Growing the Firm – Practitioner Article – Cross-Cultural Analysis at M and A Stages

Article: Cross-Cultural Analysis at Mergers and Acquisitions Stages written by Weber, Yaakov and Shlomo Yedidia Tarba

This article references various studies performed that show how cultural differences can affect M&A transactions at different stages. Many companies participate in M&A transactions to help grow their company. And as popular as M&As have come to be there is very little emphasis put on the differences and similarities in corporate culture among the two merging companies. As a result we have seen a higher failure rate in M&A transactions. Differences in corporate culture and national culture can make or break an M&A transaction. This article is important because top managers might be focused on finances and could forget about this very important detail.

Every company is different in the way it functions and integrating two companies each with their own ideas, strengths and weaknesses makes it harder for them to work well together. The authors of this article hope to bring to light the importance of understanding a company’s culture throughout all the M&A stages to become more successful.

The major M&A stages identified in this article are: planning, negotiations, and integration. One of the main point of this article is the following, “Based on a model that embraces national culture dimensions, corporate cultural differences, and the synergy potential between the combining entities, Weber, Tarba, and Reichel (2009-2011) suggested that the reason for the poor performance of acquiring companies can be the failure to adopt the right post-acquisition integration approach required in each individual case of M&A (Weber and Tarba 2012).” In the early stages of M&A transactions it is difficult to get a clear understanding of a company’s corporate culture because much of the pre-merger work and negotiation is done by various consultants who look at the legal and financial sides. After those stages companies might bring in post-merger integration consultants to help in the integration stage. What would make more sense would be if the consultants worked together throughout the entire M&A process for a seamless integration.

The article identifies seven dimensions of organizational culture. The first being the company’s approach to innovation and activity, there are companies who encourage innovation and who act fast to their changing environment. While there are others who find it hard to adjust to changing environments and have found a niche in their competitive environments. The second would be risk taking approach, it is very important that the two companies have similar views on risk taking or understand the differences to be able to come to an agreement and succeed. The third is lateral interdependence; top managers have applied their beliefs to how important cooperation is between organizational subsidiaries to reach the goals that have been set. Fourth is top management contact, which is how closely subordinates work alongside top management. Fifth is autonomy and decision making, this is very important in seeing how important decisions are made. Sixth is performance orientation, this is the focus managers place on different aspects of performance. Lastly is reward orientation this is related to the degree that compensation relates to performance.

There is an article that states the many cultural differences faced during the Daimler & Chrysler merger. Senior management had differences in compensation methods and decision making processes, lower-level employees had differences over dress code, working hours, and smoking on the job (Stahl 2006). As you can see any little difference can cause big problems inside a company. There are many examples just like this one that show that cultural differences can cause the failure of M&A transactions. Even employees doing the same job in the same industry at different companies might see differences, in the way departments communicate with each other or how closely you work with higher level managers.

Managers should see that differences in culture, whether it is corporate culture or national culture do affect how much an M&A transaction will benefit or harm a company. They should take a look at companies pre-merger and implement those findings post-merger to make for a more seamless integration.

Sources:

Weber, Yaakov, and Shlomo Yedidia Tarba. "Cross-Cultural Analysis At Mergers And Acquisitons Stages." OD Practitioner 44.3 (2012): 37-43. Business Source Complete. Web. 22 July 2012.

Weber, Yaakov, Shlomo Tarba, and Arie Reichel. "A Model of the Influence of Culture on Integration Approaches and International Mergers and Acquisitions Performance." Int. Studies of Mgt. & Org. vol. 41, no. 3. (Fall 2011): pp. 9–24. Web. 22 Jul. 2012.

Stahl, Günter K., and Andreas Voigt. "Do Cultural Differences Matter In Mergers And Acquisitions? A Tentative Model And Examination." Organization Science 19.1 (2008): 160-176. Business Source Complete. Web. 22 July 2012.