Cultural Strategies: Causes of Failure in Mergers

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Table of Contents

Introduction
Causes of Failure
Conclusion
Reference List

Introduction

Competition in the global market has resulted in a rise in the number of corporate mergers as businesses seek to increase their profitability and stem competition. According to Epstein (2005), many companies merge with the hope to expand their market share. Others merge due to the need to diversify their channels of distribution. Technological growth and the desire to cut down on operations cost also force many companies to unite. Unfortunately, not many mergers accomplish the intended objectives. A majority of the proponents of merger view it as a simple undertaking. According to them, merger entails coalescing computer systems, fusing different departments and capitalising on the sheer size of the corporation to lower the prices of products. Epstein (2005, p. 39) holds, ‘The success of mergers depends on how realistic the deal makers are and how well they can integrate two companies while maintaining day-to-day operations’. Many mergers fail to realise their goals due to conflict of interests and personalities. Other factors that contribute to failures in mergers include inability to attain synergy, corporate culture and customer focus among others. This paper will discuss some factors that contribute to the failure of mergers.

Causes of Failure

Synergies

Upon amalgamation, organisations try to attain synergies by incorporating particular hard-to-trade wherewithal. The organisations attempt to adjust and transform existing procedures and products to suit their goals. In the process, the companies introduce novel roles, capacities and skills that did not exist before the merger. An effective combination of competencies from the merging corporations leads to the success of the merger. Hitt et al. (2009) claim that synergy can be realised if the merging firms capitalise on their individual experiences. The biggest problem that most companies make is a failure to rely on their complementary capabilities. Besides challenges in building on complementary capacity, it is hard for organisations to implement changes especially if the merger involves two big companies (Hitt et al. 2009). The nature of the companies makes it difficult for the organisations to establish a working structure that favours all employees. The merger between eBay and Skype could not succeed due to lack of synergy amid the companies. The two corporations were incapable of incorporating their technological systems productively.

Corporate Culture

According to Badrtalei and Bates (2007), organisational culture can lead to the success or failure of a merger. Corporate culture dictates the performance of an organisation. Additionally, it influences employee commitment. Most merging companies fail to consider the impacts that their individual cultures might have on the resultant merger. Different companies have distinct modes of operation. Badrtalei and Bates (2007) allege that a merger between companies with diverse modes of operations may fail due to poor synchronization of processes. For instance, it might be hard for a company that values hierarchical leadership to merge with one that values an egalitarian approach. At times, distinctions in corporate culture amid the merging partners result in opposition to the new identity. One of the merging partners feels shortchanged, particularly if their administration and operations are not incorporated as “equals” (Badrtalei & Bates 2007). The disparity in precedence amid the merging companies is another cultural factor that contributes to the failure of mergers. The companies may have diverse opinions on important issues like travel expenses and remuneration scales. Inability to reach an agreement on these issues may affect employee morale and subsequently the success of the merger.

Weber and Camerer (2003) aver that cultural conflict contributed to the failure of Daimler-Chrysler merger. The two organisations did not amalgamate their operations and administration as “equals” due to differences in operations. The corporate culture of Daimler emphasised a more ordered and formal management technique. On the other hand, ‘Chrysler favoured a more relaxed, freewheeling style that contributed to its premerger success’ (Weber & Camerer 2003, p. 401). Thus, it was hard for the companies to agree on the appropriate leadership style to apply in the management of the resultant merger. Additionally, the two companies differed on issues of travel expenses and remunerations. Failure to agree on these key issues coupled with the increased influence from Daimler led to a decline in employee contentment and performance at Chrysler. Many engineers and executives from Chrysler resigned as a show of their dissatisfaction with the merger. Daimler was not happy with Chrysler’s performance, which led to the dissolution of the merger.

Customer Focus

Failure to consider customers is another factor that causes failure of many mergers. Epstein (2005, p. 44) argues, ‘When companies merge, they embark on seemingly minor changes that can make a big difference to customers, causing even the most loyal to reevaluate their relationship with the company’. Research shows that many mergers do not realise their goal regarding improvement in investor value. Appelbaum, Roberts and Shapiro (2009) allege that the companies fail to achieve this aim due to customer defection. In most cases, mergers force organisations to make adjustments in operations. Some adjustments benefit the organisations at the expense of the customers. According to Epstein (2005), many mergers focus on reducing operations costs. They do not consider factors like customer attrition that may have a lasting impact on their success.

In spite of their little prospects of coalesced corporations, the cruel truth is that clients insist on regular and flawless services from the merged organisations. The customers defect from the companies if they fail to deliver normal and perfect services. A good example of a merger that failed due to overlooking customer demands is the amalgamation between First Union Bank and CoreStates Financial. The First Union Bank lost over 20% of its clients within the first year of merger (Kim & Miner 2007). The bank was unable to convince customers that they would benefit from the merger. As per Kim and Miner (2007), clients observe a merger keenly to determine if it will affect the quality of services. The initial signs of superior services help the merging companies to retain their customers. Poor service delivery characterised the merger between the First Union Bank and CoreStates Financial. Consequently, many customers doubted that they could benefit from the merger. The clients left the bank in search of a better financial institution that would offer regular and seamless services.

Conclusion

Numerous factors contribute to the failure of a majority of the corporate mergers. They include organisational culture, customer focus, and synergies. For a merger to succeed, organisations must rely on their complementary capabilities. Besides, the companies must implement changes to their operations to suit the goals of the merger. Challenges in change implementation affect the success of a merger. Corporate cultures of the merging corporations alter the running of operations. Besides, the disparity in precedence makes it hard for the merging corporations to agree on the main issues. The disagreements contribute to the failure of the mergers. Customer focus is critical to the success of a merger. Clients desert organisations if they fail to offer regular and flawless services. No merger can succeed if the organisations cannot retain customers.

Reference List

Appelbaum, S, Roberts, J & Shapiro, B 2009, ‘Cultural strategies in M&As: investigating ten case studies’, Journal of Executive Education, vol. 8, no. 1, pp. 41-59.

Badrtalei, J & Bates, D 2007, ‘Effect of organisational cultures on mergers and acquisitions: the case of DaimlerChrysler’, International Journal of Management, vol. 24, no. 2, pp. 303-317.

Epstein, M 2005, ‘The determinants and evaluation of merger success’, Business Horizons, vol. 48, no. 1, pp. 37-46.

Hitt, M, King, D, Krishnan, H, Makri, M & Schijven, M 2009, ‘Mergers and acquisitions: overcoming pitfalls, building synergy, and creating value’, Business Horizons, vol. 52, no. 6, pp. 523-529.

Kim, J & Miner, S 2007, ‘Various learning from the failures and near-failures of others: evidence from the U.S. commercial banking industry’, Academy of Management Journal, vol. 50, no. 3, pp. 687-714.

Weber, R & Camerer, C 2003, ‘Cultural conflict and merger failure: an experimental approach’, Management Science, vol. 49, no. 4, pp. 400-415.

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