiency and productivity while both may value Patient excellence and patient experience.

It is worth beginning the assessment of culture during the due-diligence process but taking a look and asking which culture is better suited to the goals of the newly merged organization. Physician leaders and senior management should review both cultures, including environment, core values, attitudes and behaviors of physicians and staff members, and how relationships function at all levels. Depending on the circumstances, it may be best to choose one of the existing cultures, merge the best of each cultures or form an entirely new one.

Whatever culture is to be established or preserved, a large number of employees in the newly merged organization will be new to it. It’s like hiring a large percentage of the workforce en masse. And, just as when hiring in much smaller numbers, the new employees need to be appropriately onboarded.

If the goal is to establish and maintain a mutually beneficial relationship with productive, engaged, and content physicians and staff members, the best place to start is with leaders and influencers, such as administrators, physicians, and other key clinical staff.  The onboarding program should prepare them to:

  • Explain the organization’s culture, values, and vision.
  • Think like an owner with strong buy-in and financial and business acumen.
  • Describe your organization’s business process and their role in financial management.
  • Use collaborative best practices in their work with team members.
  • Define their personal values and ensure that daily work practices are in alignment with those values.
  • Identify waste and improve efficiency.
  • Improve the patient experience and overall customer satisfaction.

These goals are ambitious, yet 100 percent achievable with the right onboarding program. The resulting integrated culture will produce the intended synergies and the path to a successfully merged organization will be set.

View “Developing a Results-Driven Onboarding and Mentoring Process for Physicians” from our partners at The Iowa a Clinic.

To learn more about CTI’s Onboarding programs, please email: JScott@ctileadership.com.

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