Mergers and Acquisitions: National and Organizational Cultures

Running head: MERGERS AND ACQUISITIONS 1

Mergers and Acquisitions: National and Organizational Cultures

Thesis

By

Adam Deines

Submitted in partial fulfillment

Of the requirements for the degree of

Bachelors in Science

In

Business Administration

State University of New York

Empire State College

2016

Reader: David Starr-Glass MBA, M.Sc., M.Ed.

MERGERS AND ACQUISITIONS 2

Abstract

The research thesis will consider the backgrounds of mergers and acquisitions, and both national

and organizational culture and how these three things affect each other. Multiple small cases will

be brought up throughout the paper to give real world situations in which the theory is applicable.

Finally, three case studies will be looked at in order to apply many of the theoretical ideas

brought up throughout the paper. The first will be an acquisition between Volvo Construction

Equipment (VCE) and Samsung Heavy Industry (SHI). The second will be a merger between

Daimler-Benz and Chrysler. The third and last will be a complicated acquisition between

Compaq and Digital Equipment Corporation.

Keywords: M&A, Mergers, Acquisitions, National Culture, Organizational Culture.

Acknowledgements

I would like to thank all of my family and friends for their help and support in the writing

of this thesis. Further, I would like the thank the various teachers that I have had over the years

that have helped make this paper and eventually my degree possible. I would also like to thank

my girlfriend, Nadia, for the support and patients that was required over the course of writing

this thesis. Lastly, I would like to thank David Starr-Glass for the great advice and help in the

preparation and creation of this thesis.


Contents Abstract ............................................................................................................................... 2

Mergers and Acquisitions: National and Organizational Cultures ...................................... 4

Chapter 1: Background ....................................................................................................... 5

Mergers and Acquisitions ............................................................................................... 5

Cross Culture Communication and Organizational culture .......................................... 12

Chapter 2: Combining M&A with Organizational and National Cultures ....................... 21

Failing M&A and Culture’s effect ................................................................................ 21

What can be changed to fix it? ...................................................................................... 28

Chapter 3: Case studies ..................................................................................................... 30

Three M&A’s: The Good, The Bad, and The Ugly ....................................................... 30

The Result of These Three Studies and Implications on Future M&As ....................... 46

Conclusion ........................................................................................................................ 47

References ......................................................................................................................... 50


Mergers and Acquisitions: National and Organizational Cultures

Mergers and acquisitions (M&A) is a relatively new field of research, not because it is a

new phenomenon but because its growing popularity in the last half a century has made it quite

important. Since 1985 M&A have shot up from a mere 2,675 to over 46,500 in 2015, (Institute

for Mergers, Acquisitions and Aliances, n.d.), worldwide. As globalization becomes more

prevalent multinational corporations (MNCs) and organizations will fight for further control of

the markets. Taking market share from another company can be difficult, especially when that

company has the benefit of national loyalty. Thus, companies begin the process of entering into

new markets and taking market share through the buying up of other companies. This has led to

consolidation of many industries into a few giants and has allowed some companies significant

advantages over its competition. At the same time, M&As are very difficult to do successfully,

the number factors and soft science related to it makes the success or failure of an M&A difficult

to accurately predict.

70% of all M&A fail, (Deutsch, et al., 2010) because they don’t manage to bring

additional value to the acquiring or merging companies. The reason for this has been debated

over time and can be as a result of a number of things. One of the biggest issues has been culture.

Due to it being a soft science, organizational behavior and national culture are not easy to

quantify. This makes it different than predicting the financial synergies from an M&A because

financials are relatively easy to see and understand. Culture, is not the same. Due to this many

executives that begin the M&A process overlook or underestimate the importance of culture in

the integration process of an M&A. The aim of this paper is to understand why culture is

overlooked, why it is difficult to understand fully, and how this could be remedied in future

M&As.


Chapter 1: Background

In order to fully understand the topic, a framework must be built in order to explain and

refer to ideas later in the text. M&A’s along with that of cross culture communication and

organizational culture are very in depth fields, neither is an exact science and so simply learning

why something happened in the past, doesn’t mean you will be able to always avoid it in the

future. This type of uncertainty is scary for business as you can’t insure against it. The odds are

stacked against companies in pulling out a successful M&A. However, it doesn’t have to always

be that way. By noticing M&A factors of success like a culture, an integration manager can more

accurately avoid bad situations. The following section will give background into what national

culture and organizational culture is and what Mergers and Acquisitions are. The sections

following this will go to explain how these odds can be possibly stacked back in favor of

companies.

Mergers and Acquisitions

Mergers and acquisitions (M&A) are far more complicated than when first meets the eye.

Often times multi-billion dollar mergers happen that seem like it will make the company look

strong, however in actuality may destroy the company. This is something that will be shown in

section 3 of this paper with Compaq and Digital Equipment Corporation. The failure of these

M&A’s are more common that most people realize and thus the biggest question must be asked,

why?

Defining and Understanding M&A

What is a Merger?

A merger is when a company decides to merge with another company. The outcome of

this merger is that a new company is created out of the two merging companies. All of the shares


of both companies are surrendered and new shares are then given out for the new company. No

money is required to complete a merger since no one firm is positioned as the dominant one, thus

they are driven to work in collaboration and work towards becoming one company. Often times

they form to create a company that has both original company names in the new name. Typically,

true mergers do not happen very often when compared to acquisitions. Usually it does not benefit

a company, and its management, to consolidate with another company in order increase the value

of both companies. Management from both companies would be exchanged and swapped and of

course people would lose their jobs. Thus a decision like this would have to be extremely

beneficial for upper management to pursue an option like this.

Mergers tend to have a softer feeling on them in that they are attributed with the friendlier

side of M&A. Mergers give a feeling that two companies have come together to cooperate and

produce a better product or cover more market share or diversify. Due to this feeling that the

term mergers is softer, it gets misattributed to acquisitions that tend not to be overtly hostile.

Disney Pixar is an example of this, (Gallant, n.d.). Often times the acquisition of Pixar by Disney

is termed as a merger because it wasn’t hostile, however this has become sort of the “new”

meaning of a merger. For the purposes of this paper, the older version will be used in order to

reduce confusion.

What is an Acquisition?

Acquisitions are the most popular type of M&A and happen very frequently. For a

company it can be very advantageous to buy a smaller company in order to gain an advantage in

a market. Some of the most popular reasons for doing this is in order to increase market share by

buying up a competitor. This can be advantageous as it can allow a firm to have the combined

market share of the two companies, it also helps remove a competitor from the market.


Acquisitions can also be helpful in moving into new markets. It can be very expensive and risky

to move into a new market in another country without a partner and thus often times larger

companies will purchase already established companies in order to establish a foot hold. This

doesn’t guarantee the chance for success, however it greatly increases it when compared to

starting from scratch. This was something that ADP, an HR service provider, did in order to enter

into the European market. They purchased a French company by the name of GSI. They were

able to use this company in order to establish themselves within Europe, (Our History, n.d.).

Acquisitions are the most popular and frequent part of M&A and so will be the primary

focus of this paper. However, the problems and issues that happen in M&A occur regardless of

its label because at the root, it’s still about merging two different cultures.

The role of newly acquired companies

Newly acquired companies are often times faced with many possibilities of how they will

be running after being acquired. There are 4 main ways in which an acquired company will be

absorbed into the acquiring company. The first is with conglomerates, these usually massive

companies will have a large portfolio of companies from the same or related industries. A firm

being acquired into a conglomerate may run semi independently. They may share similar supply

lines and distribution lines of other companies in the conglomerate, they will often have some

freedom over management decisions and products, this is of course dependent on the

conglomerate, however, companies still maintain most of their identity with more supply options

thanks to the improvement of the supply chain.

Another option is that a company will be acquired and become autonomous. As written in

the Harvard Business Review, (Kale, Singh, & Raman, 2009), partnering with acquisitions can

pay off in that it allows the acquired company to continue to do what it’s doing with almost full


autonomy, with the only exceptions being upper management decisions. Sometimes the best

option is allowing companies to remain semi-autonomous, while this does bring into many issues

when done domestically, when purchasing a company for expansion overseas it can be

beneficial. Chinese companies have already began doing this as the integration process could end

up hurting the brand image of the acquired company that is quite valuable to Chinese businesses.

This can be easily done also in companies that are in a different market than their own. However,

a company that finds itself in this position may also find themselves easy to sell off also. This is

what happened with Motorola Mobility when Google bought them in 2011 for the sum of $12.5

billion, (Womack & Tracer, 2011). The main goal of the purchase was to acquire the patents from

Motorola Mobility to use against other companies. Google later sold Motorola Mobility 3 years

later for just $2.91 billion after it had stripped away the patents it wanted, (Osawa, 2014).

Motorola Mobility was kept nearly completely autonomous in order to make the ability for

Google to sell it much easier. Autonomy makes things easier for the acquired company, however

it potentially poses some threats to the company also as it can mean they will be stripped of

assets and sold off to someone else, potentially losing much of its value it had before.

The third position that companies can find themselves in is merging the two companies,

not to create a whole new company, but to create a sort of partnership. It is usually something

that can be used to take advantage of the segments of both companies in a more intimate

relationship than a conglomerate or autonomy. Disney-Pixar is a perfect example of how two

companies can merge and be extremely beneficial for them both. What helped the Disney and

Pixar acquisition is that they had been partners for many years before in the making of children’s

movies. The acquisition just happened because a contract ran out, (Ruesink, 2015). The result

was a revitalization of Disney’s animation and the continuing of the creation of hit children’s


movies. This position is the ideal one and most M&A would like to be in this position as it

benefits both companies and allows the two companies to complement each other. Unfortunately,

this is not something that happens very often in M&A.

The fourth and final position is likely the worst outcome for the acquired firm as it means

the company is completely merged into the acquiring company and loses any sense of identity.

This is a quite common result of acquisitions and is because of the desire to keep the company

toward one vision. The vision of companies are different and thus these differing views can

create conflicts and identity crises within a company. The conflicts pose a threat to original

vision so they are reduced as much as possible, often times by eliminating people in the acquired

company. The result is that it is far easier to acquire a company and essentially dissolve it and

move the people and assets into current operations. This usually isn’t done overnight and takes

time to organize it, but it is the end goal.

Why do M&A’s fail?

Mergers and Acquisitions are sometimes small and simple but often times very large and

very complicated. It can mean the consolidation of thousands of people and billions of dollars in

assets and accounts. The biggest thing that people and businesses often look at when exploring a

merger is the financial aspect. Since money is the number one aspect to a business it also

happens to be focused on far more than any other part. The thought of how much profits could be

made by the combination of two companies in theory can often times overshadow flaws in the

idea. This focus could be a large factor in why roughly 70% of all M&A fail to deliver enough

performance gains to make M&As worth it, (Deutsch, et al., 2010). Due to this it must seem that

something is not being done right in M&A’s.


In 2004 McKinsey & Company published an article titled “Where mergers go wrong,”

(Christofferson, McNish, & Sias). This quite lengthy article went to explain that the failure of

M&A results in the overvaluations of the profitability of a merger. The overvaluations seem to

come from the lack of complete and accurate information on the company. Estimations are too

high for the lack of complete information. There are far too many assumptions made in regards

to the market and how customers will accept the new changes. In the article an example of an

acquisition between 2 banks in the United States was given. In it the two banks had a regional

overlap of branches. The assumption was that the closing of the now redundant branches

wouldn’t have a large effect on the customer retention rate. This assumption was wrong because

the acquired company’s customers in these regions tended to be heavy branch users. Thus, many

customers left because they didn’t have branch near them anymore. The biggest issue seems to

be that of a non-personalized approach to each and every M&A. As stated before, M&A are

extremely complicated prospects in business, for this reason many executives may skip proper

due diligence and take short cuts. Taking numbers from the averages of past M&A in order to

gauge how the two companies will synergize.

After the economic recession in 2008, many companies found themselves weakened and

vulnerable. This left them exposed to competitors that may not have been as weakened and had

enough capital. In figure 1.1 we can see how despite the recession, M&A didn’t slow down

much, only the values of them dropped. Whether this drop is from the reduction is value

companies at the time, a reduction in the capital available to companies wanting to acquire

others, or a combination of both is beyond the scope of this paper. However, the current business

climate seems to indicate that M&A’s are here to stay for the foreseeable future.


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Figure 1.1: M&A worldwide statistic (Institute for Mergers, Acquisitions and Aliances, n.d.)

In the aforementioned article “Where mergers go wrong”, (Christofferson, McNish, &

Sias, 2004), much of the focus was being put on financial and strategic misunderstandings. The

only hint to culture that was really brought in was that of bringing line managers into the

decision process. However, culture isn’t mentioned; in fact, not once is the word culture

mentioned anywhere in this article. This seems to indicate that the role and influence of culture is

a fairly new topic in M&A. A more recent report also issued by McKinsey & Company indicates

that culture has a much bigger effect than previously thought. In the report, Perspectives on

merger integration, (Deutsch, et al., 2010), culture has become more important. In fact, in this

more extensive report there are entire sections on assessing the cultural compatibility of two

organizations. According to McKinsey&Company, 92% of survey respondents admitted that past

mergers would have been substantially better had there been a greater cultural understanding

before the merger, (Deutsch, et al., 2010, p. 7). It is becoming more mainstream to list and focus

on culture as a major attribute in the integration of two companies.


In section 3, 2 case studies will be given and analyzed. The major focus of those cases

will be on culture, as is the purpose of this paper, however, it will show opposites approaches to

integration. One with a high focus and understanding on culture, (Volvo and Samsung) and one

with a low focus, (Compaq and DEC). The interesting thing about these two M&A’s is that the

one that worked, may have been seen as the one more likely to fail. The cultures were much

different and more challenges were made. The real reason behind the success and failure of these

probably has more to do with hasty assumptions being made. The failure of due diligence tends

to be the main reason why M&A fail, the reason for this lack of due diligence can be attributed to

many things that go outside the scope of this paper.

Cross Culture Communication and Organizational culture

The field of cross culture communication is a field widely popularized by Geert Hofstede

in his cultural dimension’s theory. The theory laid out the ground work for the field and allowed

it to gain popularity. Since the publication of the study in 1980 called Culture’s Consequences, he

has been cited over 5,000 times, (Orr & Hauser, 2008). In fact, up to 2002, it was the most cited

book in social sciences. This figure is only growing though as more and more interest goes into

the field. The simplicity of the theory is what made Hofstede’s work stand out from the rest.

While the scope and depth of the study was very important, for the non-academics, the simplicity

was the most important. This is quite important as we can see with theoretical physics and Albert

Einstein’s theory of relativity and the equation within it that is famously known as E = mc2. This

simplicity is what made his work powerful. However, unlike with theoretical physics, which is a

hard science, cross culture communication is a soft science and it is easy to miss attribute

theories.


Organizational Culture is a bit different and tends to play a larger role in the

incompatibility of companies. Every company possess some form of culture that is unique to

their organization. Every industry and sector tends to have a culture that goes along with it. Tech

companies tend to be lean to the more creative side and thus tend to have a more informal

atmosphere. The same cannot to be said for banks who would typically have a more formal and

hierarchal structure. The degrees to which these organizations have certain qualities is what

defines them.

Hofstede’s Dimensions.

The theory came out of a study done in the late 1960’s and early 1970’s that did a

worldwide survey of IBM employee values. The study was done by creating a survey that would

ask employees, in their native language, a series of attitude questions. In all, 117,000

questionnaires were administered in more than 60 different countries, (Orr & Hauser, 2008). The

idea for the survey was developed in the attempt to standardize questionnaires to remove

variability. The results of which culminated into him developing his dimensions in the late

1980’s and the publishing of his book in 1981, (Orr & Hauser, 2008; Hofstede, Hofstede, &

Minkov, 2010).

The original theory was comprised of 4 dimensions: individualism-collectivism,

uncertainty avoidance, power-distance and masculinity-femininity. Later, in 2001 a new

dimension was added in a new version of his Culture’s Consequences book called long term

orientation versus short term normative orientation (Hofstede, Hofstede, & Minkov, 2010). This

was updated again in 2010 with another edition of the book called Cultures and Organizations:

Software of the Mind. This newest and as of 2016, latest version of the book includes a 6th


dimension called Indulgence versus restraint, (Hofstede, Hofstede, & Minkov, 2010). These

dimensions will be shown and explained as follows:

Individualism-collectivism (IDV)

o This dimension attempts to show the relationship between an individual and the

collective. This can be best described as how independent individuals are within a

collective, (Hofstede, Hofstede, & Minkov, 2010).

Uncertainty Avoidance (UAI)

o This dimensions attempts to deal with the degree that people feel threatened by

ambiguous and unknown situations. These tend to manifest themselves by

planning for future events and the inability or fear in making decisions, (Orr &

Hauser, 2008).

Power Distance (PDI)

o This dimension deals with the degree of power distribution between a manager

and his/her subordinate. A high degree of separation between manager and

employee indicates a higher sense of prestige for higher positions, (Hofstede,

Hofstede, & Minkov, 2010).

Masculinity-Femininity (MAS)

o This dimension pits the genders as having their own traits. Masculine qualities

mean that someone is more assertive and supposed to be more concerned with

success, money, and things. Feminine qualities mean that someone is more

nurturing and therefore more concerned with caring for others and quality of life,

(Orr & Hauser, 2008).

Long term orientation v. short term normative orientation (LTO)


o This dimension categorizes a culture as traditional or non-traditional. Cultures

that tend to be more focused on maintaining traditional values and ideas would

have a more long-term orientation. Whereas cultures that focus on modern

education and the future have a short term normative orientation, (Hofstede,

Hofstede, & Minkov, 2010).

Indulgence v. Restraint (IND)

o How capable an individual and a society is able to delay instant gratification. This

can be seen in how impulsive a culture may be and also in such instances of

delaying sexual desires because of the more religious nature of the social norms,

(Hofstede, Hofstede, & Minkov, 2010).

Cross Culture Communication in Today’s World.

Cross culture communication is a growing field, as will be seen in the next section, in

relation to M&A, it is something that is relatively new. It has only been from the popularization

by Hofstede that it has become a major focus. Now it is study that is beginning to be focused on

more due to its applications in market research, linguistics, and now, M&A. With the world

becoming smaller and the requirement of having to deal with different cultures on a day to day

basis going up, the field is becoming more popular. This has spurred universities to start

incorporating classes related to cross culture communication into many degrees, especially those

containing soft sciences.

Varying degrees of culture

There is a large variation in the ways that cultures vary between each other. What may be

kosher in Poland may not work in Italy and vice versa. Due to this, analysis have to be made in

order to understand why they don’t work and what will work. There have been a few studies


done comparing different cultures to understand the differences. Often times the difficulties

come in the fact that there are many variables. This is one of the problems that plagues

Hofstede’s study done at IBM. The study could arguably only apply to IBM in the early 1970’s,

the fact that the study was done with IBM employees gives room of bias. IBM at this time had a

male dominated work force, (Orr & Hauser, 2008). This presents a certain bias to men.

Furthermore, the study started 50 years ago, many things have changed since then. Cultures are

not stagnant and even more traditional cultures will evolve and change overtime. People that

would be working for IBM now would have grown up and participate heavily in the information

age. This can mean that they may have different values and ideas than their parents who would

have been working at IBM in the early 1970’s. What this points to is that culture is always in a

state of flux and change and thus to have an accurate idea of the culture of a particular group of

people, you should analyze that group as close to the time and place as when and where you plan

to apply it.

When it comes to trying to work with and integrate different cultures, knowledge of what

makes both cultures tick is critical. A German having to work with a Spaniard could prove to be

difficult if both are stuck in a room together and forced to work together. German people are

known for the punctuality while Spaniards tend to put less emphasis on punctuality, (Dunkel &

Meierewert, 2004). The same could be shown in how the Spaniard may try and be quite close

both physically and emotionally with the German which would make the German uncomfortable.

Also, vice versa, the Spaniard may think that the distance the German is giving to him/her is

hostile, (Dunkel & Meierewert, 2004).

It is these fundamental differences between cultures that becomes a big issue for

companies looking to integrate. However, the limitations of the study that Dunkel & Meierewert,


(Culture standards and their impact on teamwork: An, 2004, p. 24), has is that it may not fit the

demographics that a company is looking for. If an engineering company is looking at how to

integrate two groups from different countries, engineers will have a different sub culture than the

average of the rest of the population. It can go even further that two engineering firms can differ

greatly, even in the same country. This is something that will been seen with the case study

around the acquisition of DEC by Compaq in section 3.

Organizational Culture

Organizational culture is varied widely across industries and even can vary quite a bit

within industries. This variation is what defines each company and potentially makes them

incompatible with each other. Organizational culture isn’t always created on purpose. Often

times it creates itself through the way that the employees interacted with each other. When

looking at many of the IT companies today, they tend to be more informal and have a relaxed in

open atmosphere (supposedly). Much of this might stem from 2 main things, the first being that

to start a software company only requires filing the appropriate legal papers and a computer and

knowledge. This is different than a bank, manufacturer, oil company or similar in that no

extensive investment is needed. Thus, a lot of the big IT companies today started out by students

in college (Facebook, (Phillips, 2007)), or in a garage (Apple, (Rawlinson, 16)). The company

builds up from there as more programmers are hired and the culture continues to be more

relaxed. The other aspect is that coding tends to be a creative task with long hours and so being

comfortable tends to increase productivity. Similar roots can be found in other industries for why

they may be more formal, hierarchal, etc.


Organizational Culture Basics

Organizational culture can be broken down into 3 main levels that help to define a

culture. The first is Artefacts and Creations, these tend to be leftovers from the past that

represent where the company has come from, and the symbols, stories, and norms that goes on in

day to day operations, (Rollinson, Broadfield, & Edwards, 1998). The second level is Values

and Beliefs, the way that the internal structure of the company works is based off of this,

(Rollinson, Broadfield, & Edwards, 1998). This level tends to be deeper in the organization and

harder to change. The third level is Basic Assumptions, this is the deepest level of the

organization and is based on how the company can compete, how employees are respected, etc,

(Rollinson, Broadfield, & Edwards, 1998). These three levels attempt to describe the company in

terms of its culture. Knowing the full extent of these three levels will help an outside understand

the true working environment in the company.

These layers are all interconnected and can build off of each other. Taking each separately

does not work as it inevitably loses the connections it has with other aspects. All three layers are

important for an Acquiring company to find out and understand. The inner most layer, basic

assumptions, may be quite difficult to get to and may also provide the most difficulties for an

acquiring firm.

Artifiacts and Creations

Values and Beliefs

Basic Assumptions

Figure 2.1: Schein’s layered conceptualization of culture


Artifacts and Creations

This is the outermost level of culture within an organization. They can be found in online

through the company website, articles that talk about it, etc. This layer is the most public and

outward facing. For an acquiring company, this is may be the easier attribute to change. It is built

up of the norms, language, symbols, rites and ceremonies, myths and stories, and taboos that are

prevalent in the company. This typically describes how people dress, what the offices look like,

the stories that its employees tell about the company and how workers communicate, (Rollinson,

Broadfield, & Edwards, 1998, pp. 534-535).

Values and Beliefs

The second level is values and beliefs, these are more hidden and are likely to be seen

when communicating with employees and looking deeper into the interactions that employees

have with each other. Values and beliefs are the conscious policies that the company and workers

hold. An open door policy would be an example of this as it tends to show a more open and

honest culture. Employees that choose to stay a bit later to finish their work are also indicators of

this. There is an important consideration to this in that companies may put forth an ethical and

moral code stating that they are for fair promotion and opportunities, but may still play favorites

in reality, (Rollinson, Broadfield, & Edwards, 1998, pp. 534-535).

Basic Assumptions

Basic assumptions lie at the roots of the organization and show the true culture of the

company. These tend to be very deep and may only be found out through extensive research into

the company workings. This aspect shows how good employees are respected and treated.

Whether is there it is a high-pressure and competitive working environment, and how hierarchal

the structure is, (Rollinson, Broadfield, & Edwards, 1998, pp. 534-535). This also shows the


ability of the company to compete. If a company is very laid back and relaxed with not much

incentives to work, then their competitiveness may be weakened. The same goes if they play too

much favorites when hiring and promoting as it could turn into a ‘good ole boys club’ where

those in the group are promoted and those that aren’t will not be, regardless of skill or

achievements.

Organizational Change

The reason for change can be varied and extensive. A change in the financial situation of

the company can result in an increase of pressure within the company, (Rollinson, Broadfield, &

Edwards, 1998, p. 605). At the same time, it can lead to a company becoming more competitive

if they were too lethargic before. Change isn’t always bad, and for some companies a change can

be good. This is something that some former Samsung employees will find out in section 3.

Increased competition will do much the same thing as a change in the financial situation of the

company. New technology can heavily change the culture of company depending on the industry.

Automotive went through a heavy change after robots began doing much of the heavy and

dangerous work. The same with bottling plants which are typically now void of employees other

than supervisors. This isn’t just on factory level though. VoIP and other IT related systems has

made interactions easier and made work more streamlined. All of these go to influencing the

culture of a company. In addition, work-force diversity, (Rollinson, Broadfield, & Edwards,

1998, p. 608), can change the culture also. As new employees are added from other countries, or

regions, or genders it can change what is prioritized and what is talked about in the company.

There are two types of organization change, proactive change and reactive change.

Reactive was covered above as culture changes from the addition of external forces. Proactive is

what is more vital to companies looking to proceed into an M&A. Purposeful culture change is


not easy but can be effective if done right. The most important piece, and also the biggest

difficulty, is the employee’s opinions on the change in culture, (Rollinson, Broadfield, &

Edwards, 1998, p. 609). Strong resistance to change can be met with change in culture that was

not wanted and may be toxic.

Chapter 2: Combining M&A with Organizational and National Cultures

Failing M&A and Culture’s effect

It is difficult to pinpoint one reason for the failure of M&A because the reality is that

there are many reasons. Over estimating the synergies that will result from the M&A is usually

the culprit. One of the biggest factors overlooked is that of cultural synergies. Culture is often

times looked at as the differences between regions and countries. The importance of culture

within each company is equally important. In fact, sometimes it can play a bigger role in the

ability for 2 companies to synergize than the differences between national cultures.

In 1994, British Aerospace (BAe), was facing financial difficulties, due to this BAe sold

Rover to the German BMW for £800 million, (Whiteley, 2012). BMW was looking for a

company to buy in order to speed up their 4-wheel drive production and expand into different

markets. Rover fulfilled the requirements they had. What happened afterwards is what hurt

BMW and may have allowed companies like Audi to gain market share on them. BMW focused

more on being able to buy 4-wheel drive technology rather than having to go for the costlier

venture of developing it themselves. What resulted was a lack of an integration process. When

BMW did finally begin integrating Rover into BMW, there was a clash of cultures. BMW was/is

ran very forward and strict. The same cannot be said about Rover, who was more relaxed and

less forward, (Dhar, 2013). Also there was a lack of communication with middle managers and

engineers between BMW and Rover because of the language barriers. This delayed the


integration process further and frustrated employees as there was little communication between

the lower level employees of the two respective companies.

Ignoring Cultural Differences

Culture has been shown so far to be a very important consideration when a business is

exploring an M&A. So then why does it seem to be so problematic for companies to look into it

more? The biggest issue is likely due to cost and time, which since time often time is equal to

money, it comes down to money. Some cultural aspects can be easily seen, when entering into a

corporate HQ certain signs can be seen that can hint at the type of culture and its strength. For

example, when walking into many of the big tech companies in Silicon Valley, California the

layouts tend to be open, modern with a relaxed feel. Many of the developer stations may be open

with low or no cubical walls, lots of shared open space and even recreations rooms. A strict dress

code is not enforced or implemented. Google is famous for this for having gaming rooms where

employees can go and play games there while at work. However, it is likely that if you play

games and slack off too much and let your work fall behind then you will be cut. This describes

an open and relaxed working environment, likely to encourage and breed creativity. On the flip

side you have financial institutions in New York City. These typically have much less recreation

style rooms, they tend to be less open and are stricter. Work attire is at minimum business casual,

and everyone is usually required to be clean shaven and professional. However, this only

describes a part of business culture.

It takes an in-depth analysis to see the hidden details of corporate culture. What was

described above is only a generalization of what happens in some companies in a specific area,

in 2 industries. Even then, it only looks at the surface culture. The underlying culture takes

longer to see. These cultures can be fast paced/high pressure or relaxed and everything in-


between. To find out how a company is, it takes inside information and close studying of the

business environment. Simply asking people may only show extremes as many employees may

not know any different. This is what makes having a well-rounded understanding of the culture

of a prospective M&A expensive and time consuming.

Time becomes a difficult issue, especially for the CEO’s that are usually pushing for an

M&A. The average Fortune 500 CEO lasts only 4.6 years, (Brookmire, 2011), while the average

CEO of companies on and off the Fortune 500 is still only 8.1 years, (Schaefer, 2012). This

becomes tricky for CEO’s that spend too much time ensuring the deal is perfect. Since some

CEOs receive direct cash rewards for completing an M&A, (Grinstein & Hribar, 2003). As

Grinstein and Hribar found out (2003), 39% of CEOs in 327 M&As received cash rewards for

completing an M&A regardless of how much value was added, even if it was negative value.

This comes to implicate another reason why CEOs and even the board of directors for companies

may ignore some of the problems with a potential M&A.

For some companies, the board of directors and CEOs stand to lose hundreds of

thousands, if not millions of dollars if an M&A doesn’t go through. This hints at the idea that

some top level managers may ignore some problems because of the potential personal pay offs.

This is compounded by the fact that CEO positions tend to be short lived means they have much

more pressure to make an M&A work, even if it may be not in the company’s best interest. Much

of these rewards depend on the power of the CEO. The more powerful a CEO is (whether or not

he/she is also the head of the board of directors) the greater the compensation is for the CEO and

for the board members, (Grinstein & Hribar, 2003). The fact that this compensation comes in the

form of cash, instead of stock or a mixture, tends to argue further for the idea the CEO/Board is

less concerned about their personal gains from an M&A.


Despite the potential implications of the previous paragraphs, some M&As may have

good intentions and fail because of numerous reasons. Some M&As have failed because the

companies found themselves locked in an industry or segment and due to customer perceptions

and costs, expanding into another segment without an M&A would be extremely risky and

prohibitively expensive. Others underestimated the differences that two company’s (in the same

industry and segment) internal cultures can have, thus resulting in clash of cultures. A perfect

example of this is with BMW and Rover mentioned above. Further, companies can run into

issues that were truly unforeseen because of market changes that disrupts the acquired firm’s

profits. Some of the reasons will be looked at and seen in further cases in later sections.

Domestic vs International M&A

Domestic and International M&A are two different, however quite similar animals.

Domestic M&A are representing an increasingly smaller part of M&A. As Noelia-Sarah

Reynolds and Satu Teerikangas mention in their article “The international experience in domestic

mergers – Are purely domestic M&A a myth?”, (2016), the purely domestic M&A may not be

something very frequent anymore. There are not many large companies anymore that are purely

domestic, while M&A do happen between smaller and medium sized companies, they tend to be

easier to manage as is expected when less people are involved in the process. Due to this

increasingly international presence in large and even small companies, providing a clear

distinction between domestic and international M&A may prove difficult. What was classified as

a domestic merger, (Reynolds & Teerikangas, 2016), actually had a bit of an international quality

to it. Two telecom companies were both based in the UK, however their parent companies where

international and sectioned the merger to allow the companies to compete against other


international firms. This seems to indicate that even though two companies are based within the

same country, does not mean that international pressures and factors do not play a role.

If the distinctions were made that international M&A are M&As that consist of simply

two companies that engage in an M&A when those two companies are based in different

countries. Domestic would be when two companies engage in an M&A when both companies are

based in the same country. Then only some of the factors are being considered when it comes to

M&A. While sometimes simplifying a problem and getting rid of something that is needlessly

complex is important for understand how something works. M&A are different because they are

very complex, in some part being because of culture’s inclusion. The more international aspects

that are added to an M&A, the more complicated it is due to different and more varying

culture/laws, the more likely it is to fail because of these reasons. Unlike law, however, culture

isn’t written down, in fact it varies from region to region, country to country, and even town to

town. If the variation in company culture is added to this, it can make for a very daunting task in

order to accurately understand the cultural hurdles that will have to be passed in order to ensure a

successful M&A. The more domestic an M&A is, the less complicated the national culture is to

understand.

Culture is not just the national culture, but more importantly the business culture of each

individual industry/company. Due to this, the distinction between international and domestic

M&A, in terms of culture, should be very little. When considering an M&A, the focus should be

on internal company culture rather than international culture. International culture effects internal

company culture and should be considered, however the industry and individual company can

vary wildly in this. International M&A will have a more extensive cultural analysis than


domestic because the variables change, but the end result should be finding out the internal

culture of the potential acquisition or merger.

Organizational Culture and Identity

An organizations culture can be strong or weak, flexible or in flexible, very different

from the industry norm or very similar. The point is that no two companies are alike in terms of

culture, much like no two people can agree on absolutely everything. Industries tend to have a

bias that influences company culture one way or another. A company in the banking sector could

be open and less formal, compared to its average, but it may not be as open and informal as a

tech sector company. Figure 3.1: Indicating the possible differences and similarities between

industries in terms of culture, shows the potential overlapping of cultures between industries.

While the graph is not based upon any hard data, it is designed to show that between industries

the organizational culture can be similar, even with seemingly opposite industries. What the

graph hypotheses, but cannot be put into a visual so easy is that this only one layer of 2 semi

related cultural paradigms. There are many different layers that may show a different graph, with

a different overlap. Even still, it only shows that as general idea, across nationalities. This

grouping may be in a different part of the graph depending on the country. For example, A

company in Indonesia will be more hierarchical than its Australian counterpart, (Jones, 2007).

Thus for Indonesia, this graph would be shifted more upwards than an Australian one. There may

even be more shifts in particular industries than in others depending on the country.

An Organizations culture is extremely important to the types of people that are involved

in it and the type of industry they are in. The openness and informal characteristic of tech

companies is often times quite important for gaining good developers and programmers as it

requires creativity. On the other hand, you have companies in the financial sector that may not be


so open and informal because it isn’t about creativity. Understanding the industry is vital for

beginning to understand an individual companies culture within an industry.

Organizational culture isn’t always planned though, and may develop from a case of bad

management implementing poor policies overtime. An example of this is with Mamoré

Mineração e Metalurgia Inc (MMM), (Jordao, Souza, & Avelar, 2014). The group that owned the

company had given up on the company and assumed that it couldn’t grow much more. What

resulted was that the company grew into a very controlling culture that neglected necessary

consistent monitoring and control of its activities. These managerial choices resulted in the

company’s activities costing more money than would need to be. When FASA Participações

HIE

RA

RC

HC

IAL

INFORMAL

Hierarchical vs Informal Culture

Utilities

Consumer discretionary

Technology Industrials

Financial

Figure 2.1: Indicating the possible differences and similarities between industries in terms of culture, (S&P

Dow Jones Indices, 2016)


Group (FPG), decided to buy MMM, this issue was addressed by the CEO by changing the

culture to match theirs and become more efficient, (Jordao, Souza, & Avelar, 2014). It took time

and effort, but eventually the business was made more profitable, long term. In this case, FPG

may have had an advantage in that the employees of MMM felt like they were on a sinking ship.

The balances of the company weren’t turning out well and likely budgets might have been

decreasing and thus putting more pressure on employees and managers to make things work. As

a result of these difficulties, when new ownership implements changes to make the company

more self-sustaining, it can be perceived as good for job security. This is evidenced by the fact

that “control culture implemented by the FPG CEO has given the employees a feeling of

integration.” (Jordao, Souza, & Avelar, 2014).

Some companies are not so easy to turn around though. Some cultures can be extremely

loyal, and thus their employees are very loyal. Later in this paper the case study of Volvo Groups

purchasing of Samsung Construction Equipment will be looked into. This case study brings out

an example of a company where employees are very loyal to their company. Samsung is a very

prestigious and highly sought after company to work for in South Korea. Due to this, Volvo

Group encountered issues when trying to keep to employees happy with the cultural and identity

changes that were going on, (Lee, Kim, & Park, 2014).

What can be changed to fix it?

Culture is incredibly complex and not exact. So many factors go into it that simply asking

people, “what is your culture?” will not tell you very much about the true culture. It takes

questionnaires and studies to give an idea of what qualities a culture has. Even then this isn’t

exact because every person/department/company/city/region is different. Reading a case study on

BMW and Rover will only tell you the cultures of those companies at that time. It doesn’t mean


that all German or British companies will be that way, or that BMW will have the same

characteristics in its culture now or in 5 years. Culture is always changing in countries and in

industries, now more than ever thanks to an ever growing Globalization. Company languages are

changing, the speed at which they work, and the countries that they have operations in are

increasing. Because of this, understanding a company’s internal culture is becoming more

difficult and met on a case by case basis.

There is no fix to making M&As always successful, in fact for many M&As, the fix may

be not engaging in the M&A in the first place. That is the most difficult part about avoiding a

potentially dangerous M&A because it means ignoring the potential financial and market share

gains. This is also why M&As still happen regularly and still fail regularly. BMW and Rover is a

perfect example of this. They wanted to save money by buying 4wd technology and production

rather than developing it on their own for a much higher price. The result is that they lost market

share for this. A similar thing will be shown with Daimler-Chrysler in the case studies. A change

in the mentality and in the way leadership are compensated may be a potential fix to this. CEOs

that receive direct cash rewards for the completion of an M&A may choose quantity over quality

in terms of M&A. The short life spans of CEOs also mean they have less time to fiddle over

culture and may be more willing to take a shot at an M&A under the premise “something is

better than nothing”.

However, it is not all dark and gloomy in the world of M&A. While globalization has

made M&A’s more complex and wide spread. It has also begun to change things in terms of

corporate culture. Throughout this paper the idea of different cultures having difficulty

combining has been the major focus. While this is true, and still is very present when talking

about M&A statistically in today’s world. The future may be different. As globalization occurs,


cultures become more and more intertwined and intermixed which blurs the division between

them. Thus, the stark differences in cultures has and is becoming less and less, and thus making

integrations easier. The focus is turning away from national cultures and moving more into

working culture, (Barber, 1992). National cultures are becoming more marginalized which is

allowing for organizational cultures to become more similar. As this expands it will make the

M&A process easier.

Chapter 3: Case studies

Three M&A’s: The Good, The Bad, and The Ugly

In this section, three case studies will be looked at and analysed within the context of this

paper. The first will be between Volvo Group and Samsung construction equipment. This case

will represent a successful cross-border acquisition where Volvo attempted to improve its

products by buying a competitor. The next will be Between Compaq and Digital Equipment

Corporation. This case shows an example of a domestic case where culture clashes aided in the

downfall of Compaq. The final case study will be between Chrysler and Daimler. This case will

analysis how 2 major auto manufactures attempted to merge to widen their market share.

All three cases are meant to show the mentalities going into these M&As. All of them had

good intentions, but the cultural clashes proved to be too much for the companies to manage the

transition. More importantly though, what was done right and wrong will show that due diligence

in ensuring that culture could be meshed or changed of the merging/acquired companies was

either detrimental, or beneficial for the companies. In Daimler-Chrysler’s case, sales were

improved, but other forces prevented the success of it.


The Good: Volvo and Samsung

Volvo is a Swedish company that is famous for selling upper end cars to compete with the

likes of BMW and Mercedes. However, this is not the biggest industry for them, in fact Volvo

Group sold off its passenger car business to put more focus into commercial vehicles, like Volvo

Construction Equipment (VCE). Demand for commercial vehicles was going up in the mid

1990’s and Volvo needed a change. While they could compete with the likes of Brunswick, Cat,

and CNH, (Volvo Group, 2011), they lacked the quality in order to excel in the market, (Lee,

Kim, & Park, 2014, p. 586). In particular, it was problems with their excavators in that they were

too heavy and slow while also being more expensive than the competition. The answer that

Volvo came up with to solve their issue was to buy by Samsung Construction Equipment (SCE),

a company under the Samsung group. They had superior excavating equipment and would

provide a strong platform to grab market share quickly. Samsung was opposed at first, but thanks

the Asian financial crises and resulting restructuring at Samsung Group, a deal was made. July

1st, 1998 was when the agreement took effect for a total of $572 million.

Changes and immediate effects

The greatest cause of conflict was as a result of a new Human Resource Management

(HRM) policy, (Lee, Kim, & Park, 2014, p. 586). This policy changed the way that Samsung

Heavy Industry (SHI) was structured. It removed much of the hierarchical structure and made it

far more flat. Instead of having 10 different titles indicating seniority and hierarchical status, the

new HRM policy meant only 3, (Lee, Kim, & Park, 2014, p. 586). While this was designed to

have employees focus more on their job and less on their title, it meant that many former

managers were no longer managers. Going along with this was that pay and promotion was

linked to seniority with no individual negotiations. This was seen as ineffective by VCE and


changed so that promotion and pay were linked to performance. The introduction of bonuses was

implemented that were also linked to performance and to further incentivise employees focus on

their job and less on their title. Due to this flattening, many former managers were no longer

managers, (Lee, Kim, & Park, 2014, p. 587). They lost their seniority and non-performance

based pay. Some were very unhappy this and became disillusioned to the new owners.

Furthermore, in SHI the community was more important than the individual, while this was still

emphasized in VCE, it wasn’t in the same way. Employees were required to identify themselves

with their position rather than their group, as they were used to.

SHI had a career development program that provided in-house trainings that were lost

after the acquisition and caused employees to feel they were being exploited, (Lee, Kim, & Park,

2014, p. 586). Along the same lines, Samsung is quite a prestigious company to work for in

South Korea, after the acquisition, employees felt less connected to Volvo and loyalty decreased,

(Lee, Kim, & Park, 2014, p. 587). Some Korean interviews from the study stated that “Now, we

are working here only to make money.” (Lee, Kim, & Park, 2014, p. 587), in reference to the

acquisition. Employees felt less valued because of the lack of employee benefits, and in turn

made them less loyal.

The power distance was reduced as VCE took over. Employees were able to freely

communicate with executives where in SHI that was not allowed. The work environment became

less formal and needless formalities were reduced. A worker’s union was allowed to be created

by the employees that previously had been forbidden by Samsung, (Lee, Kim, & Park, 2014, pp.

586-587). In addition to this, extra “fluff” was eliminated that was a part of SHI and South

Korean Culture as a whole, (The Economist, 2015). In South Korean culture the idea of always

appearing busy was quite important at least at this time. So often times employees would do


“busy work” that had no real purpose, but made them look busy. Furthermore, there were some

responsibilities that were apart of day to day operations, but no one was strictly responsible for.

These previously were done by whoever got their work done first. After VCE took over

employees weren’t required to stay after their work was finished. This eventually meant that

these small jobs weren’t being finished. This would represent an unforeseeable side-effect of the

change in culture. While minor, it represents many more things that would be near impossible to

see without running an extensive analysis on the inner workings of the company.

Korea Sales Company (KSC) was part of SHI and handled all of the sales and marketing

for both international and domestic markets, (Lee, Kim, & Park, 2014, p. 587). After the

acquisition they were delegated to just the Korean market. This was met with a lot of hostility

from KSC employees who were now on performance based pay, but also was not allowed access

to international markets. This coupled with the loss of corporate identity and perceived less value

in the company made them the most critical segment of SHI to the acquisition. Even given all of

this, the employees didn’t slow down and attitudes didn’t change in a noticeable way, (Lee, Kim,

& Park, 2014, p. 587).

In addition to all of this, VCE also felt that SHI was too slow paced for the international

market. Pressure was put on SHI employees to pick up the pace and speed up their work

processes, (Lee, Kim, & Park, 2014, p. 587). While on the other hand SHI employees felt the

opposite, that the work that VCE was demanding was too fast paced. However, with other

changes in the HRM policy, it helped make this faster pace feasible.

End Results of the changes

Much of the changes that VCE proposed were based around the idea of making SHI more

competitive both domestically, but also internationally. Many of their changes like that of “fluff


work” and performance based pay were actually implemented by other Korean Companies and

even Samsung shortly after the acquisition, (The Economist, 2015). This was evident to some of

the interviewees that didn’t work for SHI before the merger. They found the change to be helpful

when compared to Samsung’s former corporate culture, (Lee, Kim, & Park, 2014, p. 588). The

idea being that Samsung’s corporate culture was too complicated and the new one that was

implemented by the HRM fixed much of this. At the same time these employees also realised

that what VCE wanted to do was quite strange for Korean culture.

The new Korean recruits that were hired after the acquisition tended to be neutral to the

organizational culture. Without prior experience in SHI, they didn’t have the same organizational

culture standards that were prevalent with the SHI employees. There were high levels of

resistance towards the proposed changes by SHI employees, even to the point that the new

recruits were recommended, by SHI employees, to quit a find a job elsewhere. This was the

attitude immediately after the acquisition.

VCEK (Volvo Construction Equipment Korea) from 1999 to 2011 showed a total revenue

gain of 7 times, (Lee, Kim, & Park, 2014, p. 588). Despite the heavy resistance at the time of the

acquisition, there was little disapproval in 2011. Many employees were happy about the success

and changes in the end. Much of this was as a result in changes in the way that the company was

being structured. In the beginning a Volvo executive was sent to Korea to run SHI, this was met

with criticism from SHI employees. In 2009 an internal manager was promoted to be CEO of

VCEK, (Lee, Kim, & Park, 2014). Heavy investment along with a restructuring of the

departments led to a more sensible organizational structure. All of the demands by the union

were met including the continuation of “Hobongje” which is a seniority based pay, (Lee, Kim, &


Park, 2014). After the new Korean CEO was instituted VCEK was left more autonomous and

allowed to work independently as long as profits were created.

Attitudes changed over time as some of the benefits that SHI had were overshadowed by

the benefits they have at VCEK. One of these was the elimination of career development

programs, this was frowned upon by employees. However, it fixed itself for most employees

because they found they had more time for themselves under VCEK than under SHI and so could

learn new skills on their own, (Lee, Kim, & Park, 2014, p. 589). The same attitude change cannot

be said for all of the new employees at VCEK. Many found that Volvo allowed the company to

work independently and thus allowed employees to do as they want rather than become more a

part of the Volvo culture. Where other companies may heavily force their corporate culture on to

an acquired company, Volvo didn’t, (Lee, Kim, & Park, 2014). The problem with this that the

two companies are not as interconnected. VCEK acts as a Korean company that is giving its

profits to Volvo, instead of a part of Volvo. There is a definite disconnect in the cultures and the

distance (not just geographically) between the parent company and subsidiary.

Conclusion of the Case study

VCE managed to buy SHI from Samsung which was unprecedented at the time. They

also managed to beat the odds and didn’t end up having a failed acquisition. Volvo profited

heavily off of the acquisition and managed to set themselves up for continued competitiveness

over the foreseeable future. They were facing a crisis in their company because their products

were no longer effective, they had to change and did so by buying the solution. The cultures were

quite different from each other, not only in organizational culture, but also in national cultures.

This meant a deep divide between the cultures and lots of resistance to any changes. Volvo’s

eventual answer to this resistance was to come to compromise. Some changes would come into


effect like structure changes, work hours, and giving up career development programs. Some

things were left as they were like with sonority based pay, and appointing a Korean CEO. The

result of this is that many changes to make VCEK more in line with VCE were slowed down.

Both companies work well, but they are not of one homogenous organizational culture.

The Bad: Chrysler and Daimler

In M&As, mergers are quite rare. Most companies aren’t looking to merge and lose some

of their identity. Two companies must come to a consensus that they want to combine to improve

both of their companies. This case, between Chrysler and Daimler, is an example of a merger.

These two companies came together to solve some of their individual issues in the hope that it

would produce good enough synergies to compete with the likes of Volkswagen, General Motors,

and Toyota.

One of the purposes of this paper was to investigate why M&As fail, part of that reason

can be summed up when we look into the reason why two companies decided to merge. For

Daimler-Benz and Chrysler, it was that core parts of the companies would mesh and complement

each other. Complimenting supplier networks and brand portfolios shows a potential for a large

uptick in the combined market share, (Deresky, 2008). Regulations in the U.S. and regulations in

the EU meant that a merger may be the best ways for both companies to continue taking market

share in each other’s countries/regions. They had supply chains and value chains that could be

combined and streamlined that would allow both to benefit in all their markets.

Being that the end of the Cold War was somewhat recent, Chrysler saw an opportunity to

capitalize on Daimlers supply chains and dealers to enter and expand into the post-Soviet Union

countries, (Deresky, 2008, p. 328). Getting involved into these countries soon could allow them

to build up a customer base as these economies built up.


Daimler-Benz

Daimler-Benz is a luxury car manufacture that has a near cult following all around the

world. They had positioned themselves to be the primo of luxury automakers. Many people grew

up and saw a Mercedes Benz as the ultimate sign of success. Despite this position, Daimler-Benz

was struggling with having a narrow market segment. Mercedes is and was a luxury car and thus

had a high sticker price. Not many people could afford it. This means a small market share for

Mercedes. They could offer cheaper cars, but this would likely lower the value of the brand and

make it less luxury. On the other hand, they could create a separate company that would produce

cheaper cars under a different name, but this would take many years before any sort of gain

could be found. Therefore, the next best option was an M&A.

Before the Merger in 1997, Daimler-Benz was earning about $71.293 billion, (Daimler-

Benz, 1998, p. 68; Marcuse, 2005). They had a profit of $4.6 billion, (Daimler-Benz, 1998, p. 68;

Marcuse, 2005) and were doing quite well in their market segment. At this point Fortune had

rated Daimler-Benz as number 17 on the Global 500 ranking in 1998. Typically companies in the

European Union were discouraged from mergers by regulatory agiencies, (Deresky, 2008).

Foreign Direct Investment barriers were in place to reduce EU companies from sending money

outside the EU. However, Daimler-Benz is the one that approached Chrysler for the deal.

Differences in cultures

As the merger went into effect, many changes were done in order to mesh the two

companies together. The first was creating one headquarters in Stuttgart, Germany. This resulted

in many Chrysler executives being moved to Germany to work. This created a lot of resentment

from these workers as they had to uproot their families, homes, and way of life for the merger,

(Deresky, 2008, p. 329). Further these same workers were not on equal terms with their German


counterparts and further resentment came from the dominance that they had in the work place.

This is despite the fact that during negotiations, both sides agreed that this was a “merger of

equals”, (Badrtalei & Bates, 2007). To make matters worse, there were language issues prevalent

also that made assimilation difficult. However, it wasn’t all on the side of the Americans as the

Germans were disapproving of the much higher salaries that the American executives had,

(Deresky, 2008, p. 329).

These issues led to many disagreements and shakeups on how things should be ran. A

joint vision was difficult to build when the German counterparts had a dominance over the

Americans. This lead to issues all the way down the chain that created mix-ups in production,

branding, and strategies, (Deresky, 2008, p. 329). This presented many issues to actually get the

two companies to create synergies and most of it came down to cross cultural issues.

Organization wise, the problems were just as big, if not bigger. The CEO of Chrysler,

Bob Eaton, made around $4.6 million plus $5.2m in stock options. In contrast, Jurgen Schrempp,

the chairman of Daimler-Benz received $1.5-2 million, (Badrtalei & Bates, 2007, p. 309). This is

a big contrast and was prevalent to more than just the CEO of the company. Thus causing

multiple conflicts that needed to be resolved. In addition, while a seemingly minor issue,

business travel became a big issue and resulted in a six months’ conflict to resolve. Daimler-

Benz employees always flew first-class in keeping with their image. However, at Chrysler only

top officers were allowed this privilege.

Daimler-Benz was a hierarchical and formal company that valued a structured decision

making process with a suit and tie dress code, (Badrtalei & Bates, 2007, p. 309). The same

cannot be said for Chrysler that instead valued a casual working atmosphere with very little

barriers between teams. Teams were encouraged to work together to solve issues and discuss


fixes, (Badrtalei & Bates, 2007, p. 309). Decisions in Daimler was made by the top of the

hierarchy and then they were fixed. The proper channels had to be used for a decision to be

made. Therefore, lower managers had little power to change anything. With Chrysler, big

decisions were handled by top management and smaller decisions were handled more by lower

managers. Changes could be implemented without executive approval in many cases, (Badrtalei

& Bates, 2007).

Changes and effects

The resulting changes to organization hinted at a more Mercedes dominance rather than

an equal partnership. The chairman of the new Daimler-Chrysler, Jergen Schrempp, reduced the

leadership of the company by eliminating several senior executives, (Badrtalei & Bates, 2007, p.

310). These executives tended to be ones that threatened Schrempps dominance like that of

Thomas Stallkamp who was managing the integration and was widely respected by the Chrysler

team. The board was reduced to 13 from 17, which resulted in only 5 Americans and 8 Germans,

furthering the dominance Daimler was trying to achieve in the merger, (Badrtalei & Bates, 2007,

p. 310). After the first year, just a third of the Chrysler executives were still apart of Daimler-

Chrysler. After Thomas Stallkamp was fired, James Holden was promoted to President of

Chrysler and only made it 13 months before being fired. This was after a loss was reported in the

third quarter of 2000, (The Economist, 2000). This went counter to Schrempp’s claims that there

would be a recover in the fourth quarter. Schrempp stated that the firing was due to cultural

differences rather than financial performance, (Badrtalei & Bates, 2007, p. 311). After this many

executives left the company that were a part of the design departments. The new lead for

Chrysler was Dieter Zetsche who was a Daimler executive. Most of the top executives from

Chrysler by this point had been fired or quit, now the Chrysler division was ran by a Daimler


executive and DaimlerChrysler was mostly led by Daimler executives, (Badrtalei & Bates,

2007).

There was a disconnect on what the future was for DaimlerChrysler. Schrempp wanted to

focus on emerging markets and put less effort into the European and U.S. markets, (Badrtalei &

Bates, 2007, p. 310). The idea was to focus on smaller and more affordable cars that would be

more successful than the large sedans that Chrysler produced or the large and expensive sedans

from Daimler. Bob Eaton, former chairman of Chrysler, disagreed with this approach. However,

his voice wasn’t large enough to change Schrempp’s mind and so in early 2000, DaimlerChrysler

bought 34% of Mitsubishi and 10% of Hyundai. With this idea, the Chrysler 300 project was

halted. This line of thinking changed Chrysler’s competitive advantage they had in the market by

bringing cars quickly into the market, (Badrtalei & Bates, 2007, p. 311).

After the shake ups in management for the first couple of years, DaimlerChrysler finally

started to show signs of becoming one company. When the 300 sedan project was brought back

into development it was designed using a large amount of Mercedes components. The same with

other cars in Chryslers portfolio, (Badrtalei & Bates, 2007, p. 312). By 2004 the company was

finally making a profit again, this was after 6 factories, and 26,000 jobs were eliminated,

(Badrtalei & Bates, 2007, p. 311).

To Chrysler, they felt they couldn’t have completed the 300 sedan project without

Daimler and thus the merger was at least helpful. However, the feeling wasn’t mutual. Daimler

suffered a brain drain after much of their leadership was focusing their attention of Chrysler,

(Badrtalei & Bates, 2007, p. 312). This drain hurt Daimler as much of the best leadership focused

too much on fixing Chrysler and let Daimler suffer because of it. When asked if Daimler would

do the merger again, they would not, (Badrtalei & Bates, 2007, p. 312)


Despite the comeback of the Chrysler division in the mid 2000’s, by middle of 2007,

Chrysler was sold off to Cerberus Capital Management for only $7.4 billion, (Mateja, 2007).

This is just a fraction of the $36 billion it took for Daimler-Benz to merge with Chrysler in the

beginning.

Conclusion of DaimlerChrysler case study

This merger was hailed as being great by many automotive experts at the time. However,

it ended in failure. The major reason was because different corporate values and cultures, and a

lack of a true “merger of equals”. It quickly seemed to be a Daimler-Benz acquisition rather than

a Merger and this dominance that Daimler leadership had over Chrysler leadership led to a lack

of trust. Chairman Schrempp’s purging of those that threatened his power pushed others in

Chrysler to leave. Instead of being able to use the benefits of Chrysler’s leadership (Fast and

efficient) to improve Mercedes, and using Mercedes engineering and preciseness to improve

Chrysler, it ended up being just Mercedes technology that went to Chrysler and very little going

back.

The Ugly: Compaq and Digital Equipment Corporation

The second case study will be about Compaq and Digital Equipment Corporation (DEC).

This case will also include important information about what led up to the eventual M&A

between Compaq and DEC and the result of it and why it put Compaq in the position they ended

up in. This was a domestic M&A in that it was between 2 U.S. companies in the U.S. in the late

1990’s. This was only a few years before the dotcom bubble popped, thus the atmosphere around

the tech world seem to be endlessly expanding and growing. Start-ups were popping up

everywhere and there was a lot of optimism in the industry. Thus, more competition was being


introduced into the market and so larger and older companies were trying to do what they could

to stay up and relevant.

Compaq

Before 1997, Compaq was a consumer level computer manufacture. They provided

laptops and desktops to the consumer market for the most part at the time. They were very good

at it also, at this point they were the largest personal computer maker in the world. They were a

young computer brand that was started in only 1982, (rasekaren & Ch, 1997), which if compared

to other industry giants at the time, IBM (1911, (IBM, n.d.)), and DEC (1957, (Computer History

Museum, n.d.)), they were quite young. But at this point, they had focused on a different segment

of the market. While most bigger companies focused on the more profitable B2B computer and

software sales, Compaq was focusing on the B2C market. It is an easier market to get into and

sell in volumes, although, with a smaller profit margin. However, they had planned to change

this with the acquisition on Tandem Computers.

Tandem Computers was a company that specialized with B2B sales. They were

prominent in banks, telecommunication companies and other sectors that focused extremely high

reliability, (Funding Universe, n.d.). Towards the mid 1990’s they started to struggle, and this

gave Compaq a chance. In June of 1997 Compaq announced that it would buy Tandem

Computers for three billion dollars in stock, (rasekaren & Ch, 1997). Tandem was a relatively

new company, like Compaq, and was started by industry experienced engineers, much like

Compaq, (Dykman, Davis, & Lamb, 2013). The purchase of Tandem, and later DEC, was to gain

market share and to compete better with the likes of Hewlett-Packard (HP) and IBM. Tandem

computers proved to be a relatively smooth merger, the cultures were quite similar in that both

Tandem and Compaq had faster paced and more entrepreneurial style of organization culture,


(Dykman, Davis, & Lamb, 2013). Compaq had 2 previous acquisitions for Tandem, they were

not new to the process of M&A.

Digital Equipment Corporation

DEC was founded back in 1957 by two MIT graduates. They made great strides in the

first 25 years of its existence. They made large, room sized, mainframe computers into

refrigerator computers, (Funding Universe, n.d.). They created the idea of OEM which meant

they could build the computers for software that was made by other companies. For the first 7

years of their existence they had no real organizational structure. After this they moved into a

matrix style management structure that worked very well for the products that they were

producing. This was until they tried to enter into the personal computer market in the early 80’s.

Internal competition formed during the building of the PC and DEC began to lag behind. The

consensus that was required for a product led to slow development. Despite this, they had many

products, too many for their sales and service to manage all the markets and segments, (Funding

Universe, n.d.). Instead of finding a market and targeting for that market, product developers

were designing and building whatever products they wanted. This resulted in a leadership that

looked confused on where the company was going. Which led to a restructuring of the company,

shifting product development away from the product managers and more into a unified direction.

This change led to a huge boom in profits and the possibility of DEC over taking IBM at the top

spot towards the end of the 80’s. This, however, didn’t happen. There was still far too much

confusion in management and constant restructuring wasn’t helping. The direction of the

company was facing backwards, towards outdated mainframes, a market that was quickly

dwindling, (Computer History Museum, n.d.). By the late 1990’s DEC was shell of its former


self. Too many failed and slow to completion projects left the company struggling, (Computer

History Museum, n.d.).

Cultural Clashes

Compaq was a fast paced, quick to market company. Their product cycles were short and

development had to happen quickly, which was in line with the consumer side focus. DEC was

less so, they were used to long, drawn out product cycles that focused on selling to and

supporting business for years on a single product. In addition to this, DEC had management

problems of its own. Lack of organization and effective management meant that their products

and regions were scattered and lacked focus, (Dykman, Davis, & Lamb, 2013). This, while

seeming like a problem, could also be seen as an opportunity. DEC was struggling because it was

too slow and cumbersome. Compaq was succeeding because it was fast and agile. By acquiring

DEC, Compaq could turn incorporate DEC into the business level side of their company and

gradually speed it up so that the company could better compete with the rivals.

The problem with this opportunity was that it takes time to full integrate, and like what

Volvo did, the pushing of a very different culture onto people may not fully work in the short or

midterm. The major issue that slowed the integration of DEC into Compaq was the lack of

identity. Compaq had acquired Tandem computers less than a year before acquiring DEC. Even

though Tandem employees fit with Compaq employees fairly well, there was still a disconnect

that needed to be resolved. Then DEC is added to this culture adding even more employees with

a bigger cultural disconnect. The result is that DEC and Tandem employees felt that they had

been absorbed by Compaq, (Dykman, Davis, & Lamb, 2013). The resulting negative emotions

from this went unresolved for too long under Compaq leadership.


Compaq had a higher power-distance in its culture and thus most things were delegated

downwards. In DEC, this wasn’t the case, typically before a decision was made managers would

consult with those under them in order to ensure it works and they are happy with it. This led to

clashes between managers and sometimes outright ignoring of decisions, (Dykman, Davis, &

Lamb, 2013, p. 32). Very little coordination was done within Compaq’s company after the

acquisitions. DEC, Tandem, and Compaq all acted and operated as separate companies under the

same name. Processes were duplicated across the three companies and inefficiencies ran

rampant. One of Compaq’s biggest reasons for purchasing DEC was contract services businesses

that provided support to the various customers of DEC, (Dykman, Davis, & Lamb, 2013, p. 32).

The problem was that Compaq didn’t understand how this business worked and when trying to

consolidate the company to remove inefficiencies, it ran into issues because each market segment

and area came with individualized support and knowledge that couldn’t easily be replicated in

the way they wanted to, (Dykman, Davis, & Lamb, 2013).

Despite the fact that this M&A is classified as a domestic acquisition, as mentioned

earlier in the article: “The international experience in domestic mergers – Are purely domestic

M&A a myth?” (Reynolds & Teerikangas, 2016), DEC, Compaq and Tandem Computers were

all operating internationally. Thus, not only did Compaq have to deal the domestic issues of

combining the companies, but also the international difficulties. It is cases like this that make the

realisation that as the world becomes more globalized, and the barriers to trade that exist between

countries lower, purely domestic M&A may be a thing of the past, especially in large companies.

The results and conclusion of the case study

The results for Compaq from the acquisition of DEC and before that Tandem Computers

was not beneficial. From 1997 to 2001 they struggled to synergize the three companies into one.


Compaq wasn’t willing to carefully analyse the culture differences and put effort into combining

them. In fact, Jeff Clark, who was DEC’s leader of integration, observed that Compaq had no

road maps for the products that now fell under Compaq’s company, organizational structures

were always in flux and accountability was not present for the company after the DEC

acquisition, (Dykman, Davis, & Lamb, 2013, p. 32). Compaq seemed more interested in the

possible financial and market synergies than anything else. The opportunity to buy an established

enterprise level market segment was the most important. The management required to bring

these synergies to fruition was not considered enough to make the M&A successful.

The result of this left Compaq too slow to keep up with the market place and they began

to lose market share. Dell managed to speed past them and it opened up the possibility of

Compaq themselves to be bought. In 2001 HP bought Compaq with the same hopes that Compaq

had with DEC. HP managed to turn Compaq around and in fact became more or a merger, rather

than acquisition. Compaq gave HP an enterprise level computer business, and Compaq gave HP

its fast paced and competitive sales force, (Wright, 2011). Compaq was perhaps too rigid in order

to easily allow different cultures into HP. At the same time, HP was likely soft enough to allow

Compaq to engrain itself into the company.

The Result of These Three Studies and Implications on Future M&As

Volvo (VCE) had one thing that DaimlerChrysler, and Compaq didn’t have, and that was

an easier adapting culture. They initially started off directing policies but eventually noticed that

there was too much resistance to the changes. The differences not only between Samsung Heavy

Industry’s (SHI’s) culture but also South Koreas business culture was too great to push a

radically different culture on them. This was noticed and dealt with by VCE by allowing some

cultural aspects to stay, while requiring others. This may not be optimal since it separates the


organization instead of it being one homogenous company, but it allows the M&A to be

successful. It is possible with time that VCE can push more of its culture onto SHI to make it a

complete and mostly uniform company. This rigid culture was present in both the other cases,

with Daimler in the DaimlerChrysler case, and with Compaq in the Compaq, DEC case. Daimler

had a controlling culture that pushed Chrysler management out and in turn lost the synergies that

the companies had merged for. Compaq was too demanding and uninterested in changing its

culture to meet DEC half way.

An important note though is that how flexible an organizations culture tends to be, may

have a link to the success or failure of an M&A. At least with these case studies there seems to

be some link into the flexibility of the acquiring company and that of the company being

acquired. This can be seen with Compaq who wasn’t very flexible in its post-acquisition

integration and thus had problems getting DEC to integrate. However, HP was softer and allowed

Compaq to not only integrate, but to strengthen some of the weaker parts of HP’s culture. This

indicates that the biggest issue when coming into a M&A may not be the culture of the company

being acquired, but instead the acquirer. Flexible cultures tend to be more accepting to an

acquisition on the acquirer side.

Conclusion

This paper was never intended to come out as a solving of the problems with M&A.

There are far too many variables to fully and truly understand why any and every failed M&A

failed and why the ones that succeeded managed to succeed. What the intention was for this

paper was to understand many of the different aspects that go into national and organizational

culture. Further, to understand how these two items alone influence each other. Beyond that is

M&A and how mergers and acquisitions differ from each other. Combining M&A with the


effects of national and organizational culture is a quite complicated process due to the amount of

variables that go into culture. Because of this, the true success to an M&A relies in due diligence

on the part of executives of the acquiring company, or by both companies in a merger. Even still,

an M&A may fail to add value because of other factors not accounted, some could even be

external. However, in the many cases brought up throughout the paper and the 3 main case

studies in Chapter 3, culture was one of the main factors in the failures.

When looking at the three case studies the main issue that plagued them all was differing

cultures. Some more than others, however the case that seemed the least likely to combine, (VCE

and SHI), ended up succeeding in the end. Whereas with DaimlerChrysler the main issue seemed

to stem from an overly dominant Daimler leadership that eventually took over the leadership in

both companies. In Compaq and DEC the main issue stemmed from ineffective and unplanned

leadership on Compaq’s part, and DEC’s confusing and slower paced culture. Some themes

could be seen between these three companies. VCE was willing to give up some ground in order

to make SHI employee’s happy. Whereas Daimler was overly strong, and Chrysler was weaker,

leading to it seeming more like an acquisition rather than a merger. With Compaq, they acquired

too much too fast and was bull headed in terms of culture and leadership. This meant that they

were less compromising than VCE, and DEC employees wouldn’t put up with it. Leading to little

synergies and a heavy amount of inefficiencies in the company.

While purely speculation, it is possible that if Daimler leadership was more flexible to

Chrysler, and Chrysler leadership was stronger, that DaimlerChrysler would have been able to

combine the expected synergies and truly add value to both companies. The same may not be

said for Compaq and DEC. While a rigid and hierarchal organizational structure did plague

Compaq, the amount of large M&A that they did in the short amount of time that they did it may


have proved to be too much for them to handle. To many people in the company possess to many

different cultures to combine them the way they wanted to. Likely though, a more thorough plan

for post-acquisition integration would have helped Compaq from eventually being bought by HP.

Despite the number of case studies given in the paper, it still does not cover enough to

say what will work or that any of the speculations made would even matter in real world

applications. Between these three case studies, and numerous smaller ones throughout the paper,

the pitfalls for each was different, thus the remedies for these M&A will likely always be

different for every failed M&A to some degree.

The limitations to this paper will come mostly from the fact that all of the case studies

came from different authors with their own biases. None of the data collected in the case studies

were collected by the author and further the interpretations of the data can be biased. Hofstede’s

dimensions have their own limitations also which many studies like that from Linda M. ORR and

William J. Hauser in their “A Re-Inquiry of Hofstede’s Cultural Dimensions: A Call for 21st

Century Cross-Cultural Research”, (2008). Further since culture is a not an exact science, some

of the ideas expressed in the paper may not apply to every culture and situation. Humans are far

too varied and complex to make accurate generalizations about the culture of a group or people.


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