Mergers and Acquisitions: Cultural Concerns

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Table of Contents

The Film Gung Ho
Past Case of Merger Failures
Conclusion
References

Mergers and acquisitions have become very popular in the current business environment as firms seek to expand their operations. Actually, it has become an important business strategy across all sectors and regions across the globe. Despite the high success rate in well planned mergers and acquisitions, chances of failure are relatively substantial, especially when the aspect of cultural balance is ignored or inappropriately handled. Most of the failures associated with mergers and acquisitions are layoffs, poor shareholder returns, and complete the dissolution of an alliance. In an event of an impending merger or acquisition, culture is a sensitive factor since it is not easy to quantify or manage. According to Darnton (2017), cultural incompatibility is responsible for more than 30% of merger and acquisition failures. This report investigates the influence of cultural dilemmas on leadership effectiveness and the success of joint ventures, mergers, and acquisitions. Specifically, the paper relates the cultural dilemmas depicted in the film Gung Ho from a leadership challenge perspective to five international merger and acquisition failures for companies with stakeholders from different nations or cultures. The report then presents strategies for preventing the negative cultural dynamics from affecting merging organizations.

The Film Gung Ho

The plot of the film revolves around negotiating for a merger between the two companies from different nations and cultures. The Brokering auto worker, Keaton, comes to face with tricky challenges in trying to mediate the assimilation of clashing Western and Japanese corporate cultures. The first conflict is between the Japanese plant manager, Kazihiro, and another employee called Shimono (the sycophant) positioning himself for the manager’s position (Howard, 1986). On the other side, several disgruntled long-time members of the union of the collapsed Pennsylvania auto plant such as Paul and Buster are struggling with ‘tough’ and ‘strange’ Japanese quality control exigencies. Released in 1986, this film presents serious cultural issues associated with a company merger. Despite falling within the comedy genre, the film reinforces the general perception of the Japanese and Americans in the workplace.

This perception paints a picture of a workaholic Japanese culture against the lazy American work culture. As a result, there is a massive cultural clash noticeable throughout the film. For instance, the dinner table scene displays a serious disagreement in a work culture when the Japanese plant manager is not satisfied with the progress of American workers. Keaton, the American who represents the workers, presents a counter argument that productivity has gone up by 10%. This is not satisfactory as the boss reminds Keaton that under the same circumstances, productivity in Japan is 40% higher (Howard, 1986). In the end, Keaton fails to meet the deal he has negotiated with the Japanese boss by producing 16 cars less than the agreed 13,000 units (Howard, 1986). Despite the tense meeting during the performance review, the Japanese company agrees to stay on after striking a working cultural balance between the ‘workaholic’ and ‘lazy’ work cultures.

Past Case of Merger Failures

Daimler and Chrysler

When the Germany-based manufacturer of Mercedes-Benz called Daimler merged with the American-based Chrysler in an agreement called a ‘merger of equals’ in the late 1990s, the expectations were very high that this alliance would change the game in the automobile industry. However, a few years into the agreement, the merger of equals turned into a fiasco. The discordant corporate cultures of Germany and the US made the two divisions to be in constant conflict (Darnton, 2017). The primary cultural differences that contributed to the failure of the new alliance include uneven formality level, variations in the philosophical business instruments such as expenses and pay grade, and unmatched operational styles. The merger made the German work culture dominant and resulted in a negative plunge in the level of employee satisfaction for workers in Chrysler factories. Due to serious cultural differences, the unhappy Chrysler labor force began to circulate a joke saying, how do you pronounce DaimlerChrysler?… ‘Daimler’-the ‘Chrysler’ is silent (Darnton, 2017). At the beginning of the year 2000 financial year, major losses were reported, and in 2001, the two companies laid off many employees. The merger ended in 2007 when the German-based Daimler sold Chrysler at $6 billion to Cerberus Capital Management (Darnton, 2017).

Times Magazine AOL and Time Warner

The merger between Times Magazine AOL and Time Warner failed and the stock prices for Time Warner plunged from $71.88 in 2000 to $15 in 2008 (Darnton, 2017). The merger worth $350 billion with AOL made the company lose its market grip due to a serious cultural clash (Darnton, 2017). The old and new media cultures could not blend well in the new business model. As a result, management strategies and other business instrumentations were done inappropriately or without focus on the market dynamics. The inability to effectively and proactively blend the two cultures transformed a giant firm into an insolvent business after the merger.

Cell Phone Sprint and Nextel

In 2005, Sprint acquired Nextel at the cost of $35 billion as a strategy aimed at countering the competitive challenges of a merger between Verizon and AT&T (Darnton, 2017). However, by the end of the 2008 financial year, Cell Phone Sprint had written down more than 80% of Nextel’s value, which is a confirmation of extreme failure (Darnton, 2017). Cultural clash has been associated with this failure between Sprint’s button-down bureaucratic family culture and the entrepreneurial Nextel khaki culture. These two varying cultures could not effectively agree on any business strategy from cell phone technology to advertisement policy. The managers openly disagreed and could not establish a common operational ground in making major business decisions. The conclusion of a merger described as the worst in the 21^st century was done in 2012 following the sale of the Nextel network by Sprint (Darnton, 2017).

HP and Compaq

Although the merger between HP and Compaq in 2001 was predicted to be a game change in the tech sector, the results presented further stock downgrade. Analysts have described the merger as ill-fated, poorly negotiated, and irregularly implemented due to cultural clashes among the managers (Darnton, 2017). The HP’s engineering-driven work culture was based on consensus building in decision making, while Compaq’s culture was driven by the magnitude of potential sales. The poor cultural fit between HP and Compaq resulted in prolonged bitter conflicts in the merger and contributed to a loss of more than $13 billion in terms of market capitalization (Darnton, 2017). Despite the widespread belief that the merger has been a failure, the new outfit has managed to hang on and reinvent itself through a series of leadership and cultural changes for long-term survival and business sustainability.

WordPerfect and Novell

The merger between WordPerfect and Novell in 1994 was called a ‘match made in heaven’ since it brought together high performing companies. However, the merger was associated with unending cultural differences between the managers given the responsibility to stabilize the new outfit. Due to disparities in organizational cultures between WordPerfect and Novell, there were conflicts on performance management, production strategies, and investment expectations (Darnton, 2017). The inability to strike a cultural balance resulted in poor business strategies that contributed to substantial losses. As a result, many employees from both sides were laid off following a steep decline in the share value. Moreover, the excessive concentration on internal discord made WordPerfect lose its leadership position as the bestselling word processing software merchant. In 1996, Novel had to offload its shares on WordPerfect to Corell Company at a loss of $1 billion (Darnton, 2017).

Creating a Perfect Balance in Work Culture

In any merger or acquisition, some cultural factors are beyond the control of the assimilating organizations, especially when the firms are from different regions. The ideal strategy for avoiding or minimizing the impacts of cultural discordance is through synergizing the cultures involved (Lewicki, Barry, & Saunders, 2015, p. 38). The following strategies would facilitate the creation of a great synergized culture to ensure the success and sustainability of an acquisition or merger.

Core Value Emphasis

It is important to emphasize the core values to ensure that the two or more organizations coming into an alliance are not distracted by variances in their work cultures. For instance, it would be prudent to define the organizational culture and integrate different or unique elements of each culture into the final parameters of operations (Lewicki et al., 2015, p. 215). According to Darnton (2017), “an organization that reinforces its core values is more likely to reach the kind of growth and success that nearly all businesses seek” (p. 45). Since mergers and acquisitions increase the capitalization value of an entity, an effective, streamlined, and properly defined core value charter would minimize the negative impacts of cross cultural interaction in a workplace. In the ideal, the core values should be absorbable and practicable since imposed work culture may not thrive.

Transforming Blame Game into Praise Game

It is important to transform blame games associated with cultural conflicts in merging organizations into praise games through effective and focused leadership that appreciated diversity (Lewicki et al., 2015, p. 218). This is necessary to turn the negative energy associated with change into positivity by introducing diversity acceptance training (Darnton, 2017). These sessions should be characterized by encouraging employees to see the positive in each other rather than the negatives.

Limiting the Brain Drain

An integral indicator of an impending failure in merged organizations is a sudden departure of managers and key leaders due to unbalanced intangible association. This event has the potential of destabilizing the subordinates and lowers the general organizational work morale (Lewicki et al., 2015, p. 52). For instance, the confidence of employees in lower ranks will be drained, and it might open a door for the further uncontrolled exodus of skilled workers (Darnton, 2017). In order to avoid this occurrence, it is mandatory for those responsible for implementing a merger to effectively listen and proactively respond to the main concerns raised by this bellwether group. The issues raised should then be communicated to the top management on time for appropriate actions.

Establish the Influencers and Win their Acceptance

In the merger or acquisition environment, there are influencers such as trade unions and other stakeholder groups. It is important to establish who they are and win their trust in order to coordinate a smooth transition of different organizational cultures (Lewicki et al., 2015, p. 233). For instance, it would be prudent to conduct in-house peer-to-peer reviews to obtain data of the most influencing managers and workers (Darnton, 2017). The merging units could consider spending extra time to increase their confidence and training as part of earning their commitment and enthusiasm. As a result, the merging organizations will gain from a positive ripple effect.

Facilitate Proactive Communication across Divisions and Groups

As a prerequisite for a strong and stable organizational culture, it is necessary for merging organizations to motivate and systemize the forging of healthy relationships for parties from different cultures (Lewicki et al., 2015, p. 191). These relationships should be formalized to appeal to issues affecting cross-boundary associations, especially among the top management and other general workers. This strategy is aimed at making it “possible for employees to recognize and appreciate their counterparts in other buildings or countries and watch those bonds begin to strengthen-and with them a strong merger or acquisition” (Darnton, 2017, p. 67). As a result, the merging organizations will be in a position to control the negative dynamics of different work cultures.

Conclusion

The comedy film Gung Ho presents deep cultural issues that have become an impediment to effective mergers or acquisitions for companies from different regions. The film displays the contemporary American work culture as conflicting with the workaholic Japanese model. As a result, the merging organizations cannot agree on the quality and productivity expectations. The same events resulted in failed mergers and acquisitions in several business sectors in the past. For instance, the mergers between WordPerfect and Novell, HP and Compaq, Cell Phone Sprint and Nextel, Times Magazine AOL and Time Warner, and Daimler and Chrysler failed because of inability to merge differences in organizational cultures. This trend can be reversed through facilitating proactive communication across divisions and groups, establishing the influencers and winning their acceptance, and core value emphasis among others.

References

Darnton, R. (2017). The interpretation of cultures (3rd ed.). New York, NY: Basic Books.

Howard, R. (Director). (1986). Gung Ho [Video file]. Web.

Lewicki, R.J., Barry, B., & Saunders, D.M. (2015). Negotiation: Readings, exercises, and cases (7th ed.). New York, NY: McGraw-Hill.

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