Describing the challenges of cultural differences during mergers and acquisitions

Each of our case studies will give you a brief background to the companies involved as well as an overview of the cultural issues at play.

Describing the challenges of cultural differences during mergers and acquisitions

Gene Gitelson, John W.

HR Challenges in Mergers and Acquisitions | Businessgyan

Interviews of over senior executives involved in these deals over a two-year period revealed that the overwhelming cause for failure "is the people and the cultural differences".

Merger success is based on acceleration, concentration and creating a critical mass for operational change adaptation. Up to the point in the transaction where the papers are signed, the merger and acquisition business is predominantly financial - valuing the assets, determining the price and due diligence.

Before the ink is dry, however, this financially-driven deal becomes a human transaction filled with emotion, trauma, and survival behavior - the non-linear, often irrational world of human beings in the midst of change.

These areas must not only be valued for their negative impact on the critical success factors that drove the "deal", they are the very agenda for the organization's action in the critical first 90 days of the new entity.

The Impact of Culture on Mergers & Acquisitions

In the case of international mergers and acquisitions, the complexity of these processes is often compounded by the difference in national cultures. People living and working in different countries react to the same situations or events in very different manners. Therefore, a company involved in an international merger or acquisition needs to consider these differences right from the design stage if it is to succeed.

Preoccupation In Canada, individual preoccupation with "How is this all going to impact me? This, in turn, translates into people looking for work in other companies.

Often a firm in the midst of transition loses some of its own talent - strengthening the competition. In countries where people identify largely with groups, people tend to look for support within their group. In France and Italy, people caught in the midst of a merger or acquisition often turn to unions.

Describing the challenges of cultural differences during mergers and acquisitions

If unions cannot provide answers because they have been excluded from the negotiation process, they are likely to go on strike. What is less apparent is the pervasive loss of productivity of those who remain. They also indicate that teams tend to break down and become less effective during mergers and acquisitions.

To quantify these losses, determine the number of individuals involved, multiply by their fully-loaded hourly wage, consider just one hour lost to confusion, waiting for clarity, figuring out who should do what to whom assuming you know who "whom" is and a likely job search.

This is how much productivity is lost per day to the company and the new owners. Multiply this by 65 there are 65 working days per quarter and compare this number with the amount in gross sales revenue that the firm will have to generate to the bottom line to offset this loss in productivity.

Speed the integration to reduce the uncertainty and anxiety.

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List-making You may also call it compulsive-obsessive list-making; whatever the name, it's real. In the face of overpowering uncertainty and rising fears of insecurity, it will happen. Making comprehensive lists is a very logical response to one's world thrown upside down.

Lists of things to do fill the space and suppress the anxieties; they even make sense, except to the bottom-line and the economic drivers that were the very basis of the merger.

As soon as the merger is announced and the first calls to action proclaimed, the reality sinks in. The "list" is overwhelming. Personal and departmental needs drive the allocation of resources.

Describing the challenges of cultural differences during mergers and acquisitions

Quickly, as the days build, there is a widening disconnect between the financial and market-based goals of the merger and real-time allocation of effort.

For example, Mexicans tend to require more structure and definition of their role and responsibilities than do Canadians. When a Canadian corporation acquires a Mexican company, its Mexican employees are often looking for information and structure that is not forthcoming, because their new Canadian managers deem it unnecessary.

The Mexican organization often grinds to a halt, since Mexican employees are unlikely to go and ask for the information they need, since this may be viewed in Mexico as questioning management's authority.

For example, a Canadian company acquiring a company operating in a country where the government controls much of the economy may find that the value of its new acquisition lies more in the personal ties between its managers and high level government officials than in its quality of service.

Organizational Proliferation In Canadian organizations, many task forces, committees and integration teams are created to handle all the lists and to plan new lists. Integration structures and transition teams designed to be all-inclusive and to represent a sign of "new partnership" will weigh heavily on an organization seeking to keep its eye on its customers and the market.

More effort will be placed on temporary rules and reporting relationships than the work itself. For example, in countries where the sense of hierarchy is much stronger than in Canada like France and Mexicochange is brought about from the top and employees at all levels expect new directions from their managers.

Accelerate, concentrate and adapt. Transitions do not need to be demonstrations of democracy in action. This is particularly common in the international case, since language and cultural differences create significant communication issues.

Infrequent and irrelevant communication Fear and a lack of all the answers deters top management from providing the information that customers, shareholders and employees need to redirect their action to the value-added of the deal.

Rumor fills mystery and vacuums. When there is communication, it often lacks information and substance that explains and supports stakeholders' interests. Consider the case of a Norwegian - American joint venture.

Because Norwegians tend to be more relationship-oriented while Americans tend to focus on tasks, the parties almost came to blows over when and how to bring the discussions to a conclusion.These pitfalls of mergers and acquisitions challenge today's leaders to a new standard of managing change.

The strategy is clear - accelerate, concentrate, adapt, and in the case of international M&As, consider cultural differences.

How to Merge Corporate Cultures |

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During mergers and acquisitions, employee retention can be a challenge, as many believe it can be a threat. Inherently, many mergers and acquisitions (M&As) deals have retention issues, which result from negative attitudes felt by employees.

The Impact of Culture on Mergers and Acquisitions