Mergers and Acquisitions: What Happens When Two Cultures Get Together

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Author(s): Dennis Fitzgerald is managing partner, AcquisitionWorks, Inc.

When two cultures get together following a merger or acquisition, conflict is likely to ensue. But it is often a subtle conflict hidden under the surface of discussing goals, integrating systems and combining organizational structures. As one senior executive explained it, "The problem with cultural differences is that they don't lead to disagreements, they lead to misunderstandings. Disagreements are obvious immediately and can be dealt with. But you tend to discover misunderstandings when it is too late--when each party has tackled an action plan in its own way."

Culture is how things get done within a company. And how things get done includes decision making, communication processes, policies, business processes, management style and a myriad of similar characteristics that differ based on a few significant factors. We will focus on three major factors that influence culture: National Boundaries, Size and Competitive Differentiation.

While companies usually do business in many major markets around the world, the management team and the corporate headquarters is usually influenced by one particular country's culture. National cultures have a major impact on management style and culture. There have been numerous studies conducted about cultures, but few deal with the international aspect of cultures as well as Geert Hofstede, a European educator and businessman. He has studied and mapped a number of important dimensions such as the relationship of men and women, the attitudes of the local culture toward risk taking and toward the importance of teamwork versus individual action. Each of these traits can vary dramatically from country to country and are deeply imbedded.

Ignoring these traits and how they impact a company's operations seems foolhardy yet, too often, American companies believe that they have a better way--after all, we are the leading economic power in the world--and try to implement policies, business processes, organizational and decision making structures that are tuned to US cultural values and norms. When dealing with cross-border acquisitions, be cautious with making any policy and process changes too quickly. Focus on common shared goals and allow the other organization some leeway in how they get results.

Cultures can clash even when cross-border relationships are not involved. East Coast versus West Coast, hardware versus software, product versus service, monolithic versus entrepreneurial, are just a few of the ways these cultural clash can be characterized.

Size differential can be a major factor in cultural conflicts. As companies become larger, they implement more formal business processes and have stronger control systems. This provides the larger company with consistency and reliability in delivering customer value. Yet these processes and constraints often slow down and stifle innovation. So, large companies are frequently in the market to acquire small innovative companies. If they integrate them by imposing all the structures and rules associated with their company they are likely to: 1) stifle future innovation from the acquired firm and, 2) drive out the key employees who are interested in innovation and a relaxed creative culture. Avoid putting all the burden of large company systems and processes on the newly acquired small company.

Competitive differentiators can also be a significant factor in cultural conflicts. Take for example, the case of the large commercial bank acquiring the local retail bank. One is successful in providing financial services to large corporate clients while the other makes its niche in individual home mortgages, car loans, checking and savings accounts. On the surface, this seems like a perfectly complementary acquisition. But the conflict begins the minute someone from the commercial acquirer issues a memo describing how mortgages are done or how loan officers are rewarded. When the integration process becomes "do things like us," then any value expected from the acquisition as a result of a complementary or different competitive differentiator is lost.

Joe Tucci, CEO of EMC, led EMC on a buying spree into the software end of storage. Tucci recognized that the future of storage would be in providing total solutions for information management. These solutions will be driven by software while hardware will become more of a commodity. At the very beginning of the process, Tucci is said to have told his senior management team, "If we make these companies just like us, we will fail." Wise words, although unusual, coming from a successful company with a very strong home-grown culture. Too often, companies with strong successful internal cultures believe that all acquired companies should adopt their culture as quickly as possible.

Culture, or course, is only one aspect of effectively integrating acquired companies. Having a clear strategy, getting both sides to embrace that strategy, identifying new leadership and re-energizing acquired workforces are all important aspects to retaining, motivating and achieving a productive long term acquisition. Cultural differences can often be overcome when there is a strong commitment to a common goal.

In the integration planning process, analyze what needs to be preserved within the acquired company to achieve your strategic intent. Remember that policies, business processes, reward and evaluation systems, etc. are the building blocks for a corporate culture. When you integrate focus on your strategic intent and integrate only those aspects of the acquired company that are essential to executing on the strategy.

Dennis Fitzgerald is managing partner, AcquisitionWorks, Inc., a consultancy providing programs and expertise to help integrate acquisitions, joint ventures, or strategic relationships. More information about AcquisitionWorks, can be found at www.acquisitionworks.com.

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