Clash in two organisational cultures post-merger might lead to rivalry between employees of the two organisations and hostile ‘us-them’ attitudes, adversely affecting the merged entity in the long run.
By Mridu Singh

Picture this, an icon of Western capitalism is marrying a company that’s partly owned by the Chinese government. IBM, the US Big Blue dumps it’s PC business on Chinesse computer producer Lenovo for $1.75 billion deal making Lenovo (previously Legend) the third largest PC manufacturer behind HP/Compaq and Dell with exciting new prospects for the future. On paper it all seems fine. Lenovo gets what it wants – a worldwide presence. And IBM gets what it wants – a product offering for their large accounts, but they don’t want to be manufacturing commodity machines. Will IBM managers take basic Mandarin lessons and learn to use chopsticks? Would the American and Chinese be able to work together to achieve their new and challenging goals? Will the two cultures ever merge? Will the dragon eat...

Like any marital venture, a merger also entails the marriage of two different corporate cultures, mindsets, values, and sets of employees. More often than not it is this culture factor that can prove to be a decisive point in the success or failure of a mergers and acquisition deal. Whenever two organisations merge, there is a lot of upheaval – in terms of lay offs, management and leadership changes, sometimes even change of geographic location. More often that not, a majority of the employees might be left out of the decision making process, which leaves them with a feeling of helplessness and uncertainty.

This behavioural phenomena has been repeatedly faced by employees in most M&A cases, be it the merger of Compaq with Hewlett-Packard, Gillette with Procter & Gamble, Glaxo with Smithkline, or the most recent acquisition of Shaw Wallace by the UB group.

The Culture
From the time of its inception, an organisation develops a culture that is unique to it. It includes the values, principles, belief, attitudes as well as the behaviour of an organisation, that is reflected in the way things are done. An organisation’s culture also shapes its learning orientation. As Douglas McGregor, author of The Human Side of Enterprise and the progenitor of the X-Y Theory of Motivation, has stated, “If people are treated consistently in terms of certain basic assumptions, they come eventually to behave according to those assumptions in order to make their world stable and predictable.” Also, people working under these sets of principles are committed towards the growth of the organisation. These principles are often considered to be the driving force to achieve high performance levels. Thus, the culture is the personality of the company, and different companies have very different personalities and cultures.

Many companies today are known by the strong organisational cultures that they have developed over the years like Unilever, South West Airlines, Hewlett Packard, Tata, General Electric, Sony, to name a few. For instance, Hewlett-Packard is a company that has been conscious of its culture (The HP Way) and has worked hard to maintain it over the years. Hewlett-Packard’s corporate culture is based on: 1) respect for others, 2) a sense of community, and 3) plain hard work (Fortune, May 15, 1995). HP’s growth and success over the years has been due in large part to its culture.

Whenever two organisations merge, their cultural values often come in the way of a smooth transition. According to an ATKearney research study, the acquiring entity often tries to impose its own systems, values and strategies on the acquired one, thus eroding the latter’s values. This is done without any evaluation which culture would be the more suitable one for the new organisation. This puts great stress on the employees of the smaller company, who find it difficult to disassociate with old values and incorporate new ones. Thus arises a situation which gives birth to resentment and rivalry. Hence, it is imperative to understand the cultural aspects of an organisation before planning
any merger activity.

The Broken Link
Past observations have revealed that for companies, which do not pay any consideration to key human factors, mergers often turn out to be expensive failures. The key factors usually kept in mind while going in for a merger include confidential agreements, due diligence, designing strategy for the new business, handling financial implications, etc. However, the employees are more or less kept out of the process. The corporate world, in fact, is rife with examples of how things often turn sour because of cultural differences between the two merger parties. There exists an “us versus them” attitude, which becomes difficult to overcome and proves to be detrimental to the functioning of the merged entity. One can recall case of America’s oldest food enterprise, Quaker Oats, and America’s leading marketer and distributor of premium beverages, Snapple Beverage. Both the companies were quite sure that the $1.7-billion merger had created the right mix of people and products which would translate into huge profits in the next millennium. But soon there was a clash of cultures. Quaker had grossly underestimated the differences between its highly focused, mass-market operating style and Snapple’s quirky, entrepreneurial and distributor-oriented style. As a result, by early 1997, Quaker was forced to part ways with Snapple for $300 million. The Quaker- Snapple deal is supposed to be one of the worst deals of the 1990s and demonstrates the importance of cultural compatibility. The list of mergers dogged by cultural incompatibility also includes the mid- to late-1990s marriages of automakers Daimler- Benz AG and Chrysler Corp and financial powerhouses Citicorp and Travelers Group. In the former case, Daimler-Benz, the dominant partner, has gradually been imposing its decisions on Chrysler. Organisational psychologists say that the cultural conflicts between these two companies have been particularly damaging when it comes to sharing knowledge. German engineers are apprehensive of having their ‘superior’ technology incorporated into ‘low bred’ American cars. The cultural mismatch and the different management styles of the two companies have made the experts predict a divorce to follow soon.

The companies which earlier used to laugh at the idea that culture was important, now take it very seriously. This change is definitely a result of failures that have happened because of ignoring the culture aspect.

The right approach
During due diligence, attentio0n is hardly paid to intellectual capital or organisational culture. The focus is more on cost saving or acquiring the top management group. Very few organisations gather information regarding culture, leadership, organisational capabilities, and customers. Surprisingly, there exists a plethora of information available about the human capital, hidden cultural blackholes, management talent, leadership strengths and philosophy, customer focus, and values that go well beyond the financial and market data that are analysed. This information provides the foundation on which the closely studied financial information must be built. Lack of key leadership skills, loss of talent, or a major culture misfit can derail the financial benefits originally projected. Unhealthy rivalry between employee groups disrupts the smooth functioning of an organisation. Managers should try to iron out the differences by carefully mixing employees as much as possible at all organisational levels. When combining departments, functional counterparts should not be placed in subordinate and supervisory relationships. It might be too simplistic a suggestion, but the middle path and compromises here and there can help the marriage work.

xIt helps a lot to keep in mind that it is the people involved who can work towards making a marriage successful. Therefore, while the merger is still at the initial stage, more thought should be given to the work force, their views, and whether the organisational cultures can gel. A knowledge audit
can be conducted to measure and analyse the impact of the cultures. To reduce the possibilities of failure in M&As, some management experts have recommended that human capital be placed at the centre of the process, or at least be given equal attention to that assigned to economic and financial considerations. According to this school of thought, such a redirection would enable acquirers to select the most compatible merger targets from a human resource perspective and make integration much easier.

HP-Compaq: Achieving The Impossible
Merging two workforces, cultures and product lines, spanning printers and storage devices to notebook, handheld and desktop PCs, is never easy, but the global scale of the HP/Compaq merger made it a mammoth task. HP had 88,000 employees and Compaq 65,000, all spread across the globe. According to Mike Taylor, HR director for HP UK & Ireland states, “All organisations know that the success of a merger is down to the people-you have to get your people focused in the right way. HR’s role remains
pivotal for the success of the merger, not much could have happened without the intervention of HR.”

A huge amount of core HR work was planned and executed. For this, Clean Room was developed. Here, a virtual team was assembled from both companies to plan for the merger. The team adopted an HR strategy and an HR plan that tackled these issues one by one. This included harmonising terms and conditions and implementing new job architecture and a new performance-management system right across the organisation. The need to focus employees meant it was vital to have the necessary communication and information channels in place. Traditional media such as posters and leaflets and regular briefings from senior executives did their part. But the most effective delivery mechanism was its intranet employee portal, @HP. The self-service HR portal, which was originally rolled out in 2000 and has around 141,000 users, received two million hits on day one of the merger. It enabled HP to disseminate a mass of information during the run-up to the merger which included the rationale behind the move and the role employees could play within the new organisation. It included training materials
which enabled sales people to go out and represent the company to customers in an appropriate way.

The portal was a 24/7 tool which helped prepare for the merger, but the company put a raft of other initiatives in place; the most significant of these from a people perspective was its Fast Start seminars. At the planning phase, the Clean Room team constructed training modules that managers could use to get their newly appointed team up to speed on the company.
The Fast Start sessions were further followed up with a Fast Forward programme to have a smooth transition into the final phases. It also strengthened the culture. These programmes were developed within HR to help organisation meet its
business objectives. It was ensured that HP can take advantage of the technology to move up the value chain and HR was developed as genuine business partners. After the merger, HP employees also wanted to know about the decisionmaking process and the components of product lines and how they would be supported. The seminars worked at a strategic level but were also tactical to get people thinking about how they were going to operate.

One of the major ch allenges was to ensure the best of both side’s processes and practices were adopted, with speed and agility among the new company’s core values, HP used an “Adopt and Go” approach when it came to deciding on processes which meant that instead of saying ‘those processes could be improved let’s design a new one’, it would have been time consuming so they took the best from whichever world and went with it.

Now HP is a complete mix of pre-merger HP and pre-merger Compaq built in and integrated across the organisation.

Conclusion
Different cultures make different assumptions about others based on own values. Thus, while going for a merger activity, it is important to see them with our eyes not theirs. It isn’t enough to say, “We are two big companies coming together to form a giant, so this is a time to be happy”. From due diligence to integration, being able to qualify and quantify cultural differences and synergies is the key to protecting shareholder value and reducing the risk of failure and a happy and everlasting merger.

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