Organisational culture a key miscarriage in mergers & acquisitions.
October, 16th 2014
Acquisition is where an organisation develops its resources and competences by taking over another organisation while mergers are more typically the result of organisations coming together voluntarily because they are actively seeking synergistic benefits. Acquisitions usually are between organisations of unequal sizes and can quickly diversify a corporation and improve the value of stockholders’ investment. An acquisition and merger is likely to take place when an organisation lacks a key success factor for a particular market but merger and acquisition is used by an organisation when implementing growth strategies. The lack of resources and competencies to compete successfully, deregulation and for financial motives has facilitated acquisition and mergers. Organisation partnership is a viable strategy option to achieving objectives of growth, diversification, and economies of scale, synergy or a global presence.
Organisational culture is the ‘basic assumptions and beliefs that are shared by members of an organisation, that operate unconsciously and define in a basic taken-for-granted fashion an organisation’s view itself and its environment’. The ‘excellence’ of an organisation is contained in the common ways by which its members have learned to think, feel and act. Organisation cultures are phenomenon by themselves, different in many respects from national cultures. It distinguishes the members of one organisation from another, whereby national culture refers to patterns of beliefs and values that are manifested in practices, behaviours, and various artefacts shared by members of the same nation. It influences the expectations of stakeholders directly e.g. attitude to work, authority and other important factors differ from one location to another.
In the study of culture, the representation of the physical manifestations of organisational culture and its paradigm is identified as cultural web. The cultural web shows the understanding of culture in frame through artefacts. Research identified a total of 6 cultural artefacts which affects every organisation. While corporate cultural fit is the compatibility between partner firms as reflected in the similarity of their organisational management style, which include the levels of employee’s participation, delegation of responsibility and decision-making process – centralised or decentralised. In fact the culture fit is so important in mergers and acquisitions but poorly defined and can be more problematic with cross-border mergers. Culture fit is just as important as structural fit in the analysis and evaluation of potential partners and which has contributed to the failure of several mergers and acquisitions that appeared to be suitable strategic partners due to lack of critical evaluation of the heterogeneous culture. It is a collective phenomenon and fundamental that influences behaviour unconsciously.
International mergers and acquisitions succeed better when the organisation practices are compatible with national culture. Integrating two independent companies with divergent cultures into one cohesive organisation is a daunting and delicate process of merger. Poor integration of the process will lead to organisations cultural clashes, key members will be replaced by the dominant corporation’s loyal staff; some management staff would leave voluntarily, and destruction of human capital and many more. The ‘culture clashes’ is the conflict of two companies’ philosophies, styles, values and missions that ought to have been harmonised at the pre- merger/ acquisition stage.
The process of mergers and acquisitions is more challenging when the merged organisations have their roots in two different countries. Related case is the 2005 Access Bank Plc and the Capital Bank’s (the former Commercial Bank (Crédit Lyonnais) merger and acquisition but a ‘take-over’ in disguise, which has their origins from Nigeria and France respectively. Nevertheless the merger turned acquisition cum take-over was successful in terms of tangible achievement but lots went bad on the intangibles. Less than a year of the marriage, over 80 percent of the Capital Bank brained employees were all laid off due to imbalance and non-matching organisational culture. One is said to be operating behavioural management theory pattern while the other is of the classical school of thought. Several multinational (French speaking) corporations’ accounts being operated with the Capital bank were either closed or activities drastically reduced to a dormant level because of the change in culture. This change development affected some customers who have their business belief associated with the French culture. Another is the DaimlerChrysler merger purported to be a ‘merger of equals’ between the Americans and Germans. Differences in culture between the two organizations were largely responsible for this failure. The operations and management were not successfully integrated as “equals” because of the entirely different ways in which the Germans and Americans operated. While Daimler-Benz’s culture stressed a more formal and structured management style, but Chrysler favoured a more relaxed, freewheeling style. Daimler’s attempts to take over the entire organization and impose their culture on the whole firm but the move was disastrous. In the research of Sirower cited by Shelton et al, (2003), which analysed a total of 168 mergers and acquisitions consummated between 1979 and 1990, discovered that two–thirds of them destroyed shareholder’s value, primarily because of unfulfilled expectations from predicted synergies. This failure was attributed to the poor integration and incompatibility of organisation’s cultural norms, beliefs and values. Mergers and acquisitions currently take the form of a traditional marriage. They subsequently fail or underperform because one acquirer or dominant partner has been able to impose their own culture on the newly acquired or merged organisation without adequate integration.
Cultural difference of an organisation extends not only to colleague managers but customers, suppliers, and the public. The culture of an organisation can be changed, but it may not be easy. It is one of the most seriously underestimated problems at the pre-acquisition/merger. Cultural conflict often plays a big role in producing merger failure but often neglected when benefits of potential merger are examined.
The failure of most merger and acquisition or rather ‘take over’ is cultural incompatibility, poor control and planning, Incompatibility will led to loss of cooperation and initiative among the employees of the new business combination. The synergies that were initially sought will not be achieved. The synergies for any form of partnerships is to achieve growth, economies of scale, global presence etc. However some measures can be taken to avoid M & A’s failure centred on culture. Merged organisations should try to avoid departure of its key leaders and managers from the company and facilitates communication across groups and divisions. Efforts to address culture should be based on the recognition that culture is both powerful and implicit, employees are unlikely to change their cultural beliefs in response to encouragements to adopt new cultural values, and can be thoroughly linked to behaviours that affect business value.