Post-acquisition Team-level Behaviour And Innovation
Processes: The Influence Of Cultural Differences
Master Thesis
By P.R.F. Rasquin
S1628267
philipperasquin@hotmail.com
Business Administration – Strategic Innovation Management
Rijksuniversiteit Groningen
24 June 2013
First supervisor: I. Estrada Vaquero,
i.estrada.vaquero@rug.nl
Second supervisor: F. Noseleit,
f.noseleit@rug.nl
Words: 11.950
Abstract
INTRODUCTION
Corporate acquisitions have become very important all over the world. There is a continue rise of acquisitions observed since 1985 (Gerpott, 1995; Morrissey, 2011). In this study, an acquisition is defined as the purchase of the majority of a company‟s capital by the acquiring company (Pieper, 1996; Gerpott, 1993). The valuable organizational and technological capabilities from an acquired firm may be assimilated by the acquiring firm through corporate acquisitions (Ahuja and Katila, 2001; Chaudhuri and Tabrizi, 1999). In this way, acquiring companies try to increase their innovativeness. Often, acquisitions are efforts to „buy‟ innovation, folding in a game-changing and disruptive technology that is developed by the acquired firm. The skills of the technical personnel and the experience of the personnel of the acquired firm can also be of great value, since they are known for its profitable and consistent creative output.
Although a lot of managers are really enthusiast about acquiring firms, the literature shows that frequently a lot of acquisitions do not result in the specific objectives that were set before the acquisition. They often result in organizational difficulties (Haspeslagh and Jemison, 1991; Ravenscraft and Scherer, 1987; Capron et al., 1998). The acquiring firm faces difficulties and complex challenges to integrate with the acquired firm, which can be caused due to several reasons. In most cases, there is no organizational and strategic fit between the companies, for example due to conflicts between the way they deal with human resources or great differences in their strategic focus (Vaara et al., 2012; Buono and Bowditch, 1985). An even more important condition is a good cultural fit. Due to the extensive growth and the complexity of mergers and acquisitions, an adequate cultural fit is required. Buono and Bowditch (1998) argue that the management of employees with different cultural backgrounds is vital to make an acquisition work. Since different cultural background results in cognitive diversity and distinctive underlying values, human resource and integration managers play an important role to integrate its own practices as well as business units.
team-level is needed, since they are the ones that conduct innovation. Analysing these cultural differences between the acquiring and the acquired firm is essential since attention to culture and innovation processes before, during and after the acquisition and integration process forms the basis of a successful acquisition (Datta, 1991; Hurt and Hurt, 2005; Child et al., 2001; Fink and Holden, 2007). This study seeks to address this gap by investigating the differences between cultures of the acquiring and acquired company and how these differences influence the innovation processes for employees from the acquired firm. Therefore my research question is:
How do cultural differences between the acquiring and the acquired firm influence innovation processes on a team-level for employees from the acquired firm?
In this paper, I define innovation processes as the process by which people come up with innovation and how they behave when they conduct innovation, which is a general term for innovative behaviour, values, strategic focus and team-level performance. In order to accomplish this research objective, this paper is based on a case study. Since the focus is on cultural differences, this case where a multinational non-family owned company acquired a family owned brewery fits bests and gives managers important insights in the main differences between these cultures and innovation processes and the way they should treat these more specific and different aspects when acquiring such a company. Often managers lack this understanding, as well as the consequences of these differences, which finally result in a failure of the acquisition. In order to manage an acquisition adequate, managers need to be aware of cultural differences and innovation processes in order to organize the integration in such a way that not only the performance on the firm level will increase, but especially the performance on the team-level, since this is the underlying influence of the post-acquisition firm level performance.
brewery focused on service, quality, brand loyal customers, product innovation and exploration, but after the acquisition this focus shifted towards cost reduction, economies of scope and scale, efficiency, process innovation and exploitation. This shift finally resulted in anxiety among employees, diminishing responsibilities and commitment, loss of intrinsic motivation and a weaker sense of pride. Innovativeness has been approached in a different way since exploration and product innovation were replaced for exploitation and process innovation. Although most employees were transferred to other positions involuntarily and the innovative behaviour of single employees was restricted by clear rules, the acquisition influenced the overall performance of the company in a positive way, since the possibility of benchmarking with other breweries from the mother firm gave the employees more insights and new ideas to work more efficient and to get rid of their blinkers.
This paper is structured as follows. In the next section, the literature review and the initial model are developed. Subsequently, the methodology I used will be explained, followed by the results. Finally, I will discuss my findings and provide the conclusion, limitations and some suggestions for future research.
LITERATURE REVIEW AND INITIAL MODEL
Figure 1. Initial model, effects of cultural differences on innovation processes
Culture and diversity
According to Schein (1985), organizational culture focuses on the values, assumptions and beliefs that are shared throughout the members of an organization. This is mainly an organizational issue, but it also determines the satisfaction, productivity and commitment of the individuals in the organization as well as on the group-level (Denison, 1996). The existing acquisitions literature is focused on the consequences of cultural differences, combined with increasing diversity (Marks, 1982), while other studies focused more on the importance of the post-acquisition cultural fit (Larsson and Finkelstein, 1999; Chatterjee et al., 1992). Cultures of firms may vary tremendously with respect to scale, technology, social organizations and their ecology. As long as there are many different authors who studied the relationship between cultural differences in organizations and the post-acquisition performance, ranging from positive to negative, an upfront conclusion about the impact cannot be given.
A common definition of diversity is the distribution of differences between different team members according to a common attribute (Harrison & Klein, 2007). In this study, I focus on cognitive diversity, since surface-level diversity is highly visible, while deeper level diversity can only be detected and become apparent after repeated interaction with a particular person (Harrison et al., 1998). These cognitive characteristics tend to have a positive effect on dynamics and outcomes, since they are more job-related. Commonly shared values, norms and behaviour patterns are embedded in the culture of a company (Nahavandi and Malekzadeh, 1988; Lazear, 1995) and as long as culture influences the cognitive diversity and the team-level behaviour of a company, decisions and actions of the employees and managers of a company are also influenced and determined by these factors. Most existing research in acquisitions focus on cultural differences and the impact on the firm level, however cultural differences are likely to involve cognitive diversity and behaviour at the team-level (inter-individual level). As long as diversity and team-level behaviour is a result of cultural differences, this study contributes to this relation by showing the different influences diversity
Cultural differences between acquiring and acquired firm
Team-level behaviour from employees of acquired firm
Higher innovation processes
can have on performance. In order to explain the relationship between cultural differences and the post-acquisition innovation processes, diversity, team-level behaviour and how teams behave when doing innovation should be taken into account. In the following, I will explain how these cultural differences may affect the team-level innovative behaviour, which finally influences the innovation processes.
Cultural differences and post-acquisition team-level innovation processes
Cultural differences are sometimes seen as positively affecting the group-level performance after the acquisitions (Barkema et al., 1996; Krishnan et al., 1997; Schweizer, 2005), while at the mean time some authors suggest that it negatively influences the group-level performance (Datta, 1991; Larsson and Finkelstein, 1999; Very et al., 1997). I try to take a look at these different perspectives in more detail now (also see Table 1).
On the one hand, there are some studies (Chakrabarti et al., 2009, Morosini et al., 1998) that argue a positive relationship between culture and post-acquisition innovation processes on the team-level, because it can give access to new routines, which can turn to be of competitive advantage. Zaheer et al. (2003) argue that the conflicts, caused by the diversity of the cultural values, can be reduced by an appropriate management of these differences as well as by anticipation, awareness and acknowledgement. This is a widely studied area and the management of cultural differences is an even more important factor causing acquisitions to fail, than the differences themselves. Krishnan, Miller and Judge (1997) found that having differences in functional background are positively related to the performance after an acquisition, while complementarity of the top management team could be seen as a possibility to learn and to lower the turnover rate. Cultural effects can have different and diverse sort of impacts on the performance after the acquisition.
acquisition deals as a communication problem (Dauber, 2011). Vaara (2003) and Harrison et al. (2001) state that having different cultures causes ambiguity and uncertainty. People easily get in shock when confronted with the other culture and this can cause resistance by the employees of the acquired firm. Complementarities of operations represent the possibility to realize synergy in an acquisition (Larsson and Finkelstein, 1999). According to these authors, firms with similar cultural values can be acculturated more easily than firms with total different cultures and values, which are seen as the greatest reason for acquisitions to fail. Although the national culture is just as important as the organizational culture, the focus in this study is on the latter.
Positive relationship Major findings
Chakrabarti et al., 2009; Morosini et al., 1998
Access to new routines lead to a competitive advantage. Benchmarking possibilities.
Zaheer et al., 2003 Appropriate management of differences, anticipation, awareness and acknowledgement can reduce conflicts.
Krishnan et al., 1997 Complementarity of the top management team could be a possibility to learn and to lower the rate of turnover.
Negative relationship Major findings
Stahl and Voigt, 2008; Bjorkman et al., 2007
A lower level of integration pays off in lower acculturation levels. Harzing and Feely, 2008 Language barriers result in communication and decision-making
problems.
Vaara, 2003; Harrison et al., 2001 Ambiguity, anxiety and uncertainty are caused by cultural differences and cause resistance.
Table 1. Major positive and negative findings between culture and post-acquisition innovation processes
creative behaviour (Ford, 1996). Individuals should be aware of their capability to make use of the cognitive resources in order to become creative. This means that creative self-efficacy is a very important difference, which influences the relationship between creativity and the team diversity. Diversity sometimes has positive effects when team members have to deal with non-routine and complex tasks (Pelled et al., 1999), while in other circumstances diversity can have negative effects, for example when fast decision-making have to be ensured. Other authors (William & O‟Reilly, 1998; Vaara, 2003) argue that diversity between team members and dissimilarities may impair innovation processes, because of a reversed process of social categorization.
There is a gap in the context of acquisitions, and this study tries to outline the diverse personality characteristics that influence the cooperating and collaboration process and the extent to which these variables, caused by cultural differences, affect the team-level behaviour and innovation processes negatively as well as positively.
METHODOLOGY
The research in this paper presents a single case study of a big non-family owned multinational brewery that acquired a family owned brewery in 2008. I will first outline the reasons for selecting a case study and in more specific this case. Subsequently, I will present a brief overview of the selected case. Finally, I will explain the sources and procedures I used to collect the data and the way I analyzed the data.
Case studies enable the researcher to understand the meaning of a certain appearance or a specific case, rather than simply testing a few variables and their interrelationship (Merriam, 1998). It is an in-depth multidimensional investigation, which makes use of qualitative research methods of a specific social appearance (Orum et al., 1991). Qualitative research provides the researcher a greater ability to sort contexts and deal with a variety of data and evidence (Miles and Huberman, 1994). Field data will be used to make connections with existing theory in a novel way (Lee, 1999).
exploratory in nature, thereby supporting the use of a case study method. Second, the appearance what will be studied is quite unknown and it is difficult to measure adequately (Bonoma, 1985). Third, since there is a lack of understanding in this particular phenomenon of interest, my research is focused on understanding innovation processes that are influenced by cultural differences and team-level behaviour (Zalan and Lewis, 2004; Merriam, 1998).
Especially in this case, an extra dimension is very important to take into consideration. Whereas differences in cultures, diversity and innovation processes between non-family owned multinationals are relatively small, so it is between a non-family owned multinational and a family owned company. The culture of family owned companies is often more fundamental, emotional and more humane, whereas the culture of non-family owned companies is more directed towards economic outcomes and more impersonal and transactional (Ward, 2008).
In order to answer the research question, this case in particular is the ideal setting to do so for several reasons.
First, this case is about the acquisition of a family owned company by a non-family owned multinational, which makes the difference between two cultures and their values even more visible. Non-family owned companies are aware that employees are responsible for making a difference when it comes to competitiveness, organizational performance, innovation and business success. So when they acquire a family owned company with a totally different culture, it is highly important to be aware of these differences. They influence the business success, the post-acquisition team-level behaviour and the innovation processes. A minimal difference in cultures, would probably not justify all our conclusions. In this study, the cultures are totally different, which makes it more applicable to this specific study in order to highlight the cultural differences and how they influence the integration process as well as the team-level behaviour and post-acquisition innovation processes.
Second, the fact that the portfolio of products of both companies is highly different and their targeted markets are each other‟s opposites makes it a suitable case to explain the effect on different aspects of the post-acquisition innovation processes.
Case description
The study was conducted among the Dutch international beer brewing company Royal Grolsch NV, which was founded in 1615 in Groenlo by Willem Neerfeldt (http://www.grolsch.nl). In 1895, the family De Groen purchased the brewery and held a significant stake in the company until November 2007. At that time, Grolsch was the second largest brewer in the Netherland, right after Heineken and it produced about 3.2 million hectoliters annually. 51% of this production was sold in the domestic market. Globally, Grolsch is the 21 largest brewer and its beer is available in more than 75 countries (http://www.grolsch.com/history). Grolsch mainly focus on their core markets in Canada, the United States, Australia, New Zealand and the United Kingdom, counting for 78% of Grolsch’s international sales volume. Premium Pilsner is the most important beer and is brewed in het United Kingdom under license by Grolsch (UK) Ltd., which is a joint venture between Coors Brewers Ltd. and Grolsch.
On 19 November 2007, the board of Grolsch accepted an offer for the company by the global brewing giant SABMiller of €816 million. It acquired an 80% share in Grolsch, raising its total share in Grolsch to almost 95% (MarketWatch: Global Round-up, 2008). The delisting of Grolsch‟ shares was completed on 20 March 2008. SABMiller announced plans to move into South American and African emerging markets with its higher margin beers, since this segment is still in its infancy, including the new acquired brand Grolsch, which shows evidence for the premiumization trend in the global beer industry. The acquisition of Grolsch should help SABMiller in keeping pace with the reinforcements, which characterized the beer industry in the recent years. The accepted authoritative within the industry was to maintain a low-cost base, maintain scale economies and to pursue their premiumization strategy through selling beers with a higher margin (MarketWatch: Global Round-up, 2008). Selling these higher margin premium beers was a motivation behind the take over of Grolsch and SABMiller saw Grolsch as a valuable brand, which could be added to their existing portfolio of premium beers, including Pilsner Urquell, Castle and Peroni. Grolsch, with its rich European heritage and premium positions, was seen as a perfect complement for SABMiller‟s existing international portfolio (http://news.bbc.co.uk/2/hi/business/7101393.stm).
Data collection sources and procedures
and public documents (annual reports, press releases). These public documents served as a complement to the interviews in order to improve the validity of my findings (Eisenhardt, 1989). I personally conducted twelve interviews with six different managers from both companies, generally lasting two to four hours. Two interviews took place in Antwerp, Belgium, while the other four interviews took place in Enschede, Netherlands. Two of these managers are former managers at Grolsch (a former export director and a former HR and Logistics director), but they left the company after the acquisition. Two other managers are process/integration managers, both still working for the company. Whereas one of them has a background at Grolsch, the other has work experience at SABMiller. The last two managers I interviewed are both originally managers from SABMiller. One of them is a corporate affair manager, while the other one is a sales director. My interview protocol (see appendix) was designed to understand and highlight the differences between both cultures and their main bottlenecks, how team-level behaviour and more specific the employees changed during and after the integration process, whether these changes in behaviour were the result of differences in culture and in how the acquisition changed the innovation processes of the acquired company. I asked my respondents to compare different periods in time: the pre-acquisition phase, the integration phase and the post-pre-acquisition phase. Before and after the personal interviews, I examined alternative sources of data, such as public documents and archival data in order to measure the accuracy. I recorded and transcribed my notes and finally I analyzed more than thirty public documents, including annual reports, industry articles, press releases and research reports. These documents served to corroborate and/or dispute what my interviews said to me during the interviews (Eisenhardt, 1989; Yin, 1994).
Data analysis
RESULTS
Before the acquisition: Cultural differences
Interviews indicate that big differences in cultures existed between Grolsch and the acquiring company SABMiller (see Table 2). I will describe the main ones and later I will explain how these cultural differences triggered and denoted diversity and team-level behaviour among the people of the acquired company, since they understood their role in the company in a very different way.
Culture at Grolsch. Grolsch was focused on continuous growth, while (half) year figures
were much more important than quarterly figures. Loyalty towards the company was a common characteristic among employees, since they were able to identify themselves with the company and the shared norms and values. According to the former export director of the acquired company Grolsch, who worked there for more than 20 years:
“Good examples are the low turnover rate of employees and the length of average employment. Most of our employees lower in the hierarchy were people from the area of Boekelo, Groenlo and Enschede. These people, most of the time not very high educated, had affinity with the company, since it was a company located in their geographical area and a lot of direct and indirect family members worked for the company. They had the feeling that the beer brand was part of their lives, which made it difficult and almost immoral to relinquish. This was also caused by the fact that even fourth generations of families worked for the company.”
The feeling of building a local beer brewery from a small to a big company was the main motivation for employees, instead of high salaries or bonuses. Grolsch‟ culture was characterized by a certain stubbornness, high interconnectedness, a very strong sense of community and commitment and the willingness to innovate and to try things out. According to the former logistics and HR director of Grolsch, who worked for more than 25 years for the company:
“The very strong sense of community became even more clear at the time of the fireworks disaster in Enschede in 2000. Part of the brewery was shut down. Day and night people were on their way to help colleagues, they worked on Saturday for other employees and they provided them all with the necessary tools and/or emotional help to deal with this disaster. This highly strengthened the sense of community and the feeling to reach certain goals together as a group.”
or work on efficiency in bottling lines. Beside, a team of 5 members from different departments (R&D, Marketing, Supply-chain, Logistics and Export) was composed in order to become even more innovative and after their foundation, the amount of different packaging methods, craft beers but also cost-side related innovations grew by 30%. Although their portfolio became broader, overall the profit didn‟t rise according to the annual reports of the years (2000-2008) before the acquisition. Communication channels were barely structured top down and there were a lot of possibilities (f.e. drop boxes for ideas, memo‟s, weekly papers) where employees could come up with ideas and possible solutions for problems. In this way, the company tried to keep their employees committed and made them feel more responsible for their actions. Innovativeness was measured by for example the new amount of craft beers or new packaging methods, which was totally different than the way SABMiller measured their innovativeness. They measured it along the variable profitability in which market share and revenues per hectolitre were much more important measurements of innovativeness.
Culture at SABMiller. Key concepts of their strategy and culture are top-down decision,
efficiency, standardization and cost-reduction. Compared to a family company like Grolsch, the turnover rate is higher and people didn‟t work at SABMiller for such a long time, with an average of 5 to 6 years. Most people are not motivated intrinsically, rather due to career possibilities, salary and status as long as SABMiller is one of the four largest beer breweries in the world. It is a very professional company with scripts and manuals for all the different processes (f.e. logistics, production, commerce) in the brewery, which are being simulated. Afterwards, the best ones are chosen for implementation in the acquired company. There is a tight and fixed procedure from the marketing department in the central head office to improve products and processes. According to the sales director from the acquiring SABMiller:
“KPI‟s play an important role in our organization in order to manage more than 75.000 employees all over the world. This increases our efficiency, but one negative side effect is that people have to lobby for different reasons higher in the hierarchy. Waste reduction, reducing changeover times, spill overs and water usage are important strategic goals we want to achieve”.
breweries on the cost side is much more important than bringing several different kinds of craft beers to the market, since changeover cost related with this strategy are often very high. According to the corporate affair manager from SABMiller:
“Since SABMiller is a South-African company, we are set practically, just like the Dutch people are in a certain way. When we have something to say, we won‟t bother to say, so we are very direct and honest with all our stakeholders. Our culture is further being characterized, since we almost always choose for a decentralized partnership. Companies we acquire can still move along their own specific path, but in the end we stay responsible for the development of the brand and the sales figures. Moreover, the targets are being employed at our central head office in Zug, Suisse.”
Another difference between Grolsch and SABMiller was the amount of weekly reports to be composed, which seems to be very bureaucratic. Besides, people have very standardized job tasks and ways of working. According to the corporate affair manager from SABMiller:
“We have a standardized work method in order to avoid undesired surprises. In this way we can control every single employee and it gives us the possibility to work more efficient and it makes it easier to accomplish our targets. Communication channels are clearly described in such a way that people can communicate with other colleagues, without disturbing other employees who don‟t have anything to do with certain issues. People in our company know their responsibilities and they know when they have the competence to make their own decisions. Often they do have to consult this with their manager, but in a certain way they have their own decision-making competency.”
Culture family owned brewery before acquisition (Grolsch)
Culture non-family owned brewery before acquisition (SABMiller)
Adhocratic, flexible. Bureaucratic, mechanic.
Each situation treated differently, with consultation and no fixed rules.
Formal written guidebook with procedures, working methods and regulated proceedings.
Bottom-up decision-making. Top-down decision-making. Intrinsic motivation (commitment). Emotionally and
deeply bound to mission, vision and values
Extrinsic motivation (salary, career possibilities). Less initiative, no responsibility feeling, unbounded to values.
Brand loyalty, low turnover rate. High turnover rate, no brand commitment/loyalty. Focus on current customers and new pioneering
product/process innovation. Increasing sales.
Focus on new customers and cost efficiency, economies of scope and scale. Process innovation, cash flow. Cost reduction and management control.
Solidarity, equality, decision-making competence. Distinction in ranks, no solidarity and equality. Fixed decision-making processes.
Table 2. Characteristics of culture from Grolsch and SABMiller before the acquisition
Integration process
strategic and hierarchical important roles, worked for decades at the company. These people were very conservative, in such a way that they wore blinkers. This often natural phenomenon reduced their ability to come up with new ideas and to take a broader, deeper look at different procedures inside the organisation, who finally turned out to be not that effective and efficient as they always thought it was. According to the process integration manager from Grolsch, SABMiller came in with a very arrogant and superior attitude.
“All the employees of our company had to perform according to the way SABMiller does business. More than 35 integration projects were started in order to adapt as soon as possible, which went quite efficient en effective. Not our whole management team was dismissed, since SABMiller tried to create some goodwill at employees from our company. The first 3 years after the acquisition, there was a lot of space to interconnect the two cultures, because a smooth integration process was an important requirement, but after a while it became clear that our culture was gradually crowd out.”
Before the acquisition, employees didn‟t had to report every week, but from the beginning of the integration process, it became a weekly task even for the lowest hierarchical functions in the organisation. Higher in the hierarchy, the managers had to report to the head office in Zug, which minimalized their feeling of responsibility as well as their ability to make decisions on their own, since it was very time consuming and it took a long time before they were able to make these decisions (see Table 3). According to the former logistics and HR director from Grolsch, who left the organisation 3 years after the acquisition:
“When we had to make a yearly budgetary planning, it took more than 3 months of lobbying and consulting, before we could even start with a certain budget. After that, all the different places where the money had to be used for could be determined, which made it a very time and effort consuming activity.”
Post-acquisition: impact of cultural differences
After and during the integration process, culture changed towards the culture of the acquiring company and especially the employees of the acquired company were not amused with this change. I will describe the main implications I identified, based on employees‟ feelings, strategic focus, innovative behaviour and performance.
Employees’ feelings. Although the change went smoothly and was done step by step, a lot of
founders‟ mentality played an important role, the new way of working due to a cultural shift made employees feel they were treated as a number rather than as a useful individual employee. According to the former export director from Grolsch:
“Before the acquisition, workers at Grolsch were motivated intrinsically, since most people lived in the same region and worked for many years at the company. They felt a connection between them and the beer brewery/brand. They had the feeling that everybody was responsible for the company as well as the success of the company, due to the open and the collaborative way of working. The cultural shift, caused by the acquisition, resulted in a total different way of working, compared with a high turnover rate, since employees couldn‟t identify themselves anymore with Grolsch.” The new motivation for people who began working for the acquired company lied in the financial rewards, career possibilities and the high status compared with working for Grolsch, which was a part of SABMiller from then on. Loyalty to the company and to the brand was very uncommon in the new established culture, the only important goal was to improve profit and reduce costs, whether this could be done by selling Grolsch, or whether selling other brands from SABMiller could do it. The portfolio of beers was minimized, with only a few craft beers still being brewed. Many employees left the company or couldn‟t adapt to the new culture, due to this reduced intrinsic motivation and increased extrinsic motivation.
Another result of cultural change was the anxiety from employees and between employees (see Table 3). Not only this anxiety made them resistant to change, since they couldn‟t cope with the shift in ways of doing business. Due to the fact that a lot of people left the company whether or not voluntarily, other employees became very scared of losing their jobs. According to the former logistics and HR director from Grolsch:
“Many employees became scared, expressed by not sharing their opinions and ideas anymore. Once I asked a very good colleague about his ideas in a meeting with other people from SABMiller, he said the things these people wanted to hear. Afterwards I asked them if he really expressed his real ideas and then he told me he said it since he was scared to say something the others wouldn‟t appreciate, which could finally cost him his job.”
and background between the employees of both companies. In the next subsections, some more feelings will be highlighted, since these feelings are the result of other changes.
Feeling employees Grolsch After and during acquisition
Anxiety Reduced willingness to share ideas, come up with new ideas and express opinions.
Motivation Extrinsic rather than intrinsic motivation due to less commitment, lower generosity, less integrity and more focus on careers and salary.
Pride Due to a radical change in the beer portfolio, feeling of pride diminished heavily.
Responsibility and competency Mechanistic structure and bureaucratic communication channels reduced the feeling of responsibility as well as employees‟ competences to make decisions on their own.
Table 3. Feelings of Grolsch‟ employees after and during acquisition
Strategic focus. In the past, Grolsch used to invest a lot of money and time in the
development of small incremental changes as well as the introduction of new craft beers, packaging and beer boxes. More than often, this resulted in a higher revenue, but due to the high costs, partly caused by the long changeover time, the net profits were not that high and for some projects even negative, f.e. Lentebok. This means that efficiency at that time was found to be less important as it was found after the acquisition. Since SABMiller has a worldwide network of different global and local breweries, the acquisition gave Grolsch access to information from other markets and breweries, which gave them the possibility to benchmark. According to the sales director from SABMiller and the former export director from Grolsch:
“With the possibility to benchmark, it became clear that Grolsch was highly innovative, but overall the results didn‟t benefit from this innovative way of doing business. They thought that they were in a global leading position with regard to waste reduction; water usage reduction and returns on drain lines. It became clear that, compared to other breweries, Grolsch was highly inefficient, something for which the employees of this company were blind of. A rationalisation process of the craft beer portfolio had to be started in order to increase revenues and decrease the costs. Innovation became less important; the most urgent goal was to increase the net profits”.
Most of the craft beers were removed from the portfolio and beers from other brands (f.e. Pilsner Urquell, Peroni, Castle) were replaced. From then on, these brands had to be sold in the Dutch bars and supermarkets next to the own brand. Although this had a positive effect on the cost side, since changeover times reduced, employees of Grolsch became less and less proud of their own brand and their own way of doing business. Again this was a result of the bureaucratic, mechanic and hierarchical method inserted by SABMiller. According to the former export director from Grolsch:
“It hurts a lot, when you work for decades on building a strong brand, in order to enable it to compete with other pilsner brands. When your whole strategy has to change in such a way that you can‟t come up with new ideas to make your brand even stronger or to strengthen the affinity of your customers with your brand, our feeling of pride diminishes heavily. All the projects we worked for so hard last years to make our brand and our beer unique, innovative but still authentic, had to be cancelled. It can be compared with an artist who has to throw his piece of art in the garbage can after working on it for several years. Our pride was aggrieved.”
Product versus process innovation. Due to the cultural shift in combination with a total new
work method including complete task manuals, another shift in the overall strategy was highlighted. According to the sales director of SABMiller and the process integration managers from both companies:
“Grolsch had a very wide portfolio of packaging, craft beers, labels, marketing campaigns, dispense systems and innovative gadgets. Although this contributed to a strong brand, this strategy couldn‟t be maintained, since it was highly inefficient compared to other breweries we own. A drastic shift in strategy was in our opinion the best solution to make the company more profitable. We started to focus more on improving current processes, rather than exploring new products, processes or services.”
This change highlights a not so obvious shift from product innovation to process innovation (see Table 4). Before the acquisition Grolsch went to the market with a beer box for the „bottle bracket‟, which contains a handgrip in the middle. This is unique for this sort of beer boxes, but if Grolsch wanted to add this feature after the acquisition, it would have been impossible. According to the former export director from Grolsch:
produced in such a way that our recycling process becomes more efficient with fewer materials. Now the focus is on the cost side and specifically on our processes. We had to improve the current processes and products, rather than exploring new products.”
Like mentioned above, the biggest change after the acquisition can be found in the way innovative behaviour changed. Exploitation became more important than exploration, while process innovation was preferred above product innovation (see Table 4).
Table 4. Shift in innovative behaviour and strategic focus after and during acquisition
Team-level behaviour. Although the acquisition led to a relatively small increase in profit, we
try to illustrate team-level behaviour on the basis of how the employees‟ proceedings changed. Our focus is not on the financial performance, it is rather focussed on the way employees fulfil their tasks and in how their way of doing business and daily routines changed after the acquisition. According to the former HR and logistics director from Grolsch:
“KPI‟s became much more important after the acquisition. For every single measurable goal, we used different KPI‟s and weekly reports had to be made in order to provide the board of directors of the necessary information. Not the rate of innovative products, measured by several quality indicators, but the profitability, measured by market share or revenues per hectolitre, became the most important indicators to measure the performance. Especially in the beginning, it was very difficult for our employees to change, since the culture was totally different. People became resistant and didn‟t want to adapt to the culture of SABMiller.”
This led to a drop in structured team-level behaviour, since people did not communicate with each other, did not try to share there ideas and views on different concepts and probably most important, lost their motivation. These people tried to keep their own culture, although they knew that it was a mission impossible. Employees didn‟t feel treated as a useful individual, rather as a number in a huge multinational. Due to this feeling, they lost their energy and commitment to the company, which had a negative effect on their performance, especially in
Team-level behaviour/strategic focus After and during acquisition
Process product innovation Since non-family owned multinational focus mostly on efficiency and economies of scope/scale, the focus shifted from product innovation to process innovation in order to reduce turn over time and increase profits. Total products in portfolio had to be reduced to achieve these goals.
the beginning. After years, people changed as well as the culture in the direction of the culture of SABMiller, since there was no other possibility than to adapt to the culture or leave the company. Nowadays, more than 65% of the former employees of Grolsch left the company whether or not voluntarily, through which the culture of SABMiller could be more easily established in the acquired company. Vice versa, the high turn over rate is also influenced by the culture, since a lot of people could not deal with the new culture and the mechanic, bureaucratic and time consuming work methods.
As can be seen from the results, the most drastic change due to culture differences between Grolsch and SABMiller was the shift from explorative to exploitative innovation and the shift from product to process innovation.
DISCUSSION
The goal of this study was to distinguish the culture of Grolsch with the culture of SABMiller and how these cultural differences affected the team-level behaviour and post-acquisition innovation processes of Grolsch. Regarding the results, these differences influenced the team-level behaviour and the innovation processes, which will now be further explained.
Culture and team-level behaviour
differences cause anxiety and resistance. Employees of Grolsch became anxious to express themselves, which finally resulted in an even lower level of trust and poor communication between employees.
The motivation problem, which shifted from intrinsic to extrinsic, can be explained by the theory of Heine, Lehman, Markus and Kitayama (1999). These authors state that families‟ values direct their approach to stewardship of assets and also determine their attachment to the legacy of the family. This helps to commit employees to the business of the family and shapes a sense of identity. Loyalty, dedication and commitment are some of the key words in family businesses and in line with these terms, a shift in work methods and a in strategic focus to cost optimization and process efficiency, reduces the humility feeling. Since SABMiller pays a relatively high salary, but limits the substantive tasks, dedication to the former company became very low. According to Bjorkman et al. (2007), this lower motivation pays off in lower acculturation levels and lower team-level performance.
As can be seen, there are a lot of underlying values where SABMiller did not pay attention to and this hurt a lot of employees from Grolsch. Especially for older employees who worked for the Grolsch for a longer time, it is very difficult to adapt to changing work methods. The integration process changed their way of doing business as well as the culture they were used to. People became anxious, lost their intrinsic motivation and their feeling of pride. They felt treated like a number, rather than a unique and appreciated individual, with a significant role inside the firm. People became resistant and especially in the beginning of the integration process, this is not very desirable.
Innovation processes
One of the most startling outcomes of this study is the shift from product innovation to process innovation. Grolsch was known from their pioneering innovations in the field of craft beers, packaging, dispense systems and marketing campaigns with brand loyal consumers. After the acquisition, SABMiller centrally controlled innovation possibilities and there was less room for innovations specifically aimed at the brand Grolsch. Beside, product innovation became less important and the focus shifted to process innovation in order to increase efficiency and enhance cost optimization. From the SABMiller point of view, this is a natural, since it is an enormous multinational and a broad beer portfolio from one brand is highly inefficient due to high turn over times. But from the Grolsch point of view, this was a radical shift and everything were Grolsch stood for, was wiped out. Grolsch always tried to be a leader by innovating all the time and experimenting with different tastes. This changed radically and it became more important to streamline the production process and to reduce the turn over time, the time needed to recycle products as well as the waste, instead of offering quality, good service and a broad portfolio to their brand loyal consumers.
Another major finding of this research was the shift in innovation from exploration to exploitation. The value of creativity in a family owned company symbolizes the creative and entrepreneurial spirit of the family in such a way that the founders and employees of the company generated new products, processes, approaches and ideas to traditional services, from which the family company originates. The shift to exploitation is in line with current literature about this topic. Chapman (1989) states that the survival of family owned companies depends on their capacity to be creative and innovative in order to come up with new services and products, rather than to shape current products and services. The opposite is true for non-family owned companies. The capacity to be creative increases the distinctiveness, which was an underlying value of the Grolsch. After the acquisition, this became less important. In order to save money and time, the R&D department was centrally located for all breweries of SABMiller and it became more important to improve products, services and processes than entering the market with pioneering innovations.
With regard to my research question, the big difference between both cultures led to different team-level behaviour and a totally different interpretation of innovation processes.
On the one hand, efficiency was raised due to many process improvements, which for example reduced the take over time as well as the reduction of packaging materials per bottle and the waste reduction. This was caused due to the fact that Grolsch could be paralleled to other breweries in the same sector and this is consistent with current literature about performance improvements due to benchmarking possibilities (Tian and Ketsaraporn, 2013). Less money was spent on product improvements, rather on process improvements. This resulted in a smaller beer portfolio and a relatively small raise in revenues and profits.
A lot of people were positioned at less challenging jobs then they were used to before the acquisition. This hurt people so much, than more than half of the employees left the company voluntarily or they got fired. The company lost their unique and specific character with a wide beer portfolio and with many loyal customers. Since Grolsch was not a family owned company anymore, commitment became less and less and people were not driven to make the best out of it, since they could not find themselves in the new way of working and the new innovation processes.
CONCLUSION AND IMPLICATIONS
This study intends to emphasize the importance of cultural differences between an acquiring and an acquired company on team-level behaviour and innovation processes. Grolsch‟ culture was characterized by product innovation, exploration and brand building, while SABmiller‟s culture was characterized by cost reduction, portfolio management and economies of scale and scope. Due to these differences, employees of Grolsch were forced to change their behaviour and to adapt to the new culture. Family owned companies highly rely on their culture and with respect to the employees of the acquired firm, innovation processes diminished especially in the beginning of the integration process due to a lack of care about cultural differences. With respect to the performance of the employees at a team-level, an acquisition of a family owned company offers prospects and new insights for the future. The possibility of benchmarking and highly professional support from the mother company gives the acquired firm the possibility to remove their winkers and look for new opportunities to become more efficient.
important in order to combine two cultures in such a way that innovation processes and team-level behaviour will not suffer.
Managerial implications
First, it is highly important for an acquiring company to be aware of the cultural differences and to take them seriously into account. Especially when a family owned company is acquired, since cultures are deeply rooted. By understanding these differences, managers can develop a shared sense of commitment and pride towards a company and it not only promotes the economic proficiency, but it also promotes the well being and motivation of employees from the acquired company.
Second, more than once, acquiring companies try to change ones culture as quickly as possible in order to manage the integration process smoothly and fast. In reality, we can now state that this takes more time and effort than one may think, since deeply rooted cultural differences differences cannot simply be changed from one day to another. Managers should take considerable time to smoothly manage this process in order to align the employees of the acquired company towards the same direction.
Finally, it is essential for managers to make sure that the new innovation processes are in line with the culture of the acquired company. When these are not consistent with each other, employees and groups become anxious to express themselves, they will lose their intrinsic motivation and sense of pride and finally it will hurt their well being, which will diminish their team-level behaviour.
Limitations and future research
Second, additional research could be done about the role of integration managers and HR managers, how they try to integrate two totally different cultures into a new one and to understand more fully the reasons behind opposing employees. To what extent do these managers they contribute to a successful acquisition or to a failure?
Finally, since this study focused mainly on the innovation processes of team and their behaviour, future research should focus on the effects on financial performance to see how such a cultural change effects the annual profit.
ACKNOWLEDGEMENTS
I wish to thank the anonymous (former) employees of the acquiring as well as the acquired company, for their time to conduct interviews. Finally I wish to thank my first supervisor Mrs. Estrada Vaquero for her support and assistance on my research as well as my second supervisor Mr. Noseleit.
APPENDIX
Interview protocol
I will start with some general questions about themselves (function, age, cultural background etc.) and about their experience in the company. Along the way, I want to ask them more specific questions. Questions:
Have you ever had experience with an acquisition? How did you feel when you heard about the acquisition?
How did your culture look like before the acquisition? F.e. about idea-sharing, top-down decision-making, secrecy, stimulating innovativeness etc.?
Did this change after the acquisition? In what way did or did it not change?
Did your prior expectations about the acquisition become reality? Was this negative of positive?
Do you feel a big distance between you and acquirer‟s employees? In what way the acquisition changed your way of doing business?
In what way the acquisition changed the way your department was doing business? Can you still be innovative or is there a sort of blueprint for the work you have to do now? How do you feel now about being acquired by SABMiller?
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Websites:
http://news.bbc.co.uk/2/hi/business/7101393.stm http://www.grolsch.com/history
