1 DATA INSIGHTS DIRECTION MITIGATING CULTURE RISK TO DRIVE DEAL VALUE DATA INSIGHTS DIRECTION EXECUTIVE SUMMARY MITIGATING CULTURE RISK TO DRIVE DEAL VALUE MERCERS M Lara Pimentel, ProLiteracy Director of Development; Ginger Duiven, ProLiteracy Board Member; Odemaris Byrd, Shere Detwiler, Ashley Linken, Mercer Monica Tedla, Chris Pearman, Rahul Raman, Mercer; Maryam Khan, Doctors Without Borders Development Officewe also considered how different age groups, geographic locations, industries and company sizes influenced peoples views on culture. From these voices and our experiences, we see a clear pattern emerging: culture absolutely matters in M determines management roles and responsibilities, and guides what is done, rewarded,tolerated and not tolerated. It also shapes decision-making rights and processes and an organizations approach to managing risk. MISSION / VISION / VALUES The guiding principles that define a companys business, its objectives and the approach to reach those objectives. An organizations values dictate behavior and determine if the organization is on the right path to fulfill its goals. REWARDS how resources are structured; what is measured; how talent is selected, developed and rewarded; and how leaders foster a winning culture.” 2“MITIGATING CULTURE RISK TO DRIVE DEAL VALUE 16 MERCER RESEARCH REPORT WE SEE A PATTERN.CULTURE IS AT THE CENTER OF BUSINESS TRANSFORMATION A clear business strategy and an understanding of your deal rationale and the requisite integration risks are essential in order to successfully execute any transaction. Culture establishes the foundation for the operating model, which in turn defines the requirements for the talent platform such as the skills required, expected behaviors, and drivers like pay and rewards plans. Outcomes and results are what matter, so they must be measured to direct any actions required to mitigate integration risks. Culture is at the center of organizational change in M&A. EXHIBIT 2 MERCER CUL TURE DEAL PROCESS MAP Mercer - Culture Deal Process Map. Authored by J. Koob. Business Strategy DEAL THESIS Deal Rationale Deal Structure Change Agenda External Environment Results Revenue Growth Customer Satisfaction Operational Efficiencies Employee Engagement INTEGRATION PLAN RISK MITIGATION OPERATING MODEL TALENT PLATFORM CULTURE DRIVERS BEHAVIORS OUTCOMEDATA INSIGHTS DIRECTION 17 MITIGATING CULTURE RISK TO DRIVE DEAL VALUE It all goes back to people, their behaviors and their understanding of precisely what theyre supposed to do differently in the new organization. A great example is a sales leader in the target organization. The culture at her current organization is such that she and her team have significant autonomy and authority to negotiate terms with customers and make decisions on the spot to close deals. She has heard the buyer has a much more rigid pricing process and requires multiple approvals. She is not even sure whether she should push ahead or delay some of the leads she is currently developing. Can she even make pricing decisions? Her uncertainty results in delay, a customer chooses a competitor and the sales leader begins to question whether she even wants to work at a place where she is not empowered to represent the companys best interest. When a deal is announced, people have a tendency to immediately think about themselves. The resulting anxiety leads to productivity loss. Productivity loss quickly bleeds into customer disruption in the period before the deal closes. Our key sales leader, responsible for a group of account managers handling relationships with a large block of customers, doesnt possess a thorough understanding of the deal rationale. Her lack of insight directly impacts the quality of the customer experience, communication about product lines and ultimately how the customers relationship will work under new ownership.Whats worse, this sales leader eventually leaves the company to take a position with a competitor because she cant sort out her role, leaving the buyer and the new organization devoid of the value she brought to relationships with this key group of customers. Designing a new culture on the basis of complementary strengths can speed up integration and create more value over time. 1DONT BE FOOLED BY WHAT YOU PERCEIVE TO BE NON-FINANCIAL RISKS