The organizational marriage metaphor: mergers and acquisitions.

• Author: Norris, Ernest Alonza

1. INTRODUCTION

   The primary forms of mergers are vertical, horizontal, and conglomeration. Vertical mergers occur between buyers and sellers, horizontal mergers occur between competitors, and conglomeration mergers occur between organizations not in direct competition (Pilsbury & Meaney, 2009). However, of the three primary forms of mergers, horizontal mergers are commonly used and this paper focuses on horizontal mergers. Over the years, merger waves occurred whereas specific types of mergers were popular during a given period. The purposes for mergers and acquisitions (M&A) include attempts to gain competitive advantage, increase market positioning, organizational growth, and to increase profitability and shareholder value. The 70% failure rate in M&A is alarming, although organizations continue to create strategies for mergers and acquisitions (Bligh, 2006; "Managing Merger", 2002; Marks, 1997; Nguyen & Kleiner, 2003; Turner, 2000). In 2001, AOL/Time Warner recorded the largest merger in US history worth $350 billion that ended after approximately three years and now considered by some as the worst transaction in US history (Arango, 2010).

   The primary rationale for mergers and acquisitions is to create a synergistic effect through increased economies of scope and scale and other benefits such as reduced competition or research and development of new products or and services (Nahavandi & Malekzadeh, 1988). Obviously, the rewards obtained in successful mergers and acquisitions are significant as noted with "Duke Energy/Progress Energy, worth $25.8 billion, and Express Scripts/Medco Health Solutions, worth $33.4 billion" ("Research Trends" 2012, para. 5), which also provides an explanation as to why organizations will embark on a journey with only a 30% probability of a successful outcome. In reviewing literature on the M&A 70% failure rate, some explanations targeted technology or execution issues, although much of the literature targeted people-related issues and organization culture issues for the failure of mergers and acquisitions to obtained positive outcomes. The amount of M&A literature on people-related issues and cultural issues is increasing, although more research needed to address problems associated with people-related issues and organization cultures in mergers and acquisitions. The author of this paper focused on organizational cultures involved in M&A and provided the OMM as a tool to increase the probabilities of successful outcomes in M&A.

2. LITERATURE REVIEW

   In a literature review on M&A, a plethora of information indicated numerous explanations for failure such as political activities, financial restrictions, ineffective planning, significant cultural differences, poor communication, technology issues, and limited commitment to the merger during the pre-merger and post-merger periods (Bligh, 2006; Garside, 1999; Marmenout, 2010; Nguyen & Kleiner, 2003; Sharp, 2009). The external environment is a constant state of change influenced by advancements in technology, political and economic activities, and the growth of globalization. A state of constant change can have a negative influence on the people in organization and lead to the burnout syndrome (Quinn, 1996). M&A literature indicated some of the significant problems were culture-related relative to the people involved mergers (Cartwright & Coopers, 1993a, 1993b, 1995; Chapman, 2004; Garside, 1999; Marmenout, 2010; "PricewaterhouseCoopers", 2012). In 2010, PricewaterhouseCoopers (PwC) conducted research on a sample of US companies (large capital and middle-market) to examine peoplerelated issues and noted people issues are recognized as strategic elements, although limited people integration, and the lack of a universal formula for success is not possible due to the complexity of people issues. PwC added, "... an optimal integration playbook that incorporates the people up front remains elusive" (2012, p. 3). Trice and Beyer (1993), in conducting research on work cultures stated, "People in organizations face many uncertainties. Their environments change due to economic conditions, technology developments, or the actions of competitors" (p. 1).

   2.1 Organizational Culture

   The internal environment is the identity of an organization, although the label organization moves beyond the structural processes and framework of systematic functions and activities, Organizations are living organisms and open systems, and as with all organisms, are in a quest for survival. Levinson (2002) asserted all organisms exist in a three-fold process of survival requiring a systemic balance between systems, subsystems, and the larger external systems. Creating the systemic balance requires adaptation, growth, and maintenance, which in turn, can lead to a secure niche in the habitat. However, organisms exist in an unpredictable environment and survival is a process of wins and losses whereas life in the habitat is short or long depending on the organism's ability to sustain its existence. The culture of the organism is the systemic integrated interface of systems and subsystems exchanging with external systems and subsystems, which collectively represent the identity of the organism (Bertalanffy, 1969).

   Organizational culture plays significant role in the overall performance of an organization. In recognition of this factor, a proliferation of research on organizational culture occurred from the 1960s through the 1990s. However, research findings revealed that comprehending, analyzing, and creating effective cultures was complex and difficult to quantify and infer to the other organizations (Kotter & Heskett, 1992; Trice & Beyer, 1993; Schein, 1992; 1996). The accepted tenet among researchers, I/O psychologists, and consultants was that organizational cultures present complex quandaries resulting in a myriad of ideologies, costly mistakes, and false perceptions. Schein (1996) in defining culture stated, "A culture is a set of basic tacit assumptions about how the world is and ought to be that a group of people share and that determines their thoughts, perceptions, and to some degree their overt behavior" (p. 11).

   Cultures are diverse and represent the ideologies and philosophies of the founders and senior leaders and the actions and behaviors of stakeholders. Cultures undergo subtle changes in response to changes in senior leadership ranks, environment changes, and major changes in structures and designs such as in mergers and acquisitions. In analyzing organization cultures, an understanding of the underlying tenets and values extending from the external environment might result in better decision-making, problem solving and planning. Trice and Beyer (1993) created a list of six characteristics of organization culture, reduced in this paper to succinct definitions from the detailed descriptions supplied by Trice and Beyer.

   * Collective. Cultures cannot be produced by individuals acting alone.

   * Emotionally charged. Because cultures help to manage anxieties, their substance and forms are infused with emotion as well as meaning.

   * Historically based. Cultures cannot be divorced from their histories and they do not arise overnight. To develop a culture, people need to spend time together to interact and share common values, goals, objectives, and share methods to address uncertainties through coping and adaptation.

   * Inherently symbolic. Symbolism plays a very important role in cultural communication and expression. In this sense, behaviors associated with certain actions could be subdued and contain different meaning from the operational definition of the task or act.

   * Dynamic. While cultures create continuity and persist across generations of members, they are not static, but dynamic. Cultures continually change.

   * Inherently fuzzy. Cultures are monolithic single sets of ideas, but rather incorporate contradictions, ambiguities, paradoxes, and just plain confusion (pp. 5-8).

   2.2 Organizational Culture and Performance

   Kotter and Heskett (1992) stated, "The most elegant of the culture/performance perspectives, and the one most widely reported, associates 'strong' cultures with excellent performance"(p.15). The beliefs, decisions, and actions of the founders/top leaders create corporate culture, while subsequent successes over time indicate a high performance culture (Kaliprasad, 2006). Moynihan and Pandey (2006) described a high performance culture as mission driven, values oriented, concerned for public interests, and commitment to the welfare of stakeholders. In a discussion of organizational culture and the bottom line, Schein (1999) stated, "If we want to make organizations more efficient and effective, then we must understand the role that culture plays in organizational life" (p. 14).

   The culture change literature revealed limited information for application in partnerships, mergers, and acquisitions. In M&A, culture change or acculturation serves to blend the two cultures into one culture. However, a balance must exist to prevent the dominance of one culture over another that could increase change resistance and decrease commitment to the merger processes. In a most forms of traditional horizontal M&A, the dominant culture has precedence over the culture in the acquired organization, despite the positive cultural attributes that might exist in the acquired organization. "Rarely checked, however, are those aspects that might be considered cultural: the philosophy or style of the company; its technological origins, which might provide clues as to its basic assumptions; and it beliefs about it mission and its future" (Schein 1992, p. 269). Kotter (1996), Kotter and Heskett (1992), and Schein (1992; 1996) found that changing or creating new cultures is difficult and requires a lengthy time for manifestation. In addition, strong cultures are more difficult to change, and some would argue that strong embedded cultures do not change, yet these...