When Cultures Collide: The Anatomy of a Merger - Essay Example

Research Plan – Impact of Merger & Acquisitions on organisational culture CHOI KWOK LEUNG no 069998406 Background Globalization,internationalization and the foreign direct investment (FDI) have changed the world economy. More countries and more sectors have become part of the international FDI network. Cross border mergers and acquisitions (M&A) have become common because of the increased FDI flow. FDI can take place in the form of Greenfield projects or through acquisitions and mergers. Foreign investors acquire ongoing projects or firms in the host country. M&A continue to be a highly popular form of corporate development. Mergers and acquisitions bring closer together labor across nations. The difference in organizational culture is perceivable and culture has been recognized as a strong determinant of beliefs, attitudes and behavior. The strategic decision of M&A would have to take into account the impact of the differences in culture between two organizations or even between two nations. A high percentage of mergers and acquisitions fail to meet expectations and a very strong argument is that cultures were not integrated. This makes it interesting to know the impact that M&A has on the culture of an organization. To determine the impact of cultural differences when M&A take place, literature review would be conducted. There is a broad stream of literature available but since it is not possible to go through or include the entire database, select academic journals would be used to determine the impact that culture has during mergers. Three academic papers are recent while two papers are decades old. This has been done to understand how the mind set of people has changed over time. Literature review permits quick and easy collection of general information on the issue. The literature review would help to arrive at the research question. Literature Review Cultural differences have been blamed for high failure rate in M&A but research suggests otherwise (Teerikangas & Very, 2006). Differences in top management styles have been found in top US companies but not in rewards and evaluation system to have a negative performance impact. Functional background had a positive impact on post-acquisition performance. A buying firm’s behavior throughout the buying process is influenced by its national background. According to some authors, differences in national cultures are not an impediment but a potential success factor for M&A. Research suggests that decision-makers give disproportionate attention to strategic fit as compared to integration issues (Olie, 1994). One of these issues is the ‘cultural fit’ where the fundamental differences manifest in thoughts, actions and behavior of employees. This in turn leads to conflicts and may hinder agreement over management issues. In international mergers, these cultural differences are evident in different dress codes and behavior which divides them into ingroups and outgroups. This hinders the psychological integration of members into the new organization. The greater the degree of post-merger combination the greater is the risk of eventual breakdown of the combination due to cultural diversity. According to Larsson and Lubatkin (2001), acculturation is best achieved when the buying firms rely on social control. If the buying firms conduct introduction programs, training, cross-visits, retreats, celebrations and similar socialization rituals, a joint organizational culture emerges regardless of the expectation of the synergies, and the differences in the nationalities and cultures. The authors conclude that clashes do not occur just because their cultures different and a jointly determined culture can be formed as long as there is high level of information control. Mutual trust can lead to cultural integration according to Bijlsma-Frankema (2001). The cultural change process is dependent on legitimization of changes, clarification of goals and what is expected of the members, and monitoring and guidance. This is line with the opinion of Larsson and Lubatkin who contend that information control is essential to ensure cultural integration. Culture definitely plays a major role in the way employees react to the new environment but it is not insurmountable. Yet another dimension is presented by Buono, Bowditch and Lewis (1985) who stress that people normally resist change but they will support the change effort if they understand the need for it. This again gives importance to the information and communication factor that has been emphasized by two other authors. They also refer to subcultures and countercultures which has been described by Olie as ingroups and outgroups. The impact of culture ahs been studied across different industries. Concentration has not been given on any particular industry. The IT and the software industry involves several countries and several cross-border mergers have taken place in the recent past. This is a service industry and cultural integration is essential to deliver effective service. It is thus felt necessary to determine the impact that cultural diversity can have on cross border mergers and acquisitions in the IT industry. Research Methodology For this research the qualitative or inductive method of research would be applied. Deductive and inductive methods Logical positivism employs the quantitative and experimental methods to test deductive generalizations (Amaratunga et al., 2001). This requires independence of the observer from the subject being observed. Hypotheses have to be formulated in advance for subsequent verification. The explanations in this method are reduced to the simplest possible elements in order to facilitate analysis. Quantitative investigations or the inductive methodology look for “distinguishing characteristics, elemental properties and empirical boundaries’ and tend to measure “how much” or “how often” (Nau, 1995 cited by Amaratunga et al.,). Quantitative research designs determine the truth value of propositions and allow flexibility in the treatment of data in terms of comparative analysis, statistical analysis and repeatability of data collection in order to verify reliability. Research strategy This research requires primary and secondary research approach and the qualitative method (interpretive or inductive) of research will be used. Literature review would be used as the qualitative method as a lot of literature is available, with diverse opinions on the impact of cultural diversity in mergers and acquisitions. The deductive method would not bring to light the deeper, underlying meanings and explanations of the data collected. It would enable to understand the totality of the situation and multiple methods qualitative research can be used to establish different views of the phenomena. Studies would be conducted over a period of time, which would give a realistic view of the change process of over time. This makes it powerful for studying any process. This method has been established to be best strategy for discovery, exploring a new idea or developing hypothesis. Another qualitative data collection method would be interviews. Interviews can capture some of the subtle complexities underlying the decision-making process that can be missed by large-scale statistical analyses (Herod, 1993). Qualitative interviews can be structured, semi-structured or unstructured. Structured interviews produce quantitative data while unstructured interviews produce data collected through participant observation (DiCicco-Bloom & Crabtree, 2006). It would not be possible to identify the key personnel or informants and interview them on an ongoing basis and take notes while observing and questioning. Our research problem consists of finding out how the employees react or adapt to the integration right from the buying process. Hence semi-structured interviews are deemed the right approach where the interviews would be scheduled in advance at a designated time and location outside of daily events. Data collection The most widely used data collection method is interviews as it is a highly flexible method, can be used almost anywhere and has the potential to produce data of great depth. Interviewing is a mode of inquiry aimed at understanding an experience and meaning that person make of that experience (Seidman, 1998 cited by Eggenberger & Nelms, 2006). Interviews are more than a data gathering technique. It is a social encounter where knowledge is constructed. The individual in-depth interview allows the interviewer to delve deeply into social and personal matters (DiCicco-Bloom & Crabtree, 2006) and it unveils a person’s emotions, beliefs, problems, experience and actions (Eggenberger & Nelms). This is considered necessary in the context of cultural differences that have been associated with failures of mergers across boundaries. This would be supported by secondary data collected through literature review. A literature review provides the meaningful context of the project within the universe of already existing research (Obenzinger, 2005). Literature review distinguishes what has been done from what is to be done. Previous perspectives can be synthesized and a new one gained. Due to the vast amount of literature available, only the most significant texts will be selected, which itself implies a process of evaluation and prioritization. A literature review would help in emphasizing on the findings of the primary data. Data obtained from secondary sources generate new understand through reflection or knowledge integration (Feurer & Chaharbaghi, 1995). The research topic has to be seen from the perspective of the interviewee. To determine the impact of diversity of culture in mergers in the IT firms, quantitative data in the form of interviews would be helpful. Interviews would be the best way to achieve these objectives. Interviews can be close-ended or fixed-alternate answers, or open-ended interviews. For this research, the open-ended interviews will be conducted in which the prepared questions can be reformulated depending upon the responses received. Open-ended interviews tend to be more spontaneous, offering a two-way interaction not generally permitted by the standardized approach (Herod, 1993). Such interviews allow interviewees to introduce topics and speak in their own words rather than in categories dictated by the researcher. This would be particularly helpful for this research because generalizing about the cultural impact would not serve any purpose. An in-depth interviewing would reveal the experience of the individual employees or the managers in the integration process. This would help to pinpoint the reasons if any, for the failures of firms post-merger. A positivist conception of the approach will be adopted wherein the social interaction between the interviewer and the interviewee is kept to the minimum. It is important for the researcher to maintain the necessary social distance so that she does not bias the outcome of the interview by injecting personal opinion or values. This method ensures objectivity, detachment and hierarchy which are more important than individualized concerns. Most of the IT mergers have taken place in India with a few in Russia and Philippines. Both US and European firms have acquired firms in India while Canada also has seen quite a few IT mergers. Since it is not possible to conduct interviews across nations like Germany, France, UK, Canada, and India, semi-structured interviews will be taken in North America. Semi-structured interview would be taken and initially predetermined open-ended questions would be thrown at the informant. Some IT firms of US have representative of the merged firm with them. This would help in a more detailed study as the interview data can be corroborated. The interview questions would not be mailed in advance as this could lead to framed responses or guided by higher authorities. Both individual and group interviews would be held. Since the interview time and place would be fixed in advance and since it would not normally stretch beyond 30 minutes, it is expected that the managers would not be reluctant to participate in the study. In-depth interviews would be held of the personnel that are likely to be most affected by the merger process. This would allow the interview to delve deeply into social and personal matters, which would not be possible in group interviews. Group interviews have their own benefit as it allows a wider range of experiences. Hence, both group and individual interviews would be held. Group interviews would also enable observing the group dynamics which would help in analyses of the entire situation. A comfortable environment would enable the interviewee to come out with the truth and he would be willing to share personal experiences as they occurred. Response rate is difficult to ascertain because this data collection spans across different nations and this itself is dealing with diverse cultures. The appropriate sample size would depend on the pilot study that will be conducted with just two firms in the US that have acquired firms overseas. This would form the basis of the outcome of the research to be conducted at length. The pilot study would guide in amending the interview questions if necessary. Research Design Since there is diverse opinion on the impact that cultural diversity has on mergers, interview would have to be conducted at various levels in an organization. Information control has been found to be important. To determine how effectively information is disseminated amongst the employees, sampling would include the managerial level responsible for dissemination of information as well as some from the intended recipients of the information. Impact of culture was not found by the authors in performance and rewards evaluation but performance measures are often biased. Hence, those responsible for performance would also be interviewed to determine if they were influenced to accord a positive evaluation. The interview questions would also aim to determine if psychological integration was a factor as has been suggested by one of the authors. Acculturation has to start during the merger process itself for smooth transition. Keeping this in mind, some firms that would be selected would be the ones that are currently in the process of acquisition. This would give a clear picture as to what really happens during the acquisition process. Post-merger interviews would also be spaced out – some firms would be chosen that have functioned for six months post-merger and some that have been functioning for over two years. Different perspectives would emerge from this segregation. The interview questions would aim to determine if training was provided by the buying firm, for how long and how the training was conducted. It would also determine if the buying firm wanted to impose their country’s culture or was willing to merge the cultures of the two nations. Often times, trying to impose the culture of one organization or one nation can be disastrous for survival. Since trust is an important factor in acculturation, at least two interviews would be conducted when employees from different managerial levels would be interviewed together. Their responses would demonstrate the level of trust they share. If they attempt to conceal certain things, it would be evident that trust was missing. People are known to resist change of any kind and this would be determined by posing hypothetical questions during the interview. A scenario would be described and their responses sought. Their responses are likely to be genuine since the situation would only be hypothetical. Group interviews would also be organized and the basic research question would serve to start the interview. Depending upon the response, further questions would be put across since this would be an open-ended interview. If necessary, certain pre-determined questions would be dropped and new ones added. Digression in interviews is very important as they follow the interviewee’s interest and knowledge. Hence the interviewer should be prepared to depart from the planned itinerary. This would allow getting insight into the minds and attitudes of people. Ethical issues Both the parent firm and the merged firm representative would be interviewed and hence it is essential to maintain secrecy. This would amount to cross verification but this is essential to get the true picture of where the problem lies in mergers. Interviews would also be conducted in some firms while the merger in is progress and this could hamper the process especially if the parent company is not disseminating proper information to the other company. This too may be unethical to some extent but in research some amount of flexibility is necessary to get to the root of the problem. In fact the purpose of the research is to extract the underlying causes and obstacles to any issue. Hence, adopting this approach is justified. Data analysis Qualitative research involves large amount of unstructured data of which the analysis is tedious and monotonous. The process involves three steps – data reduction, data display and conclusion drawing and verification (Amaratunga et al.,). Data reduction is the same as analysis and occurs through out the process of a qualitatively oriented project. Even selection of the literature or the research design forms a part of the data reduction process. Data displays are a major avenue to valid qualitative analysis. Conclusion will be drawn after extensive literature search. Data reduction starts early in the analysis, followed by data display and conclusion drawing and verification (Miles & Huberman 1994 cited by Weerd-Nederhof, 2001). Data display is a visual format that would display the data systematically so that the user can draw valid conclusions and take appropriate decisions. Better displays lead to qualitative analysis. Display should have the sequence of building the format, entering data, drawing conclusions, writing analytical text, and cycling onward to revised or new displays. For drawing conclusions patterns have to be formed, contrasts would have to be looked into, which would clarify relationships and make the understanding coherent. Once the constructs are measured and relationships verified hypotheses can be shaped. Computer software will be used to analyze the data collected through the interviews. Limitations There is no unique research method and each method has its own difficulties. The categories listed for research may not be comprehensive or may require further sub-categories. Besides, it is difficult to predict how many participants would be willing to respond in the first place, and then how many would register true opinions. Attempts will be made to ensure the reliability and validity of the data collected. Very often, firms tend to conceal the true picture especially when their strategies fail. Firms may not be willing to comply with some research. Besides, the existing personnel may not have been present at the time when the firms took certain decisions and hence may tend to give a biased opinion. People may not want to disagree with the top management and want to be seen as a part of the team so responses could be biased. It is uncertain how much literature would be available particularly on the outcome of the mergers in the IT industry, attempts would be made to extract literature from academic databases like Emerald and Sage Publications. Attempts will be made to submit a chronological assessment of literature. Data analysis may also be difficult although software will be used for it. References: Amaratunga, D., Baldry, D., Sarshar, M., & Newton, R., (2002), Quantitative and Qualitative Research in the built environment: application of mixed research approach, Work Study, Vol. 15 No. 1 2002, pp. 17-31 Bijlsma-Frankema, K., (2001), On managing cultural integration and cultural change processes in Mergers and acquisitions, Journal of European Industrial Training 25/2/3/4 [2001] 192- 207 Buono, A. F., Bowditch, J. L., & lewis, J. L., (1985), When Cultures Collide: The Anatomy of a Merger, Human Relations 1985; 38; 477 DiCicco-Bloom, B., & Crabtree, B. 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