You are on page 1of 16

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/1352-7606.htm

CCM
19,3 Mergers and acquisitions process:
the use of corporate
culture analysis
288
Yaakov Weber
School of Business Administration, College of Management,
Rishon Lezion, Israel, and
Shlomo Yedidia Tarba
The Center of Law and Business, Ramat-Gan, Israel

Abstract
Purpose – The purpose of this paper is to advance cross-cultural management during mergers and
acquisitions (M&A), an issue that remains poorly understood despite a large body of literature
accumulated over many years of study and experience.
Design/methodology/approach – Based on literature review and case studies of both successful
and unsuccessful companies, this paper clarifies the concept, the assessment and the use of corporate
culture and its dimensions during all mergers and acquisitions stages, and as such shows its role as an
important and influential milestone in the international business environment exploration.
Findings – The paper arrives at the conclusion that the enduring paradox of the high rate of
M&A failure vs the growing activity of M&A may be due to lack of synchronized activities of all
merger stages.
Practical implications – The paper presents frameworks and managerial tools that can help
researchers and practitioners conduct better corporate culture assessment during all stages of the
M&A, including screening, planning, and negotiation, and enhance the effectiveness of interventions
carried out during post-merger integration process.
Originality/value – The paper offers insights into corporate culture and its impact during
pre-merger stage, negotiation, and the post-merger integration process.
Keywords Culture, Mergers, Acquisitions, Acquisitions and mergers, Organizational culture
Paper type Research paper

Introduction
Mergers and acquisitions (M&As) activity around the world has been booming for the
last three decades, but the intense M&A activity is in sharp contrast with the high rate
of failure and dissatisfaction with its performance. An analysis by the Hay Group in
2007 of more than 200 major European M&As over the preceding three years found
that senior business leaders believe that only 9 percent were “completely successful” in
achieving their stated objectives. Unfortunately, merger integration consultants are
often not brought in until problems arise late in the post-combination aftermath stage,
long after the merger or acquisition has been consummated (Buono, 2005).
The cross-cultural differences factor in M&A success has been the subject of
Cross Cultural Management contradictory and perplexing findings (Teerikangas and Very, 2006; Weber et al., 2009).
Vol. 19 No. 3, 2012
pp. 288-303 On the one hand, many studies during the last two decades have provided corroborative
q Emerald Group Publishing Limited evidence that cultural differences have a negative impact on M&A performance. On the
1352-7606
DOI 10.1108/13527601211247053 other, several recent studies point to the fact that cross-cultural differences can have both
negative and positive effects on M&A performance (Ahammad and Glaister, 2011a, b; Mergers and
Reus and Lamont, 2009; Sarala, 2010; Slangen, 2006; Vaara et al., 2011; Weber et al., 2011d). acquisitions
The theoretical literature and empirical findings of the last 20 years suggest that the
influence of culture differences on the post-merger integration process is crucial process
for M&A success (Brannen and Peterson, 2009; Chakrabarti et al., 2009; Graebner, 2004;
Weber et al., 2009). In practice, however, cultural differences in the M&A
decision-making process seem to be neglected. For example, cultural assessment 289
appears to be low in the priorities of executives in the due diligence process (Angwin,
2001). Time and again, cross-cultural management is mishandled by top executives in
M&As and eventually results in failure, as in the case of the Daimler Chrysler merger
(Kuhlmann and Dowling, 2005). There are two main reasons for the apparent divergence
between conventional academic wisdom and executive practice. First, the scholarly
literature focuses on the role of national and corporate culture only in the last stage of
M&A, namely, post-merger integration, rather than on all M&A stages, including
planning and negotiations (Weber et al., 2011b). Second, the concept of culture is not
entirely clear to executives and therefore difficult to implement in practice, as for
example in the assessment and measurement process (Weber and Tarba, 2010, 2011).
The current paper aims at closing these gaps. First, it explains why corporate culture
assessment is not being used in all stages of M&A. Second, it clarifies the concept of
corporate culture by articulating the seven dimensions that were found to reliably
predict human resource problems in the post-merger integration process and overall
M&A performance. Third, it suggests how to measure cultural differences. Finally, it
suggests how to use culture assessment at various stages of the M&A process to best
promote cross-cultural management.

Lack of culture assessment in the early stages of M&A


It is common knowledge today that M&As have a high chance of failure and that
corporate culture, especially cross-cultural management (Weber et al., 2012) is a key
factor in the successful integration of two organizations (Stahl and Voigt, 2008;
Stahl et al., 2005). For example, for Teva (the worldwide largest generic pharmaceutical
company) with its fantastic growth based on successful M&A (Almor et al., 2009) the
cultural issues play a major role:
Post-merger implementation focuses mainly on cultural integration with Teva, talent
management, retention and adapting to local cultures. Once the acquisition of a company
has been approved, cultural and economic issues are primary when it comes to integration
(Claus, 2006).
It is surprising, therefore, that differences in organizational culture have yet to become an
important factor in the decision making of directors and senior management regarding
such matters as the choice of the appropriate M&A, determining the price of the
transaction, planning the integration of the two organizations, as well as in seeking to retain
the human capital of the acquired company, which tends to leave shortly after the merger.
Two main independent streams of management research have studied either the
pre-acquisition or post-merger integration stages. One stream that focuses on the
pre-acquisition stage examined the relationship between firm-level measures of
financial performance and the strategic fit between buying and selling firms
(Singh and Montgomery, 1987; Palich et al., 2000), with a focus on the potential synergy
CCM and added value of the acquisition to the buying company; in other words, on choosing
19,3 the right merger. However, a recent meta-analysis (King et al., 2004) failed to find
a consistent relationship between performance gains and the degree to which the
merging firms share similar functions, or other related financial factors such as
the choice of payment methods. The authors indicated that other factors must be
investigated, in addition to the financial ones, to understand M&A performance.
290 The second stream of research focuses on the post-merger stage and examines the
cultural fit of the buying and selling firms and its impact on the success of the merged
company (Chatterjee et al., 1992; Sarala and Vaara, 2009; Stahl and Voigt, 2008;
Weber et al., 1996, 2009, 2011c; Weber, 1996), but findings are not always conclusive
(Stahl and Voigt, 2008). These studies have paid little attention to cross-cultural
management, for example, to the role of HR practices, given the effect of cultural
differences on the success or failure of domestic and international M&As. Note that the
various bodies of literature on M&A seem to exist in a state of splendid isolation. This
issue has been raised by several scholars many years ago (Weber et al., 1996), but the
situation has not changed much since then. Although they share some definitions and
terms, authors writing about pre-merger and post-merger issues generally refrain from
stepping onto each other’s territory, thereby missing out on opportunities to fully
understand the M&A process and the effects of each stage on M&A performance.
Scholars and executives must understand that to seize the potential of M&A that is
usually identified in the pre-merger stage, the steps to be taken in the integration
process must be discussed as part of the merger choice. For example, with its breadth
of acquisition experience, Teva has structured HR tools for due diligence. Due diligence
covers all HR aspects (legal, economic, structural, demographic and turnover data) as
well as other “soft” issues especially culture (Claus, 2006).
Finally, the negotiation is also an essential part of a successful M&A
(Weber et al., 2011a). For example, in Electrolux, well known for its impressive
growth based on many successful M&A, Ghoshal and Haspeslagh (1990, p. 7) indicated
that “It was standard Electrolux practice to have a broad but clear plan for immediate
post acquisition action well before the negotiation process for an acquisitions was
complete”. Similarly, in Teva:
“With this breadth of acquisition experience, Teva has structured HR tools for due diligence.
Due diligence covers all HR aspects (legal, economic, structural, demographic and turnover
data) and other ‘soft’ issues (culture).” Says Director of Labor Economics Muki Gilat, “If one of
the three core disciplines [R&D, operations and HR] does not recommend the deal, Teva will
not acquire the checked company” (Claus, 2006).
It is important to understand, therefore, that all stages are pre-requisites of M&A
success (Jemison and Sitkin, 1986). One of the main reasons that culture and cultural
differences are not assessed in the pre-merger period and therefore not taken into
account at the negotiation stage, is the use of various consultants, technical staff and
specialists in strategic decisions about the merger (Jemison and Sitkin, 1986; Haspeslagh
and Jemison, 1991). Chief impediments in the M&A process, especially in the assessment
during the pre-acquisition stage, are activity segmentation and fragmented
perspectives. The technical complexity of the analysis requires experts from various
fields such as transaction advisor (i.e. legal, accounting, finance, auditing, investment
banking and more) and post-merger integration consultants, each responsible for part of
the analysis. For example, in the pre-combination stage of preliminary planning,
transaction advisors typically drive the process without the involvement of merger Mergers and
integration consultants. Makov, former CEO of Teva explained: acquisitions
After planning there is the due diligence review. “This stage is frightening”. You always find process
skeletons in the closet and you have to decide which ones are important. If you leave it to the
accountants and lawyers, the deal will never go through, because they’ll turn every skeleton,
or shadow of a skeleton, into a dinosaur (Weinreb, 2008).
291
Ideally, the consultant’s interventions should span all M&A stages. However, much
M&A consulting is far more piecemeal and reactive, as different consultants are
brought into help resolve a particular problem that emerges in one aspect or another in
the overall M&A process (Buono, 2005). Individual teams work in isolation from one
another and the difficulties in coordinating the various areas of expertise and methods
result in a strong emphasis on quantification of estimates and their translation into
financial numbers. The outcome is usually the omission, or underestimation, of factors
that are difficult to quantify, such as culture and cultural differences. This is because
the concept of culture is not clear and the way to measure culture and cultural
differences is not known. The following quote is typical to many problematic M&A:
“I think Alcatel-Lucent was a merger that sounded good in a PowerPoint presentation,” said
Mark Sue, an analyst at RBC Capital Markets in New York. “But there have been a lot of
serious integration challenges, including cultural issues, that were underestimated and still
linger” ( Jolly, 2008).
Such a situation has further implications on HR issues that make M&A unsuccessful.
As former CEO of Creo-Scitex merger noted:
The processes of the merger moved slowly; Michelson admits, “The primary conflicts that arose
after the merger were on the management culture and methods.”and “The senior managers of
Scitex left since they did not internalize Creo’s management style” (Ginsburg, 2001).
Thus, in unsuccessful mergers the timely assessment of post-merger integration
problems and related HR challenges due to culture clash remains outside the
negotiation stage and the decision-making process at the pre-merger stage, while in
successful mergers, those assessments in the pre-merger stage are implemented
immediately after the deal is signed according to early planning. For example, in the
Electrolux-Zanussi merger:
[. . .] a matter of hours after the signing of the final agreement, {Electrolux management}
announce a complete change in the top management of Zanussi [. . .]. Rossignolo was seen as
an ideal bridge between the two companies and their vastly different cultures and
management styles (Ghoshal and Haspeslagh, 1990, p. 8).
The following sections clarify the concept of culture, cultural differences and the way
in which to assess them and measure cultural differences.

Evaluating and measuring differences in management culture


Many managers know that it is far easier to close an M&A deal than to implement it in
the years following the signing of the agreement. Countless research studies and surveys
of senior managers have shown that one of the main causes of the failure to properly
integrate the two organizations is rooted in differences in management culture and their
implications on the human factor, such as the departure of managers and key personnel
CCM from the acquired company (Hambrick and Cannella, 1993; Cannella and Hambrick,
19,3 1993; Lubatkin et al., 1999). For example, 20 out of 25 senior Scitex managers left the
company in the first year after its acquisition by Creo, despite efforts to retain them in
the merged company. In this case, differences of national culture apparently exacerbated
the difficulties (Weber, 2003).
Many mergers fail because of a lack of methodical and thorough measurement of
292 culture differences. One of the better known examples is the acquisition of NCR by
ATT at the beginning of the 1990s. The conservatism and centralized management of
NCR did not suit the openness and creativity of ATT. Eventually, NCR was sold at half
its market value and ATT lost $3 billion. By contrast, in the acquisition of the Morris
Aviation Company by the Southwest Aviation Company, the acquiring company
invested two months in learning the culture before the agreement was signed and
ended the integration process in 11 months instead of the three years allocated during
the initial evaluation.

What is organizational culture?


The word “culture” has many meanings, various connotations and different definitions
and there is no agreement among researchers as to its exact meaning. But there is one
definition of management culture that points to the ability to predict many phenomena,
including the success or failure of M&As. According to this definition, management
culture is a developing system of beliefs, values and assumptions shared by the managers
about the desired way of managing the organization so that it can adjust to its
environment (Chatterjee et al., 1992; Lubatkin et al., 1999; Migliore, 2011; Rosenblatt,
2011; Schein, 1985; Weber and Pliskin, 1996; Weber, 1996).
This definition focuses on the process of measurement and analysis by management.
The focus on management approaches and style has many advantages in the M&A
context and makes it possible to measure and evaluate corporate culture, including
beliefs, values and fundamental assumptions, ceremonies, dress code and other aspects
of the organization at a relatively low cost. The important aspects for M&As are the ones
that are included in the definition proper; the rest provide additional information for
confirmation of the findings.
The system of beliefs and fundamental assumptions about work methods and
approaches that lead to success evolves from the accumulated experience of the
organization’s management and workers in the course of dealing with the competition and
with various factors in the business environment. Dealing with management challenges in
this way requires interpreting the information that has been collected and taking action on
the basis of the interpretations. Thus, corporate culture is an acquired system of
knowledge and frameworks of reference that make possible the understanding and
explanation of what occurs in the organization, in the sector and in the world at large.
Culture is critical in the preparation of programs and the making of decisions for coping
with various management challenges on an ongoing basis. Because the interpretations
depend on additional factors, such as the nature and background of the people involved,
the actions undertaken and the interpretation of the success of these actions, every
management team develops a different management culture even when the organizations
and their managements operate within the same sector and in the same country.
All the beliefs, assumptions and fundamental hypotheses of the management team
become a complete system with unique content that shapes the processes of decision
making and influences the choice of strategies, policy, principles and behaviors in the Mergers and
organization. For example, a management group may decide upon its financial goals acquisitions
and significantly increasing its debts, while other management team will avoid an
increase of debts. This different course of action followed from the beliefs and process
assumptions of each management team regarding the risk that should be taken during
strategic operations. Assumptions of this type influence, among others, the levels of
investment in areas of research and development in various projects, the testing 293
operations, the level of autonomy granted to managers, the organizational structure
and many actions adopted by various divisions within the organization.
The system of beliefs that constitutes the organizational culture operates as a filter
through which members of the organization perceive the reality they confront (Schein,
1985). As such, it plays two essential roles. First, the system of beliefs enables the
translation of a complex world and of considerable uncertainty into familiar,
comprehensible terms. Second, it provides continuity and stability when changes
threaten to undermine the knowledge accumulated by experience. Thus, the culture
supplies control functions that allow deviations from the accumulated knowledge and
experience. These roles make the culture important to those who share it, but at the same
time they make it difficult to carry out necessary changes, as in the case of a M&A and
become the root cause of conflict between the two cultures that meet in a M&A. In the same
vein, the study conducted by Dolan and Raich (2009) indicated that failure by the senior
management to perceive the changes or to take action can lead to catastrophic
consequences for the incumbent organizations and concluded that there is a great need to
change the fundamental principles away from dominance towards partnership and care.

Dimensions of organizational culture


The beliefs and basic assumptions that managements hold are subjective and relate to
an infinite variety of topics. Nevertheless, the literature shows that it is possible to
isolate and measure with high reliability and validity several important assumptions
and beliefs that characterize cultures of organizations (Chatterjee et al., 1992; Weber,
1996; Weber et al., 1996; Weber and Tarba, 2011). Beliefs are not necessarily good or
bad and we can find any number of successful organizations in the same industry that
have their own, different cultures. Most important, as M&A research has consistently
showed these beliefs and assumptions can help predict critical phenomena that affect
the success of M&As (Chatterjee et al., 1992; Weber, 1996; Weber et al., 1996; Weber
and Tarba, 2011). This M&A research also elaborate how on how the different beliefs
and assumptions can be assembled into seven areas that constitute the dimensions of
organizational culture.

(1) Approach to innovation and activity


Managers with a strong orientation for innovation and dynamic activity encourage
rapid response to changes and to competition in the outside environment. They attempt
to exploit opportunities for new products and markets. Organizations with a different
corporate culture prefer stability, intensive planning and a relatively high level of
formality. They do not try to seize every opportunity, are mindful of the risks inherent
in uncertainty and believe that “haste is of the devil.” This difference in management
approaches derives from different perceptions about the urgency of response to
changes.
CCM (2) Approach to risk
19,3 Management philosophy and beliefs about risk taking are among the main factors that
differentiate between organizations. The tendency to take risks affects many decisions
such as investment in new initiatives, acquisition and investment in production
equipment and technologies, the level of investment in research and development,
management of cash flow and credit and even the way in which pension funds
294 are handled. A relatively high correlation has been found between this dimension and
the previous one; approach to activity and innovation (Chatterjee et al., 1992;
Lubatkin et al., 1999; Weber et al., 1996). For example, to achieve a competitive
advantage using innovation requires investment in R&D, which can be risky because
of uncertainty in the company’s development capabilities, the required time and the fit
to market. The degree of the perceived urgency reflects management’s perception of
the threat and of the risk of failing to respond. The same is true for the exploitation of
opportunities: the degree of urgency that follows from the approach to risk affects the
approach toward activity and dynamism.

(3) Horizontal relationship


Managements have different approaches to the importance of cooperation and
connection between units of the organization for the achievement of enterprise goals or
the encouragement of competition between units to increase motivation and effort.
Some organizations have complex coordination mechanisms, whereas others use simple
means of synchronization, such as schedules and standardization. The importance
ascribed by management to cooperation and communication is reflected in the
encouragement of knowledge sharing, understanding the difficulties and problems of
parallel position holders and help offered to other units within the organization.

(4) Vertical-hierarchical contact


This dimension addresses management beliefs about attitudes toward subordinates,
such as support, understanding and encouragement. These beliefs have to do with
human nature and therefore can vary extensively, for example, reflecting the X and Y
theories that used to be prevalent in the past. Thus, the assumption that people tend to let
go, become sluggish and avoid responsibility (the X theory) leads to an organizational
culture diametrically opposed to one that is based on the Y theory. Managers differ in the
degree to which they encourage subordinates to attempt new ideas, be creative and take
risks, in the same way that they differ in allowing employees to overtly criticize the
management and discuss conflicts.

(5) Autonomy and decision making


A fundamental characteristic of management is the belief about the level of autonomy
and responsibility that should be delegated in important decisions. These beliefs affect
the form of the organizational structure, the definitions of the roles and procedures
within the organization and the level of formality of these definitions.

(6) Approach to performance


The requirements placed on managers and employees and the focus on performance
evaluations are important aspects of management culture. Managements differ in their
beliefs about the need to require constant improvement and achieve goals, at times
challenging ones. For example, the motto of an Israeli high-tech company is “Can do – will Mergers and
do,” in other words, everything that can be done will be done, whatever the difficulty acquisitions
(Weber, 2003). Other beliefs reflect the importance of the requirement for managers to
assume responsibility for their performance and the expectation that performance will be process
measurable. Differences exist also in the emphasis on the types of performances,
for example, between the requirement for efficiency and the manner of task performance as
opposed to the effectiveness and the achievement of goals, even at the expense of efficiency. 295
(7) Approach to rewards
Organizational culture can also be expressed in the manner in which rewards are
granted. The answer to the question “who is rewarded and why?” provides a clear
indication of the beliefs and values favored by management. Management approaches to
rewards are related to beliefs about the need to reward fairly and competitively relative
to other organizations in the industry and to link reward with performance. It affects the
extent to which this linkage is reflected in salary, benefits and other related aspects.
These dimensions of culture are important predictors of manager and employee
behavior, including executive and employee turnover and of the expected success of the
merger. But these are not the only areas important for the understanding of management
and organizational culture, an understanding that is instrumental for proper analysis of
the situation before the agreement and for preparing the programs needed to cope with the
differences in culture after the agreement, during the process of integration. The additional
areas include considerations of labor relations and the influence of worker committees
within the organization and ownership of the organization (private vs public). Table I
shows culture differences in other areas of activity (in addition to the seven dimensions of
culture) presented to the CEO of a company that was considering a merger.
Although there are no inherently good or bad management preferences, certain
organizational cultures are not well-suited for activity in a given industry, resulting in
poor performance. Thus, organizational culture is related to the organization’s
performance, but there is no single culture that produces a high level of performance;
rather, there can be several organizational cultures, each one leading the organization
to adequate performance.
The seven dimensions of culture come into play also when examining mergers between
organizations from different countries. In the case of international mergers, it is necessary
to examine several additional dimensions of international differences of culture, such as
Hofstede’s (Hofstede, 1980, 2001; Minkov and Hofstede, 2011) and GLOBE’s (House et al.,
2004) dimensions, that can raise difficulties in the integration processes.

Areas of activity Company M Company H

Structure and decisions Cooperation vs Hierarchical, centralized


Labor relations Harmony vs Conflict, unilateral, top-down
Communication Diplomatic vs Direct
Individuality Group/teamwork vs Individualized Table I.
Time orientation Flexible vs Defined, rapid Differences in
Ownership Public vs Private management culture
Management approach Engineering, process vs Financial, costs (in addition to the seven
Worker committees Yes – significant vs No dimensions of culture)
CCM Finally, it is also important to examine management priorities with regard to certain
19,3 beliefs. Even if organizations have similar beliefs and it would appear that they have
similar organizational cultures, the emphases and priorities of the various beliefs may
be different. For example, managers in many organizations ascribe importance to
discipline, but Intel is one of the few organizations that until recently placed discipline
at the top of its priorities.
296
Measurement and evaluation of culture differences
The principles of measurement and evaluation of culture differences in M&A are
described here briefly. Note that part of the planning process includes the evaluation of
culture differences that is undertaken before the merger and during the negotiation
process. In other words, it is important to perform at least the evaluation, if not the
measurement, of culture differences as early as possible and before the due diligence
process.
The evaluation of culture and cultural differences is a complex task. Methods of
evaluation can be based on direct or indirect contact with the company to be acquired.
If there is considerable contact with the target company, it is possible to use primary
sources of information (from the company itself). If there is no contact (or very little
contact) with the target company, secondary sources of information must be resorted to,
outside the company. During the planning process, reliance is primarily on secondary
sources of information provided by companies that collect information about
competitors, suppliers, etc. within the framework of business intelligence operations.
The following sources can provide ad hoc information about the target company:
.
Information published by the company itself, describing its characteristics,
credo, mission statement and more. The company’s presentation on its web site
and press releases are good sources for this type of information.
.
Articles and interviews in the press with senior managers from which it is
possible to glean the management approaches to various issues and articles that
appear about the organization in the business press.
.
Lectures and speeches delivered by members of the target company’s
management team.
.
Research divisions of various organizations collect information on many
companies in the industry sectors in which they operate.
.
Interviews with managers and employees of your organization who have worked
or had a business relationship with the target company.
.
Conversations and interviews with clients, suppliers and competitors who have
worked with the target company.
.
Conversations and interviews with information holders, such as accountants,
lawyers, management consultants, investment bankers, etc. who have been in
contact with the managers of the target company.
.
Conversations with the managers and employees of the target company at
various events and encounters, such as workshops, seminars, exhibitions, etc.

In the case of a public company, it is possible to examine its financial reports that
generally contain announcements from the CEO to the stockholders, which can provide
valuable information about the organizational culture. There is always a great deal of Mergers and
interesting information the company makes public when it raises capital. acquisitions
The evaluation of culture and cultural differences is undertaken on the basis of the
dimensions of culture and of the additional areas of activity described above, ranking process
the target company on the various dimensions. All the collected information is
cross-checked for reliability and examined against other content to ensure validity.
Ranking may be carried out using two or three raters, allowing a comparison of the 297
reliability of the various scales. Raters can be two executives from the same
organization, or executive and employee each from different unit, etc.
Data collection must also be performed in the course of the negotiations.
Negotiations are generally conducted by a team and team members must undergo
training. Each team member can collect information and rank the culture of the target
company or the cultural differences on the various dimensions and areas of activity.
Data collection about organizational culture in the course of the negotiation process can
include the following:
.
Questions prepared ahead of time, during preparations for negotiations, about
management approaches, focusing on the dimensions described above.
.
Direct questions about the company’s management culture.
.
Observation of the behaviors, rituals and language of the other team.
.
Observation of the attitude toward various issues that arise in course of the
negotiations that shed light on the company’s mode of operation. For example,
the manner in which team members refer to the use of loans and outside capital,
the importance ascribed to investment in R&D, the way in which performance is
rewarded, the organizational structure, the delegation of authorities, the degree
of formality in the decision-making process, etc.
.
Request for documents that can serve as indicators of management style, way of
thinking and other characteristics.

The information collected by the team members during the negotiations is coded,
ranked, examined for reliability and cross-checked against information gathered from
other sources.

Implications for the various M&A stages


The measurement of culture differences makes an important contribution to all stages of
M&A: planning, negotiations and the integration of the organizations (Table II).
For example, during the stage of planning and evaluation of the profitability of the
M&A, the level of culture differences on the different dimensions serves as an indication
of the challenges to be anticipated in the implementation process, can help determine the
integration approach to be followed after the agreement, the time frame and the costs
needed for integration and can serve to assess the ability to realize the synergy potential.
Information about the extent of cultural differences and integration difficulties can
facilitate the evaluations of expected cash flow, the anticipated effects on EPS, the
effects on the change of stock prices after the agreement and the risk inherent in each
alternative. In this way, during the stage of planning, screening and classification of
several potential mergers, it is possible to compare the advantages and disadvantages
of each candidate for merger.
CCM
Stage 1 – planning Measurement and analysis of Identification, analysis and
19,3 cultural differences measurement of the organization’s
management culture
Characterisation of the cultures of the
firms that are candidates for merger/
acquisition
298 Analysis of the cultural differences
between the organisation and the firm
that is a candidate for merger/
acquisition:
Strength of the cultural differences
Areas of cultural differences (risk,
decision-making processes, rewards,
etc.)
Cultural differences in functions
(marketing, R&D, etc.)
Significance of integration of the Evaluation of the challenges in the
merger/acquisition and realisation implementation of the merger/
of synergy acquisition strategy for each candidate
Determination of the appropriate
integration approach for the merger/
acquisition (preservation, absorption,
symbiosis)
Evaluation of the duration of time
required for integration of the
organisations after the agreement
Evaluation of the degree to which the
synergy potential is exploited after the
merger (in marketing, R&D,
collaborations, etc.)
Financial assessments Expenses required for implementation
Postponement of income due to
integration difficulties
Influences on cash flow
Value assessments
Anticipated influences on EPS in
different types of financing (loan,
payment in stock)
Stage 2 – negotiations 1. Preparation for negotiations Understanding of the obstacles in
communication following differences
in management culture
Preparation of managers for
negotiations (strategies, tactics, red
lines, etc.)
Identification, location and
confirmation for analysis of the culture
Table II. differences in the framework of the
Uses for the measurement negotiations process
of differences in Cost of merger/acquisition. Set the
management/ maximum price (abandonment price)
organisational culture in Set the modes of payment (cash,
management of shares)
mergers/acquisitions (continued)
Set the payments according to the Mergers and
2. Negotiations stage
integration progress
Creation of appropriate atmosphere
acquisitions
Use of culture differences and process
implementation difficulties anticipated
for the achievement of the negotiations
objective
Tools for the performance of due 299
diligence within the limits of
knowledge, speed and confidentiality
3. At the signing of the contract Acceptance of the correct price, taking
into account cultural differences and
implementation difficulties
Determination of implementation plan
and cooperation
Determination of payments on the
basis of progress in implementation
Determination of the price before
change of share value after the
agreement
Stage III – process of 1. Set the appropriate integration
integration of the approach
organisations 2. Choose units in the organisation Strength of the differences
for integration with focus on Type of the differences
3. Definition of the desired shared Functions of the differences
culture (marketing, R&D) Table II.

During the negotiation process, managers must be prepared for the negotiation stages
and for the evaluation of cultural differences in order to identify expected obstacles in
communication caused by differences in corporate culture and to acquire tools for the
bargaining stages. Understanding the challenges of implementation will affect the
setting of the maximum price to be paid and the mode of payment, taking into account
the expected course of the integration process. The price must also take into
consideration the anticipated implementation difficulties and make it possible to link
payments to progress in implementation, or setting of the final price based on the
expected change in the value of the shares after the agreement.
During the integration stage, correct analysis of cultural differences can determine the
choice of units that are to be integrated during the early or late stages of the process,
according to the types and strength of the differences. When the cultural differences
between the organizations become clear, it will be possible to define a desired shared
culture. This will make it easier to cope with the challenges raised by the human factor,
prevent the leaving of managers and key personnel and preserve commitment,
cooperation and motivation, all of which are important factors in the post-agreement
period. A fundamental understanding of cultural differences makes it possible to prepare
and implement various HR practices such as communication methods, staffing,
recruitment and training (Weber and Tarba, 2010), as well as implementation program by
integration task forces with planning, identification and capture of the synergy potential.
Finally, measurable values of management culture and cultural differences enable good
supervision, feedback and improvement until the objectives of the M&A are achieved.
CCM Conclusions
19,3 The aim of the present paper is to foster the application of cultural difference assessment
and measurements in all stages of M&As. Much of the academic literature describes
cultural differences as essential for post-merger integration but less so for other M&A
stages, such as planning and negotiation. The present paper emphasizes that
consideration of cultural differences is also essential in making the choice of the right
300 partner for M&A and should be assessed and measured during pre-merger planning and
negotiation stages. Thus, the major implication of this paper is that merger integration
consultants will share the table more frequently with transaction advisors and earlier in
the process of due diligence. Consulting engagements should become longer term, going
beyond isolated interventions that focus on one particular problem of M&A integration.
One thing will not change. To achieve better success, M&A consulting interventions will
need to be based more on measurement of cultural differences.
The frameworks presented here also provide for a systematic research of the
relationships between cultural difference assessment and M&A performance. First,
the relationships between the level and depth of cultural assessment in the pre-merger
phase and the negotiation outcomes should be investigated, together with the
relationship between the use of cultural differences in the negotiation stage and
post-merger integration success. Second, the present paper suggests the need to
formulate multiple hypotheses based on the above (and other) relationships between
cultural assessment and various factors in the M&A decision-making process on one
hand and overall performance on the other. For example, Angwin (2001) found
that acquirers from different countries assign different levels of priority to cultural
assessment during the due diligence process. It is therefore reasonable to hypothesize
that those who pay less attention to assessing cultural differences during the pre-merger
stage will also pay less attention to it in the post-merger stage and are likely to face more
problems of post-merger cross-cultural management and achieve lower success. Finally,
the frameworks presented here can help consultants and executives conduct better
cultural difference assessment during all stages of the M&A, including screening,
planning and negotiation and enhance the effectiveness of interventions carried out
during post-merger integration process. As such our study emphasizes the role of the
corporate culture analysis as an important and influential milestone in the international
business environment exploration.

References
Ahammad, M.F. and Glaister, K.W. (2011a), “Post-acquisition management and performance of
cross-border acquisitions”, International Studies of Management & Organization, Vol. 41
No. 3, pp. 69-87.
Ahammad, M.F. and Glaister, K.W. (2011b), “The double-edged effect of cultural distance on
cross-border acquisition performance”, European Journal of International Management,
Vol. 5 No. 4, pp. 327-45.
Almor, T., Tarba, S.Y. and Benjamini, H. (2009), “Unmasking integration challenges: the case of
Biogal’s acquisition by Teva pharmaceutical industries”, International Studies of
Management & Organization, Vol. 39 No. 3, pp. 33-53.
Angwin, D.N. (2001), “Mergers and acquisitions across European borders: national perspectives
on pre-acquisition due diligence and the use of professional advisors”, Journal of World
Business, Vol. 36 No. 1, pp. 32-57.
Brannen, M.Y. and Peterson, M.F. (2009), “Merging without alienating: intervention promoting Mergers and
cross-cultural organization integration and their limitations”, Journal of International
Business Studies, Vol. 40, pp. 468-89. acquisitions
Buono, A.F. (2005), “Consulting to integrate mergers and acquisitions”, in Greiner, L. and process
Poulfelt, F. (Eds), The Contemporary Consultant: Insights from World Experts, Thomson,
Mason, OH, pp. 229-49.
Cannella, A.A. Jr and Hambrick, D.C. (1993), “Effects of executive departures on the performance 301
of acquired firm”, Strategic Management Journal, Vol. 14, pp. 137-52.
Chakrabarti, R., Gupta-Mukherjee, S. and Jayaraman, N. (2009), “Mars-venus marriages: culture
and cross-border M&A”, Journal of International Business Studies, Vol. 40, pp. 216-36.
Chatterjee, S., Lubatkin, M.H., Schweiger, D.M. and Weber, Y. (1992), “Cultural differences and
shareholder value: explaining the variability in the performance of related mergers”,
Strategic Management Journal, Vol. 13 No. 5, pp. 319-35.
Claus, L. (2006), “Strategic global HR at Teva Pharmaceuticals”, Thunderbird International
Business Review, Vol. 48 No. 6, pp. 891-905.
Dolan, S.L. and Raich, M. (2009), “The great transformation in business and society: reflections
on current culture and extrapolation for the future”, Cross Cultural Management:
An International Journal, Vol. 16 No. 2, pp. 121-30.
Ghoshal, S. and Haspeslagh, P. (1990), “The acquisition and integration of Zanussi by Electrolux:
a case study”, European Management Journal, Vol. 8 No. 4, pp. 414-33.
Ginsburg, A. (2001), “Merger is not a simple task”, Globes, March 19 (in Hebrew).
Graebner, M.E. (2004), “Momentum and serendipity: how acquired leaders create value in the
integration of technology firms”, Strategic Management Journal, Vol. 25, pp. 751-77.
Hambrick, D.C. and Cannella, A.A. Jr (1993), “Relative standing: a framework for understanding
departures of acquired executives”, The Academy of Management Journal, Vol. 36 No. 4,
pp. 733-62.
Haspeslagh, P.C. and Jemison, D.B. (1991), Managing Acquisitions: Creating Value Through
Corporate Renewal, The Free Press, New York, NY.
Hofstede, G. (1980), Culture’s Consequences, Sage, New York, NY.
Hofstede, G. (2001), Culture Consequences: Comparing Values, Behaviors, Institutions and
Organizations Across Nations, Sage, London.
House, R.J., Hanges, P.J., Javidan, M., Dorfman, P.W. and Gupta, V. (2004), Leadership, Culture
and Organizations: The GLOBE Study of 62 Societies, Sage, Thousand Oaks, CA.
Jemison, D. and Sitkin, S.B. (1986), “Corporate acquisitions: a process perspective”, Academy of
Management Review, Vol. 11 No. 1, pp. 145-63.
Jolly, D. (2008), “Culture clash hits home at Alcatel-Lucent”, International Herald Tribune, July 29.
King, D.R., Dalton, D.R., Daily, C.M. and Covin, J.G. (2004), “Meta-analyses of post-acquisition
performance: indications of unidentified moderators”, Strategic Management Journal,
Vol. 25, pp. 187-200.
Kuhlmann, T. and Dowling, P.J. (2005), “Daimler Chrysler: a case study of a cross-border
merger”, in Stahl, G.K. and Mendenhall, M.E. (Eds), Mergers and Acquisitions: Managing
Culture and Human Resources, Stanford University Press, Stanford, CA, pp. 351-63.
Lubatkin, M., Schweiger, D. and Weber, Y. (1999), “Top management turnover in related M&As:
an additional test of the theory of relative standing”, Journal of Management, Vol. 25 No. 1,
pp. 55-74.
CCM Migliore, L.A. (2011), “Relation between big five personality traits and Hofstede’s cultural
dimensions”, Cross-Cultural Management: An International Journal, Vol. 18 No. 1,
19,3 pp. 38-54.
Minkov, M. and Hofstede, G. (2011), “The evolution of Hofstede’s doctrine”, Cross-Cultural
Management: An International Journal, Vol. 18 No. 1, pp. 10-20.
Palich, L.E., Cardinal, L.B. and Miller, C.C. (2000), “Curvilinearity in the
302 diversification-performance linkage: an examination of over three decades of research”,
Strategic Management Journal, Vol. 21 No. 2, pp. 155-74.
Reus, T.H. and Lamont, B.T. (2009), “The double-edged sword of cultural distance in
international acquisitions”, Journal of International Business Studies, Vol. 40, pp. 1298-316.
Rosenblatt, V. (2011), “The impact of institutional processes, social networks and culture on
diffusion of global work values in multinational organizations”, Cross-Cultural
Management: An International Journal, Vol. 18 No. 1, pp. 105-21.
Sarala, R.M. (2010), “The impact of cultural differences and acculturation factors on
post-acquisition conflict”, Scandinavian Journal of Management, Vol. 26, pp. 38-56.
Sarala, R.M. and Vaara, E. (2009), “Cultural differences, convergence and crossvergence as
explanations of knowledge transfer in international acquisitions”, Journal of International
Business Studies, Vol. 41 No. 8, pp. 1365-90.
Schein, E.H. (1985), Organizational Culture and Leadership: A Dynamic View, Jossey-Bass,
San Francisco, CA.
Singh, M. and Montgomery, C.A. (1987), “Corporate acquisition strategies and economic
performance”, Strategic Management Journal, Vol. 8, pp. 377-86.
Slangen, A.H.L. (2006), “National cultural distance and initial foreign acquisition performance:
the moderating effect of integration”, Journal of World Business, Vol. 41, pp. 161-70.
Stahl, G.K. and Voigt, A. (2008), “Do cultural differences matter in mergers and acquisitions?
A tentative model and examination”, Organization Science, Vol. 19, pp. 160-76.
Teerikangas, S. and Very, P. (2006), “The culture-performance relationship in M&A: from yes/no
to how”, British Journal of Management, Vol. 17, S1, pp. S31-S48.
Vaara, E., Sarala, R., Stahl, G. and Björkman, I. (2011), “The impact of national and
organizational cultural differences on post-acquisition integration outcomes”, Journal of
Management Studies (in press).
Weber, Y. (1996), “Corporate culture fit and performance in mergers and acquisitions”,
Human Relations, Vol. 49, pp. 1181-202.
Weber, Y. (2003), Mergers and Acquisitions Management, Peles, Rishon LeZion.
Weber, Y. and Pliskin, N. (1996), “The effects of information systems integration and organizational
culture on a firm’s effectiveness”, Information & Management, Vol. 30, pp. 81-90.
Weber, Y. and Tarba, S.Y. (2010), “Human resource practices and performance of M&A in
Israel”, Human Resource Management Review, Vol. 20, pp. 203-11.
Weber, Y. and Tarba, S.Y. (2011), “Exploring culture clash in related merger: post-merger
integration in the hightech industry”, International Journal of Organizational Analysis,
Vol. 19 No. 3, pp. 202-21.
Weber, Y., Belkin, T. and Tarba, S.Y. (2011a), “Negotiation, cultural differences and planning in
mergers and acquisitions”, Journal of Transnational Management, Vol. 16 No. 2, pp. 107-15.
Weber, Y., Belkin, T. and Tarba, S.Y. (2011b), “Negotiation, cultural differences and planning in
mergers and acquisitions”, Proceedings of the EuroMed Academy of Management 2010
Annual Conference, Nicosia, Cyprus, November.
Weber, Y., Rachman-Moore, D. and Tarba, S.Y. (2012), “Human resource practices during Mergers and
post-merger conflict and merger performance”, International Journal of Cross-Cultural
Management, Vol. 12 No. 1, pp. 73-99. acquisitions
Weber, Y., Shenkar, O. and Raveh, A. (1996), “National vs corporate cultural fit in mergers and process
acquisitions: an exploratory study”, Management Science, Vol. 42, pp. 1215-27.
Weber, Y., Tarba, S.Y. and Reichel, A. (2009), “International acquisitions and acquisitions
performance revisited – the role of cultural distance and post-acquisition integration 303
approach”, in Cooper, C. and Finkelstein, S. (Eds), Advances in Mergers and Acquisitions,
Vol. 8, JAI Press, New York, NY, pp. 1-17.
Weber, Y., Tarba, S.Y. and Reichel, A. (2011c), “International mergers and acquisitions
performance: acquirer nationality and integration approaches”, International Studies of
Management & Organization, Vol. 41 No. 3, pp. 10-28.
Weber, Y., Tarba, S.Y. and Rozen-Bachar, Z. (2011d), “Mergers and acquisitions performance
paradox: the mediating role of integration approach”, European Journal of International
Management, Vol. 5 No. 4, pp. 373-93.
Weinreb, G. (2008), “900 biomed companies is too many – former Teva CEO and given imaging
chairman Israel Makov on why consolidation should be the order of the day in Israel’s
biomed sector”, Globes, May 26.

About the authors


Yaakov Weber is Professor of Strategic Management and Chair of the Department of Strategy and
Entrepreneurship, School of Business, College of Management, Israel. He is President of the
EuroMed Business Research Institute (EMRBI) and President of the EuroMed Academy of
Business (EMAB). He established and was the Head of several academic and executive programs
including the International Management Program for Executives in Tel Aviv University.
His research studies were published, in various journals such as Strategic Management Journal,
Journal of Management, Management Science and Human Relations. His recent award was the
2010 Outstanding Author Contribution Award by Emerald publishing. His recent co-authored
book is Mergers, Acquisitions, and Strategic Alliances. He has consulted for various multinational
corporations especially about mergers and acquisitions management. Yaakov Weber is the
corresponding author and can be contacted at: yweber@bezeqint.net.il
Dr Shlomo Yedidia Tarba is a Lecturer in Strategic Management and Global Strategic
Alliances at the School of Business Administration, The Center of Law and Business, Ramat-Gan,
and Department of Economics and Management, The Open University, Israel. He received his PhD
from Ben-Gurion University, Israel. He is a Vice-President of the EuroMed Business Research
Institute. His research has been disseminated in journals such as International Studies of
Management & Organization, Thunderbird International Business Review, International Journal
of Cross-Cultural Management, International Journal of Organizational Analysis, Advances in
Mergers and Acquisitions, and others. His recent award was the 2010 Outstanding Author
Contribution Award by Emerald publishing. His recent co-authored book is Mergers, Acquisitions,
and Strategic Alliances. He has consulted for various companies in biotechnological,
medical equipment, and chemical industries.

To purchase reprints of this article please e-mail: reprints@emeraldinsight.com


Or visit our web site for further details: www.emeraldinsight.com/reprints