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Sense and non-sense 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 misfit between the different partners. Interestingly, we have never found any scientific proof for this. Not that this is 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.

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 Hofstede Model on strategy, culture and change.

Within one and the same organisation of any size and complexity we just 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 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. 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 misfit, but instead as functional differences. 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 we may talk about a cultural misfit. In other words, it is possible to talk about a cultural misfit, but only if three requirements have been met:

1. We should know what the optimal culture of different groups within the same organisation should be, so that objectives will be met in the best possible way
2. We should know what the actual culture of different groups within the same organisation is, 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

What is true for one organisation internally is of course also true for parties involved in mergers and acquisitions. Next to these three requirements a more pre-defined requirement has to be met as well:

4. Mergers and acquisitions will be more difficult to realise when cultures will hinder acceptance of those who are or who behave differently. 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 buggers who behaved like lunatics”. A cultural misfit sounds as a much more civilised explanation.

When looking at the Hofstede Model we can on a generic level say the following: functional differentiation within one and the same organisation will especially be found on D3; loose versus strict work discipline. Next it will be found on D1; means versus goal oriented, and finally also on D5; open versus closed system.

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

How it should work out in reality depends on an analysis of discrepancies found between actual and optimal subcultures. The actual cultures should be precisely measured. The optimal cultures should be adequately assessed based on the environment in which the subculture are embedded and based on strategies and objectives to be met. This applies within one and the same organisation and it also applies to parties 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:

1. The more subcultures score high on D1; i.e. the more cultures score goal oriented, the more those who are seen as different, will be accepted. The drive to realise a common internal goal will at least to a degree override differences.
2. 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 organisation 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.
3. 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 be welcoming newcomers. 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. Next, the question is whether, synergy will be created based on actual differences and requirements to be met.