Managing Culture Clashes in M&A‘s

Table of Contents

List of Abbreviations

List of Figures

Management Summary

1 Introduction
1.1 Overview of the M&A Market and Activity
1.2 Problem Statement
1.3 Research Method
1.4 Structure

2Definitions
2.1 Transactions and Due Diligence
2.2 Culture and Culture Clashes
2.3 Trust and Language

3 Impact of M&A’s
3.1 In General
3.2 During the M&A Stages
3.3 Cultural Problems and Key Drivers in M&A Stages

4Integration Models as Solution Alternatives
4.1 Analysis Approach
4.2 Selection of Existing Integration Models
4.2.1 The Delta Model by Faber
4.2.2 The Three Phase Model by Wollersheim
4.2.3 The Three Phase Model by Schneck
4.2.4 The Three Phase Model by Schuler
4.2.5 The Organizational Fit by Cartwright
4.2.6 The Customized CDD Model by Carleton
4.2.7 The Three Phase Framework by Trompenaars
4.2.8 Various Supplemental Models and Studies
4.3 Evaluation of the Models

5 A Set of Cultural Integration Tools

6Conclusion
6.1 Summary and Conclusion
6.2 Outlook and Recommendations

Appendices

References

Other Bibliography

List of Abbreviations

illustration not visible in this excerpt

List of Figures

Figure 1.Key drivers for M&As

Figure 2.Due Diligence Types

Figure 3.Key Differences by Basic Culture Problem

Figure 4.Culture Problem Indices by Country

Figure 5.Human Due Diligence Delta Model

Figure 6.Cultural Due Diligence Assessment

Figure 7.Process for Capturing Value

Figure 8.Comparison of Existing Integration Models

Figure 9.The Cultural Integration Toolkit

Management Summary

Merger and acquisition activities have become an integral part of today’s businesses world. They are considered as strategic component to gain market share and extend product portfolios. Still, these transactions have a huge impact on an organization. This paper looks specifically at the M&A impact on company culture. Based on an analysis of identified key elements, which drive an M&A process, a cultural integration toolkit will be developed to solve identified cultural problems. Secondary data serves as source data for an inductive approach. Cultural problems and key drivers will be identified based on systematic research. The implantation of these key drivers in existing integration models will be further studied. Findings prove that not all of the identified key drivers are implemented in the models. Therefore, existing models solve the identified cultural problems semi-efficient. This leaves the need for a basic integration tool, which implements all key drivers, serves as guideline through an M&A process and provides specific instruments for realization of single steps. This paper develops such a basic integration toolkit in chapter 5. The toolkit meets all these requirements and proves that “managing culture clashes in M&A’s” is possible.

1 Introduction

1.1 Overview of the M&A Market and Activity

The focus of this paper is on merger and acquisition (M&A) activity. It starts with an overview of global M&A deal volumes. Mergermarket shows in their “Round-up for Year End 2011” an increase of global M&A deal values from 1,600 US$ bn in 2004 to 3,600 US$ bn in 2007. In the period from 2007 to 2009 the global deal value dropped to 1,600 US$ bn and leveled out since 2010 at around 2,000 US$ bn (mergermarket, 2012, p. 3). This deal activity leads to the question for key drivers which are discussed in several KPMG studies and other publications (KPMG, 1999, p. 8; KPMG, 2008, p. 8; KPMG, 2011, p. 8; Schuler, 2001; p. 240; Harding, 2004, p. 123; Bower, 2001, p. 94; Bech, 2007, pp. 18-28).

illustration not visible in this excerpt

Figure 1.Key drivers for M&As

(Source: KPMG, 2011, p. 8)

The above shown extract of a KPMG study names as acquisition strategies: increase of market share, geographical growth, expanding into growing sectors, cost synergies, investment opportunities, entering new markets, acquiring brand (KPMG, 2011, p. 8). Schuler adds further strategies such as

“acquisition of cash, […] bigger asset base to leverage borrowing, […] gaining core competence […], talent / knowledge and technology [...]” (Schuler, 2001, p. 240).

There are many rationales behind M&A’s creating different challenges. M&A transactions cause a “fight for control” (Bower, 2001, p. 94) between the executive groups and manager groups of both companies, especially when equal companies merge. This leads to slowing down the decision making process and interrupting the due diligence and integration process. Cross border M&A’s face “cultural and governmental differences” (Bower, 2001, p. 94) slowing down specific legal due diligence steps. CEO’s pointed out in a roundtable meeting, that they tried to lay out the management structure, others started with their integration work by the time the acquisition was planned, and a few stated that communication is the key (Carey, 2001, p. 15). A wide variety of challenges comes along when M&A’s are planned and executed. They have a huge impact on the new organization, its strategies, structures, cultures and many other components. That requires a solid planning of M&A activities expressed in success measures. These are typically share price, market share, customer service levels and satisfaction, profitability, productivity, staff motivation and morale (Carleton, 2004, pp. 9-12). Deloitte has used some of these success measures to create risk areas to further examine failure rates of M&A transactions by four risk areas. The study evaluated data from Europe, America and Asia over six years and resulted in an average failure rate of 72.5% of all investigated M&A’s (Gerds, 2010, pp. 72-76). A McKinsey study from 2010 stated M&A failure rates of 66-75% as well (Deutsch, 2010, p. 5). McKinsey indicated in another study that many acquirers focus on cost savings instead of revenue increase. (Bekier, 2001, p. 3). The Vector Group sees

“(1) failure to assess the potential impact of attempting to merge and integrate the cultures of the companies involved and (2) failure to plan for systemic and systematic and efficient integration […]”

as the two major basic reason for M&A failure (Carleton, 2004, p. 1). Other failure reasons are named, but not exclusively, as draining financials, underestimating transition costs, power and politics as driving force instead of productive and organizational objectives, losing or mismanaging talent and totally different management styles (Schuler, 2001, p. 241; Carey, 2001, p. 12). Communicaid showed that 45% of M&A failures result from “unexpected post deal people problems” (Communicaid, 2011, p. 2). Increased internal focus leads to lack of focus on customers, low motivation and the loss of key staff and executives create enormous inefficiencies through loss of time – and “just have to be lived through” (Carleton, 2004, p. 15).

1.2 Problem Statement

The high failure rates signal a need for more awareness for and guidance through the integration process. While some M&A research areas study hard facts others scan soft issues and their impact on the organizational structure which affects long-term performance. This paper concentrates on culture clash specifically.

The purpose of this paper is to examine the correlation between cultural issues and M&A’s. Central aspects of an analysis are to identify cultural problems and to identify key elements which determine the M&A process. Based on this analysis the goal of this thesis is

to develop a basic cultural integration toolkit that could solve the identified cultural problems. This toolkit could be used in all kinds of M&A’s, working like a structured mind map. Executives, key personnel, and other in integration work involved people would benefit from a solid guidance through an integration process.

1.3 Research Method

The complexity of this topic in conjunction with the goal of developing a basic M&A toolkit led to applying an inductive approach. Consequently, this paper is based exclusively on secondary data. Although expert interviews from own M&A experiences would underline certain issues this paper seeks to cover a broader range.

Research has shown that there is a great selection of case studies and models supporting M&A integration available. These include single case studies oriented on specific transactions within the same sector, or country, or supporting cross-border transactions, mergers of equals but also models combined with case study elements referring to special integration stages. There are also models for specific business strategies available.

This paper’s data collection is based on sources, which were published between 1996 and 2012. The majority of sources are not older than seven years. The collected data include secondary meeting minutes, recently published articles, books, academic documents, studies, and consultancy reports. All of them refer to integration topics and a variety of M&A aspects providing an overview or deeper insight in these topics. As such, they serve the purpose of this paper.

1.4 Structure

Section 2 starts with definitions and further delimitations. Section 3 shows the impact of M&A’s in general and during the M&A stages. This chapter finishes with the identification of cultural problems and key drivers in the M&A process. Section 4 introduces various integration models. Prior to this the analysis approach is outlined. The model introduction finishes with comparing and evaluating them. Section 5 develops a basic cultural integration toolkit. The paper ends in section 6 with a short review and provides an outlook on future developments and research areas.

2 Definitions

The correlation between M&A’s and culture issues is considered as a framework for this study. Before discussing them more in detail, relating key elements will be defined in this chapter. Section 2.1 starts with basic hard issues such as transactions and due diligence. The soft issues culture and culture clash will be explained in section 2.2. The chapter finishes with clarifying trust and language as crucial parts within this framework.

2.1 Transactions and Due Diligence

There are several definitions of “Mergers” and “Acquisitions”. This paper refers to Trompenaar’s clear definitions:

“Mergers entail two organizations integrating into a third entity. […] An acquisition is when one company buys another and integrates it into its own organization. […] A strategic partnership or alliance may differ in this regard as there may only be integration of a department or a smaller part of an organization.“ (Trompenaars, 2010, p. 4)

Due to their various impacts on culture clashes M&A’s are further divided into “mergers of equals”, and “mergers of un-equals”, as well as “acquisitions and integration”, and “acquisitions and separation” (Schuler, 2001, p. 240).

Looking at M&A’s by direction does not correlate with culture issues and is therefore not part of this paper.

Conducting M&A’s happens in stages. A description of typical M&A stages includes: 1) a pre-combination stage, 2) the combination or integration stage, and 3) the solidification or assessment stage (Schuler, 2001, p. 243). Merger stages will be discussed further in chapter four during the introduction and development of integration models.

The pre-combination stage includes the performance of due diligence, which is defined by Achtleitner as:

“careful examination and analysis of a company, especially in view of its economic, legal, tax and financial situation, which is made by a prospective purchaser of a business” (see Gabler Wirtschafts-lexikon Online, translation by the author).

Even though “due diligence has only limited ability to set accurate expectations of total synergies” (McLetchie, 2010, p. 11), it is a vital process in deal making. Due diligence covers all business areas: finance including, commerce, legal, operation, strategy, IT, HR and culture. Figure 2.1 shows due diligence types by frequency of conduction. The graphic indicates clearly that HR due diligence was only performed in rare cases although it is one of the first process steps of cultural due diligence.

illustration not visible in this excerpt

Figure 2. Due Diligence Types

(Source: KPMG, 2011, p. 18)

According to Carleton culture due diligence (CDD) is “a diagnostic process conducted to ascertain the degree of cultural alignment or compatibility between companies” (Carleton, 2004, p. 53).

2.2 Culture and Culture Clashes

Research of general culture definitions resulted in two definitions, which seem to cover the broadest spectrum. Schein defines culture as:

“pattern of basic assumptions – invented, discovered, or developed, by a given group as it learns to cope with its problems of external adaptation and internal integration – that has worked well enough to be considered valid, and, therefore, to be taught to new members as the correct way to perceive, think and feel in relation to those problems” (Schein, 2004, p. 17).

Hofstede summarizes culture as:

“the collective programming of the mind that distinguishes the members of one group or category of people from another” (Hofstede, 2001, p. 9).

Company culture is expressed in behavior of people who have their own culture, which is composed of elements reflecting their origins. Hofstede’s fundamental definition refers to nations. He gives solid examples of how national cultures affect company culture. Therefore, his definition is used as a starting point in this paper. Consequently, this paragraph focuses on Hofstede’s IBM study, represented in Hofstede, 2001, in order to understand the complexity of culture. Although the IBM study takes only a small part of the today’s business world into account its findings provide the most comprehensive overview about culture and a basis for other academic work. Therefore, other opinions are not considered in this definition section. Culture consists of values expressed in symbols, heroes and rituals - in total: behavior. Hofstede sliced culture into impact levels: family, school, work, politics, religion, society. This paper refers to level ‘work’ exclusively. In a second step Hofstede divided culture into five basic issues: 1) Power Distance (PD) referring to power distribution between boss and staff, 2) Uncertainty Avoidance (UA) referring to the stress level which occurs about an unknown future, 3) Individualism versus Collectivism (IDV) reflecting the orientation towards groups or individuals, 4) Masculinity versus Femininity (MAS) referring to emotional roles between men and women, 5) long-term versus short-term orientation (LTO) referring to the people’s focus on the future or the present (Hofstede, 2001, p. 29). Figure 2.2 outlines three examples of key differences per basic problem. The index columns “low” and “high” show indicators for the specific basic problem. For instance: a low power distance index for basic problem “Power Distance” can be identified when a) the company is decentralized structured and has a flat hierarchy, b) the leadership style is rather consultative, c) the staff expect to be consulted before decisions about their work will be made.

illustration not visible in this excerpt

Figure 3. Key Differences by Basic Culture Problem

(Source: Hofstede, 2001)

The next figure illustrates different types of indices for selected countries. The LTO index is excluded due to the lack of source data.

illustration not visible in this excerpt

Figure 4. Culture Problem Indices by Country

(Source: Hofstede, 2001)

Germany, France, and Sweden were selected as examples representing differences between western oriented European countries in contrast with the US and Japan. France shows a high power distance index, indicating people are used to tall hierarchy and authority. On the contrary, Germany has a much lower PD index. Hierarchy is rather flat and the leadership style fairly consultative. A combination of companies based in Germany and in France could cause great misunderstandings leading further to decreasing productivity for instance. See all available data in Appx. A.

The next basic soft fact is culture clash. Carleton defines culture clash as differences between in M&A involved companies about beliefs, importance, values, measurements, and treatment of people, decision making, managing and supervising, and communicating (Carleton, 2004, p. 13). Culture clash folds an organization and its way of doing business into another organization (ibid).

2.3 Trust and Language

Chapter two finishes with looking at two crucial culture components.

The first one is trust, which is seen “as a fundamental pillar of human integration” (Trompenaars, 2010, p. xiv). Covey defines trust as:

“function of […] character and competence. Character includes your integrity, your motive your intent with people. Competence includes your capabilities, your skills, your results, your track record. […] Ethics […] is foundational to trust but itself insufficient (Covey, 2010, p. 30).

Covey stresses a direct connection between trust and a company’s performance as follows:

“When trust goes down, speed will also go down and costs will go up. […] When trust goes up, speed will also go up and costs will go down.” (Covey, 2010, p. 13).

The second component is language. A basic problem with language is that people may hold different expectations about the use of language (Hofstede, 2001, p. 21). Expressing oneself in another language means automatically adopting a certain frame of references and a limitation of vocabulary (Hofstede, 2001, p. 424). Monolingual native speakers tend to assume what a foreign speaker can express in the native speaker’s language is all that the foreigner has on his mind (ibid).

3 Impact of M&A’s

After defining the framework for M&A correlations in the previous chapter, this chapter highlights M&A consequences. These impacts on organizations have direct impact on their culture and vise versa because culture is embedded within the organization (Carleton, 2004, p. 32). Sample impacts will be presented referring to M&A stages and outlining cultural problems. Key elements, which are needed to solve these problems, will then be derived.

3.1 In General

The following example is based on a study by marketline, 2011. The second largest player in the pharmacy industry with an M&A history back to 1800 acquires companies around the world. Still, the company had faced a failure in its R&D pipeline after the last merger. In contrast to that they started an operational program which has compensated this shortcoming largely and led to market growth of 15% outside the US and Europe. This example reflects direct impacts of M&A’s on performance but it also proves the company’s M&A strategy, which obviously had cultural problems mitigated if not eliminated. Furthermore an M&A success role is more essential in deal making then size and frequency of deals (Cottin, 2011, p. 1 and Rehm, 2012, p. 5).

When two companies are involved in a merger or acquisition one overall dilemma occurs: culture clash – the meeting of organizational and national culture at both sides. This leads to culture integration problems in most cases.

3.2 During the M&A Stages

This section focuses on the M&A impacts during the transaction stages. The pre-merger phase includes among others negotiations (Schneck, 2007, p. 11 and Faber, 2007, p. 12). Disrespecting nature of control and decision making structure on either side, or ignoring the distribution of decision making power among people, or not tolerating emotional needs of negotiators may lead to breaking off the negotiations (Hofstede, 2001, p. 435) and probably causing total loss of the deal. Cultural problems are clearly expressed in misunderstanding and lack of intercultural competence.

Conducting due diligence is another part of the pre-merger phase. Several studies suggest that acquirers admitted a desire for a better due diligence and planning, a faster integration and more attention to HR and cultural issues – the next time (KPMG, 2011, p. 19 and Knechtel, 2009, p. 12). Connections between individual due diligence areas cannot be explored since they are conducted separately from each other (Knechtel, 2009, p. 12). Consequently, creating of values and synergies is rather inefficient and will not improve the new company’s performance. This impact of missing an integration strategy and plan results in integration issues.

Those companies that prioritized the selection of the management team during the pre-deal planning stage were 26% more likely to have a successful deal (KPMG, 1999, p. 16). The lack of a selected management or integration team would slow down the integration process and create an integration problem.

The next samples overlap from the merger to the post-merger phase.

People who are involved in an M&A transaction face changes of organizational structure, roles, in working processes and tools, maybe relocation and many more. They feel losses leading to increased uncertainty and anxiety concerning their future (Cartwright, 1996, pp. 48-49). Preoccupation increases in those affected, eventually resulting in loss of productivity. A study about culture shock indicates that a more than 15% of effectiveness is lost because of worry, rumors, and misinformation (Gitelson, 2001, p. 41). Losing effectiveness due to lack of integrating people indicates integration issues as cultural problem.

Referring to Cartwright, 1996, pp. 39-40, affected people often live through loss in stages. Stage 1 points out extreme shock expressed in disbelief and denial. Stage 2 shows anger through rage and resentment followed in stage 3 by emotional bargaining through uncertainty about individual job future, resulting in depression. Finally acceptance takes place in stage 4, indicating that the past is gone forever. Because of these impacts on staff M&A’s frequently result in loss. Loss of talent due to role duplicity or due to resignations including executives indicates again an integration issue (Cartwright, 1996, p. 45-46 and Krug, 2003 p. 14).

The resignation of executives decreases the leadership stability and disrupts communication lines. Krug’s investigations show that if a company is not able “to keep the critical mass of the old guard […] a domino effect” will be recognized “at least nine years out” – and perhaps much longer (Krug, 2003, p. 15). The cultural problem is evidently lost talent.

Integration work is essential, its cost and duration is often underestimated (Knechtel, 2009, p. 8). Poor integration work deteriorates customer satisfaction and lead eventually to sales decline. Furthermore, the adaption of existing structure is often neglected. Therefore change management and integration work are seen as great challenges in M&A transactions. Cartwright suggests that integration takes between 3 and 5 years, in case of cross-border transactions even longer (Cartwright, 1996, p. 29).

Insufficient integration work would lead to “winning the battle while losing the war” (Carleton, 2004, p. 29), meaning the organization would lose much effectiveness. For instance, when processes in single departments are re-engineered they nevertheless have impact on other organizational components – which should be but often is not taken into account.

Another cultural problem is communication. Fight for control, rumors among staff and poor willingness to adopt the other culture are impacts, which often occur during M&As.

Differences in language may cause distance and isolation due to the lack of language skills at various staff levels (Piekkari, 2005, p. 334). Sometimes experts are prevented from actively attending meetings when they are not able to express themselves properly in the new company language (Piekkari, 2005, p. 337). Limited language skills lead to limited acceptance among colleagues, which complicates business live of those affected. This example shows a communication problem.

3.3 Cultural Problems and Key Drivers in M&A Stages

The discussion about impacts of M&A’s has identified following cultural problems: (1) lack of cultural integration, (2) lack of intercultural competence, (3) lost talent, (4) misunderstandings, and (5) communication problems. Integration models should solve these problems. Knowing the problems raises the question of which elements need to be included in the M&A process to avoid those problems. The lack of cultural integration could be mitigated by a clear integration strategy and a detailed integration plan. The lack of intercultural competences should be eliminated by cross-cultural training sessions building up knowledge, awareness, understanding and providing guidance through case studies and simulations. Losing talent and communication problems should be avoided by a clear communication strategy and communication process. Misunderstandings should be completely avoided through a combination of the introduced key elements. Conducting a cultural due diligence is also seen as a key element, as so as the use of integration teams, and post merger monitoring. A systemic approach should be added as last important key element.

4 Integration Models as Solution Alternatives

After learning about M&A impacts in the previous chapter two questions arise: 1) how can the identified cultural problems be solved within the entire M&A process? 2) How can the detected key elements be implemented? This chapter seeks answers in existing integration models. It starts with laying out the research approach. Selected models will be introduced afterwards and evaluated with respect to answering the two questions.

4.1 Analysis Approach

The data sources were systematically screened and summarized. Evaluating the source data started with a rough definition of target categories. Books have been summarized with focus on these categorized topics. In search for contributions to the main topics data and statistics have been further categorized into subtopics by category and have been coded accordingly. Coded data has then been analyzed in closer search for relevance leading to findings which are expressed in this paper. Statistics from a specific source have been consolidated to deliver the basis for statistical examples and graphs. Existing integration models have been distinguished between more general and supplemental meanings. Interpretations of these models will be presented in this chapter.

4.2 Selection of Existing Integration Models

4.2.1 The Delta Model by Faber

(Faber, 2007, pp. 16-46)

Faber’s model (see Appx B) covers the classical three M&A phases (pre-merger, merger, post-merger). He adopted the delta model by Hax for his work which he based mostly on his own experiences and to some extent on secondary data. Faber emphasizes on flexible entries, which make this model applicable for each involved individual regardless of the M&A phase. The entry points are explained as follows.

illustration not visible in this excerpt

Figure 5. Human Due Diligence Delta Model

(Source: Faber, 2007, p. 41 – simplified by the author)

Faber begins with “building the own company culture”. Key transactions at this stage are seen as development of a long-term strategy and a cultural integration strategy. Educating and training employees, giving HR people key roles in all acquisition phases and a selection of acquisitions to learn from contribute to the step “develop acquisition expertise”. Faber emphasizes that senior managers need to agree on “objectives and expectations” for each deal and communicate them. It is important to decide on the depth of integration between cultural blending, takeover, and pluralism. The goal of the “Human Due Diligence” step is to understand the target’s culture, people, size and volume of the customer base, geographical presence, and product portfolio. Faber suggests to start human due diligence at the same time as the other parts of the due diligence. The outcome of the human due diligence is summarized in step “Go- / No-Go Decision”. If the findings prove that the cultural differences are too large and there is no willingness to change on either side further negotiations may be cancelled and consequently the long term strategy may be revised. If the findings prove the contrary integration levels and activities, creating a task force and identifying the best processes are seen as final key transactions at this stage. After the deal is signed integration management starts covering the “Horizontal Breadth”. Faber stresses the importance of communication, culture adoptions, using best practices, technology, talent, systems. The final stage focuses on keeping the new momentum.

4.2.2 The Three Phase Model by Wollersheim

(Wollersheim, 2008, pp. 29-31)

This model is based on secondary theoretical data and focuses exclusively on the cultural due diligence piece in M&A’s throughout the classical three transaction phases. Each phase is further divided into three steps.

The overall goal of phase one is identifying suitable target companies by comparing cultures. Mitigating risks is the key driver during this phase. The outcome of the first step is a comprehensive cultural profile of the own company. Wollersheim suggests to look at symbols, values and beliefs within the company as well as investigating specifics about the own national culture. The same analysis should be conducted in step two with respect of the target company. Step three finishes the first phase by comparing the culture profiles and identifying a target company. Goal of the second phase is the development of an integration strategy. Findings about culture will be analyzed more in detail so that specific cultural differences become visible. Evaluating these results is the basis for developing an integration strategy, which will be realized in phase three. Both cultures eventually “meet” in the implementation phase three. These cultural clashes will be managed by rolling out the integration strategy. The last phase finishes with success control and alteration of the strategy for an even better fit.

4.2.3 The Three Phase Model by Schneck

(Schneck, 2007, pp. 7-12)

Schneck recommends staying focused on CDD during the entire M&A transaction as so as with all other due diligence pieces. His model is based on primary and secondary data and contains three stages as well.

The first stage in Schneck’s model concentrates on data collection and analysis in parallel with the planning of the transaction. Based on a rough content- and document analysis he suggests a comparison of cultures, indentifying key differences and risk areas. As additional data become available during the pre-merger and negotiation phase, further analyses and observations take place in stage two. Schneck highlights the use of further instrumentations such as single and group interviews with key personnel, along with simulations and questionnaires. Evaluating all data leads to cultural profiles visualizing culture fits and clashes. The goal of stage three is the cultural integration. Milestones help to achieve this goal. They include defining company coals, vision and mission statement and an integration strategy. Responsible integration teams will be created to develop and implement integration programs and communication models. The third stage finishes with success control of the entire program.

4.2.4 The Three Phase Model by Schuler

(Schuler, 2001, pp. 7-12)

This model (see Appx. C) is based on secondary data and reflects parallels to the previous three models as it again focuses along the three classical transaction stages and on HR issues in particular. Schuler provides both insight about correlations and guidance broken out by M&A stage. On top of that he expresses the role of an integration manager and characteristics of successful business leaders completing his overview.

Schuler starts in the pre-combination stage with identifying the reasons for the transaction and appointing an M&A team and leader. In a next step potential targets will be identified. After that, both managing the transaction and the learning from it will be planned. Schuler sees the selection of an integration manager as crucial point for conducting the change process. The integration manager makes decisions about staff, the new culture, structure and policies. A communication process will be laid out and followed rather frequently. In the last stage the announcement of the new leadership and staffing will be made. In addition to that, the new organization as a whole in terms of strategies and structures, stakeholder’s concerns and culture will be assessed. Depending on the outcome of the assessments, certain aspects will be revised if needed. The last piece in this stage covers learning from the M&A process.

4.2.5 The Organizational Fit by Cartwright

(Cartwright, 1996)

Cartwright’s model, which is based on experience and secondary data, concentrates on her own “culture” definitions. In addition to that she distinguishes three integration possibilities in conjunction with this model. Hereby is the degree of constraint placed on an individual used as measurement. Overall Cartwright considers the degree of similarity between combining organizations as crucial success factor.

Since this paper does not seek instruction for specific merger types, both the specific culture definition and a discussion of the three merger types shall not be examined further.

Cartwright’s integration work is divided into M&A stages. The pre-combination stage covers preplanning tasks, such as knowing the own culture, research target company, consult with personnel functions, arrive with an agenda of people issues and areas for discussion. An initial assessment of the target culture should be conducted during this stage, contract terms should be outlined. The next stage concerns the legal announcement. Employees should be introduced to the new organization. Along with that, future change and integration should be explained. In order to achieve these goals a communication strategy and plan including a feedback mechanism need to be prepared. The next stage relates to the “honeymoon phase” which reflects the cultural change. The goal is to understand both cultures, unfreeze the existing culture, and accelerate the change process. Cartwright suggests following procedures: informal discussions and observations, creating joint working parties and inter-organizational team buildings, conducting an employee survey, use various culture change approaches. The final stage concerns monitoring M&A success. Essential elements in this stage entail recognizing early warnings, dealing with employees stress, keeping in touch throughout all hierarchical levels. In order to learn from this transaction an integration program should be put together.

4.2.6 The Customized CDD Model by Carleton

(Carleton, 2004)

Carleton is co-founder and CEO of Vector Group. His model is based on experience and secondary data. He indicates CDD “should be viewed as mandatory step” (Carleton, 2004, p. 53). His model is directed along the M&A stages as well.

Carleton uses the organizational scan model (see Appx D) for assessing the company culture. This scan follows a systemic approach. It is an organizational view on external & internal factors in conjunction with conditions, processes, and outputs. Carleton suggests using this tool rather periodic and not during M&A’s exclusively.

Further major steps in his CDD model are: assessment and detailed cultural assessment of the target, alignment and integration planning. Carleton’s customized CCD model differs from the traditional CDD models in one aspect. Instead of describing all cultural elements of an organization this model is rather based on functional culture. That way it provides flexibility and a systemic approach. Carleton achieves this flexibility by grouping the CDD findings within twelve domains.

Figure 4.2 shows CDD tasks per M&A stage in a simplified format. It reflects the point in time at which each task starts but excludes circles to keep the graph at an overview level. The first step is the integration of the executive group and contains the implementation of time sensitive issues as well as issues-based team building sessions. In a next step all managers will be involved. “Tiger Team” will be built to solve a specific problem within a short time frame exclusively. A multi-rater 360-degree feedback system will be put in place and follow up sessions will be hold. After that all staff sessions will be conducted to align the total organization finishing with follow-up and re-engineering sessions and continuing success measurement.

illustration not visible in this excerpt

Figure 6. Cultural Due Diligence Assessment

(Source: Carleton, 2004, p. 3 – simplified by the author)

Various checklists, surveys and interview sheets, which support the entire process, are available for group sessions and education in Carleton’s publications and can be requested at Vector Groups website.

[...]