Mergers Succeed When All Employees are on Board :  Published December 2006 All Rights Reserved


Mergers Succeed When All Employees are on Board

Mergers are the standard recipe in a capitalistic society although the United States experiences more buyouts and corporate mergers than any other country.

The best advice for a successful merger is to make sure the employees are all on board. If an employee resists change -- show him the door. This is the advice from a new book: Culture and Demography in Organizations

Success is measured not by one employee, but by creating two completely homogenous and harmonious organizations into one, according to one of the book's authors Glenn Carroll.

The recommendation sounds harsh, "although the implication of this finding for managerial policy is straightforward," Carroll said.

"It should be treated with caution -- it is based on specific assumptions in a theoretical model. It is also only one of several effective demographic factors to merge the cultures; other options might be more attractive,” said Carroll, who is co-author of Culture and Demography in Organizations -- published by Princeton University Press.

A merger can fail for any number of reasons, said Carroll, but cultural differences are increasingly thought to be a major cause of post-merger dysfunction.

Examples abound of merged organizations that failed to come together culturally. There’s the merger of Compaq and Digital Equipment Corporation that was unsuccessful largely due to a culture clash that pitted Compaq’s high-volume, fast-to-market strategic focus against DEC’s more convoluted and lengthy sales cycles. Indeed, the business challenges created by the culturally troublesome merger are viewed as a reason that Compaq lost its position as the No.1 computer maker to Dell, its longtime competitor.

“These problems can linger on for years after the merger has been completed,” said Carroll.

Talk about integrating two corporate cultures typically revolves around “cultural content” or the norms, beliefs, and values that lead to general descriptions of the firms such as bureaucratic, entrepreneurial, free-wheeling, or conservative. The predicted success or failure of any given merger is based upon an analysis that takes this cultural content into consideration.

“The problem is that people can make up any number of stories that can justify any type of merger,” he said. “You’ll hear that a merger will be successful because two organizations are very similar in their cultural content. Another merger will be hailed as a good one, because the organizations’ cultures are so different, and will therefore complement each other.”

As a result, Carroll and his co-author, J. Richard Harrison of the University of Texas, Dallas, reasoned that it would make sense to analyze cultural integration by looking at the demographics of the merging organizations.

Demography is the study of population dynamics.

Carroll and Harrison developed a demographic model of culture that encompasses a host of factors, including the growth rates of the firms, the selectivity of the hiring processes, the type and extent of socialization that occurs once employees are members of the organization, the rates of employee turnover, and the degree of alienation felt by employees.

Hiring selectivity refers to how carefully management selects new workers who fit into the culture. Selectivity can include personality testing as well as extensive interviewing by multiple employees—both peers and management—before a candidate is hired.

Socialization refers to how employees are indoctrinated into the new corporate culture. This can involve the pressure exerted by colleagues on each other to adapt to the new organization—or socialization by management, which can include such things as incentive bonuses, training classes, and corporate retreats.

Finally, alienation is the degree to which employees who don’t fit in come to leave of their own volition. Either peers or management could ignore the employee in question, or give him or her difficult or unpleasant assignments until the employee simply quits.

Although many demographic processes influence the success of post-merger cultural integration, the strongest effects seen in the Harrison-Carroll model are associated with hiring selectivity, management-based socialization, and alienation, Carroll says. Although alienation was found to be a strong factor, says Carroll, it wasn’t the only one.

“The demographic way of thinking about mergers and acquisitions could be very useful to firms considering such a step,” said Carroll. “It provides a whole new set of insights.”


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