Master International Business & Management
“ Adjusting towards Organizational and
National Culture Fit in International Mergers
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Adjusting towards Organizational and National Culture Fit in
International Mergers and Acquisitions
A.G. Ledeboer1
ABSTRACT
The main focus of this master thesis is to find out how mergers and acquisitions between companies with different organizational cultures and national cultures affect internal and external fit of an acquired company. Organizational culture is measured by using the organizational cultural assessment instrument (OCAI) and national cultures are assigned to companies using the research of Hofstede and Hofstede (2005). The organizational cultures are measured before and after the take-over in order to make the shifts the companies have made clear. Furthermore, interviews were conducted with persons who were closely involved prior to and at the time of the merger or acquisition. The results show that the bigger the change in organizational and national culture, the more the internal and external fit will be affected and the impact on the employees of the acquired company will be greater.
Keywords: Organizational Culture, National Culture, Culture Fit, Internal Culture Fit, External Culture fit
1 Master International Business & Management student at the University of Groningen, Faculty of Economics
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TABLE OF CONTENT
1. Introduction 3
2. Literature Review
2.1. Internal merger and acquisition fit 6
2.2. National culture fit 9
2.3. Organizational culture fit 13
2.4. External merger and acquisition fit 18
2.5. Adaptation 19
3. Methodology
3.1. Research design 21
3.2. Data collection 21
3.3. Questionnaire and procedure 23
3.4. Measurement of organizational culture 25
4. Results
4.1. Introduction of the cases 26
4.2. Organizational culture outcomes 31
4.3. Interview outcomes 35
5. Discussion 38
6. Limitations and further research 41
7. Conclusion 42
8. References 45
9. Appendix 53
List of figures
Figure 1: The competing value framework (Cameron et al., 2006) 17
Figure 2: The competing value framework’s four cultural types (Cameron and Quinn) 18
Figure 3: Change framework (Siggelkow, 2001) 19
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1. INTRODUCTION
In the last decennia the importance and presence of international mergers and acquisitions have increased significantly. Nowadays they form an important part of the business environment (Douma et al., 2000). Due to increased competition and uncertainty in the global business environment, many firms engage in mergers and acquisitions to survive or increase their competitiveness (Murray and Kotabe, 2004). However, a lot of these mergers and acquisitions seem to fail which leads to disappointing experiences and results (Douma et al., 2000). Cartwright and Cooper (1993) note that, at best, merely half of all mergers and acquisitions meet initial financial expectations, with failure rates up to 60 percent. 75 percent of merger and acquisition failures are attributed to various types of culturally related problems (Segil, 1998). In particular, the lack of a cultural fit between partners has been frequently mentioned as a potential explanatory factor for merger failure (Weber and Schweiger, 1992). Therefore, the clash between the cultures of combining organizations has received growing attention by both practitioners and academics (Cartwright and Cooper, 1993). Cultural incompatibility has been found a cause for poor performance (Pothukuchi et al., 2002; Cartwright and Cooper, 1993; Douma et al., 2000; Prajogo and McDermott, 2011). The cost of these culture collisions resulting from poor integration can be as high as 25 to 30 percent of the performance on the merger or acquisition. These statistics make cultural fit of equal, or of even greater, importance than strategic or financial fit (Cartwright and Cooper, 1993). At present, however, selection decisions for mergers and acquisitions partners are generally driven by financial and strategic considerations. Marks and Mirvis (2010) explain this low priority that executives assign to managing culture by operational aspects of the cooperation that often overwhelm them.
4 organizational and national cultural fit between two partners involved in a merger or an acquisition. Second, research has treated both types of cultural fit as distinct (Morosini, 1998; Askansasy et al., 2000; Brannen and Salk, 2000; Hofstede and Hofstede, 2005). However, there is reason to assume that the two types are in fact interrelated and it is likely that a company develops an organizational culture that is in line with its national culture (Ozorhon et al., 2008). If this company gets taken over by another company it will come in contact with new organizational and national cultures. This is particularly the case when the company in question gets taken over by a more powerful company that will impose its organizational culture on the weaker acquiree. Rather than the question of a fit or misfit with the partner’s culture, the real problem in this case is that the new organizational culture imposed through the merger or acquisition leads to a distortion of the original fit between organizational and national culture. The purpose of this research is, thus, to look if this fit really gets distorted and what kind of effect this has on the acquired company. Hofstede and Hofstede (2005) have shown that individuals living in the same country share certain values and beliefs, which they bring to the companies for which they work. Therefore, it can be said that a company’s values are largely a reflection of its national culture (Hofstede and Hofstede, 2005) and that organizational culture is nested in national culture (Pothukuchi, 2002). As national culture will not change, we expect to see a distortion in the organizational culture fit of the acquired company with its new environment. According to Siggelkow (2001, 2002 and 2011), a distinction between internal fit and external fit can be made, where internal fit refers to the fit or internal consistency of single elements of the organizational culture and external fit refers to the fit between the company’s organizational culture and its environment – in this case, characteristics of the national culture. The purpose of this research, therefore, will be to give an insight in how the organizational culture and national cultures of organizations will affect a merger or acquisition. After having identified this issue the following research question evolved:
“ How do mergers and acquisitions between companies with different organizational cultures and national cultures affect internal and external fit of an acquired company?”
5 between national and organization culture of the acquired firm, a case study of two international mergers and acquisition is conducted. Interviews were taken with employees who were closely involved prior to and at the time of the merger or acquisition. In terms of this research we will only look at mergers or acquisitions that are relatively young. This research sampled companies that engaged in a merger or acquisition in the last five years. This for the reason that it otherwise will be too hard to identify the old organizational culture of the companies that were taken over, because the formers employees will not be able to recall all the characteristics of their old culture, because they are already used to the new one. Furthermore, with interviews with people who were closely engaged prior to and at the time of the merger or acquisition, this research hopes to find the effects of national culture distance. As earlier mentioned, the organizational culture will be measured using the organizational culture assessment instrument on the basis of two case studies that were involved in a merger or acquisition. Employees of the four companies will be asked to fill in the questionnaire in order to assess the organizational culture. On the basis of these results, the perceptions of the employees can be seen and the shifts between organizational cultures will become clear. After having conducted and analyzed the results, the research expects to find the effect of the distortion that is made through a merger or acquisition
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2. LITERATURE REVIEW
In the following part, a short overview will be given from the existing literature and findings from other authors on the important topics concerning this research. The topics that will be discussed in this part are internal merger and acquisition fit, national culture fit, organizational culture fit, external merger and acquisition fit, and theory on adaptation. This will provide the research with a solid base upon which the research can start.
2.1 Internal Merger and Acquisition Fit
7 Geringer (1988) argues that the selection of a company needs to consider a fit in two criteria. Task-related criteria, which refer to operational skills and resources a company needs. One should think about patents, technical know-how, access to marketing systems and financial resources. On the other hand, partner-related criteria refer to those variables that become relevant if the chosen investment mode involves the presence of multiple partners. Examples are: The corporate culture of a company, the size and structure of a company and the compatible trust between companies. In this research we will focus on the organizational culture and national culture of the companies.
Douma et al. (2000) have developed the generic fit framework. They relate fit with concepts as complementary balance, mutual benefits, harmony and dependency. They conclude that success in a merger or acquisition requires a good fit in five dimensions: Human fit, operational fit, cultural fit, strategic fit and organizational fit. In terms of this research, we will focus on cultural fit. The reason why the focus lies on cultural fit is that still a lot can be discovered and explored in this area, because it remains a topic that is both hard to define and explain. When trying to define the term cultural fit frequently there comes some kind of resistance, because the process of defining cultural fit not only requires the organization to define and commit to what it is, but also to what it is not. This process takes out the gray area of culture, where it is easy to hide. But perhaps, more significantly, it also touches upon an infinite number of intangibles and unwritten value codes that are hard to emphasize and decipher (Lauritson, 2010). This research will try to contribute and clarify the concept of cultural fit.
8 al. (1993) argue that ‘the degree of cultural fit that exists between combining organizations is likely to be directly correlated to the success of the combination’. All previous named authors agree that culture has a significant affect on the performance of mergers and acquisitions.
There are many established models for assessing the financial health and strategic fit of a potential partner. However, the criteria or framework by which to assess the likely culture fit between two organizations are vague and unelaborated. Consequently, their importance is often neglected or any assessment is likely to be made intuitively rather than systematically. Culture can be assessed in a variety of ways. Some existing measurement tools to assess the corporate culture of companies are the organizational profile questionnaire (OPQ) (Askansasy et al., 2000), Maull et al.’s (2001) personal, customer orientation and cultural issues (PCOC), and Cameron and Quinn’s (1999) organizational cultural assessment instrument (OCAI). Questionnaires, interviews and observations are generally used to measure culture (Cartwright and Cooper, 1993). In this research we will try to assess the culture and the impact of it through questionnaires and interviews.
Cartwright and Cooper (1993) have stated that as culture is as fundamental to an organization as personality is to the individual, the degree of cultural fit that exists between combining organizations is likely to be directly correlated to the success of the combination. When a culture clash occurs it is very important that top management notices this and behaves in a proper manner. This is because the motivation and commitment of top managers have a major influence on the motivation of other employees (Sales and Mirvis, 1984). According to Weber and Schweiger (1992), the consequences of a culture clash between two organizational cultures can be characterized by stress, distrust, and annoyance for both companies and negative attitudes towards each other during the cooperation. This in turn will lead to a reduction in commitment to successful integration of the companies.
9 unfolding of a culture clash works as follows: First, people will perceive differences between the two companies in the form of their leadership styles, reputation and decision-making. Then these differences will be magnified and aggravated. This is the start of the “we” versus “they” when talking about cultures. In the third stage of the culture clash people will start to typecast others in a partner company as embodiments of the other culture (Marks and Mirvis, 2011). Here the stereotyping occurs. Finally, the culture clash will reach full height as one partner company is put down as inferior. “We” becomes the superior culture and “they” becomes the denigrated culture.
As already mentioned, cultural differences have a negative effect on performance. One of the reasons of these negative effects are that organization members show a positive bias towards members of their own in-group and tend to hold a negative view about the members of an out-group in order to enhance the relative standing of their own kind. This in-out-group bias is the greatest when the out-group is perceived as very different from the in-group (Hogg & Terry 2000). The relation between culture and performance is still found to be very complex. However, whether cultural differences have a positive or negative effect on performance depends on the nature and extent of those differences, the interventions used to manage them and the integration approach taken (Stahl et al., 2004).
In summary, during the past 20 years, researchers interest in cultural fit has been increasing. However, important deficiencies exist in prior research. Although prior scholars have postulated different statements and phrases, there is a great lack of consistency in the definitions of fit (Yan and Duan, 2003). As Cartwright and Cooper (1993) suggest, “ culture fit and culture compatibility are well-used but ill-defined expressions”.
In the next part of the literature review some important background information concerning national culture, organizational culture, external fit and adaptation to new work environments will be given. It is important to have a basic knowledge on these concepts, as these four concepts are of great importance for this research. Furthermore, results from existing literature and findings will be mentioned to give a clear overview what has already been analyzed and found in prior research concerning these topics.
2.2 National Culture Fit
10 culture (Pothukuchi et al. 2002), this research will focus both on national culture and organizational culture. First of all, national culture will be discussed followed by organizational culture.
Hofstede et al. (1990) found that, whereas organizations from different nations differ in fundamental values, organizations from the same nation only differ in organizational practices. Hofstede and Hofstede (2005) have shown that individuals living in a particular country share norms and values which they bring to the company they work for. Therefore, you can say that a firm’s values are a reflection of its national culture. For this reason, companies from different countries tend to have different values. Due to these value differences, partnering companies from different nations tend to encounter problems to agree on common goals, certain solutions to problems, and resolutions to conflicts than if they would come from the same country.
Prior research has found mixed empirical evidence that different national cultures have an effect on the performance of a merger or acquisition. Some researchers argue that national cultural differences lead to conflicts and barriers (Sim and Ali, 2000). Nielsen (2002) and identified three interrelated negative effects that were created through national cultural differences in mergers and acquisitions: (1) cultural distance can lead to communication problems, which may hinder knowledge exchange and inter-organizational learning; (2) it can cause managerial conflicts due to misunderstandings, which may lead to additional costs; and (3) it can influence partner firm approaches to conflict resolution, which may adversely impact operations. Furthermore, Sirmon and Lane (2004) state that cultural differences stemming for national cultures inhibit employees to interact effectively.
However, some researchers found positive outcomes when companies from different countries collaborate with each other. Luo et al. (2001) found that differences in national cultures were a source of admiration and challenge, leading to a higher level of communication and more sustained collaboration. Furthermore, Orr and Levitt (2004) imply that national cultural differences lead to higher performance, if only very slightly.
11 (2001) reported that the differences between companies’ national cultures did not affect performance.
Cultural differences can be measured in several ways. One of the earliest researchers in terms of cultural differences were Hall and Hall (1976). They summarized cultures mainly in high and low context cultures, where high context means that there are many unwritten rules and low context means that a lot of explanation is needed, but the chance of misunderstandings is low. Furthermore, they took time (monochromic/polychromic) and space into consideration when investigating cultural differences (Missana, 2011).
Some other researchers should be mentioned with regard to research on cultural differences. One of the most well-known persons with regard to cultural differences is Hofstede with his empirical framework of national culture based on a survey of 117.000 IBM employees across 72 countries and three multi-country regions. Researchers all over the world have used the outcomes from Hofstede (1980) for their studies (Scheffknecht, 2011). His study breaks national culture down into the dimensions power distance, uncertainty avoidance, individualism-collectivism, masculinity-feminity, and long-term orientation. With power distance the degree of equality or inequality between people in a country’s society is meant and uncertainty avoidance focuses on the level of tolerance for uncertainty and ambiguity within the society, where a low ranking indicates that the country has less concern about uncertainty and has more tolerance for a variety of opinions. Furthermore, individualism focuses on the degree the society reinforces individual or collective achievement and interpersonal relationship and masculinity focuses on the degree the society supports or does not support the traditional masculine work role model of male achievement, control, and power. Finally, long-term orientation focuses on the degree the society takes long-term commitment into account to traditional, forward thinking values (Ozorhon et al, 2008).
12 homogeneity (Missana, 2011).
At last, the GLOBE (global leadership and organizational behavior effectiveness) study from House is a very well-known cultural difference research. In this study nine cultural dimensions are studied, which focus on the relationship between different cultures of societies. The cultural dimension on which the GLOBE study focuses are performance orientation, uncertainty avoidance, humane orientation, institutional collectivism, in-group collectivism, assertiveness, gender egalitarianism, future orientation and power distance (House et al., 2004).
Nowadays, the GLOBE study from House et al. (2004) and Hofstede’s study are the most well-known and frequently used national culture measurements. Both researchers have established a valid dataset that is used by many researchers and practitioners. The reason why this research chose to use the study of Hostede to determine national culture distance is as follows; first of all, the GLOBE respondents were only managers and the respondents in the Hofstede study were employees. Measuring for example leadership from survey answers by leaders is a debatable approach in my eyes. Secondly, the development and analysis of the GLOBE questionnaire was theory-driven, based on existing literature of Hofstede, while the Hofstede study was action-driven and dealt with issues that employees considered relevant in their work situation (Hofstede, 2006). Finally, this research chose to use the Hofstede study, because the GLOBE is United States inspired, while the Hofstede study is much more decentred. Even though the respondents of the GLOBE study were very international, its project design and analysis reflects United States hegemony. Due to these reasons, the study of Hofstede and Hofstede (2005) seems the most suitable for this research.
13 The following section will give you a brief explanation on the concept of organizational culture and will give theoretical background on the organizational culture assessment instrument (OCAI). This instrument will be used in order to assess the organizational culture of the sampled companies.
2.3 Organizational Culture Fit
There has already been done a lot of research on organizational culture and what kind of effect coinciding cultures have on performance. But before we can look at prior research of organizational culture and its effect on performance, we first have to define the term organizational culture. Many researchers have constructed different definitions for this term. For example, Schein (1996) states that organizational culture is “the set of shared, taken-for-granted implicit assumptions that a group holds and that determines how it perceives, thinks about and reacts to its various environments. Deshpande and Webster (1989) posit organizational culture as “the pattern of shared values and beliefs that help individuals understand organizational functioning and thus provide them with norms for behavior in the firm”. In terms of this research, organizational culture will be used as follows; “the social or normative glue that holds an organization together. It expresses the values or social deals and the beliefs that organization members come to share” (Smircich, 1983). Thus, organizational culture forms a type of social control that identifies appropriate behaviors and attitudes for organization members to display (O’Reilly and Chatman, 1996). Furthermore, culture provides members with an organizational identity and facilitates collective commitment (Smircich, 1983). Differences in organizational culture mostly exist when alliances, mergers or acquisitions are formed between different countries.
14 Furthermore, organizational culture differences negatively affect international companies’ satisfaction within the relationship (Pothukuchi et al., 2002). In the context of mergers and acquisitions, scholars have generally argued that mergers and acquisitions between culturally similar companies are more likely to be successful than merger and acquisitions between culturally dissimilar companies (Pothukuchi et al., 2002). They say that different culture types create different psychological environments for the company and these differences lead to different practices, which in turn have negative influences on performance. Moreover, having examined a large sample of mergers and acquisitions, Pothukuchi et al. (2002) also found that “the presumed negative effect from partner dissimilarity on performance originates more from differences in organizational culture than differences in national culture”. It can, thus, be said that similarities of companies’ organizational culture increases company learning, satisfaction and effectiveness of interaction, whereas differences in organizational culture deteriorate these positive outcomes (Sirmon and Lane, 2004). In addition, results from Ozorhon et al. (2008) suggest that organizational culture is highly associated with performance. These performance results were verified on two performance indicators, namely “project performance” (objective) and “overall satisfaction” (subjective).
To conclude, organizational culture differences differentiate companies based on their management practices, which are essential for the successful and smooth running of an organization. When organizations have different cultures, these differences may result in conflicting behavior, leading to misunderstandings and communication problems. Additionally, cultures may expand time and energy to establish managerial practices and routines to facilitate interaction, and may incur higher costs and more mistrust than culturally similar companies (Park and Ungson, 1997). Furthermore, Brown et al. (1989) state that compatibility in organizational cultures could be a significant determinant of performance. Research on organizational culture similarity indicates that firms selecting a company that has a similar culture will have superior performance (Fey and Beamish, 2001).
In order to assess the organizational cultures of our sampled companies we will use the competing values framework (CVF). Before using this framework some theoretical background should be explained.
15 assess the CVF have been administered in over 10.000 organizations worldwide (Cameron et al., 2006) within the following sectors: Private sector, public sector, education, health care, new start-ups and NGO’s (Cameron, 2004). Furthermore, the reliability and content validity of Cameron and Ettington’s (1988) measure of the CVF has been empirically supported in studies utilizing multitrait-multimethod analysis (Quinn and Spreitzer, 1991), multidimensional scaling (Howard, 1998), and structural equation modeling (Kalliath et al., 1999). Consequently, it has been rated as one of the 50 most important models in the history of business study and has proven its worth since its conception in the mid-1980’s (Igo and Skitmore, 2006).
The competing value framework was developed from Campbell’s (1977) 39 effectiveness indicators. Seven academic experts were asked to evaluate which of these indicators were relevant for organizational effectiveness and these responses were analyzed with multidimensional scaling (Hartnell et al., 2011). Results revealed a three dimensional framework representing the core values of an organization (Igo and Skitmore, 2006). From this, Cameron and Quinn (1999) further developed an assessment tool employing the competing value framework as a means of determining the importance of culture characteristics within an organization and establish the organization’s dominant culture type and overall culture profile in terms of four cultural forms and six key dimensions of organizational culture.
16 In order to find out which culture type a certain organization has, the OCAI tries to find the six key dimension of organizational culture in a company. The assessment instrument looks at the dominant characteristics of the organization, its leadership style and the management of the employees, so how are the employees treated and what is the working environment. Furthermore, it looks at the organization’s criteria for success, its strategic emphasis and at the organizational glue. With organizational glue is meant how bonding mechanisms like cohesion and teamwork, rules and policies and, entrepreneurship and flexibility hold together. After having conducted these six key dimensions you are able to identify and assign a culture to an organization.
The four cultural types comprising the competing value framework are the clan, adhocracy, market and hierarchy culture types. The clan culture type is internally oriented and is reinforced by a flexible organizational structure. It places an emphasis on human relations and adopts flexible operation procedures focusing on internal relationships. A core belief in clan cultures is that the organization’s trust in and commitment to employees facilitate open communication and employee involvement. Core values include teamwork, fairness, consideration and co-operation, which make an organization with a culture like this generally a very friendly place to work. Consequently, clannish organizations value attachment, affiliation, membership, and support (Cameron and Quinn, 1999).
The adhocracy culture type is externally oriented and is supported by a flexible organizational structure. It is generally a dynamic, entrepreneurial, and creative place to work where people stick their necks out to take risks. Hence, adhocracy organizations value growth, stimulation, variety, autonomy, and attention to detail (Quinn and Kimberly, 1984). Furthermore, they value creativity, risk taking, experimentation and adaptability (Igo and Skitmore, 2006).
17 At last, the hierarchy culture type is internally oriented and is supported by an organizational structure that is driven by control mechanisms. It strives for stability and control through clear task setting and enforcement of strict rules. A predominant belief in hierarchy cultures is that employees meet their goals when their roles are clearly defined. Furthermore, it places high value on precise communication, conformity, routinization, formalization (Quinn and Kimberly, 1984), order, and obedience (Igo and Skitmore, 2006).
Figure 1: The competing values framework (Cameron et al., 2006)
18 In summary, the CVF suggest that culture types consist of a combination of the organizations focus and structure. Each type has different sets of behaviors, beliefs, values, and assumptions that influence the organization’s effort to attain their goals. Hence, CVF theory suggests that culture types are expected to relate to different organizational effectiveness indicators as a function of their basic assumptions, values, and structure (Hartnell et al., 2011).
Figure 2: The competing values framework’s four cultural types (Cameron and Quinn, 1999)
2.4 External Merger and Acquisition Fit
This section will describe theoretical background on external fit. The first part of the literature review has described the theoretical background on the internal fit, namely the fit between organizational cultures and the fit between national cultures within companies that engage in mergers and/or acquisitions.
19 change. Fit-conserving change occurs when the external fit changes, while the internal fit stays intact. Detrimental fit-destroying change occurs when the internal fit as well as the external fit is affected. Siggelkow (2001) has developed a change framework what will happen when internal and external fit changes and this can be seen in figure 3.
Figure 3: Change Framework (Siggelkow, 2001)
2.5 Adaptation
As already mentioned, transitions like mergers and acquisitions have proven to be difficult events for organizational leaders to manage and for organizational members to experience. As a result, a merger or acquisition usually has a negative impact on the well-being and performance of the employees. Due to the fact that so many mergers and acquisitions fail to succeed, Marks (2006) constructed a framework for employees in order to adapt to the new work environment. This framework was constructed to minimize the undesirable consequences of a merger or acquisition.
20 First of all, it is important to know what scares and causes these negative results. Many people might think that due to a change employees become less satisfied, but this is not completely true. One of the major reasons for this dissatisfaction is due to the fact that within mergers and acquisitions people have to follow a path that goes to an unknown state. A change is a path to a known state, something discrete. For example, moving the weekly staff meeting from 4.00 pm to 5.00 pm. This may cause some disruptiveness, but it’s discrete and people know what they can expect the coming period. In contrast, a transition, which is the case in mergers and acquisitions, employees do not exactly known what they can expect. Something discontinuous is happening that involves many interactive changes and new ways of thinking, organizing and doing business is opposed on them. Thus, existing practices and routines must be abandoned and new ones discovered and developed (Marks, 2006).
Knowing this makes adaptation to a new situation even more important. William Bridges (1991) describes adaptation to transition as an internal process of moving through three stages: Ending and letting go of attitudes and behaviors, going through the neutral zone of confusion, ambiguity, and perhaps despair, and making a new beginning by accepting the new environment. A lot of employees do not surpass the first stage and are not able to let go of the old reality. Marks (2006) argues that all change is a loss of familiar routines and the more one has to leave behind the more one’s behavior will take the form of resistance.
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3. METHODOLOGY
3.1 Research Design
The nature of this research is mainly explorative and descriptive where there will be looked at how organizational and national culture differences affect internal and external fit of an acquired company. This research utilizes both descriptive and exploratory research methods in the conduct of the study. Descriptive research is a method used to obtain information relating the current status of the research problem (Creswell, 1994). In terms of this research, the descriptive research tools that are used are questionnaires and interviews. This research will make use of the results of these questionnaires and interviews to come up with an answer to the research problem
Exploratory research is utilized to yield information to explain problems that are not yet clearly defined or the real scope is still a bit unclear. Therefore, this research is an exploratory attempt to gather information about the organizational and national culture differences and their effect on internal and external fit after a take-over has taken place. This research makes use of existing literature in order to verify the questionnaire and interviews and come up with preliminary ideas regarding the research problem. Furthermore, it makes use of case studies to come up with answers to the research problem. Case studies are used, because this method involves an in-depth examination that investigates a phenomenon within its real-life context.
3.2 Data collection
Two international mergers and acquisitions were chosen in terms of this research. The companies that were chosen were selected based upon their differences in national cultures, because they could be measured beforehand. In the case of Vattenfall and Nuon, national cultures were chosen that were relatively similar and in the case of Disney and Jetix, national cultures were chosen that differed more from each other than the first case. Thus, this research tries to find evidence if national cultural distance has influences as well as organizational culture differences in mergers or acquisitions. In order to find these differences more clearly, this research looks at all the dimensions of Hofstede and Hofstede (2005).
22 the Netherlands do not differ a lot from each other’s national cultures. Especially on the power distance, individualism and masculinity dimensions the differences are not really significantly big. On the last two dimensions, however, the differences are a bit larger. The uncertainty avoidance and long-term orientation shows significant differences between the two national cultures. In figure 4 you can see a clear picture of the differences;
Figure 4: Cultural Dimension Differences Between Sweden and the Netherlands
Furthermore, the scores of the dimensions of the United States are displayed below in comparison to the Netherlands. As a result, you can say that on four of the five dimensions, the United States scores the same as the Netherlands, namely on the power distance dimension, the individualism dimension, the uncertainty avoidance dimension and long-term orientation dimension. Only on the masculinity dimension the United States scores a completely different score. Thus, you can see that the national cultures of these two countries have a lot in common and only one big difference. Figure 5 will make these similarities and differences clear.
23 Having retrieved the data for the 5 dimensions of the national cultures as defined by Hofstede and Hofsted (2005), it is also useful to have one national cultural distance index number for every country compared to the Netherlands. In this way it is easier to compare the countries of the mergers and acquisitions with each other. In order to come to such a number, the Kogut and Singh (2011) formula has been used. The following steps were taken to get the overall Kogut and Singh (2011) number for national culture for the sampled countries. The Netherlands was taken as the home country as it is involved in both cases and Sweden and the United States were compared against it and in this way an overall national culture number can be appointed to the sampled countries. First of all, the differences are calculated on each dimension for the countries compared to the Netherlands. Then all the differences were squared on each dimension. The outcome of these squared differences were then divided by the overall variance per dimension of all the countries measured by Hofstede and Hofstede (2005). Finally, you sum up the outcomes per dimension and divide it through the number of dimensions measured to get the average distance (Kogut and Singh) per country. The overall national culture distance number for the United States compared to the Netherlands is 1,802 and for Sweden compared to the Netherlands 0,376.
3.3 Questionnaire and procedure
24 the second time ‘after the take-over/’. In this way you can measure the way employees perceive their organizational culture and what has changed when their company was taken over, or when their company took over another company.
Many elements of culture are unclear to its employees, because people take them for granted (Marks and Mirvis, 2010). However, in the case of a merger or acquisition employees come in contact with other cultures and the cultural differences become salient (Marks and Mirvis, 2010). In terms of this research, the research was conducted when the companies were already merged or taken over. Therefore, in order to still collect the necessary information about the organizational cultures retrospective data has been used. Retrospective data gathering has an advantage, because as already mentioned, many element of organizational culture are unclear to its members, because employees take them for granted (Schein, 1985). Dramatic events such as mergers and acquisitions and contact with new organizational cultures make differences more visible. Retrospective data can thus be very useful for studying the perceptions of employees between different organizational cultures. It has also been observed that attitudinal as well as behavioral data do not become less accurate over time, even for periods of ten years (Finkelstein, 1992). On the other hand, the principal disadvantage of retrospective data is considered to be their poor quality. This is due to the fact that former employees might not recall everything as clear as they actually were.
Furthermore, the questionnaire was mailed directly to a close contact of the researcher who was in the acquired company prior to and at the time of the acquisition. Due to the strong personal ties the researcher has yielded the 76 responses to the questionnaire. All respondents were guaranteed anonymity, and completed questionnaires were returned directly to the authors by mail. These questionnaires that use perceived organizational differences as a measurement have been found to have a very high reliability and validity. One of the biggest advantages of this kind of questionnaire is that people’s behaviors and attitudes are determined by their perception rather than the actual or objective situation (Weber et al., 1996).
25 when adapting to new organizational cultures and which problems they encountered. There was explicitly chosen to interview persons who were closely involved prior to and at the time of the merger or acquisition, because these persons can exactly tell what kind of differences they experienced when going from one organizational and national culture to another one. In these interviews questions were asked concerning national cultures, adaptation of employees, consequences of the acquisition and employees behavior during the transition period. Furthermore, questions concerning improvements during mergers and acquisitions were asked. In total four persons were interviewed, two from both companies, in which all four of them where closely involved prior to and at the time of the merger or acquisition.
3.4 Measurements
This section describes the measure that is used in this study. The complete questionnaire can be found in the Appendix.
Organizational Culture
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4. RESULTS
First of all, the companies in the sample will be introduced to give you an idea what kinds of companies were used in this research. Then the results of the research will be displayed of the organizational culture measurements according to the organizational cultural assessment instrument (OCAI). The shifts in organizational culture after the acquisitions will be highlighted and elaborated on. The purpose of the result part is to give a clear understanding and image what happens in the perceptions of the employees after a merger or acquisition.
4.1 Introduction of the cases Nuon
Nuon is an energy company with 5800 full-time employees who serve around the 2,6 million consumers, (public) organizations and businesses in the Netherlands. Nuon produces and supplies electricity, gas, heat and cooling and it offers its customers a range of energy-saving products and services. Nuon always seeks to provide reliable, affordable and clean energy while working to distinguish itself as a sustainable entrepreneur. Nuon tries to achieve a balanced growth for all their stakeholders, namely the shareholders, customer, employees, the environment, as well as the society at large.
27 unders its own brand until 2013. In 2010 the former CEO of Nuon, ∅ystein Løseth, became the new CEO of Vattenfall and Huib Morelisse is appointed as CEO of Nuon.
The mission of Nuon is to be an inspiring energy company creating sustainable value and growth by setting new standards. And their vision is to be an international integrated energy company that is a trusted energy adviser for customers, leads the way in reducing CO2 emissions and is an attractive employer. In order to achieve this mission and vision a strategy has to be followed. The strategy that Nuon follows can be summarized in three ambitions: Outperform their competitors, becoming an integrated energy company and consider the society and the environment.
Nuon operates within three business units, namely power, heat and services, sales, and business development and projects. The power, heat and services department is responsible for the production of electricity, heating, cooling, and gas storage. This department has a market share of 17% in the Netherlands, making it one of the biggest electricity producers in the Netherlands. The business unit of sales takes care of the sale and supply of gas and electricity to consumers and businesses in the Netherlands. This business unit is also responsible for the sale of high-efficiency boilers, security systems, insulation, energy advice and small energy-saving products. The last unit in which Nuon operates is the Business Development and Projects unit. This department is responsible for the development and realization of new investment projects such as gas storage facilities, sustainability projects and power plants. These kinds of projects are of great importance to Nuon in terms of business continuity and sustainable future plans of the organization.
Lastly, as Nuon is an energy company, it delivers electricity, gas, heating and complementary services. However, Nuon not only delivers this, but also produces energy. Electricity is generated using various types of fuel such as gas, biomass and coal. Nuon always wants to generate energy that is harmless to the environment, thus they use the wind (wind energy), water (hydropower) and sun (solar energy) to generate electricity.
Vattenfall
28 Germany, Sweden, the Uk, Belgium, Denmark, Poland, and Finland. In September 2010, Vattenfall labeled the Netherlands, Sweden and Germany as its core countries as part of a new strategic direction. Vattenfall focuses on improving cash flow, strengthening the financial position and future growth. They also aim to improve its CO2 profile and be a leader in developing sustainable electricity and heat production. Therefore, electricity is generated with low CO2 emissions, such as wind power, natural gas, hydro power, biomass fuel, and nuclear power. In late 2011, Vattenfall along with subsidiary Nuon announced plans to build the 122 megawatt Zuidlab wind farm for an estimated of 159,27 million euro’s. Furthermore, Vattenfall is an integrated energy company with three product groups, namely electricity, heat and gas and it has approximately 38.000 full-time employees in total.
Vattenfall is a very old state-owned company and was already founded in the period 1909-1916 when the first large hydro plant was built in Sweden. Vattenfall’s business was largely restricted to Sweden, with a focus on hydroelectric power generation. In 1996 Vattenfall began to expand internationally and they acquired a Finnish electricity distribution center and started a joint venture with a German energy company. From 2000 to 2008, Vattenfall performed several acquisitions in Germany, Denmark and Poland, and their presence became bigger and bigger in these countries. As already mentioned, in 2009 Vattenfall took over Nuon and nowadays it has power generation branches in Germany, Poland, the Netherlands, Finland, Denmark, the UK, Belgium and Sweden, as well as business in 90 different countries around the world via its consulting company, Vattenfall Power Consultant
The vision of Vattenfall is to develop a sustainable, diversified European energy portfolio with long-term increased profits and significant growth opportunities. Besides this vision, Vattenfall wants to be the leader in developing environmentally sustainable energy production. Vattenfall generates electricity from fossil fuels (52%), nuclear power (25%), hydropower (21%), and other sources (wind, biomass, solar, waste) (2%).
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Jetix
Jetix was a children’s television broadcasting channel that was part of the ABC Family Worldwide, which was an indirect part of the Walt Disney Company. In the Netherlands Jetix existed from 2005 until 2009, and it succeeded the broadcasting channel Fox Kids. When taken over by Disney, Jetix had to change its broadcasting’s channel name into Disney XD.
Jetix was a company that did not exist for a very long time (4 years) and it has always been a small company. Jetix only had 50 full-time employees and was located near Amsterdam. In order to earn money Jetix sold advertisement space on their broadcasting channels in the form of commercials. They sold this to companies that were interested in the same target group as Jetix, namely kids between the 6 and 12 years old. Potential advertisers were, for example, McDonalds and Lego. Besides selling advertisement on their broadcasting channel, they also sold advertisement space on their website, in the Jetix magazine and on children’s events.
Furthermore, the company was build up of four divisions; sales, marketing, programming and finance. The sales division was responsible for contacting the advertisers, the marketing division was responsible for creating awareness of the programs Jetix broadcasted and promotions and the programming division was responsible for the purchasing and programming of the shows that were broadcasted on the television channel. At last, the finance division was responsible for all the actions concerning the finance.
In 2009, Jetix was taken over by Disney and the main reason for the take-over was that Disney wanted to control the marketing in the Netherlands for their target group of children between 6 and 12 years old. Jetix reached 96% of the target group monthly and this was very interesting for Disney. Therefore, in July 2009 Jetix was transformed into Disney.
Disney
30 entertainment, consumer products and interactive media. Media networks include a vast array of broadcast, cable, radio, publishing and digital businesses across two divisions; the Disney/ABC Television Group and ESPN Inc. This segment also deals with content development and distribution functions. Furthermore, it supports headquarters, communications, digital media, distribution, marketing, research and sales groups. Disney channels worldwide are included in this segment.
Another business segment of Disney is the parks and resorts. Currently, Disney owns 11 theme parks and 43 resorts in North America, Europe and Asia, with a sixth destination currently under construction in Shanghai. Besides the parks and resorts, Disney also has the business segment of the studios. This segment has been the foundation on which the Walt Disney Company was built. Nowadays, the studio brings movies, music and stage plays to consumers throughout the world. Pixar Animation Studios, Touchstone Pictures and Marvel Studios are all part of Disney.
The last two business segments of the Walt Disney Company are the Disney consumer products and Disney Interactive Media Group. The first segment mentioned extends the Disney brand to merchandise ranging from apparel, toys, home décor, books and magazines to foods and beverages, stationery, electronic and fine art. The latter and fifth segment mentioned is mainly concerned with entertaining kids, families and Disney enthusiasts with products that push the boundaries of technology and imagination.
31 In the following part the results of the research will be presented and the most salient findings will be highlighted and elaborated on.
4.2 Organizational Culture Outcomes
The descriptive statistics tables (see Appendix) display the results for the organizational cultures that every company scored based on the organizational culture assessment instrument (OCAI). Furthermore, the mean of the questions per category are displayed, the standard deviation, the skewness, kurtosis and the number of respondents per company. These tables are included in the research, because it gives a clear representation of the organizational culture. Out of these tables, we can easily see which type of organizational culture is dominant and which ones are less present within a company before and after the acquisition.
Table 1 (appendix) shows the scores of the culture for the Jetix company and as you can see there has been a clear shift from a flexible environment to an environment with more stability and control. Before being taken over, the clan – and adhocracy culture were the predominant ones and the market – and hierarchy culture scored significantly lower. After the take-over the former employees of Jetix perceived the organizational culture as follows; a much more hierarchical environment, which is more focused to be a market leader. The former Jetix employees perceived the new organizational culture less as a clan culture and adhocracy culture. Furthermore, all the standard deviation scores are between 0 < σ < 1, meaning that there exists a low variation from the average (mean). Lastly, the scores on the skewness and kurtosis show us that the skewness is not seriously violated and the kurtosis shows us that the distribution is relatively in a good balance.
32 skewness and kurtosis do not show any strange deviations. Thus, the skewness is not violated and the kurtosis is evenly distributed.
Table 3 (appendix) displays the scores of the former Nuon employees. As can be derived from the table, Nuon employees saw, when they worked at Nuon, the organizational culture especially as a market culture accompanied with a strong clan culture. The scores on the hierarchy level are relative average and the scores on the adhocracy culture are below average. After the acquisition, the former employees of Nuon perceived a big change in the organizational culture. They perceived a big decrease in the clan culture and market culture, and a big increase in the hierarchy culture. The adhocracy stayed more or less the same. Furthermore, as with Jetix and Disney, the standard deviation fell between 0< σ < 1, meaning that there exists a low variation from the average scores. Lastly, the skewness and kurtosis scores show nothing extraordinary and can thus be seen as significant.
Table 4 (Appendix) displays the scores of the Vattenfall employees. As can be derived from the table, the Vattenfall employees perceive their organizational culture very much as a hierarchical culture. Furthermore, they score relatively high on the clan culture and market culture. Just like Nuon, Vattenfall scores the lowest on the adhocracy culture. Just as the other three companies, Vattenfall’ s scores are not extraordinary or out of line, thus the standard deviation, skewness and kurtosis can be accepted as reliable.
To conclude, out of these descriptive statistical scores, the organizational culture per company can be derived. As already mentioned above, the clan culture and adhocracy culture can be assigned to Jetix as the dominant ones, and the market culture and hierarchy culture as the less dominant ones. However, for Disney, the higher scores lie more at the hierarchy culture and market culture. Nuon’s most predominant culture is the market culture and clan culture, while for Vattenfall it is the hierarchy culture.
33 and Disney, and table 6 (Appendix) shows the independent sample test for Nuon and Vattenfall.
These independent sample tests show if there is a significant differences between the scores per culture type between the two companies. P < 0,05 means that there is a significant difference between the scores on that culture type dimension. If you have a look at table 5, you can see that before the take-over of Jetix, there was a significance differences between the clan culture, adhocracy culture, and hierarchy culture. Before the take-over there was not a significant difference between the market culture, as it scored a significance of 0,10, and this is higher than 0,05. This means that the market cultures of both Jetix and Disney were more or less the same before the take-over. All these scores imply that there was a big difference in the organizational cultures of both companies before the take-over.
However, if you look at the scores after the take-over, you see a whole different story. If you look at the significance scores in this independent sample test, you can conclude that none of the cultural dimensions have significant differences. All the scores are >0,05, meaning that there are no significant differences between the two organizational cultures. What you can conclude from these numbers is that the former Jetix employees perceive their new organizational culture as the one Disney already had. So the take-over of Jetix by Disney did not make any significant differences in the organizational culture of Disney. You can say that many employees of Disney have hardly noticed anything of the take-over in the organizational culture. Maybe, at most, the awareness that there are some new faces at the office.
In the case of Nuon and Vattenfall a kind of similar story exists. When comparing the cultures before the merger (table 6a, appendix), many differences exist. There existed a significant difference in the clan culture, market culture and hierarchy culture. All of these scores were < 0,05, making it a significant difference. The only difference that was not significant was for the adhocracy culture, because the adhocracy scored 0,241 in the significance test and this is bigger than 0,05. Thus, no significant difference existed on this dimension.
34 employees of Nuon perceive the hierarchy level at a higher level than the employees of Vattenfall do. One reason for this is that the employees from Nuon come from an organizational culture that was much more focused on a clan and market culture, thus making the transition to a more hierarchical environment look bigger than it actually is. Between the clan culture, adhocracy culture, and market culture no significant differences were found after the take-over. Thus, as in the case of Jetix and Disney, the former Nuon workers perceive the organizational culture of Vattenfall as it has always been and the employees from Vattenfall do not feel many differences after the take-over of Nuon.
35 To give a clear overview of the things that have been mentioned above, table 7 and 8 (Appendix) give you a clear picture of the differences between the companies before and after the take-over. In these tables the shifts between the organizational types per company are clearly shown and a comparison is made between the companies.
In order to test the reliability of the questions Cronbach’s alpha is used. A distinction is made for the questions testing the certain organizational cultures. So the Cronbach alpha tests the questions concerning the clan culture, adhocracy culture, market culture and hierarchy culture for their reliability. Cronbach’s alpha values were calculated as .0.74, 0.84, 0.82, and 0.78 (table 9, appendix). These reliability values are satisfactory, because they are above the 0.70, the minimum value recommended by Nunally (1978).
4.3 Interview Outcomes
Besides measuring the organizational culture, interviews were taken from employees that were closely involved prior to and at the time of the merger or acquisition in order to find out how employees perceived the transition from one organizational and national culture to another one and the accompanying consequences that it brings with them. The most salient findings from these interviews are described below.
In the case of the acquisition of Jetix by Disney, the former employees of Jetix felt a difference in national cultures. The Jetix employees said that the Dutch national culture was more lenient and understanding than the national culture of Disney. This was especially noticeable on the masculinity dimension. Within the Jetix company employees were far more caring for each other than in the new work environment of Disney. At Disney there is much more aggressiveness on achievement and success. It is not strange that the former employees of Jetix have noticed this kind of behavior, as the national culture of the United States and the Netherlands differ significantly on this dimension.
36 another Dutch amusement park would like to invest, the division of parks and resorts will complain, because there task is to promote Disneyland Paris and they do not want to make promotion for other amusement parks. At Jetix, there only was a television channel, so no other interests had to be taken into account. So the former employees of Jetix found that everything runs at a lower pace and less smoother at Disney than at Jetix. Before a decision can be made at Disney, the proposition is checked by Disney Europe and they are in turn checked by Disney headquarters in the United States. So everything takes much longer and much more interests have to be taken into account compared to Jetix. All the former Jetix employees said that the American DNA is very noticeable in the company.
The consequence of this shift was that 80% of the former Jetix employees quit their jobs at Disney, because they could not cope with the new rules and new work environment. They said that due to the loss of freedom, clarity and personality they were not able to work at Disney any more.
One of the biggest problems according to the former Jetix employees who still work at Disney nowadays was that they did not get any guidance during the transition period. According to them, many former employees of Jetix left Disney, because they kept on thinking about the past and how it was at Jetix. They also kept on comparing Jetix with Disney. Furthermore, many employees did not know what was going to happen in the transition period due to a lack of information, which resulted in uncertainty. Therefore, there should be more information available that will make the transition period easier to overcome. The people who managed to stay after the acquisition said that you have to let the old culture go and do not compare it with each other. This is very much in accordance with the framework that was created by Marks and Mirvis (2010). These people saw the acquisition as an opportunity with new possibilities and challenges. However, they still say that a coach would have been very helpful during the transition period to decrease the level of uncertainty.
37 transition has a smaller impact than the former case discussed due to the fact that the organizational cultures as well as the national cultures were already more similar than Jetix and Disney. So you can say that if organizational cultures and national cultures differ more from each other, the internal and external fit between the companies will be bigger and the impact and effects will also be greater on the employees of the acquired company.
Furthermore, due to the fact that the national cultures between the Netherlands and Sweden differ less than the former case, the impact is also smaller. The former workers of Nuon do not have a lot of trouble with the new national culture. This is probably due to the fact that the differences on each dimension are not very big. However, Nuon workers did feel one difference and this was also on the masculinity dimension. Even though the Netherlands and Sweden are both feminist countries and that the culture differences on this dimension are very small, the former Nuon employees really noticed a difference. The Vattenfall employees really give a priority to quality of life and are not very direct in negotiations. When former Nuon employees negotiated and were very direct, the Swedish employees felt offended. Furthermore, Swedish employees left the office at four o’clock to pick up their kids from school for example and spend time with them and then worked again in the evening for a few hours. These two differences were most salient in the culture difference for the former Nuon employees, but overall the new national culture of Vattenfall did not have a huge impact on the acquisition.
Similar to the Jetix – Disney case, many former Nuon employees have been living and are still living in uncertainty concerning their future in the company. As of next year the company will be completely taken over by Vattenfall and will operate under its name and this brings a lot of uncertainty with it. People do not exactly know what to expect and feel that they are kept in the dark. As in the former case, due to lack of information and uncertainty quite some people left Vattenfall. The former Nuon employees, just like the Jetix employees, had the need of guidance through this transition period and former Nuon employees still want this to happen to reduce the uncertainty and increase the availability of information concerning the future of the company.
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5. DISCUSSION
Previous research on factors that influence mergers and acquisitions exclusively focused on the influence of national culture or organizational culture separately. This research contributes by directly investigating the effects of two levels of cultural distance in mergers and acquisitions and offers a few important findings. The findings demonstrate that organizational culture and national culture transitions do have an effect in mergers and acquisitions. Taken as a whole, the findings emphasize the importance of understanding the role of national and organizational cultures shifts during mergers and acquisitions. From a managerial perspective, these findings help firms identify the specific cultural dimensions, which need to be taken into account when taking over other firms in order to diminish the potential for conflicts.
The results show that there is a clear shift from the acquired companies’ organizational culture to the organizational culture of the acquiring company. In both cases you can see that the employees perceive the new organizational culture as their new culture and the old organizational culture has changed significantly. The internal fit changed a lot for the employees of Jetix and Nuon. Out of this you can say that the organizational influences of the acquired company almost has no effect on the existing organizational culture of the acquiring company. The internal fit for the employees of Disney and Vattenfall are therefore not affected. The bigger acquiring company just imposed their organizational culture upon the new employees and there is no room for change. In both cases, the existing organizational cultures of the acquiring companies were not affected.
39 see the organizational culture of the acquiring company as their new organizational culture and perceive it in the same way as the employees of the acquiring company does. However, this did not happen as the Jetix employees ranked the market and hierarchy culture type higher than the employees of Disney did and the Nuon employees ranked the hierarchy culture type higher than the Vattenfall employees. This is probably due to the fact that the former Jetix and Nuon employees over-exaggerate on certain points, because in their former organizational culture it was less hierarchical so it looks more hierarchical in their eyes than it actually is.
Besides imposing a new organizational culture on the acquired company, they also come in contact with new national cultures. This affected the external fit of the acquired company, because it changes the compatibility of the organizational culture with the national culture. Due to the fact that a company’s organizational culture is in line with its national culture (Pothukuchi, 2002), the imposing of a new organizational culture on a company will distort this fit. In both cases this was also the case. However, the influences were greater in the case of Jetix than in the case of Nuon, because the national culture differences were greater. Thus, you can say that the national cultures that lie more closely to each other on an overall number have a smaller effect on the acquisition than the other way around. The Netherlands and Sweden only differ slightly from each other on the national culture level and this can be also seen in the results, as all the differences on every dimension were not significantly big. In the case of the United States, on four out of the five dimensions they were very similar on the dimensions, but on one dimension they differed a lot, namely the masculinity one. This was noticeable for the former employees of Jetix, while the Nuon employees did not really notice the small differences on the national cultures. Thus, one might conclude that it is important to look at all the dimension so that you know where the differences and problems will occur during a merger or acquisition. In the case of Jetix, many former employees left due to the fact that they could not handle the masculine culture within Disney. So as proven, a big difference on a national culture dimension is noticeable in a company, while many minor differences are less noticeable. Therefore, the employees of Jetix experienced a greater change in the external fit than the Nuon workers.
