Companies today are combining in record numbers.
Executives pursue mergers, acquisitions, and joint ventures
as a means to create value by (1) acquiring technologies,
products, and market access, (2) creating economies of
scale, and (3) establishing global brand presence. There
is an underlying belief that most markets can provide
revenues to three large suppliers; when more than three
exist the urge to merge is irresistible.
That said, the business world seems littered with
integrated companies that have lost value for shareholders.
The question that inevitably arises is: “What forces are
powerful enough to counteract the value-creating energy
of economies of scale or global market presence?” Culture
has emerged as one of the dominant barriers to effective
integrations. In one study, culture was found to be the
cause of 30 percent of failed integrations.1 Companies
with different cultures find it difficult, if not often
impossible, to make decisions quickly and correctly or to
operate effectively.
What is “culture”?
Culture consists of the long-standing, largely implicit
shared values, beliefs, and assumptions that influence
behavior, attitudes, and meaning in a company (or society).
This definition has several important implications:
Culture is implicit. People who share in a culture find
their culture challenging to recognize. The most insightful
cultural observers often are outsiders, because cultural
givens are not implicit to them.
Culture influences how people behave and how
people understand their own actions. As a result,
culturally influenced beliefs and actions feel right to
people, even while their implicit underpinnings make it
difficult for those people to understand why they act the
way they do or why other ways of acting might also be
appropriate.
Culture is resilient. Its elements are long-standing, not
a matter of fads. The resilience of culture is supported by
culture being implicit. It is difficult for people to recognize
their own culture and how it exerts an influence on them.
The staying power of culture is that it feels right to people;
new cultural values that are imposed on people seldom
replace their underlying values and beliefs in the long run.
Cultural issues in
mergers and acquisitions
Leading through transition:
Perspectives on the people side of M&A
1 Isaac Dixon, “Culture Management and Mergers and Acquisitions,” Society for Human Resource Management case study, March 2005.
The most insightful cultural observers
often are outsiders, because cultural
givens are not implicit to them.
What does this mean for integrating two companies?
If people acted solely on the basis of rational calculations — the model of behavior preferred by economists — mergers
would be effective — or not — based on the soundness of their economic underpinnings. But participants in mergers are
human and driven both by their shared culture and individual personalities. Cultural influences have the potential to be broad
and far reaching:
Culture affects Resulting in
Decision-making style (for example:
consensus contrasted with top-down)
Effective integration requires rapid decision-making.•
Different decision-making styles can lead to slow decision-making, •
failure to make decisions, or failure to implement decisions.
Leadership style (for example: dictatorial or
consultative, clear or diffuse)
A shift in leadership style can generate turnover among employees •
who object to the change. This is especially true for top talent, who
are usually the most mobile employees.
Loss of top talent can quickly undermine value in an integration by •
draining intellectual capital and market contacts.
Ability to change (willingness to risk new
Unwillingness to implement new strategies.•
