3 Essential Parts of Cultural Due Diligence Process

There are at least two types of due diligence, the traditional one and the cultural one. Instead of conducting the traditional due diligence, the cultural one is much more recommended, especially in M&A. It is crucial to understand the complete cultural due diligence process.

Cultural due diligence is extremely important since M&A is an organizational change that may cause uncertainty and stress to the employees. Unfocused or anxious employees mean lower productivity. It is crucial to manage communication, the change process, and stress proactively.

Cultural Due Diligence to Optimize the Organization

When the organizations undergo a merger or transformation, managing the stress, change process, and communication proactively is important in order to achieve the peak synergies. The mitigation and management should be conducted as soon as possible.

The different cultural norms in organization can drive a totally different behavior. In M&A, the difference in behavior can result in a culture clash. It happens when the buyer is trying to impose the philosophies and systems on an acquired firm.

To mitigate the risks of human capital, provide intelligence on the cultural distance that is driven by data. This will enable the buyers to be more accurate in assessing the resources.

Cultural Due Diligence Process: Pre-Combination

This process is started with initial target screening. The screening will be conducted covertly, quickly, and with limited information only. It is essential to quantify the cultural distance and orientation between the companies. This step is taken to provide information that is driven by accurate data.

The information gained through that process will be used for deal negotiation and valuation. So many organizations assess the culture of organization at a high level. This is a part of the due diligence process, especially in the M&A pre-acquisition process.

To conduct this process, the company must understand the strategic intent, conduct the self-assessment of buyer culture, and map the cultural distance of the organization that will be the target.

Integration Planning Process in Cultural Due Diligence

The second process of the cultural due diligence is integration planning that contains some processes such as assessing the change readiness of the organization and initiating the communication strategy. The goal of this process is to integrate the transformation methodology of culture.

It will be integrated into three measurement and performance areas: People, Systems, and Structure. Project timeline and plan that is well-defined must be created. It will identify the activities and resources that are required to fit the new business strategy’s goals.

Cultural Due Diligence Process: Integration Execution

The last process is divided into three different processes: implementing the cultural integration plan that has been created, making sure that the cultural post-transaction is optimized, and measuring and monitoring the progress.

The organization needs to develop some important skills for individual and group transformation. The individual coaching and leadership assessments are crucial to create an optimal transformational state. This process is going to make the cultural transformations stick to the organization.

Process of cultural due diligence may be complicated. But the entire processes are necessary to M&A deals, especially to make sure that all employees can adapt to the new culture.

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