GROUP AND ORGANISATIONAL MANAGEMENT - 7110IBA Patrick-Michael Kofler

1. Introduction

The case study Grape Expectations: A Case Study of the Southcorp-Rosemount merger, (Rice & Galvin, 2005) provides a basis to identify an issue of mergers, which will be analysed in this research report. The case study deals with the Australian wine industry and particularly examines the acquisition of Rosemount Southcorp. Therefore, it illustrates the goals of the merger and the problems resulting from the merger of the two companies. The research report will deal with the potential problem that results from the concurrence of different corporate cultures in mergers, as “in preparing for mergers, acquisitions, joint ventures, and alliances, the emphasis is often on financial, legal, and technical matters [but] the cultural factor is often neglected” (Trompenaars & Prud’Homme, 2004). Furthermore, the report will explain the different strategies used to deal with the different cultures and will concentrate on the integration strategy and argue that it is the most appropriate strategy in most mergers. 2. Problem identification 2.1. Issue: Corporate culture in mergers

Researchers, investors, and the market are showing an increasing interest in corporate culture issues when it comes to mergers and acquisitions (Schraeder & Self, 2003). However, “while most firms recognize the critical importance of human and cultural issues in a merger, these issues are especially hard to analyze and quantify” (Camara & Renjen, 2004). Furthermore, the prevailing consensus in business literature is that problems regarding corporate culture are the most likely ones leading to unsuccessful mergers. Different cultures have to be integrated in some way - no matter which strategy is applied. This integration usually leads to some kind of friction between the merging companies, or, to be more precise, the companies’ employees, as “confrontation with another culture creates stress” (Very, 2004). This problem applies to most mergers - regardless of the cultural differences or similarities. Although some authors argue that if the core values are too far apart “no amount of wheeling and dealing can bring them together” (Schraeder & Self, 2003), there is no evidence that greater differences in culture between the merging companies lead to a higher probability of failure (Huang & Kleiner, 2004). A good, or rather said truly bad, example is AT&T's acquisition of NCR in 1991. AT&T failed in determining the cultural differences between them and NCR. As a result of a missing strategic approach, 26 of the 30 top managers had left the company by 1997 and finally AT&T sold NCR which cost them more than USD$3 billion (Huang & Kleiner, 2004).

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GROUP AND ORGANISATIONAL MANAGEMENT - 7110IBA Patrick-Michael Kofler

2.2. Problems resulting from the corporate culture issue

The primary goal of a merger usually is to exploit all synergies, thus it is of crucial importance to facilitate a smooth integration, as failing integration leads to degenerating income. Despite the usual recommendations as “concentrate on synergies; integrate quickly; maintain a focus on customers and revenue growth; communicate continuously; and address human and cultural issues” (Camara & Renjen, 2004) are well known, about half of the mergers fail to generate value. However, corporate culture is a collective phenomenon that cannot be altered easily, thus the merging companies have to develop a strategy to deal with the differing cultures and to prevent the corporate culture issue to develop to a major problem and a threat to the merger or the new merged company (Very, 2004). The issue of corporate culture in mergers can lead to problems in many ways: First, as already mentioned above, cultural differences decrease productivity, which leads to lower revenues and income (Sherman & Hart, 2006). Furthermore, a conflict of interests between the employees of the merging firms could arise, which can be considered as very similar to an “ethnic conflict” where “majorities tend to dominate minorities” (Smeets, Ierulli & Gibbs, 2006). Another problem could be that the merging companies simply ignore or underestimate the corporate culture issue and accordingly fail to conduct a solid evaluation of the corporate cultures, their differences, and similarities (Aquila, 2009). Related to this problem, in many cases “company employees are unaware of the strength of the culture and how it impacts daily activities” (Sherman & Hart, 2006). 3. Strategies

This part of the research report is committed to possible strategies to solve the problems resulting from the corporate culture issue. Furthermore, it will illustrate why the integration strategy, is the preeminent strategy for most mergers. Deculturation, Separation, and Assimilation are strategies or behaviour patterns observed in mergers but seldom approved in literature. In contrast, there is a common agreement that Integration, including a comprehensive pre-planning and evaluating, is generally the most reasonable strategy. 3.1. Assimilation

Assimilation means that one company dominates the other. The result of an assimilation strategy is that the merged organisation has a unified culture - the culture of the dominating company, which is in most cases the acquiring company. A condition for this strategy is that there is a company with a weak culture, which welcomes the domination by another 2  

GROUP AND ORGANISATIONAL MANAGEMENT - 7110IBA Patrick-Michael Kofler

company (Malekzadeh & Nahavandi, 1990). However, “to impose an unwanted culture is a good solution in very few cases” (Recklies, 2001). 3.2. Deculturation

Deculturation can be described as an unwanted and therefore forced assimilation. It involves disintegration and may lead to confusion among the work force, many conflicts between the two companies, and finally resentment, and stress. According to Malekzadeh & Nahavandi (1990), “deculturation is the most destructive method and, unfortunately, is the most common method”. 3.3. Separation

The separation strategy leads to retention of the two separate corporate cultures “with limited managerial and cultural exchanges” (Malekzadeh & Nahavandi, 1990). As a result, the companies maintain their independence. Nevertheless, this strategy is only advisable if the merging companies operate in different industry sectors, otherwise, it “is a clear recipe for chaos and lack of unity” (Sherman & Hart, 2006). 3.4. Integration

All the strategies presented above have one thing in common: They do not need any culture audit as merger preparation since the cultural differences are either ignored, simply kept up or one corporate culture is imposed on the partner’s corporate culture. In this section not only the integration strategy but also a sophisticated and strategic approach regarding the corporate culture in mergers will be worked out. First of all, the merging companies have to be aware that there will always be a conflict between the two companies (Huang & Kleiner, 2004) as “in every integration, no matter how smooth, there are always teams, functions or even divisions that see the world in very different ways” (Gebler, 2009). To which degree this conflict will occur depends, among others, of whether cultural compatibility has been included “into the identification, evaluation, assessment and selection of potential partners” (Schraeder & Self, 2003). This would be the first step in a proper strategic approach. As a next step, a cultural analysis should be accomplished. This “detailed analysis shows differences and common grounds between the people of both organizations” (Recklies, 2001) and allows to improve the interaction and communication. A primary feature of this analysis could be a comparison of how employees of both companies perceive different elements of corporate culture. Clear disparities would indicate potential conflicts (Recklies, 2001). A closer evaluation would be necessary in order to identify the best corporate culture for the merged company - especially, if there is a large discrepancy between the companies’ 3