The vast majority of deals begin with a focus on the “outside gain,” — expanding market opportunity, gaining new customers, securing access to new markets or geographies, or scaling an existing operation to increased heights and capacity. In many regards, the external emphasis is both right-minded and is the clearest strategic lens through which to view financial gain, accretive growth and/or beneficial synergies. 

It all makes sense on paper, and often business owners will talk themselves into a fundamental belief that any cultural misalignment, leadership issues or challenges on integration are merely speedbumps over which to traverse. The assumption is science and math will trump the unseen art of effective collaboration and partnership.

And, therein, lies one of the fundamental tenets of why 70% to 90% of all deals fail, according to a recent Harvard Business Review study. Even more distressing, KPMG has found 50% to 60% of deals will actually diminish or evaporate shareholder value. 

The adage of “culture eats strategy for lunch” is often incorrectly attributed to management guru Peter Drucker. The root genesis of the phrase seems most likely to have come from Giga Information Group back in the fast-paced, deal-crazy tech environs of 2000. Transactional flow was happening at unprecedented levels, but the huge majority of deals went south quickly. Most frequently, the trend that emerged was that two disparate cultures simply couldn’t seamlessly mesh, and carnage was often left in the wake.

Though it’s obviously a vastly different world, deal flow in 2018 and 2019 is similarly hot and getting hotter. Deloitte recently published a survey that said nearly 80% of organizations plan on executing more deals this year than last year, private company valuations exceeded nine times EBITDA at the end of 2018, and private equity transactional flow continues trending upward at historic clips.

And yet, the crash-and-burn percentages have remained nearly constant. The math is consistent, but the nuance of blending cultures and maximizing human talent remains an elusive target. 

A common through-line on deals where the results exceed expectations is the potent combination of financial due diligence, paired with a similarly objective deep-dive into compatibility of cultures, structures, team dynamics and complementary leadership. Big company or small, the underpinning of human behaviors — and the fluctuating nature of said behaviors — can be slippery, but they can also be understood and predicted if the time is taken to step back and truly evaluate the aspirations, hopes, worries and priorities of the individuals involved.

Gaining that foothold, however, requires things in transactions that too often are either ignored or intentionally held at arm’s length. This includes input, engagement, discussion and communication with the critical constituencies who will be ultimately responsible for driving a fruitful integration that maximizes assets.

To get the most out of any deal — and that’s certainly a core goal for almost everyone — it’s absolutely critical to take a forceful step back, to apply the same rigorous focus of financial analysis to human capital and to lay in place a change management plan that will connect audiences, build alignment, inspire and motivate shared measures of success, and to invite open and constructive dialogue. Leaders must be on the same page, must deliver consistent, cadenced messages that are repeated (behavioral economists estimate that most people need to hear something at least seven times before it’s truly inculcated), and then be willing to shape strategy around the organic element of culture. Not vice versa.

Done well, the outcome is that culture nourishes strategy, instead of eating it for lunch.

Chas D. Withers is CEO at Dix & Eaton Inc. A core emphasis of his work and leadership has been stewardship in high-stakes, complex and transformative situations that span multiple audiences including shareholders, employees, customers, legislators, communities and the media.

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