Master Thesis
Organizational culture differences in M&A: The impact
of relative size on the cultural aspects of the
post-merger integration process
Stefan Alexander Maria Oude Wesselink
DDM Advanced International Business Management & Marketing University of Groningen
Newcastle University Business School S2362678/B5068800
Supervisor RuG: Dr. S.N. Ponsioen Supervisor NUBS: Dr. S. Bhattacharya
Abstract
The aim of this study is to identify the sociocultural factors that contribute to the success of M&A of different relative sizes. The key concepts and recommended behaviors related to organizational culture are being tested in a qualitative way by gaining insights in different motives for M&As, perceived M&A success, the influence of organizational culture on M&A success and the relevant dimensions of the socio-cultural post-merger integration process. It is investigated whether this differs for different relative merger sizes by using a sample of both managers and employees from organizations that experienced a merger recently. The sample is selected to cover both equal and non-equal mergers. This way, an insight is provided in the cultural factors that contribute to M&A success in the post-merger integration phase and whether this differs for mergers of equals and mergers of non-equals.
Acknowledgements
Table of Contents
Introduction ... 5
Literature review ... 9
Mergers & Acquisitions ... 9
Definition of organizational culture ... 11
Organizational culture in M&A ... 14
Post-merger integration ... 15
Relative Size ... 23
Methods ... 26
Justification of research method ... 26
Measures ... 28
Interviewed managers and subordinates ... 31
Data analysis ... 32
Results ... 36
Motive of merger and perceived cultural M&A success ... 36
Socio-cultural post-merger integration process ... 39
Relative size of merger ... 42
Discussion ... 50
Conclusion ... 56
Strengths, Weaknesses & Implications for future research ... 57
References ... 60
Appendix 1: Case descriptions (selection criteria) ... 67
1.1: DirectLease / Van Mossel Groep (Merger of non-equals) ... 67
1.2: CarpentierMooren (Merger of equals) ... 68
1.3: Grolsch / SABMiller (Merger of non-equals) ... 69
1.4: De Persgroep / Wegener (Merger of equals) ... 70
Appendix 2: Interview guide ... 72
Appendix 3: four culture dimensions ... 76
3.1: Clan Culture ... 76
3.2: Adhocracy Culture ... 76
3.3: Hierarchy Culture ... 76
3.4: Market Culture ... 77
Appendix 4: Interview consent form ... 78
Appendix 5: Coding figure (relations between codes) ... 79
Introduction
The constant rise of the economic and industrial globalization has led to an increasing necessity to grow, when seen from a business perspective. The first strategic decision to make for an organization is whether to grow incrementally or to grow radically. According to Ross (2005), incremental growth options include the introduction of new products or services, enhancing existing services to grow overall revenue, and entering new markets. When implementing growth in a radical way, merging with another organization or acquiring another organization is probably the fastest way. According to Brueller et al. (2015), firms use mergers and acquisitions (M&As) to accelerate their growth, seize and expand on valuable capabilities, access assets that are costly to imitate and even reduce competition.
M&A research has brought about inconsistencies that organizational behavior and process research would subsequently address. Cost- and Revenue-based synergies are more visible and easier to quantify, whereas cultural integration takes time and requires qualitative assessment of combinational factors.
For decades, success and failure in M&As has been studied in terms of narrow and uninformative measures, such as short-term stock price (Epstein, 2005). According to a KPMG study, 83% of all M&As failed to produce any benefit for the shareholders. According to Haleblian et al. (2009), most M&A strategies fail to meet their objectives, and Angwin (2007) states that despite considerable research effort being devoted to refining and redefining assessments of M&A performance, the consensus of opinion remains that most M&As still fail. Although there is much written about organizational change after M&A, most change programs do not realize the desired results. According to Argyris (1999), change programs with the intention of transforming individual or organizational behavior fail to almost 100 percent.
conflict, also defined as “cultural misfit” or “acculturation” (Miller & Fernandes, 2009; Weber & Camerer, 2003; Larsson & Lubatkin, 2001).
Leaders often do not recognize that organizational culture is one of the most important issues in the merger process. The process of integrating different organizational cultures and recognizing the different organizational forms can create human resources problems that overwhelm the organization’s ability to capitalize on anticipated efficiencies. The main problem with culture is that it should be freely adopted by the people who are affected by it (Beaudan & Smith, 2000). Several researchers have reported that attempts to implement changes sometimes are met with resistance from those affected by the change (Lines, 2004).
question: “What is the effect of organizational culture on the success of M&As, and how is this influenced by relative size?”
Literature review
Mergers & Acquisitions
A horizontal merger is a merger or business consolidation that occurs between firms that operate in the same industry. In theory, this leads to synergies and potential gains in market share, by creating economies of scale. According to Epstein (2005), this type of merger is very common for mergers of equals. Two entities of relatively comparable stature are coming together and take the best of each organization to form a completely new organization. Because the merging organizations’ business operations may be very similar, there may be opportunities to join certain operations, such as manufacturing and finance. With this type of merger, access to new products or markets is also thinkable. For example: a merger between Coca-Cola and the PepsiCo beverage division would be horizontal in nature. Because the merging organizations’ business operations may be very similar, opportunities to join certain operations may be created.
A vertical merger is a merger between firms from different parts of the supply chain, mostly with the purpose of making the production process more efficient or cost-effective. A vertical merger joins two organizations that may not compete, but do exist in the same supply chain. An example of this type of merger may be a car manufacturer that merges with a parts supplier. This way, better pricing of parts can be realized and there is better control over the manufacturing process for the car manufacturer. The parts division has, on its turn, a steadier stream of business.
bigger market and therefore aims to get a bigger client base. This type of merger is often coupled to mergers of non-equals (Epstein, 2005). An example of a market extension merger is when a telecom provider from the Netherlands takes over another telecom provider that operates in Belgium. Because the coverage of the Dutch telecom provider is almost zero in Belgium, it may be an easy chance to get access to the Belgian market.
A product extension merger is a merger between two organizations that deal in products that are related to each other and operate in the same market. This type of merger allows the merging organizations to group their products/services together to get access to a bigger set of consumers, which may lead to higher profits. Often, the products of this type of merger are complementary products. This type of merger is often coupled to mergers of non-equals (Epstein, 2005). For example, when a phone manufacturer (e.g. Apple) takes over a manufacturer of smartphone cases, it will complement the product offering of the phone manufacturer.
Definition of organizational culture
and subjective dimension, and concerned with tradition and the nature of shared beliefs and expectations about organizational life”. Schein (1996) proposed a formal definition of organizational culture: “A pattern of shared basic assumptions that the group learned as it solved its problems of external adaptation and internal integration, that has worked well enough to be considered valid and, therefore, to be taught to new members as the correct way to perceive, think and feel in relation to these problems”. According to Glisson & James (2002), organizational culture is embedded within and with the sole property of the organization. They define organizational culture as the organizational norms and how things are expected to be done within an organization. According to Daft (2007), organizational culture is “the set of key values, beliefs, and norms shared by members of an organization. The main two functions of culture are to integrate members of the organization so that they know how to relate to one another and to help the organization adapt to the external environment”
Based on the definitions posed before, I developed the following definition: “Organizational culture is the set of key values, beliefs and norms, shared by a group of members of a particular organization. It is concerned with a set of traditions, expectations and assumptions that make actors think, perceive and feel in a certain way towards certain problems of external adaptation and internal integration”. This definition is an overarching definition of organizational culture based on the four definitions from Buono et al. (1985), Schein (1996), Glisson & James (2002) and Daft (2007).
organizational culture contributes to higher levels of overall performance (Cameron & Quinn, 2006). According to the theory on motives of mergers and the conceptualization of organizational culture, the following sub-question is being posed: “How does a certain motive for a merger influence the organizational culture after a merger?”
following sections try to explain all relevant aspects of cultural integration for merging organizations.
Organizational culture in M&A
An issue that is very little addressed in mergers is the issue of cultural differences between the merging organizations. According to Epstein (2005), the ability to merge cultures is one of the non-financial elements of due diligence. “The cultural aspect of due diligence must make certain that the differing cultures can be effectively integrated. This includes the examination of business philosophies, work practices, leadership styles, customs, expectations and facilities” (Epstein, 2005, p.40). This takes place before the post-merger integration process.
The factors stated above are contributors to organizational culture and therefore potential influencers of a post-merger integration process. A mismatch between those factors among the merging organizations can erode the expected deal value (Beaudan & Smith, 2000). A good match between leadership factors and the culture of the acquired organization can create growth and value when paid attention to, because in this case, the organization is seen by employees as a desirable place to work. This will, on its turn, attract new talent and will therefore lead to more growth and value (Beaudan & Smith, 2000). This way, organizations try to ensure beforehand that the integration process will run smoothly.
brings troubles to merging organizations (Shrivastava, 1986). These problems are complicated by various factors such as size, strategy and motive of the merger.
Post-merger integration
Epstein (2005) states that an organization is positioned for a successful merger when strategic vision and fit, deal structure, due diligence and pre-merger planning are on point. This is when the post-pre-merger integration process starts. A successful post-merger integration process can only be achieved if all parts of the organization have the knowledge, resources, and commitment to move forward at an often blistering pace without destroying value in the process. According to Epstein (2005), the key aspects of the post-merger integration process are the management of human resources, technical operations, and customer relationships. These can be coupled to the three central issues of integration as posed by Shrivastava (1986): (1) coordinating activities to achieve overall organizational goals; (2) Monitoring and controlling individual departmental activities to ensure that they are complementary and are being performed at adequate levels of quality and output; and (3) resolving conflicts between the fragmented interests of specialized departments, individuals and their inconsistent sub-goals. These issues (coordination, control & conflict resolution) are all managerial tasks that can be guided by good leadership.
organization, it is important to capture the full value and utilize the newly acquired organization’s full potential. This can be done by imposing the culture of the acquiring organization to the newly acquired organization, or by creating a new and shared culture. Often is shown that imposing the dominant culture to a newly acquired organization does not work (Markman & Waldron, 2014). The creation of a new and shared culture is important for succeeding in a merger. Creating a shared culture involves careful discovery, inventing, reseeding and letting go (Beaudan & Smith, 2000).
integrity and sustainability may dominate in stable and dominant ways despite changes in the methods and operations for how these values are being accomplished. Therefore, it can be stated that it is important that leaders bear the core values in mind when implementing cultural change.
posed by Shrivastava (1986) are important. Therefore, an in-depth explanation is offered below.
Transfer of managers & personnel
What often happens in the post-merger integration process, is that some of the top personnel from the acquiring organization moves to the acquired organization to ensure control of the acquired business. The transfer of personnel may extend several levels below top management to middle management line and staff personnel. The transfer of personnel from the acquired to the acquiring firm, may help in cross-fertilizing the two firms. However, managerial and personal skills are not always easily transferable. This may lead to retirement of some managers (Sherwood, 1983). In mergers, personnel issues such as job security, responsibility and salary become the most important factors for people within the organization, whether they are offered to stay or have to leave (Galphin, 1999). According to Chakrabarti (1984), retaining good technical personnel is a major problem in a post-merger situation. Retention can be facilitated by good clear communications, granting reasonable autonomy to managers of the acquired firms and avoiding unnecessary interference in operational affairs. Therefore, the transfer of key managers alone is not enough to ensure managerial integration. It must be supplemented by the integration of social norms and cultures of both merging organizations (Shrivastava, 1970).
Sociocultural integration is guided by the basic assumptions that managers hold about their organization and its environment. Sociocultural integration unifies organizational frames of reference of merging firms (De Gooijer, 2009). Sociocultural integration involves developing a new organizational culture with compatible value systems that avoid conflicts between the personnel of the two merging firms (Sherwood, 1983). The overall cognitive framework that guides strategic decisions is the concept of Organizational Frames of Reference (OFOR). OFOR simultaneously reflects and shapes the sociocultural interpersonal relationships, trust among managers, degree of cohesiveness in small groups, and level of understanding and communication among managers (Shrivastava & Schneider, 1984). To facilitate smooth sociocultural integration, it is necessary to transfer managers from the acquiring firm to the acquired firm, develop homogeneous decision making procedures, build trust between managers and provide consistent information to all managers by developing standard management information systems.
Personnel commitment & motivation
style. Because there is a sense of uncertainty of people’s jobs and prospects in the air, employees will become emotionally aroused about losing their identity and affiliation. The anger, resentment and hostility that build up may be expressed in subversive behavior and a drop in productivity. These negative consequences can be minimized by facilitating open communication, and allowing for participation in the decision-making (Shrivastava, 1986). However, according to Zhou & George (2001), job dissatisfaction leads to employee creativity when conditions conductive to the expression of voice as a response to dissatisfaction exist. Employees that are unhappy with their job, are likely to express their voice. When the expression of voice is combined with strong co-worker feedback, employees feel that their creative actions would be effective because the feedback increased employees’ confidence that their creative ideas have a good chance of being supported by coworkers and subsequently implemented. Job dissatisfaction is therefore not necessarily an undesirable outcome for organizations. Under the right circumstances it can be redirected into a positive outcome: employee creativity.
Establishing new strategic leadership
authority between functional groups of the acquired organization and the acquiring organization. Leaders are often unfamiliar with the organizational culture of the acquired firm. According to Gancel et al. (2002), there are various reasons why leaders do not take culture into account. Lack of visibility of culture often results in neglecting cultural issues. This way, even simple issues are not being addressed correctly. Leadership is significantly related to perceived merger success for both the employees of the acquiring and acquired firm. Again, perceived merger success is here closely related to transformational leadership (Colvin et al, 1997).
about formulating strategy but also depends on a set of problem-solving capabilities and social skills.
Suderman (2012) implements the Organizational Cultural Assessment Instrument (OCAI) framework for a new leader and the development of his new team. The outcome was that the OCAI is helpful for a leader. The OCAI survey provides one with information about culture changes necessary, change readiness and barriers to expect. Also, by conducting a survey, members of the team realize that changes in organizational culture are important. Creating this awareness is worth much to a leader, according to Suderman (2012). This can on its turn be fostered by detailed communication throughout the organization in the post-merger integration process.
Relative Size
As Shrivastava (1986) already argued, the size of the organizations influences the post-merger integration process. Mantravadi & Reddy (2007) state that relative size does make a difference to the post-merger operating performance of acquiring firms. Therefore, we can state that the relative size of the organizations matters for M&A success. We distinguish between mergers of equals and mergers of non-equals. When the target size is relatively larger, it can be related to mergers of equals. When the target size is relatively smaller, it can be related to mergers of non-equals.
For mergers of equals, Möller (1983) found that acquisitions of large targets are more successful than acquisitions of small targets. He points out that one of the reasons for this finding could be that strategic preparation is a success factor for integrations, and that organizations are more careful with the preparation of a large target integration. Large formal organizations operate through functionally different departments that perform a narrow set of specialized tasks such as production, marketing, accounting, and finance (Frensch, 2007). So, the larger the organization, the greater the need for integration, because larger organizations possess a greater number of units or elements that need to be coordinated (Shrivastava, 1986). Furthermore, Gerpott (1994) finds that the relative size of the acquisition yields positive effects on management retention in the acquisition target.
negatively related with relative larger target size. Larger relative-sized firms were seen to show poorer post-merger performance than firms that acquired smaller firms. This suggests that firms acquiring relatively larger firms have a more difficult time digesting those firms and in effectively assimilating them into the organization’s operations. Also, when both organizations are relatively large, each individual partner has its own internal integration problems because of its size. The result of the merger, is an organization that is so large, that the management cannot plan ahead on all issues and problems. This way, problems are being countered, rather than prevented (DuPont & Conoco, 1981). According to Kruse et al. (2003), “mergers of equals” are inefficient, because the management responsibility between the acquirer and target is blurred sometimes. This results in a prolonged internal fight between the management and employees of the two firms.
Shrivastava (1986) states that when a small entrepreneurial organization is acquired by a large complex bureaucratic firm, the entrepreneur may feel stifled and constrained. The continual interference of managers and organizational bureaucracy slows down the ability of the small entrepreneurial organization to do rapid product development, leading to a loss of money and an unsuccessful merger. Kitching (1967) also states that a relatively smaller target size influences performance. When the target firm is relatively small, the human integration needs of the target firm are suggested as commonly overlooked by the acquiring firm, and such acquisitions may not receive sufficient managerial attention to realize the projected synergies. These reasons implicate that there are also negative consequences of non-equal mergers.
All in all, research has found both negative and positive effects of mergers of equals and mergers of non-equals. Therefore, the following sub-question is being posed: “What is the influence of relative size on the sociocultural aspects of the post-merger integration process?”
Methods
Justification of research method
Based on the findings from previous chapters, the best research method for measuring the impact of organizational culture on the success of the post-merger integration process is a qualitative approach, by making use of in-depth semi-structured interviews. According to van den Berg and Wilderom (2004), in-depth interviews are useful for the discovery of unique characteristics of a culture. According to McIntosh & Morse (2015), semi-structured interviews involve questions flowing from previous responses when possible. This way, much more detailed information is obtained compared to other data collection methods, such as surveys. Also, according to McIntosh & Morse (2015), semi-structured interviews are used when the researcher knows enough about the topic to be able to identify the domain and the main components of the topics, but is unable to anticipate all the possible answers. Because this research identifies several dimensions of culture, several motives of M&A and several ways to implement changes in culture, semi-structured interviews are best suited for this topic, because the individual participants can elaborate on the subject.
their own thoughts and feelings to an interested and respected other (Clark, 2010, pp.407-408).
This research conforms to the academic standards as posed by both the University of Groningen and Newcastle University Business School. The interviews will be held in Dutch or English, dependent on the preference of the interviewee. I propose this choice because the interviewed managers and employees are Dutch. An interview in the mother language of an interviewee is likely to lead to a better expression, more elaborate explanation and better understanding of the sound sample of the interview for coding purposes. Before the interview is conducted, the interviewee has to sign an interview consent form to adhere to the ethical standards and to avoid misunderstandings afterwards. The interview consent form can be found in appendix 2 of this thesis. The ethics & risk assessment can be found in appendix 6.
Measures
Culture, and Market Culture. In the interview guide, interviewees are being asked about how the both organizations before the merger valued these dimensions. Based on their answers, a conclusion is drawn about in which quadrant the organizational culture can be placed. In appendix 3, the different quadrants are explained.
It is important to note that culture should match with the vision of the organization, therefore one cannot choose the ideal culture of one of the four quadrants of the competing values framework. The perception of both managers and employees about which culture is currently prevalent is being tested by asking the participant about flexibility, control, internal orientation and external orientation. To get a complete view of the present organizational culture in organizations, the perception of organizational culture of both managers and employees is tested with general questions about organizational culture.
extension. Therefore, this research tries to find relationships between different motives of mergers and cultural outcomes.
For measuring the managerial and sociocultural integration process, questions are asked about problems managers and employees encounter in recently merged organizations. These are related to common problems in the managerial and sociocultural integration process as posed by Shrivastava (1986). These problems are: personnel transfer, organizational structure change, corporate culture development, reference frame for strategic decisions, personnel commitment and motivation, and new strategic leadership. This is the section where some variation between the answers of managers and employees can be present, because they are likely to experience different problems.
These different answers are all likely to differ within mergers of different relative sizes. Therefore, the organizations are selected and categorized on the type of the merger. Grolsch / SABmiller and DirectLease / Van Mossel are mergers of non-equals, where De Persgroep / Wegener Media and CarpentierMooren are mergers of equals. In appendix 1.1 to 1.4 the different organizations are being further explained.
Interviewed managers and subordinates
The following data for the interviewed managers and subordinates was retrieved from my personal professional network and with the help of LinkedIn. All organizations included in the list recently encountered a merger and vary significantly in size. In the case descriptions in appendix 1, information and selection criteria of the different organizations is shown.
Interviewed managers
Name Organization Merged with Function Active since
year of merger
Erik Kottink Grolsch (NL) SabMiller (SA)
Regional Salesmanager Grolsch
1996 2009
Bert Bodde Wegener Media (NL) De Persgroep (BE)
Commercial Director Tubantia
1986 2015
Aemil Schellens DirectLease (NL) Van Mossel Automotive Groep (NL) Commercial Director DirectLease 2013 2014
Hein Jan Mooren CarpentierMooren (NL) Carpentier & Houthandel Mooren (NL) General Director 1976 2009 Interviewed employees
Name Organization Merged with Function Active since
year of merger
Leon Schepers Grolsch (NL) SabMiller (SA)
Accountmanager Grolsch
2005 2009 Alwin Moraal Wegener Media (NL) De Persgroep
(BE)
Regional
Accountmanager De Persgroep
2001 2015
Jaap Bleij DirectLease (NL) Van Mossel Automotive Groep (NL) Manager new concepts & coordinator cross-border sales 2001 2014
Lisette Van Der Wiel
Data analysis
According to Braun & Clarke (2006), the data corpus refers to all data collected for a particular research project. To shape the case descriptions, organization websites, newspapers, news articles and the Dutch Chamber of Commerce are being used to collect all the data. In this section of the research, only the interview data in combination with the case descriptions is useful. Therefore, the amount of data is narrowed down to a case description. This case description makes one data set. The interview data collected is the other data set. The individual data items are being coded, which shape data extracts. Only a selection of these extracts will feature in the final analysis.
To determine what the culture was before the merger in both organizations, the tables below provide insights in the dimensions flexibility/control and internal focus/external focus. These tables are derived according to the interviews. These tables can again be coupled to the different types of culture as posed in appendix 3.
Table 2 couples the values from table one to a culture type as posed by Cameron & Quinn (2006). This way, the outcome is a certain type of culture that was present in respectively the acquiring and acquired organization.
Function Manager Employee Manager Employee
Values Flexibility / Control Flexibility /
Control Internal External / Internal external / merger 1: acquiring
organization
Flexibility Control External External merger 1: acquired
organization
Flexibility Both Internal Both
merger 2: acquiring organization
Control Control External External
merger 2: acquired organization
Flexibility Flexibility Internal Internal merger 3: acquiring
organization
Control Control Internal Internal merger 3: acquired
organization
Control Flexibility Both External
merger 4: acquiring organization
Control Control External External
merger 4: acquired organization
Control Control External External
Table 1: Values of flexibility / control and internal focus / external focus before the merger
Type of culture (Cameron & Quinn, 2006)
merger 1: acquiring organization Market / Adhocracy Culture merger 1: acquired organization Clan Culture
merger 2: acquiring organization Market Culture merger 2: acquired organization Clan Culture merger 3: acquiring organization Hierarchy Culture merger 3: acquired organization Adhocracy / Clan culture merger 4: acquiring organization Market Culture
merger 4: acquired organization Market Culture
The coding of the interview data is being done by making use of thematic analysis. Thematic analysis is a method for identifying, analyzing, and reporting patterns (themes) within data (Braun & Clarke, 2006). Because this coding bears in mind the theoretical concepts posed in the literature review, it is related to the
grounded theory approach (Holloway & Tordres, 2003). For each individual interview, emerged key words, phrases and quotes are put together under seven different main codes. After this, the sets of codes are grouped, according to the relative size
categories as posed earlier. By doing this, it becomes clear whether the cultural aspects that contribute to the success of a merger differs for the relative size of a merger. The different sets of codes are grouped together in categories, better known as themes. The themes are being labeled, the most relevant themes come forward and relations between the different themes become clear. The final categories and the connections between them, are the main results of the study (Bryman, 2012).
Used Codes
Organizational culture Focus on
performance Norms and values External pressures Day-to-day
results
Day-to-day management
Affinity with the product
Drive Adaptability Hierarchy
Vision of management
Charisma of management
Mindset
Motive of merger Product extension
Market extension Horizontal merger Vertical merger Incremental process Radical process
Growth Goal Budget
Post-merger
integration Core values Complementarities Dominantly imposed culture Organizational
layers
Communication Market conditions Autonomy of the
acquired company
Focus on customer Reference frames for strategic decisions Personnel
transfer
Results
Motive of merger and perceived cultural M&A success
First, we found that the relation between the motive of a merger and M&A success is dependent on several factors. In general, we found in the interviews that the acquired company finds the merger a success when there are synergies, and when the outcome is a friendly culture with good results and day-to-day performance. It has also been found that the implementation of the post-merger integration process could not be generalized for a certain motive for a merger, but was dependent on the type of culture present in both organizations. This has led to 4 different situations. The results show that all mergers were horizontal in nature, and all of them with the goal to grow. Product extension and market extension were motives that were also present in some mergers, but the prime motive was merging horizontally in the sample. Below, the outcome of the different mergers is given. Here can be seen that the different culture of both organizations matters for the perceived merger success, but does not lead to a certain motive for a merger. The mergers are called situation A, B, C and D, to cater for anonymity.
results. A quote that resembles this is: “Because we value our culture much here, and we work together closely as a team, it is important that the acquiring
organization lets us keep our culture. This way, we can work according to the
norms and values that we are used to, yet the focus is more on results due to
the influence of the acquiring company. This is good for the overall
performance.”
In situation B, the acquiring organization had a strong hierarchy culture. The culture of the acquired organization was a combination of an adhocracy and clan culture. In this situation, the drive from the acquiring organization to annex the target was leading. This has led to a very radical takeover process. The motive of this merger was also horizontal, however the acquiring organization had a very strong desire to incorporate the products and market coverage into their operations. This radical takeover process and this combination of cultures led to a negative perception of M&A success among both managers and employees of the acquired organization. A quote that resembles this is: “Employees within the organization feel it when you are simply a cash cow for the bigger organization. If there is no clear goal, the
employees from the acquired organization will easily lose trust in the acquiring
organization”.
organization had a strong market culture. In this situation, the budget of the incoming organization was found very important. Where the acquired organization was focused internally before the merger, the market-oriented culture, the complementarity of both organizations and the budget of the incoming organization has led to extra income and room for new experiments, and therefore a more external focus. The merger was radical in nature. The merging of those two cultures, in combination with the budget and the complementarity, has led to positive perceived success of the merger. A quote that resembles this is: “The budget is higher now, there is more room for experimentation and therefore the decisions are different. I think less income
and savings are always a pressure on the organizational culture”.
In situation D, both the acquired and acquiring organization had a strong market culture. This merger was also a typical horizontal merger, with two organizations being complementary and operating in the same industry. This is the only merger in the sample that merges two exact similar cultures together. Here the main positive effect was that the merger was radical, but smoothly at the same time. Because the vision of both directors was exactly the same, and the cultures were the same, the merging process was found easy and successful. A quote that resembles this is: “Because the visions are the same, a radical process is possible. For us, as employees, almost nothing
To conclude the above situations, the results show that all situations were horizontal in nature, with product and market extension as additional outcomes. 3 out of 4 mergers were perceived as a cultural success from the start, where one merger was not perceived as a success in the first phase of the post-merger integration process. The results also showed that success was perceived differently according to the organizational culture in both the acquired and acquiring organization. Finally, it has been found that 3 out of the 4 mergers were radical in nature, where one of the mergers was incremental in nature.
Socio-cultural post-merger integration process
process. A quote that fits to this is: “Communication is key. If you explain something to your employees in a way that they feel empathy for it, then you
will accomplish more than when you are just putting your own managers in key
positions and push your standard strategy through.”
The following section provides the interview results on changes in organizational structure, challenges with different reference frames for strategic decisions, challenges with personnel transfers, challenges with motivation and dedication of personnel and challenges with new strategic leadership. These dimensions are also known as the challenges in the post-merger integration process as posed by Shrivastava (1986).
First, all interviewees experienced communication differences due to the multiple layers. A quote that fits to this is: “The organization is bigger now. Since the merger there are more layers and this causes that messages not
always come all the way through”.
Furthermore, not one interviewee experienced serious problems with personnel transfer, however due to centralization, some difficulties were experienced with personnel transfers among both managers and employees. A quote that fits to this is: “I didn’t experience serious problems with personnel transfer myself, because my function stayed the same after the merger. But I
do know that there were some employees who were fired because of the
centralization of activities”.
interviewees. Some interviewees found that these reference frames for strategic decisions were only a minor issue in the beginning, where others found it a relatively severe problem with which they still have to cope every day. A quote that fits to this is: “The other organization is bigger and thinks different. Decisions are made on profit and outcome. We weren’t used to base
decisions purely on results. In some way, this helps us now. However, it was
hard to get used to it in the beginning”.
Furthermore, most of the interviewees experienced little to no motivation problems after the merger, except for a small period of getting used to each other.
Considering the challenges with a new strategic leader, it can be stated according the interviewees that this is dependent on the orientation of the new strategic leader. All interviewees reported that the new leader is very result-driven. 3 out of 8 interviewees reported that the new leader is less personal than the previous leader. Furthermore, 4 out of 8 interviewees stated that the new strategic leader is charismatic.
Because the sample consisted of in-depth interviews of four managers and four employees, the differences in answers among them is being exposed. According to the interview data, the biggest similarity among the responses was that all interviewees argued on synergies. The quote “In my opinion, a merger is a success when there are synergies; 1+1=3”, or quotes
results-oriented mindset as positive for the success of a merger, where most of the employees felt a very strong desire for personal contact with their supervisor, therefore valuing the “soft” side of a merger more.
To conclude, not all dimensions as posed by Shrivastava (1986) are equally important in the post-merger integration phase, according to the interview results. The results show that core values of the leaders, communication and the amount of hierarchy (layers) in the organization after the merger are the most important contributors to the post-merger integration process.
Relative size of merger
Because the sample consisted of 2 mergers of non-equals and 2 mergers of equals, the impact of relative size on the socio-cultural post-merger integration process is exposed. First, the results of the non-equal mergers are shown, where after the results for equal mergers are shown for respectively: contributors to organizational culture, motive of merger and the challenges found in the post-merger integration process. This leads to differences and similarities among the two size categories.
Mergers of non-equals: Organizational Culture
resembles this is “If the culture of the organization is results-oriented, it will push every single one in the organization towards a results-oriented mindset.”
Furthermore, all interviewees found the mindset, norms and values of both employees and managers an important contributor to the organizational culture. A quote that fits to this is: “It’s hard for employees to start thinking the way the acquiring organization wants you to think.”
Also, all interviewees in this category found the day-to-day management an important contributor to the organizational culture. A quote that fits to this is: “The organization that acquired us is [compared to us] very big in size. Because we are so much smaller, our culture is important to us. The acquiring
organization lets us keep the culture we had before. This has a positive
influence on our operational effectiveness.”
Finally, all interviewees in the non-equal merger category found external pressures important for the organizational culture, however responses differed between governmental pressures, market pressures, pressures from the acquiring organization, and industry pressures. This was found dependent on the nature of the organization and the industry the organization is active in. A quote that resembles this is: “If different cultures in sales have to mix, and the acquiring party (external pressure) is strong, then people have to adapt, or
should resign”. Another quote that fits to this is: “We experienced
governmental pressures in the past. If governmental rules are pushing you in a
certain direction, then everybody has to work slightly different. This causes
Mergers of non-equals: motive of merger
Considering motive of merger for mergers of non-equals, the sample consisted of two horizontal mergers, both of them with the goal to grow, to extend the product range and getting access to new markets. The mergers in the non-equals category were however very different in the implementation and therefore in their succeeding in culture change. Both acquired organizations were more-or-less clan cultures. The success of the culture change, however, was very dependent on the nature of the acquiring organization. It was found that when the acquiring organization had a strong hierarchy culture, the focus was on standards and protocols. Also, some interviewees in this category stated that standards and protocols led to clearer communication. A quote that resembles this is: “Because of the protocols and standards, the communication in our organization is clearer. The former
directors are now closer to the employees”.
Mergers of non-equals: post-merger integration
Considering the challenges in the post-merger integration process for mergers of non-equals, 3 out of 4 interviewees found the market conditions an important influencer. A quote that resembles this is: “In the time of the economic crisis, the merger helped us to stay strong. Because the budget was
larger and the organization was bigger, we had a bigger chance of surviving.
This had a positive influence on the overall culture within the company after
3 out of 4 interviewees found the autonomy of the acquired organization after the merger an important influencer of the socio-cultural post-merger integration process. A quote that resembles this is: “If the leader lets the new business operate in a stand-alone way, the commitment of personnel stays
high, because the changes are less. If you try to push your mindset through
the newly acquired organization, by sending managers and changing the
whole unit, commitment and efficiency decline”. However, there was also
response that some attributes of the newly acquired organization needed to be changed, where other attributes needed to stay the same. A quote that resembles this is “Success depends on your future vision. Look at who you want to be, instead of who you are. Also, look at what you are NOT changing,
instead of what you are changing. Then make the communication clear.”
Another concept that was present in all the interviews is the disparity between the focus during the post-merger integration process. In the non-equals category, the focus was on the customer in one organization, and on the merger process in the other.
The following section provides the same concepts (Attributes to organizational culture, motive of merger & the post-merger integration process) explained for the other category: Mergers of equals. After both sections, a conclusion is made with similarities and differences among both categories.
For the category “mergers of equals”, it can be stated that 3 out of 4 interviewees found the affinity with the product an important contributor to the organizational culture. A quote that resembles this is “The new incoming leader has affinity with our product and is very charismatic. This improves the
ability to merge cultures.”
All interviewees from the mergers of equals category found the drive and adaptability of employees and managers an important contributor to the organizational culture. A quote that resembles this is “When merging, everybody has to accelerate. Long-term employees find this usually harder.
Still, everybody in the organization has to adapt to the new situation”.
Also in this category, the day to day management was found important by 3 out of 4 interviewees. A quote that fits to this is “If a manager is pursuing his own goals over the goals of the organization in general, then there is a
misfit within the culture. The focus needs to be on organization goals, not on
their own career.” and, “Before the merger, at organization A, the director was
a little further away from the employees. At organization B, the director really
worked together with the employees. After the merger, the director of
organization B became the general director of our merged organization. This
was positive for the organizational culture in general”.
Furthermore, the vision and charisma of directors was found important by all interviewees. Quotes that resemble this are: “if the vision of directors is different, you will never succeed to implement a common vision to the
employees.” and “If the size and vision of both organizations is more or less
Finally, the amount of hierarchy was found an important contributor to organizational culture. All interviewees found “short lines” and personal contact with managers and directors important. A quote that resembles this is: “The process comes along the way, adapting is relatively easy because there
are short lines of communication among the organization.”
Mergers of equals: motive of merger
Considering motive of merger for mergers of equals, the sample consisted of two horizontal mergers, one of them with the goal to obtain a monopoly position, where the other merger was a combination of horizontal, product and market extension. The mergers in the equals category were also very different in the implementation and therefore in their succeeding in culture change. The interview results showed that the one merger was a merger between two almost identical (market) cultures, where the other merger consisted of a clan culture that was merging with a market culture. We found that merging two identical culture types gave very little challenges, where the other merger was mediated by the budget coming in from the other organization. Both mergers were classified as a cultural success by the interviewees.
Mergers of equals: post-merger integration
customer base very important in the post-merger integration process. A quote that fits to this is: “After the merger some managers had difficulties with recognizing the customer base of the organization as a whole. Where before
the merger, each establishment had its own customers, after the merger all
customers were melted into one common customer base. There was no room
anymore for discussion about “ownership” of certain customer groups.”
Furthermore, there was a discrepancy between the two interviewed (merged) organizations. It was found that, in the post-merger integration process, the focus at organization 1 was at developing new projects and experimenting, where the focus at organization 2 was at integrating both customer bases. Results show that organization 2 was customer-focused, and it was also found that both directors had the same vision.
Differences & Similarities
For both groups, certain values are observed as important. Focus on performance and day-to-day results, norms & values, day-to-day management, affinity with the product and drive was something that came forward in both groups. It can be stated that these are important attributes of an organizational culture before a merger.
organization has a very externally, sales-oriented culture, it will lead to the pursuing of these goals within the new organization. In the first place this is being done by letting the acquired organization keep their culture, however it was found that when sales are suffering under the present culture, the dominant culture is being imposed slightly. For the category of equals: when the size of the organizations is more or less the same, and the cultures are the same as well, the merging process will go easier. When cultures are different, the results showed that, budget and focus on the customer expand the chances of succeeding a merger culturally.
Discussion
Findings and theoretical contribution
way that this study provided new insights in certain phenomena that have not yet been identified before in studies concerning organizational culture in the post-merger integration process.
If the merging process takes long, and the focus is not on the customer, the customer will notice it in a negative way. These findings are also consistent with the academic thought of Adil (2014), because leaders’ change-promoting behavior will have a significant positive impact on employees’ readiness for a specific change. However, it can be stated that this is not generalizable to all cases. Also, in the retrieved data from one of the interviewed organizations was found that Gancel et al. (2002) were right with the various reasons for why leaders do not take culture into account. There was a lack of visibility of culture and therefore cultural issues were partly neglected. It was interesting to find that most of the companies had a vision that they highly valued organizational culture, but still argued that they valued results and performance more. This way, this thesis adds to the literature that culture is still not as highly valued as it should be, however some awareness was shown about organizational culture among the interviewed managers and employees.
Therefore, to answer the sub-question “Which dimensions of the Managerial and Sociocultural post-merger integration process are relevant for
the success of a merger?”, this research has shown that the post-merger
However, the important dimensions of the managerial and sociocultural post-merger integration process are very dependent on the motive of the post-merger, and the organizational culture that was present in both the acquiring and the acquired organization before the merger.
The findings within motives of mergers are consistent with the academic thought of Epstein (2005). He states that with a horizontal merger, access to new products or markets is also thinkable. With all mergers in the sample that are horizontal, product and market extension was also the case. With the growth through acquisition approach, it was also the case with both organizations that market and product extension evolved, however this was more the case with the one organization than with the other, because the first organization was fully related to the industry where the acquiring party was active in, where the other organization was not fully related, but partly related. The contribution to the literature at this section is that we found that the motive of the merger was determined by the organizational cultures in both organizations before the merger, and the main vision of the organization. It is not the motive itself that determines the post-merger integration process, but the culture of the acquiring organization that partly shapes the motive for the merger. These cultures have an impact on the post-merger integration process, in combination with the motive for the merger.
To answer the sub-question “How does a certain motive for a merger influence the organizational culture after a merger?”, it can be stated that
organizational culture after a merger directly. A certain motive is dependent on the organizational cultures before the merger and influences the post-merger process differently in each situation. If cultures are the same, the organization will merge easier. If the types of cultures are different, an additional factor such as high budget or autonomy to the acquired organization is necessary to let the merger succeed in case of a horizontal merger.
An additional interesting point is that according to the results, it can be stated that if there is a strong hierarchy or market culture among the acquiring organization, it will probably lead to a very controlled merging process, which may not have a good cultural fit if the acquired organization has a clan culture or ad hoc culture. This is stronger in the case of a non-equal merger, due to the dominant pressures the acquiring organization can exert on the acquired organization.
Considering relative size, it can be stated that a relatively larger target size slows down the post-merger performance (Mantravadi & Reddy, 2007). Evidence for this was found in the sample. We did not find evidence for the statement of Kitching (1967), who states that when the target firm is relatively small, the human integration needs of the target firm are suggested as commonly overlooked by the acquiring company and such small acquisitions may not receive sufficient managerial attention to realize the projected synergies.
To answer the final sub-question “What is the influence of relative size on the sociocultural aspects of the post-merger integration process?” we can
post-merger integration process, yet this is dependent on the situation. The cultures from both merging organizations in our sample were different for different relative sizes. Therefore, it is hard to make general conclusions on certain aspects that are always present in the post-merger integration phase for a certain relative size of merger. A very important finding here was that the importance of management differed among relative sizes. According to Nelson et al. (1995), organizational change following a merger often leads to uncertainty among employees who may have strong expectations that downsizing, restructuring or relocation may follow, with major implications for their own jobs and working environment. This may lead to intensifying identifications with their existing organization. This will lead into a so-called them-and-us attitude (Cartwright & Cooper, 1996), leading to even more friction in the cultural post-merger integration. This was found stronger in the category of non-equal mergers than in the category of equal mergers. Therefore, this thesis adds to the literature in that transformational management was found more important in the category mergers of non-equals than in the category mergers of equals.
Managerial Implications
organization more favorably than the other during the anticipation phase, expect the merged organization to share characteristics of both old organizations and expect the merged organization to be more like the old organization. When we combine this with the findings from this thesis, it can be stated that in case of a non-equal merger, it is good for a manager to let the acquired organization have autonomy. This way, employees will not feel controlled and therefore it will lead to a smoother post-merger integration process.
Conclusion
Strengths, Weaknesses & Implications for future research
As with all research, this study is not without limitations. The first limitation I came across is the fact that despite the consent form, interviewees are still cautious in their answers. Especially employees are very cautious in their responses that can be related to their supervisor. Although the consent form states that interview data will be anonymous and that names and quotes will not be coupled, interviewees do not want to risk their jobs on a single research project. As a researcher, I experienced that interviewees provide me in a few cases with interesting additional information after the interview record has been stopped. This way, it is likely to assume that interviewees do not answer the questions as extensive and deep as possible.
then try to find how the socio-cultural post-merger integration process is different among cultures.
Catwright & Cooper (1993) find in a case study that employees of the smaller one of two merged organizations experience significantly higher stress than employees of the larger firm. Because the sample of non-equals only consists of managers and employees of the smaller firm, this cannot be tested. For further research on this topic, a broader sample that includes both organizations can be useful.
Also, this research is about relative size, not about absolute organization size. Although the sample is relatively broad, with organizations from various sizes, the sample is not broad enough to make solid conclusions about implications for absolute organization size. A broad sample consisting of multiple mergers of the same relative size, but different absolute size will provide scholars more insight in the implications for different situations.
Furthermore, it has been found in the responses that the culture is dependent on the industry the organization is active in, and/or the product that the organization sells. If the product is an emotional product, it will most likely lead to a different motive of a merger. However, the sample does not include enough variety in emotional product / non-emotional product to find outcomes for the relationship between the nature of the product and the motive of the merger.
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