Mergers and acquisitions have a unique potential to transform firms, and to contribute to corporate renewal. They can help a firm renew its market position at a speed not achievable through internal development.
Value creation is the main goal in successful acquisitions yet more and more studies highlight the low success rates associated with acquisitions. No matter how attractive is the business opportunity, value is not created until capabilities are transferred and people from both organizations collaborate in order to create the expected benefits and the unpredicted opportunities. This collaboration relies on the will and ability of managers from both organizations to work together towards a new future.
The key to integration is to obtain the participation of the people involved without compromising the strategic task.
A very important aspect that could prove sufficient to avoid employee dissatisfaction and at the same time ease the transition is finding similar organizational cultures and management styles. Some authors believe that is crucial to analyze the compatibility of the organizational cultures to see which candidates are appropriate for a merger or acquisition. However this is more and ideal scenario than an actual possibility, so managing the cultural diversity has proven to be a more successful and realistic strategy in integration processes than finding the “perfect cultural fit”. In bringing together companies with different skill and knowledge bases, acquisitions create unique learning opportunities for the partner firms.
Effective integration happens when two or more firms become one single unit working or group working as a whole to fulfill the goals of the new organization. But obstacles arise when trying to achieve this, nationality and the perceived cultural differences are some of them. Merging implies the construction of a brand new identity.
Two organizational integration variables are particularly relevant in the acquisition process:
1. The reason for the acquisition (strategic fit and decision making process)
2. The process of implementation (including the “acculturation” process)
The reason or motive for the acquisition is important because it will determine the degree of required interaction between the members of each organization.
The Acculturative Process
It refers to the process in which two groups adapt to each other and resolve emergent conflict.
A basic acculturative process occurs between the conflictive subgroup desires for cultural differentiation and organizational forces for integration. Some people may not be willing to give up some particular culturally bound ideologies, traditions or behaviors and therefore may intentionally delay the integration and acculturation process or lag behind the rest in terms of accepting cultural change.
Conflicts can occur between the two merged organizational groups in the post-merger stage. Members may begin to refer to the situation in antagonistic terms of “us” vs. “them”, and power struggles evolve as organizational groups begin to bicker over scarce resources.
Some authors recognize that the success of a particular integration process depends primarily on the manager’s ability to reconcile the need for strategic interdependence between the two firms and the need for organizational autonomy.
CHALLENGES AND OPPORTUNITITES ON MERGIN ORGANIZATIONAL CULTURES
It has been widely discussed that the merger and acquisition process is challenging because it involves merging the corporate cultures as well, so here I would like to illustrate some of the challenges and opportunities that can arise on a merger or acquisition process based on three real life examples.
Deutsche Bank (DB) and Bankers Trust (BT) deal was very successful but they faced some problems in the process. BT had some people from Alex Brown the oldest US investment bank which made it more appealing to DB, a couple of years prior to the DB/BT deal BT had acquired Alex Brown but the process was not done right so the two companies were operating on different levels. There was a big crisis between them emphasized by the fact that the Alex Brown people felt like “they had lost their identity”, so DB saw an opportunity here. To gain the trust and confidence of the Alex Brown employees was a strategic priority for DB, so they decided to name the new company in the US Deutsche Bank – Alex Brown Investment Bank. This way they kept the identity of Alex Brown and also reinforced the brand. By doing so the Alex Brown employees felt like DB had rescued them from BT and that they had actually saved their identity.
There were also some issues regarding national cultures. BT saw DB as a very German company, bureaucratic, hierarchical, with a slow decision making process, but this awareness helped the people from DB to start challenging their working values and adopting new ones.
And interesting opportunity that can arise when merging different companies is that you get to see which people and areas of both companies are better than the other and combining the best part of each, a much stronger, more solid and bigger company is born. We can clearly see this in the British Petroleum (BP) and Amoco merger. The merger team decided to choose the best and most efficient assets of each company to use them to strengthen the new company. The BP performance management process was considered the best practice in terms of generating strong performance but the Amoco allocation of capital model proved to be better.
However the BP/Amoco merger did not escape from the share of problems. The merging of the HR department proved more challenging because for a lot of people the grade of their jobs was a big part of their identity in the heritage company. In order to create a new corporate culture several meeting took place with the 500 managers to explain BP’s philosophy. It also encouraged them to socialize with the counterparts from the Amoco Corporation. These activities encouraged breaking down the barriers between the two groups. During the meetings the objective was to reinforce the target synergies and the future growth prospects.
Another interesting case is the Volvo/Ford merger, where two very different cultures are finding a way to live together.
Volvo is a very typical “Swedish” company, they are a decentralized and team work oriented company. The participatory management style prevails in Volvo. Their decision making process happens at the lowest level of the organizational structure. It is the traditional Scandinavian way of doing things; there’s no hierarchy.
On the other hand Ford is perceived as a very structured and hierarchical US firm. In another way in which the Ford and Volvo culture differ is the way the deal with union’s issues. Volvo’s management and employees work very closely together with the union representatives to come up with the best business results. This high level of cooperation is not seen in Ford.
So they faced a big challenge right of the bat, but instead of perceiving this as a major threat to the merger they saw it more as a learning opportunity for both companies. They believed that these differences could not be overcome so they had to learn to respect and accept these differences.
So for instance Swedish engineers go to the US to offer knowledge to Ford employees about safety and ergonomics and the American engineers go to Sweden to share information on new engines and raw materials to work with. The employees perceived these synergies as an excellent outcome of the integration.
The integration also brought great opportunities in the dealer market for Volvo, because being a smaller brand it was not attractive for dealers to sell only Volvo products, but after the merger if they can sell Jaguar, Land-Rover and Volvo, that’s a whole other deal. Another area where this synergy can be seen is in the purchasing and environmental care. Volvo’s vehicles are 100% recyclable, so Ford is using this knowledge.
Alzira Salama, Wayne Holland, Gerald Vinten, (2003) "Challenges and Opportunities in Mergers and Acquisitions: Three International Case Studies – Deutsche Bank-Bankers Trust; British Petroleum-Amoco; Ford-Volvo", Journal of European Industrial Training, Vol. 27 Iss: 6, pp.313 – 321.