An Examination of the Role of Organizational Culture on Mergers and Acquisitions - Assignment Example

Name: Institution: An Examination of the Role of Organizational Culture on Mergers and Acquisitions Literature Review Introduction This chapter is meant to critically review extant literature regarding the role of organizational culture (OC) on mergers and acquisitions. The chapter will give an overview of mergers and acquisitions to chronicle the environments within which they thrive unperturbed. Additionally, the context of organizational culture will be synthesized summarily to contextualize the influential parameters that play the invisible roles in how mergers and acquisitions thrive past the deal. A critical analysis of the continually changing world of mergers and acquisitions will be delved via conceptualized subheadings that revolve around the dynamics of organizational culture on the business concepts. The primary purpose of this chapter is to elucidate what extant literature and other forms of relevant media have documented regarding the topic, which will purposively widen the knowledge breadth logically. The primary rationale of this review is to underscore documented information that provides that a proper understanding of the organizational culture by any business enterprise bolsters the adoption of feasible measures fit for rejuvenation and maintenance of culture. The aim of the literature review is to interrogate ubiquitous belief in the contemporary business realm that in a transitioning situation, the people management policies and procedures should be adjusted to be realigned with the desired culture. Moreover, the literature seeks to contextualize the dynamics of organizational culture, which is a challenging process that must not only be influenced by extrinsic factors or decision making regimes. Strengthening OC in mergers and acquisitions (M&A) should be a guarded process that presided by all stakeholders in the deal by facilitating the desired culture that influenced by local cultures and environmental changes Mergers and Acquisition Mergers and acquisitions are business forms that are pursued by business organizations in almost every industry. It is appreciable that despite their prominence in the contemporary business growth and development planning, mergers and acquisitions are poorly documented in the academic sphere. This situation leads data mining to online sources and particularly individual business websites and reviews (Weber & Camerer, 2003). These forms of business cut across frontiers, which reflect their canonical cultural diversity burden that they have to put up with if they are to survive. These businesses are increasingly populated with failure rhetoric, and the vast coverage of the subject in the extant literature delves greatly in the financial or performance aspects. Mergers can be horizontal implying partnership between businesses within similar line of activities, and vertical that takes place between companies that do not lie within the same level of business. The conglomerate mergers happen between companies that work in completely different lines of business. The primary purpose of a merger or acquisition is largely profitability growth and business expansion. Organizational Culture The literature review in this context reflects a tremendous reception of attention by organizational culture from researchers and relevant theorists. Culture is traditionally thought of as a general shared social understanding, which builds the conventional discourse among organizations that it holds the social drive in the human resource realm (Rousseau, 1990). Accordingly, culture is developed in an organization through closely knit individual and group experiences that often take long time to establish. Organizational culture is pivotal in that it evolves into a common denominator under which the operational synergy of human resource is bolstered through tacit coordination of activity. Schein (1985) argues that whilst culture cultivates social bondage within a working environment, it presents unprecedented challenges in that it is hard to measure and extrapolate from one firm to another. However, important to note is Kreps’s (1990) concession that organizational culture gives organizations a competitive edge by providing problem resolution remedies that ascertain socially acceptable tenets. Organizational culture therefore surfaces as the next important assent that merging partners require preplanning for extensively in order to set amble environment for post merger implementation. The Cultural Factors in Mergers and Acquisitions Cartwright and Cooper (1993) observed that most of the senior representatives in M&A negotiations overlook crucial factors that can be tangibly considered before the final deal is sealed, which reflects the ubiquitous and often misinformed overemphasis on financial aspects. It is worthy noting that M&A processes should importantly consider corporate culture and the intrinsic differences between the partnering entities. Notably, differences in culture bear drastic implications on the ability of the resulting organization to realize designated synergies. Generally, OC and especially cultural compatibility are the main factors that bolster success of failure in M&As. According to Moran and Panasian (2005), the concept of culture emerged from the nineteenth and twenty first centuries’ social anthropology discourses. Contextually, at its emergence the concept of culture was widely used to explain the realities of different societies and to underscore the differences that defined the line between certain primitive and more advanced groups (Abazi and Kercini, 2013). Extant literature has broadly chronicled the emergence of the concept of culture and its inherent role in organization theory and impact on performance of the organization. The literature reflects a strong bondage between corporate culture and success or failure of M&As across business world. Noteworthy is the assertion by Cartwright and Cooper (1993) that most resultant businesses after the deals fail to attain their intended goals. The unfavorable results do not necessarily stem from strategic issues or poor integration, but increasingly because the cultural component exports fissures into the human stature of the new organization. It is reiterated that in its basic meaning, culture denotes the sum total of how organizations achieve all their stated goals in order to epitome their missions. It cannot be overemphasized that in the many ways that operations are adjudicated in the process that every stakeholder in the organization knows must be adhered to at all contexts in order for desired results to be accomplished. This premise denotes culture as an embodied phrase of the way each firm separately is used to doing things for accomplishment. Study by Van den Steen (2010b) concluded that organizational culture is a complex concept that spans far beyond language only, but comprises phenomenal features: ethics, dress, professionalism, and sense of belongingness, attitudes and morality. In much of the reviewed literature there are apparent expectations that problems must bog the results of a merger in that the merging partners have to confront each other before they compromise for a settlement. It is imperative in the academia and the larger business realm: accountancy firms, investment banks, and legal professionalism that almost half of M&As fail irrespective of the mechanism deployed to assess the success rate (Viaga, Lubatking, Caroli & Very, 2000). Although the failure rate for international acquisitions is arguably higher, it is comparatively astonishing to concede that more mergers and acquisitions have been recorded to the extent that the business concepts have increasingly dominated the contemporary entrepreneurial forms. This is to imply that M&As are incrementally the favored methods of internationalization for companies: because of the ease of access to international markets or for other venture reasons. The importance of cultural dimension for entrepreneurial expansion and development and implementation of strategic goals is generally a prevailing phenomenon that has been widely tested through empirical studies. Although hardly disputed though, the potential or real implication of the cultural dimension on the realization of synergies in mergers and acquisitions can no longer be wished off. Accordingly, the potential impacts of cultural dimensions on the success of M&As are perennially ignored in the pre-merger or acquisition stages (Van den Steen, 2010a). This implies that they skip the due diligence considerations, which deters their due implementation in the integration phases. Causes of Failures in M&As It is apparent that like in other forms of organizational transitions, the post-merger life of the resulting organization is busied with major structural and cultural changes that may trigger stress, disorientation, frustrations, and confusion among employees among many other impacts. Kreps (1990) claims that uncertainty and other negative emotions on the other hand tend to cultivate unprecedented dissatisfaction and disloyalty, which are generally accompanied by high turnover, leadership and power struggles, and general exacerbations in dysfunctional behaviors. Although mergers are undermined by many general operations problems that derail their success, there are particular human related risks that are of prominent concern.  Buono, James and John (1985)enlisted the voluntary turnover, joblessness, lowered commitment and disloyalty and losses of expertise as some of the critical factors of cultural nature that greatly influence the success rate of M&As. Additionally, OC challenges precipitate underperformance in M&As as it forebears performance drops and decreased production, health problems, and increased absenteeism. The prevailing explanations of OC impact on the success or failure of M&As is narrow and leaves a lot of grey areas for further investigations. According to Gilkey (1991), the high failure rates for these business forms are mainly caused by the continuing design approaches that design them to fit in business and financial primary objectives, a situation that excludes the crucial components of psychological and cultural issues treating them as secondary matters. Accordingly, (Grant, 1991) provides that the past M&A processes were staged on predetermined methods that did not prove sufficient primarily because they failed to strategically integrate culture as a core composite of the pre-merger agreements. Poor organization fit has been documented as one of the major culture oriented factor that undermines success of M&As. Generally, organizational fit connotes the reconciliatory dynamic of the administrative practices of the merging partners, and principally the cultural outfit and personnel characteristics of both partners. The richly cultural mismatch compromises the ease by which the two partners move to integrate together during the implementation phase (Weber, 1996). According to Grant (1991), organization structure with common management challenges, similar cultural outfit and structure facilitate effectiveness of communication pattern and enhance the ability to transfer knowledge and skills. Cultural mismatch between merging partners aggravates the success opportunity for the resulting organization. More particularly, the relationship between the cultural fit and M&A implementation are greatly conjoined. El Hag (2009) provided that it is difficult to attain designated synergies in M&A without appropriately satisfying the OC equation, which is apparently one of the most neglected areas of primary strategic analysis. The essence is that a cultural conflict between merging organizations heads to a lot of misunderstanding and management disharmony. This only serves to imply that merging partners require knowing the management behavior of the other party and acquiring organizations form informed opinion about the culture of the acquired firm especially in the concepts of decision making and the practices of conflict resolution and team work. Poor cultural integration in M&As greatly influences effective communication in the organization. This lack of adequate communication during the implementation phase precipitates the aforementioned uncertainties between the human resources and the new organization. According to Whitaker (2012), poor communication precipitated by cultural incompatibility in M&As exacerbates the risk of losing trust in the management and moral productivity problems. Additionally, poor communication that is triggered by poor cultural integration ignites security concerns and poor relations management that aggravate the potential or losing support from important stakeholders. Cultural indifferences that weaken communication mechanisms in the organization cause fissures in the management’s coordination endeavors, which commonly play out if the business marriage is between two equals. Moreover, problems surface if adequate considerations and attention to people issues are maligned. These premises concur with Ray (2010) that poor communication can lead to departure of key people and best talent, which derail the identities of the merging parties. Although financial or expansion strategic goals are usually the apparent reasons behind mergers and acquisitions, their business success is highly determined by the ability to get the human capital from both sides to integrate with each other into one unified group. Mergers and acquisitions can therefore fail because of innumerable reasons, cultural differences are predominantly featured in the literature as the primary caused of post merger dysfunctions. Measuring Cultural Differences in M&A To support a deeper understanding of the discourse of organizational culture as deployed in literature review and how such is contextualized to explain how differences between acquisition partners can be assessed in M&A situations, various theoretical resulting from differing analyses of the subject are worth revisiting. Assessing the cultural fit between the acquirer and the bought organizations should be based on the cultural profile of each. It is crucial that firms initially identify the impact of cultural gap, and develop and implement programs that use information in the cultural profile whilst managing any apparent differences. According to Halibozek and Kovach (2005), cultural problems are dangerous for future business if let unresolved and it is worthy that negotiators reiterate the risks of cultural conflicts and coordination failure through out their dialogues for covenants to be established for timely management of the differences. The socio-cultural models view culture as the total manifest of the non-natural features of the social life: religion, processes and buildings and art. These attributes are definitely visible and observable, which intimates that they can actually be measured tangibly. However, cultural theories that are strongly anchored on mental factors hold culture as an absolute function of behavioral-controlling and behavior-oriented things such as values, unwritten rules, norms, and sense of reality. Schein (1993) provides three central levels of corporate culture: the lowest and little known about level, the values that connote the second level, and the artifacts that is the third level all of which are difficult to interpret although they are relatively easy to measure. The imperative is that in conceptualizing any management theory encompassing organizational culture, and if an acquisition partner accepts that culture is measurable, such measurement then can be implemented by inferring the inputs to culture: norms and values and outputs from integral phenomena such as desired behavior. The analysis of literature this far paints a picture of general absence of a conventionally agreed form of what organizational culture really entails; and how it should be empirically tested and evaluated especially during entrepreneurial transitions. Literature presentations of expert interviews about the subject, and relevant analyses of typically cited problem areas that mar various phases of M&As cover concerns dominating discussions designed to address the conceptual issues. Role of Organizational Culture in Merger Failure A lot of research work has unveiled the disguised role of cultural indifferences and the continual trend of merger and acquisitions dysfunctions. However, a conclusive presentation of the causal effect of cultural conflict has not been exuded. In this context, most literal documentation evinces that mergers are more successful when the merging organizations operate within common lens of operations. The success of mergers and acquisitions are strongly correlated to the extent and quality of premerger planning involved. The causative element occasioned by cultural indifference emanates from ubiquitous revelation that organizations spend insufficient time to analyze and anticipate the prevailing and future trends, which predispose them into compromising their capability to conceptualize the role of integration in success of failure (Karenfort, 2011). Firms incidentally allot inadequate resources that would otherwise aid in establishing strategic objectives often overlooked. It is based on these premises that Simpson (2000) concluded that many mergers and acquisitions fail or suffer irreparable setbacks primarily because of poor due diligence performed on the targeted firm. The post merger integration challenges are therefore precipitated by improper strategic planning particularly the crippling miscommunication that is welled by cultural indifferences. Bijil-Frankema (2001) supports the rhetoric that cultural conflicts undermine success for M&As because the inherent incompatibility precipitates inabilities on the side of the firm to project performance, to retain key people and best talent, and preventing the interpersonal differences from consuming the organization’s valued time. Culture is undoubtedly crucial in the way employees from the acquired firm respond to the culture of the acquiring entity. As a result of the unprecedented cultural challenges, M&As fail to realize synergies that are the primary drivers for the business association. Cultural Conflicts in Mergers and Acquisitions Reviewed literature appears to intimate the ideology that the failure of a majority of corporate mergers collapse because of inherent cultural conflicts. The position of the human dimension in the failure of mergers has evolved from the trend that despite the ubiquitous reports about dysfunctions, the public and media perceptions that mergers and acquisitions are the appropriate business vehicles for better business future. However, poor anticipation of the implication of corporate culture on the final organization preempts the much anticipated benefits largely expected from the newly created financial base. According to Vlasic and Sterz (2000), cultural conflicts between merging organizations are reportedly the primary causes of the common dysfunctions in these business arrangements. Contextually, the cultural difference discourse holds because operations and management fail to integrate feasibly. While the culture conflicts play enormous role in precipitating M&A failures, it remains a ghost in guise because many organizations seem not to give it the due attention in planning about the benefits of the overall merger process. According to Weber and Camerer (2003), while culture may be viewed as a negligible aspect during the evaluation for benefits of merger compared with other market oriented and resource synergies, it is a pervasive parameter that requires full attention from crafters of the top managers. Corporate culture is greatly influential on the part of building success conduits for mergers because it revolves around the most valued corporate asset in the contemporary business realm: human capital. Culture greatly determines how routine operations of an organization are adjudicated. Culture is the engine of daily operational success within an organization whether there is consensus during critical meetings, and it underscores priority setting and uniform recognition. This often neglected business success determinant influences the actualization of operation’s promises made during meetings, and determines whether the merger partners reach agreements on time should be optimally managed. The guiding hypothesis underpinning this literature review is that the primary cause of chronic fissures in M&A that deprive them of success breath is cultural conflict between the merging partners. The cultural fabric evolve over a long period of time within an organization to make them more effective and efficient by creating working environment that permit uninterrupted flow of business activities that aid enhance communication. The fusion of two independent organizations for purposes of enlarging their financial and thus equity base, and the ensuing cultural difference precipitates invisible conflict and misunderstanding that derail the ability of the organization from realizing economic efficiency. The extent of cultural conflicts is often anticipated because firms choose to focus emphatically on the tangible components at the peril of other equally valuable intangible assets. Importance of Social Cultural Integration in M&A The post M&A integration process is very critical for success of the resulting organization. Haspeslagh and Jemison (1991) conceded that many of the assumptions made during the pre-merger phase concentrate more on financial aspects leaving out the pivotal contribution of smooth cultural integration for the success of the organization. The challenges of productive integration and primarily exacerbated by differences in corporate culture and probably by the cultural distances between geographically distant partners. Closer coordination is one of the pivotal ingredients that need to be fed into a post merger implementation process, and strategic management of cultural differences is equally critical. Accordingly, Weber (2013) demonstrated the importance of cultural integration in that differentials in corporate culture negatively influence the cooperation of the two firms’ top managers and thus impair the realization of designated synergies. Corporate cultural integration helps cement human resource relationships bottom up, which underscore the implementation process. This implies that differences in the management’s attitudes that result from cultural indifferences impair the style, cognitive structures, and business logic thus complicating the interpersonal relationships in the organization. Weakened cooperation among working groups is derails the productivity and hence the ultimate goal realization for the firm. According to Weber (2013), fully integrated post merger corporate culture plugs apparent differences thus pulling organizational attention toward more important performance improving activities. Differences in corporate culture impair routine activities, and derail viability of management criteria. Workable cultural reconciliation between merging parties is essential in that it not only reduces the ultimate cost of the deal but paves way for a faster rejuvenation of the joint activities of the firms and thus potential fro profitability and growth. Summary This chapter was meant to critically review extant literature regarding the role of organizational culture (OC) on mergers and acquisitions. A critical analysis of the continually changing world of mergers and acquisitions will was delved via conceptualized subheadings that revolve around the dynamics of organizational culture on the business concepts. Culture is traditionally thought of as a general shared social understanding, which builds the conventional discourse among organizations that it holds the social drive in the human resource realm. Most of the senior representatives in M&A negotiations overlook crucial factors that can be tangibly considered before the final deal is sealed, which reflects the ubiquitous and often misinformed overemphasis on financial aspects. It is worthy noting that M&A processes should importantly consider corporate culture and the intrinsic differences between the partnering entities. The post-merger life of the resulting organization is busied with major structural and cultural changes that may trigger stress, disorientation, frustrations, and confusion among employees among many other impacts. Assessing the cultural fit between the acquirer and the bought organizations should be based on the cultural profile of each. It is crucial that firms initially identify the impact of cultural gap, and develop and implement programs that use information in the cultural profile whilst managing any apparent differences. Reviewed literature appears to intimate the ideology that the failure of a majority of corporate mergers collapse because of inherent cultural conflicts. References Abazi, D., & Kercini, D. (2013). Challenging financial institutions in the region on organizational culture change. Albanian Journal of Agricultural Science, 12(1), 117-121. Bijilsma-Frankema, K. (2002).On managing cultural integration and cultural change processes in mergers and acquisitions. 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Surrey, UK: Edward Elgar Publishing. Whitaker, S.C. (2012). Mergers and acquisitions integration handbook: Helping companies realize the full value of acquisitions. Hoboken, NJ: John Wiley & Sons. Read More