Merger and Aquisition

National and Corporate Cultural Fit in Mergers/Acquisitions: An Exploratory Study Author(s): Yaakov Weber, Oded Shenkar, Adi Raveh Source: Management Science, Vol. 42, No. 8, (Aug., 1996), pp. 1215-1227 Published by: INFORMS Stable URL: http://www.jstor.org/stable/2634453 Accessed: 19/04/2008 22:56Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at http://www.jstor.org/page/info/about/policies/terms.jsp. JSTOR's Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at http://www.jstor.org/action/showPublisher?publisherCode=informs. Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission.

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National

and

Corporate

Cultural

Fit

in

Mergers

/Acquisitions:An

Exploratory Study

Yaakov Weber * Oded Shenkar * Adi RavehHebrew School Business MountScopus, of Administration, University Jerusalem, of Jerusalem 91905,Israel Tel Faculty Management, Aviv University, Aviv 69978,Israel College Business of Tel and of Administration, Hawaii96822 University Hawaiiat Manoa, of Honolulu, School Business Hebrew MountScopus, of Administration, University Jerusalem, of Jerusalem 91905,Israel

W

hile cultural fit has been acknowledged to be a potentially important factor in mergers and acquisitions, the concept has been ill-defined, with no distinction drawn between the national and corporate levels of culture. By examining both international and domestic mergers, the present study assesses the relative role of national and corporate cultural fit in predicting effective integration between merger partners. The innovative, nonparametric co-plot method is introduced, and its main advantage-the simultaneous consideration of both variables and observations-is utilized to explore cultural fit in the two groups of mergers. The findings confirm that national and corporate culture are separate constructs with variable attitudinal and behavioral correlates.

National International Domestics and (Co-plot; Graphic Display; Corporate Cultural; Culture; Mergers andAcquisitions; Management Top Behavior)

1. IntroductionMergers and Acquisitions (M&As) have been the dominant mode of internationalization during the last decade (Cartwright and Cooper 1993, Haspeslagh and Jemison 1991, Melin 1992). Yet, empirical studies of international M&As (IM&As) remain a rarity, perhaps due to the difficulty of obtaining large samples from multiple countries (For a recent exception, see Calori, Lubatkin and Very 1994). This has deprived us of the opportunity to observe cultural "collision" where it is most visible, and from providing an arena for what Boyacigiller and Adler (1993) call a marriage of organizational behavior and international management. Many M&As have not lived up to expectations. Cartwright and Cooper (1993) note that at best, merely half of all M&As meet initial financial expectations, with failure rates in the 50 to 60 percent range. While lack of cultural fit has been frequently mentioned as a potential factor in M&As failures (e.g. Nahavandi and Malekzadeh 1988, Weber and Schweiger 1992), relatively little

has been done in terms of specification and operationalization of the measure. As Cartwright and Cooper (1993, p. 60) suggest, "culture fit and culture compatibility are well used but ill-defined expressions." A major omission in this respect has been the crucial distinction between the two levels of culture in IM&As, namely corporate and national, and its implications for cultural fit and hence merger integration and performance. The present paper seeks to fill some of the above gaps. Its contributions are threefold: (1) An exploration of the crucial yet neglected relationship between national and corporate cultures; (2) an examination of the possible role of the two types of cultural fit in post-merger integration processes in IM&As and domestic M&As (DM&As); and (3) the introduction of an innovative method capable of analyzing multiple variables and observations simultaneously even in small samples, a significant advantage in international research.

0025-1909/96/4208/1215$01.25Copyright ? 1996, Institute for Operations Research

and the Management Sciences

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WEBER, SHENKAR, AND RAVEH National and Corporate CulturalFit in Mergers/Acquisitions

2. Cultural Fit in Mergers and Acquisitions2.1. National versus Corporate Culture Culture has been defined in numerous ways (Bhagat and McQuaid 1982, Smircich 1983, Trice and Beyer 1984). In a rare reference to both levels of the construct, Adler and Jelinek (1986, p. 74) suggested that "culture, whether organizational or national, is frequently defined as a set of taken-for granted assumptions, expectations or rules for being in the world," and that "the culture concept emphasizes the shared cognitive approaches to reality that distinguish a given group from others." Most authors, however, defined one level of culture. Thus, Hofstede (1980) defined national culture as the collective programming of the human mind; while students of corporate culture (e.g. Schein 1985, Weber 1988) defined it as the beliefs and values shared by senior managers regarding appropriate business practices. Boyacigiller and Adler (1991) note that U.S. cultural values have imbued organizational science with implicit, yet inappropriate universalism. Hence, the emergence of the concept of corporate culture in the United States is not coincidental but rather a reflection of American culture and the limited awareness of its main champions of variations of national culture (Adler and Jelinek 1986). Yet, it seems futile to discuss cultural variations among organizations without taking into consideration the national culture within which such variations develop. As Schneider (1988) points out, Hofstede's (1980) findings show that even in a large multinational known for its strong corporate culture, national differences remain paramount. At best, an approach which focuses on corporate culture alone leads to the development of uninational theories which are of little use beyond US borders. At worst, studying corporate culture outside the context of national culture leads to the same fault directed against the national culture school, namely the treatment of culture as a residual variable, precluding a valid argument of causality. The bodies of literature on national and corporate cultures, respectively, seem to exist in a state of splendid isolation. Apparently, Roberts and Boyacigiller's (1983) observation on international management that "no in-

vestigation simultaneously embedded people into organizations and organizations into their environments" is still valid. While sharing some definitions and terms, authors on national and corporate cultures by and large refrain from stepping into each other's turf, thereby missing on obvious opportunities for cross-fertilization (Schneider 1988). In an attempt to connect between the two levels, Laurent (1986) proposes that corporate culture can modify the first two levels in Schein's (1985) model, namely (a) behavior and artifacts and (b) beliefs and values, but is not capable of affecting the third, deeper level of underlying assumptions which is derived from one's national culture. Earlier, Laurent (1983) found that national differences in beliefs regarding organizational practices were considerably greaterin a single multinational firm than in multicompany samples, leading Schneider (1988) to suggesta paradox that national culture may play a stronger role in the face of a strong corporate culture. The pressures to conform may create the need to reassert autonomy and identity, creating a national mosaic rather than a melting pot.

Hofstede et al. (1990) suggested that while national culture forms one's values through early socialization, corporate culture involves the subsequent acquisition of organizational practicesand symbols in the firm. Thus, the authors found considerable differences in practices among people holding similar values, and proposed that national and corporate cultures are distinctive, if related, constructs. 2.2. Cultural Distance in Mergers and Acquisitions Cultural distance has been defined as "the sum of factors creating, on the one hand, a need for knowledge, and on the other hand, barriers to the knowledge flow and hence also for other flows between the home and the target countries" (Luostarinen 1980, pp. 131-132, cited in Benito and Gripsrud 1992). Although operationalized often (e.g. Kogut and Singh 1988), the term, especially popular among students of M&As, remains problematic. The implicit assumption that "distance" means "incongruence" is questionable. Evidence suggests that congruence can also be reached by achieving "complementarity," and not necessarily by achieving similarity. Such evidence comes both from the M&A literature (e.g. Haspeslagh and Jemison 1991) and from

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the literature on international joint ventures (IJVs). For instance, Shenkar and Zeira (1992) found that power distance and masculinity/femininity gaps were positively correlated with the role ambiguity of the CEOs of IJVs, while individualism and uncertainty avoidance gaps were inversely correlated with it. Anderson and Gatignon (1986) suggest that while "cultural distance" may cause potential foreign investors to avoid direct ownership due to high information cost and the difficulty in transferring management techniques and values, the opposite will happen when the business methods of the foreign parent are perceived to provide a substantial advantage in the host country. If this is the case, then high integration in M&As may be related to the relative familiarity of both parties with each other's environment, and the extent to which most operations are conducted in the country of the acquiring or acquired organization. Brown, Rugman and Verbeke (1989) argued that the combination of economic and cultural factors creates firm specific assets which can cause failure. Shane (1991) showed that the cultural trait of individualism was a significant factor explaining preference for foreign direct investment (FDI) over exports. Since people in individualistic societies were more opportunistic, they tended to see higher transactions costs which they moved to reduce via FDI. Elsewhere, Shane (1992) found that U.S. MNCs were less likely to establish foreign affiliates in countries with different trust levels. Since trust is equally important in IM&As, distinct dimensions of national culture should be explored in terms of their potentially variable relationship to various attitudinal and behavioral variables. Woodcock and Geringer (1991) looked at cultural differences between IJV partners from an agency theory perspective, arguing that they produce diverse contractual requirements and hence an inefficient principalagent contract. Johnson, Cullen and Sakano (1991) investigated the extent to which "cultural congruence" between IJV partners affected perceptions regarding performance, satisfaction, and conflict. Their findings, based on foreign-Japanese ventures, indicated that local culture "deviation" from Japanese culture had no effect on the Japanese partner's perceptions of success. The authors speculated that "the Japanese are possibly more

adroit at cultural adaptation in business than their IJV partners." This implies that adaptive ability is itself a cultural artifact and not necessarily the product of "cultural distance." Such variables as adaptive ability, control tradition (Calori et al. 1994), and the mutual attractiveness of the cultures can be equally if not more relevant in M&As, where partners commit all their assets to the partnership rather than merely some as is the case in IJVs. In a survey of European CEOs, "ability to integrate the new company was ranked as the most important factor in acquisition success, ahead of financial and strategic factors (Booz, Allen and Hamilton 1985, quoted in Cartwright and Cooper 1993). The key to managing the integration process is ". . . to obtain the participation of the people" and "creating an atmosphere that can support [capability transfer] is the real challenge" (Haspeslagh and Jemison 1991, 11, 106-107). A critical factor in creating such atmosphere and obtaining people participation during the integration process are the cultural differences between the merging organizations (Nahavandi and Malekzadeh 1988, Weber and Schweiger 1992, Calori et al. 1994). While many authors addressed cultural clash in DM&As (Chatterjee, et al. 1992, Nahavandi and Malekzadeh 1988, Perry 1986, Sales and Mirvis 1984, Weber 1988), none has looked at national and corporate culture in IM&As. Culture clash in M&As is particularly crucial for the top management level whose motivation and commitment have a major influence on the motivation of the other employees (Kitching 1967, Perry 1986, Sales and Mirvis 1984). While shared experiences allow for the assimilation of beliefs and values which make up the corporate culture, senior managers play the most significant role in shaping and transmitting corporate culture signals to the broader membership (Schein 1985). In an IM&A, however, these senior managers may also see themselves, and be perceived by others, as champions of the national culture they represent, and which may be posited against the national culture of the other party in the merger. Following a review of the literature on post-merger integration processes, Weber and Schweiger (1992) described the consequences of top management culture clash in M&As as characterized by (1) stress, distrust,


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and annoyance on the part of the acquired team in working with the acquiring team, (2) negative attitudes on the part of the acquired team toward the acquiring organization, and (3) negative attitudes toward cooperating with the top management team. The stress and negative attitudes reduce (1) the commitment of the acquired top managers to successful integration of the merging companies and (2) their cooperation with the acquiring firm's top executives. There is no reason to believe that the impact of national culture's clash will not be equal, if not greater than the one produced by a clash of corporate cultures. If we accept the premise that national culture represents a deeper layer of consciousness, it should be even more resistant to change than corporate culture. Hence, we expect national culture to be a crucial factor in M&A conflict, as well as in the quest for successful integration. Related to the integration process is the amount, or level, of autonomy removal, namely the intervention of the acquiring top managers in the decision process of the acquired top managers by imposing standards, rules and expectations. This contact between the two top management teams not only reduces the autonomy of the acquired top executives but also exposes the diverse national and corporate cultures of the teams to each other, and makes the differences salient (Weber 1988). To the extent that cultural distance produces a "culture clash," such clash may be strongest where the contact between the adherents of the opposing cultures is the greatest, i.e. where the acquiring executives determine goals, strategic choices and other operations for the acquired company. The loss of autonomy evokes stress and negative attitudes toward the merger among the acquired top managers, who feel threatened, and ultimately affects commitment and cooperation (Weber and Schweiger 1992). The present paper focuses on related mergers, where such threats are typically moderate to high (Salk 1994).

overcome the methodological problems associated with construct universality.) The larger sample was drawn

and from the Journal Mergers Acquisitions of during the1985 to 1987 period. Data were collected in early 1988. The overall response rate was 39 percent while the useful response rate was 30 percent, yielding a sample of 52 mergers. Potential non-response biases were checked using the relative sizes of the merging companies and the time elapsed since the merger announcement, since these variables may influence managers' emotions and objectivity (Kitching 1967, Sales and Mirvis 1984). Ttests of mean differences were not significant, indicating that there was no non-response bias. For the purpose of the present study, the eight IM&As in the original sample were matched with eight DM&As with similar characteristics. T-tests of mean differences for all variables were nonsignificant across the two samples. Analyses were conducted separately for each of those groups. Reliability data, however, are reported for the larger sample. 3.2. Questionnaire and Procedure Ideally, corporate culture differences are investigated before a merger takes place and compared with data collected after the merger. However, it is very difficult to gain access to such data in large samples during the negotiation period, as many of these negotiations do not result in M&As. This problem is compounded by another difficulty associated with the measure of corporate culture. Many elements of culture are unclear to its members, because people take them for granted (Schein 1985). Dramatic events, such as M&As and the contact with other cultures make differences salient (Louis 1983), especially in conflict situations (Sales and Mirvis 1984). Retrospective data can thus be useful for studying the relationships between cultural differences and the attitudes and behavior of top managers. It has been observed that attitudinal as well as behavioral data do not become less accurate over time even for periods of ten years (Finkelstein 1992, Gutek 1978). One should, however, follow the recommendations of Huber and Power (1985) for access to top management and the use of retrospective data. A questionnaire was mailed directly to each top manager (CEO through senior vice-president level-

3. Method3.1. Sample Two samples of IM&As and DM&As were identified from a larger sample of acquired U.S. companies. (By anchoring the sample in one country it is possible to

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the average for the sample was seven top managers per firm) who was in the acquired company prior to and at the time of the acquisition. All respondents were guaranteed anonymity, and completed surveys were returned directly to the authors my mail. (The only identification in the questionnaire was the name of the acquiring company.) Since the unit of analysis was not the individual manager but the top management team, responses were summed and averaged for each variable to arrive at top management team means (see Enz 1988). This procedure allowed to control for team size variations across firms. Individual bias was reduced by using the aggregation of respondents' perceptions to arrive at group scores (Schneider 1975), as well as by having top managers evaluate team rather than self attitudes and behaviors. The multiple-respondent evaluations of each team enabled a check on reliability through the later calculation of consensus. Responses were aggregated only if a high level of consensus among top managers' perceptions was demonstrated. To avoid pseudorelationships between variables by means of methodological and process artifacts, provisions were taken against consistency and priming effects. Recently, several studies (e.g. Chatterjee et al. 1992) used questionnaires to measure perceived corporate culture differences, and have been found to have high reliability and validity. Self-report questionnaires of perceived cultural differences also have an additional advantage, in that people's behaviors and attitudes are determined by their perceptions rather than the "actual" or "objective" situation (Rentch 1990). The consensus of multiple respondents in this study lends credibility to the argument. 3.3. Measures

the same effect as the direction of each construct for a given pair of partners. Nevertheless, on balance, Hofstede's framework has been largely validated (e.g. Sondergaard 1994) and provides for a reasonable representation of national culture attributes for the purpose of the present study. 3.3.2. Corporate Culture Differentials. This construct was measured using Chatterjee et al.'s (1992) instrument. Based on the assumption that relative phenomena are best suited for comparisons, particularly in contrast situations (Louis 1983), respondents were asked to indicate the degree of pre-merger similarity between the acquired and acquiring top management on each item. A cultural differences index was then computed across seven dimensions, each consisting of 3 to 5 items, with a total of 29. 3.3.3. Autonomy Removal. An instrument derived from Vancil (1979), Goehle (1980), and Cray (1984) solicited questions from the acquired firm's top managers regarding the extent to which a variety of (a) goals and (b) strategic and operational decisions were determined by the acquiring team using a Likert-type decisionprocess scale. 3.3.4. Stress. Following Corwin (1969) and Walton (1966), respondents were asked to assess the amount of tension among the members of the two teams, taking into account overt behavior, such as open disputes, heated discussions and other incidents. They were also asked to rate the degree of distrust between members of the two teams and the tendency of members to become irritated by the behavior, ideas, and manners of the acquiring top managers. The averages of their scale, which consists of the above three items, formed the stress measure of the acquired top managers (Cronbach's Alpha = 0.97). 3.3.5. Attitudes Toward Cooperating with Other Top Management Team. This variable, which involves an attitude towards an action, was measured by having respondents rate their attitudes on three 7-point semantic differential, valuative scales. This scale has been proven reliable and valid in attitude measurement (Rosenthal and Rosnow 1984) (Cronbach's Alpha = 0.92).

3.3.1. National Culture Differentials. Differencesbetween standardized country scores on uncertainty avoidance, power distance, masculinity and individualism were calculated from Hofstede (1980), and not via the questionnaire. Hofstede's (1980) framework has been criticized on both empirical (e.g. one time, single company data) and theoretical grounds (e.g. dimensions derived form post-analysis factor structure; ecological fallacy). Also, as Johnson et al. (1991) note, it is not clear whether the magnitude of difference will have

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3.3.6. Group Attitude Toward New Organization. This variable, which involves an attitude towards an object, was measured by a four item scale which evaluates the general positive/negative attitude of the team toward the new organization (Buchanan 1974, Steers 1977) (Cronbach's Alpha = 0.87). 3.3.7. Commitment. Commitment was assessed by a modified version of Porter's commitment scale (Porter et al. 1974). This instrument has consistently demonstrated a high level of reliability (e.g., Steers 1977) (Cronbach's Alpha = 0.95). 3.3.8. Cooperation. The cooperation of the acquired top managers with top managers from the acquiring firm was measured by having respondents rate their readiness to help solve problems, their withholding of useful information, and their working with the acquiring top managers rather than alone. The measure of cooperation between the two teams (Cronbach's Alpha = 0.78) consisted of the average of the responses on these scales. 3.4. Preliminary Analysis 3.4.1. Intra-group Consensus. Validity was tested by examining the responses of multiple respondents from each firm, using Spearman rank correlations for the firms with two respondents. For more than two, the Kendall coefficient of concordance was used. For n less than or equal to 30 conventional statistical tables that contain critical values were used. However, for n (number of items in questionnaire) larger than 30, we computed the statistics according to the formula suggested for such cases (Daniel and Terrell 1995, Seigel 1965). Results show strong inter-rater reliability at the 1 percent level or better. These results are substantially better than the results reported for inter-rater reliability in recent research (e.g. Finkelstein 1992). 3.4.2. Corporate Culture Differentials. Statistical analyses of the original sample showed that all the intercorrelations among the seven dimensions of corporate culture differentials were high (at least 0.61), significant (p < 0.01) and internally consistent (Cronbach's Alpha 0.82 to 0.94). In keeping with the theory underlying the construction of the corporate culture mea-

sures, each dimension demonstrated discriminant validity (the Cronbach's Alpha for each dimension was higher than the dimension's correlations with any of the other six dimensions). The data also provide strong evidence of convergent validity, indicating, as expected, that these seven dimensions are part of the same general construct (Buchanan 1974, Rosenthal and Rosnow, 1984). Although each dimension measures a unique aspect of the phenomenon, all the dimensions refer to the same content domain, making it possible to combine them all in a single index, a procedure for which prior research provides theoretical and statistical support (e.g., Buchanan 1974, Porter et al. 1974). The combined internal consistency of this single corporate culture differences index was high (Cronbach's Alpha = 0.97). Factor analysis and a screen test were used to confirm the unidimensionality of this construct. 3.4.5. Autonomy Removal. The two dimensions of this variable-setting of goals and making strategic and operational decisions-both demonstrated high internal consistency (Cronbach's Alpha 0.95 and 0.97, respectively), and were highly and significantly correlated (r = 0.90). The two dimensions were thus combined into one index, which also demonstrated high internal consistency (Cronbach's Alpha = 0.98). 3.4.6. Reliability. Reliability was checked by obtaining the perceptions of corporate culture differentials of the acquiring top managers in each M&A. The same corporate culture differentials questionnaire that was filled out by the acquired firm's top managers was sent to the acquiring team. Fifteen companies responded. The corporate culture differences rating of the acquiring team was very similar to that of the acquired team. 3.5. The Co-plot Method Classical multivariate analysis methods, such as principal component analysis or cluster analysis usually analyze either variables or observations separately. Coplot analyzes the two simultaneously, permitting location of each merger (observation) in the "culture and behavioral area" determined by all variables simultaneously. Co-plot is a graphical display technique that is useful for visual inspection of such data matrices as Yn.p The

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sample units are exhibited as n points (e.g., n = 8 international mergers), and the variables are exhibited as p arrows (here, p = 10) relative to the same axes and origin. Co-plot maps the observations, i.e. mergers (rows of a matrix) in such a way that similar observations are closely located on the map. Each variable is represented individually by an arrow. Co-plot enables the simultaneous study of observations and variables for a set of data, hence its name. It means that the similarity between the various mergers (observations) and the correlate structure between their variables are presented in one space diagram. A measure of goodness-of-fit is computed and associated for each variable separately (Goldreich and Raveh 1993). The co-plot method has been used in the social sciences, for example, in the study of socio-economic differences between towns (Lipshitz and Raveh 1994). Co-plot is based on the integration of mapping concepts with a variant of regression analysis. It starts with a data matrix Ynxp n rows and p columns; the rows of are p-variate observations and the columns are the variables. Co-plot has four stages; two preliminary treatments of the data matrix Yn.p and two subsequent stages, as follows. Stage 1: In order to treat the variables equally, we normalize Yn.p the usual way into Znp. The elements of in matrix Znp are deviations from column means (Y.1) divided by their standard deviations (S), i.e., Zij= ((Yij) - Y.j)/Sj.

Stage 2: We choose a measure of dissimilarity Sik 2 0 between each pair of observations (rows of Znxp) A symmetric n X n matrix (Sik) is produced from the ( ) different pairs of observations. One possible measure is the Minkowski metric:_ p - 1/r

MDS. Observations (mergers) are represented as n points Pi, i = 1, . . ., 8 in a Euclidean space (of, say, m = 2 dimensions). Guttman's Smallest Space Analysis (SSA) is chosen as a particular form of a nonmetric MDS (see Guttman, 1968). SSA provides a graphic presentation of pairwise interrelationships of a set of objects (here n = 8 international mergers). SSA uses the coefficient of alienation' 0 as a measure of goodness-of-fit. In summary, for a two-dimensional space, this stage yields 2n coordinates (Xli, X2i)i = 1, ..., n where each 4 row Zi = (Z 1, Zip) is mapped onto a point in twodimensional space (Xii, X2i). Stage 4: p arrows (Xj, j = 1, . . ., p) are drawn on the Euclidean space obtained in stage 3. Each variable j is represented by an arrow j emerging from the center of gravity of the points Pi. Each arrow Xj is chosen so that the correlation between the actual values of variable j and their projections on the arrow is maximal. Therefore, the arrows associated with highly correlated variables point in about the same direction. Similarly, if the arrows are in opposite direction, a negative correlation is delineated. As a result, the cosines of the angles between arrows are approximately proportional to the correlations between their associated variables. The goodness-of-fit of Co-plot is assessed by two types of measures, one for stage 3 and another for stage 4. In stage 3, a general (single) coefficient of goodnessof-fit for the configuration of n observations is obtained by MDS. For SSA, the coefficient of alienation is used. For stage 4, p individual measures are computed for each of the p variables separately. These are the magnitudes of the p maximal correlations r*, j = 1,.. ., p that measure the goodness-of-fit of the p regressions. This might be helpful in deciding whether to eliminate. . .

Sik

=

I Zij_j=l

-

ZkjIlr

0,

(1

?

i, k < n; r

1).

In our paper r = 1, i.e. the sum of the absolute deviations is chosen because it is more robust, for instance, than r = 2 (pythagorean distance). The diagonal elements vanish (Su = 0). The subsequent two stages of Co-plot yield two superimposed graphs. Stage 3: The matrix of dissimilarities (Sik)is mapped by means of some form of a multidimensional scaling-

E = (1 - y'2)W2 varies between 0 and 1, where ,t is a coefficient of monotonicity (see Raveh 1986). Perfect fit is represented by the value 0, and the worst possible fit by the value 1. Intermediate values of the coefficient represent intermediate degrees of goodness-of-fit. The number E expresses the extent to which distance between pairs of points in the two-dimensional space do not adhere to the rule regarding the monotone relationship between input coefficients and output distances. As a rule of thumb, an alienation coefficient of less than 0.15 is considered a good candidate for being "satisfactory" (Raveh 1986).' The coefficient of alienation


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Table 1

Means, StandardDeviationsand Intercorrelations All Variables-Intemational Mergers of Standard Deviation

Means 1. Corporate Cultural Differences 109.4 2. Power Distance 5.8 3. Uncertainty Avoidance 12.9 4. Individualism/Collectivism 15.4 5. Masculinity 23.9 6. Integration 83.9 7. Stress 92.6 8. NegativeAttitudesToward 75.0 Organization 9. AttitudesTowards 122.5 Cooperation 10. Commitment 102.0 11. Cooperation 106.6***

1

2

3

4

5

6

7

8

9

10

30.5 9.1 12.8 6.2 20.5 33.3 18.2 45.5 25.9 15.4 52.7

-0.11 -0.31 -0.41 -0.16 0.52 0.36 0.15 0.41 0.34 -0.38

0.93*** 0.46 -0.16 0.62+ -0.34 -0.08 0.32 0.11 0.37

0.73* -0.27 0.46 -0.33 -0.25 0.29 0.17 0.56

-0.63* -0.02 -0.22 -0.51 0.18 0.26 0.79*

0.10 0.16 0.44 -0.18 -0.22 -0.60

0.29 0.15 0.33 0.43 -0.24 0.52 -0.30 -0.04 -0.67+ -0.39 -0.67+ -0.82**

0.32 0.44

0.29

p < 0.001,

p < 0.01, *p < 0.05, +p < 0.10.

(or add) variables. Variables that do not fit the graphical display, namely, those which have low r*j, may be eliminated. Hence, there is no need to fit all the 2P subsets of variables, as in other methods (e.g. multiple regression analysis) that have a general coefficient of goodness-of-fit. In Co-plot, the higher the correlation r7 the better Xi represents the common direction and the

order of the projections of the n points along the rotated

axis Xj (arrowj).Co-plot is based on two graphs superimposed sequentially. The first maps the rows (observations) by n points. The second is conditioned on the first, and consists of p arrows that are portrayed individually. The final product of the method provides three results: 1)

Table2

Means, StandardDeviationsand Intercorrelations All Variables-Domestic Mergers of Standard Deviation

Means 1. Corporate Cultural Differences 2. Integration 3. Stress 4. NegativeAttitudesToward Organization 5. AttitudesTowards Cooperation 6. Commitment 7. Cooperation

1

2

3

4

5

6

103.4 100.7 96.0 85.1 114.6 102.0 108.4

29.0 33.5 24.9 53.0 21.1 12.5 45.4

-0.66+ -0.020.71*

0.77* -0.31 0.53 0.26 0.88** 0.53 0.10 -0.12 +0.22 -0.36 -0.68+ -0.55

-0.23 -0.52 -0.72*

0.60+ 0.78*

0.53

p < 0.001, **p < 0.01, *p < 0.05, +p < 0.10.

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similarity between observations by the composite of all variables involved; 2) the structure of correlations among the variables; and 3) the mutual relationships between the observations and variables.

4. FindingsTables 1 and 2 display means and standard deviations as well as correlation matrices for both the international and domestic samples. For DM&As, corporate culture differentials are inversely related to autonomy removal: The higher the corporate culture differentials, the lower the autonomy removal of the acquired company by the acquiring one. The probable explanation is that the perceived risk of joinitig highly different cultures is high. Indeed, corporate culture differentials are negatively related to top managers cooperation, but positively related to negative attitudes toward the merger. Corporate culture differentials are also negatively associated with all other attitudinal and behavioral variables such as commitment, attitude toward cooperation and stress. These results are consistent with a number of case studies (e.g., Buono and Bowditch 1985, Sales and Mirvis 1984) as well as theoretical models that describe the conflict in M&As due to cultural differences (e.g., Weber and Schweiger 1992). It is interesting to note that while autonomy removal is significantly associated with stress, it is also positively associated with cooperation. Apparently, while the loss of autonomy causes stress, top executives understand the purpose of the merger, namely the effort to exploit synergy, and thus are inclined to cooperate. Also, lower commitment to the acquiring firm on the part of the acquired firm's top management is associated with negative attitude towards cooperation, while actual cooperation is positively associated with attitude towards the acquiring organization, as predicted by Weber and Schweiger (1992). In summary, the results for DM&As confirm the role of corporate culture in the possible conflict between the two top management teams in domestic M&As during post-merger integration.2 High cultural differences re-

sult in lower top management commitment to and cooperation with the acquiring top management team, and thus may be a major barrier to the harnessing of synergy through successful integration of related mergers that fit strategically. This is supported by recent findings on the negative effect of corporate culture differentials on financial performance of buying firms following mergers (Chatterjee et al. 1992) and may explain the high rate of failure among M&As (Cartwright and Cooper 1993). For IM&As, the relation between corporate culture to autonomy removal and attitudinal and behavioral variables is inverse to the relationship in DM&As, with the sole exception of attitude toward the merger. While in DM&As, corporate culture differences have a negative effect in the post-merger period, in IM&As they have a positive effect. At the same time, the inter-relationships among the attitudinal and behavioral variables are by and large consistent across the two samples. For example, in both groups, commitment and cooperation are positively and sometimes significantly correlated with negative attitudes toward the merger and the attitude toward the acquired company. Of particular importance are the results pertaining to the relationships between national measures and the other variables. Most of these relationship are positive, thus similar to the relationship of corporate culture variables. This suggests that in international mergers, both national and corporate cultures play an important role. In those operations, people expect differences and the changes related to those differences, and therefore are less likely to resist them. Black, Mendenhall and Oddou (1991) suggest that "individuals make anticipatory adjustments before they actually encounter the new situation" (p. 310). Thus, executives probably expect an attempt of to control their decision making process by the buying firm. And, when

2 The M&A literature recognizes that whether an acquisition is friendly

or hostile may influence the amount of conflict between acquiring and acquired executives (e.g., Mirvis 1985, Weber 1988). Although cultural

differences are a source of conflict even in friendly M&As, the lack of any hostile takeovers in our sample probably reduces the likelihood of resistance on the part of the acquired organization to the dominant firm's culture, and allows for relatively friendly exploration of cultural similarities and resolution of cultural differences (e.g., Blake and Mouton 1985, Sales and Mirvis 1984).


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there is a high cultural distance they may expect tighter control. In other words, the top managers in the acquired firm will make anticipatory adjustment towards the narrowing of their autonomy by the acquiring organization. Hence, autonomy removal in the international sample is positively associated with attitudes and behavior. This fits Black et al.'s (1991) proposition that "accurate expectations will be positively related to anticipatory adjustment and to the degree of international adjustment . . ." (p. 306). Similarly, executives in related DM&As know that synergy is realized through the removal of autonomy, and expect it. Hence, in both samples, autonomy removal is positively associated with other attitudinal and behavioral variables. The impact of unmet expectations in IM&As vs. DM&As is consistent with Adler's (1981) findings on expatriate reentry: Returning executives often suffer greater stress and disorientation than during initial foreign posting because they do not expect their home organization to be different. 4.1. Findings of the Co-plot Method The original data matrix Y40xio was submitted to co-plot. In Figures 1 and 2, each of the group of mergers is located in a two-dimensional space. An arrow representing a certain variable tends to rise toward the higherthan-average values. All the mergers that fall on the arrow beginning from the center of gravity in (opposite

Figure2

Co-plot GraphicPresentationof Variables(Arrows)and Observations (CircledNumbers)for the DomesticSample Stress Integration cooperation

Negativeati tu Toward cooperation

Attitudes toward cooperation

C orporatemIIiCommitment cultural -Power differences, ,,

dsae ~~~~~~~~~~~distance

Figure 1

Co-plotGraphicPresentationof Variables(Arrows)and Observations (CircledNumbers)for the International Sample Observations: 1. Netherland5. Netherland 2. Canada 6. Netherland 3. Germany 7. Germany 4. France 8. Canada@_,

Individualisml/ collectivism oopCooperation Uncertainty ~

MasculiNeavoidance Negative | Stress | \ \\

~~~~~distance

\Commitment Attitudes ntrtontoward Corp,orate ntegration Cooperation cultural differences

to) the direction of the arrow, have values higher (lower) than the average. The general goodness-of-fit obtained by the coefficient of alienation is excellent for both DM&As (0.08) and IM&As (0.07). At first, the relationships between variables seem similar to those observed in the correlation matrix. For example, while corporate culture is positively related to autonomy removal in the international sample, it is negatively related to autonomy removal in the domestic sample-a dotted arrow implies an inverse relationship. Co-plot is helpful, though, in visually highlighting some of the more intriguing relationships. For instance, Figure 1 shows that for IM&As, national culture differentials have a much better predictive validity than corporate culture differentials for stress, negative attitudes towards the organization, and actual cooperation. This is particularly true for individualism, uncertainty avoidance, and masculinity. The advantage of the co-plot method, however, rests with its simultaneous illustration of the relationship between observations and variables and among the various observations. For example, observations 3 and 7 in the international sample, both representing acquiring firms from Germany, are high on cooperation and low on stress. Also, these observations are relatively high in differences of individualism/ collectivism and uncertainty avoidance. On the other hand, observations 1 and 5, where the acquiring companies are from the Netherlands, are lower than average on the above variables.

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It is also apparent that the acquisitions from Germany and the Netherlands have some similarities; they are low in corporate culture differentials while France (observation 4) and Canada are high. Furthermore, the coplot method can be very useful in comparing differences between observations within nations. For example, observation 6 is a merger involving a Netherlands firm whose location in the graph (other quarter) highlights its distinctiveness vis-a-vis the other Netherlandsrelated M&As, represented by observations 1 and 5. Thus, observation 6 is higher in corporate culture differentials than observations 1 and 5, and also higher in autonomy removal. One possible explanation is that higher corporate culture differentials raise the need for control on the side of the buying firm, while at the same time such intervention is more expected, and therefore, more accepted in the acquired firm. This example illustrates a very significant advantage of the co-plot method. By simultaneously presenting variables and observations, co-plot findings point at potentially promising relationships which would normally be hidden in a variable-only method. Such relationships call for explanation and hence are essential for theory development.

5. DiscussionThis study provides systematic evidence on the relationships between national and corporate culture clash and top management attitudes and behavior during post-merger integration. The findings suggest that predictions regarding the emergence of an "international managerial structure" (Everett et al. 1982) have been premature. National culture remains a potent force in international business, and M&As are no exception. Thus, we have found that in IM&As, national culture differentials better predict stress, negative attitudes towards the merger, and actual cooperation, than corporate culture differentials do. The findings also suggest, however, that both national and corporate cultures are essential inputs determining merger processes and outcomes. The interplay between national and corporate cultures may help explain some of the inconsistent findings concerning the potential synergy achievable in different

M&As. Horizontal and concentric mergers are more closely associated with higher synergy than conglomerate and vertical mergers and, therefore have the potential to outperform the latter (Chatterjee 1986, Porter 1985, Rumelt 1974). However, empirical studies have shown that conglomerates and vertical mergers outperformed concentric and horizontal ones (Kitching 1967, Lubatkin 1987). One explanation for the above findings is that the problems associated with combining teams of diverse cultures might be greater at least in some cases of horizontal mergers than in conglomerates. Where ventures are similar, synergy is more likely to be achieved, and horizontal mergers should be more successful. While the present findings are exploratory and need to be confirmed by further research, some practical implications can be proposed: Management should pay at least as much attention to cultural fit during both the premerger search process and during post-merger integration process as it does to finance and strategic factors. A lack of cultural fit may undermine the prospect of achieving synergy or add cost to the integration process, thus offsetting one of the main raison-d'etre of the merger. To facilitate the process, managerial and employee expectations must be taken into account, proper communications channels need to be established, and acculturation to both national and corporate cultures of the partner firm should take place.

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has withtheauthors months 2 revisions. 22 for Accepted Richard Burton; by M. received April1994.Thispaper been

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