Sense and nonsense of mergers and acquisitions

A cultural perspective

We are told that mergers and acquisitions are often less successful than anticipated. One of the reasons given for such failures is a cultural mismatch between the different partners. Interestingly, we have never found any scientific proof for this. Not that this is very surprising, because it is very hard to do proper research in the causes of failures and successes of these very complex processes. Mergers and acquisitions cannot be conducted or repeated in a laboratory. What is surprising is that so rarely questions have been raised whether a cultural fit is all that crucial as a cause for failure.

Based on our experience we therefore would like to ask some pertinent questions:

Question 1: What is meant with cultural fit?Our tentative answer: We assume that cultural fit implies that the cultures of the parties involved are rather similar, therefore not obstructing the process of integration.

Question 2: What is meant with rather similar? Our tentative answer: No information has been made available by which we can assess whether the degree of similarity or dissimilarity will either support or hinder integration. Apparently, the information on which this assumption is based is derived from hearsay. It is not based on measurements of the actual cultures of the parties involved.

Question 3: Does a lack of cultural fit apply to the whole culture of both parties or does it apply to certain aspects of culture? Our tentative answer: The protagonists claiming that a lack of cultural fit is the culprit cannot answer this question, because most people working in the field of organisational culture are more concerned with processes than with content of culture.

Alternative suggestions:Let us now come up with some alternative ideas. Again, these are not based on any scientific research, but they may still make more sense given our work experience based on the applications and use of the Hofstede Model on Strategy, Culture and Change.

By Bob Waisfisz

Within one and the same organisation of any size and complexity we don’t find one culture. Instead, we often find many different sub-cultures. These differences may either be functional or dysfunctional. Differences are functional when work requirements within one and the same organization are so different that it requires different ways in which people have to relate to their work. Thus, if top management and machine operators relate the same way to their work there will be something rotten in the state. Top management may need to be pro-active, they need a helicopter view, they may need to be creative and they should be good communicators. Machine operators need to be precise and meticulous in operating their equipment. Moreover, the more complex and sensitive their equipment is the more they should be good in preventive maintenance.If these differences between top management and machine operators are supported by different subcultures, then these differences will not be experienced as a cultural mismatch, but instead as functional differentiation. If top management does perform its tasks in a precise and meticulous manner, lacking a helicopter view and if machine operators have a helicopter view, lacking a precise and meticulous approach, being supported by different subcultures, then for sure we may talk about a cultural mismatch.In other words, it is possible to talk about a cultural mismatch, but only if three requirements are met: 1. We should know what the optimal subcultures of different groups

within the same organization should be, so that objectives will be met in the best possible way

2. We should know what the actual subculture of different groups within the same organization are, so that differences between optimal and actual cultures can be measured.

3. We should be able to make use of a model which will allow us to make meaningful differentiations and which will allow us to conduct precise measurements

What is true for one organization internally is of course also true for parties involved in mergers and acquisitions. Next to these three requirements an additional requirement has to be met as well: 4. The cultures of the parties concerned will enable successful integration

of operations. If their cultures will hinder acceptance of those who are or who behave differently mergers and acquisitions will be more difficult to realize. Whether the “others” are really all that different is not important, because in this case everything is in the eye of the beholder.

This is true for all parties concerned, but especially for the dominant party. If mergers and acquisitions fail, it is especially the dominant party that writes history. It is unlikely that they will tell the world that they failed because they rejected “those who behaved like lunatics”. A cultural mismatch sounds as a much more civilized explanation.

When making use of The Hofstede Model we can on a generic level say the following:

- Functional differentiation within one and same organization will especially be found on D3; loose versus strict work discipline. Next it will be found on D1; means versus goal oriented and at last also on D5; open versus closed system.

- Functional similarity, also called by us “corporate identity”, within one and the same organization will especially be found on D2; internally versus ex-ternally directed. Next it will be found on D4; local versus professional, and on D6; employee versus work oriented.

- This applies within one and the same organization and it also applies to par-ties involved in mergers or acquisition.

Whether cultures are welcoming or instead will induce people to reject others depends on the scores on many of the dimensions in the model. We will just highlight three of them:

- The more subcultures score high on D1; i.e. the more cultures score goal ori-ented, the more those who are seen as different, will be accepted. The drive to realize a common internal goal will at least to a degree override differ-ences.

- The lower subcultures score on D4; i.e. the more local subcultures score, the more people will perceive those working in other groups within the same organization as part of the outside threatening world one has to hold at bay. At the same time, the lower subcultures score on D4, the more small factual differences between these groups will be experienced as big.

- The higher the score on D5; i.e. the more closed the system is, the less those who are part of the dominant party will welcome. Instead newcomers have to proof themselves during an extended period of time and then still may not be seen as part of the old-boys network.

Thus, the real question is whether especially the dominant party is fit to make a merger or acquisition happen successfully. The more the culture of the dominant party scores goal oriented on D1, professional on D4 and open on D5, the more this party is fit to realize mergers and acquisitions successfully.Next, the question is whether, synergy will be created based on actual differences and requirements to be met. There is still a fourth dimension which has an impact on successful integration being D3; easy-going versus strict work discipline. If one of the reasons to realize a merger or acquisition is to save on costs this has to be approached with prudence. An organization will only operate in a truly cost-efficient way if its culture is characterized by strict work discipline. Such a culture, however, will hinder smooth integration. Those who behave differently will obstruct efficient and meticulous task execution at least that is then how differences will be perceived.

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If especially the most powerful party has an easy-going culture there is no issue in this respect. Yet, mergers and acquisitions are in that case often used as a starting point to increase cost consciousness among all those concerned. By doing so right away, successful integration will be hampered. It is therefore in such situations recommendable to wait with an introduction of cost cutting and a drive for efficiency until the first phase of successful integration has taken place, which doesn’t need to take more than half a year.

Without a sophisticated tool of analysis it will be very difficult to know what to do when to make integration really happen successfully.

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