The Effects of Mergers on Culture - University of Cape...

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The Effects of Mergers and Acquisitions on Organisational Culture

A Comparative Study

A Research Report

presented to

The Graduate School of Business

University of Cape Town

in partial fulfilment

of the requirements for the

Masters of Business Administration Degree

by

Kim Anderssen and Natalie Smith

December 2000

Supervisor: Professor Frank Horwitz

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This report is not confidential. It may be used freely by the Graduate School of Business.

We would like to thank Professor Frank Horwitz for his support and guidance. We would

also like to thank Andre Bezuidenhout, Steven Cohen, Faiez Kirsten and Andre van Heerden,

the authors of the case studies that provided the data on which this research was based.

We certify that the report is our own work and all references are accurately reported.

Signed:

Kim Anderssen Natalie Smith

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The Effects of Mergers and Acquisitions on Organisational Culture

A Comparative Study

ABSTRACT

This research investigates the impact of mergers and acquisitions on organisational culture in

a South African context. This report is based on secondary data within four case studies

regarding recent merger and acquisition activity in South Africa: Bezuidenhout (1999),

Cohen (1999), Kirsten (1999) and van Heerden (1999). These case studies describe two

“pure” mergers, one simultaneous merger and acquisition, and one management buy out. In

light of the increasing merger and acquisition activity and high failure rate thereof, this

research determines whether common trends, themes and lessons can be ascertained. The

findings indicate that mergers and acquisitions usually result in a combination of disparate

cultures, thereby increasing the difficulties of creating a unified organisational culture. This

is aggravated by the neglect of ‘soft’ due diligence in favour of financial and strategic

assessments. In addition, the lack of integration strategies, full time integration teams and

effective communication further hamper successful acculturation. Furthermore, employee

turnover was neglected in all four case studies and little urgency was given to the process.

Ultimately, none of the organisations indicated that an integrated culture had been achieved.

Thus, while common trends, themes and patterns can be deduced, these lie predominantly in

the area of things not done well in the merger or acquisition approaches and processes of the

four case studies. Lessons and critical success factors for managers designed for future

endeavours in this area are revealed.

Keywords: Acculturation, acquisition, effective communication, employee turnover,

integration strategy, integration team, management buy out, merger,

organisational culture, ‘soft’ due diligence, critical success factors.

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CONTENTS

GLOSSARY OF TERMS........................................................................................................... 1

1. INTRODUCTION ............................................................................................................. 2

1.1. Background to the Research ................................................................................. 2 1.2. The Problem Addressed and the Purpose of the Dissertation............................... 2 1.3. Format of the Report............................................................................................. 3

2. DEFINITION OF THE PROBLEM..................................................................................... 5

3. LITERATURE REVIEW .................................................................................................. 7

3.1. Organisational Culture .......................................................................................... 7 3.2. Mergers and Acquisitions ................................................................................... 24

4. RESEARCH METHODOLOGY....................................................................................... 41

4.1. Research Proposition .......................................................................................... 41 4.2. Research Procedures ........................................................................................... 41 4.3. Research Approach ............................................................................................. 42 4.4. Assumptions, Limitations and Weaknesses........................................................ 45

5. FINDINGS..................................................................................................................... 47

6. DISCUSSION................................................................................................................. 62

6.1. Types of Organisational Culture......................................................................... 62 6.2. The Cultural Dynamics of Organisational Combinations................................... 63 6.3. Managing the Culture During the Merger or Acquisition .................................. 65 6.4. The Approach to the Merger............................................................................... 66 6.5. Managing the Uncertainty with Respect to Employment Position..................... 71 6.6. Managing the Timeframe.................................................................................... 72 6.7. Managing Employee Turnover ........................................................................... 73 6.8. Communication................................................................................................... 74 6.9. Measuring Organisational Culture...................................................................... 75 6.10. Cultural Integration ............................................................................................ 78

8. RECOMMENDATIONS .................................................................................................. 81

9. CONCLUSION .............................................................................................................. 84

10. BIBLIOGRAPHY .......................................................................................................... 86

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GLOSSARY OF TERMS

Acculturation: To assimilate or cause to assimilate a different culture

Acquisitions: Where a purchaser buys the assets or shares of a company that continues to

function as a subsidiary of the purchaser (Ghobodian, James, Liu and Viney, 1999: 56)

Employee turnover: The rate at which employees leave the organisation

Integration: The extent to which units within the organisation are encouraged to operate in a

co-ordinated manner

Management buy out: An internal acquisition in which the management team become the

owners of the organisation

Merger: When two companies integrate to form a new company with shared resources and

corporate objectives (Ghobodian, James, Liu and Viney, 1999: 56)

Norms: Behaviour that individuals within an organisation regard as appropriate or

inappropriate within the confines of the organisation

Organisational culture: The organisation’ s personality. The hidden but unifying force

providing meaning and direction. The system of beliefs and values that shape employee

behaviour. The way things are done in the organisation

Organisational integration: The extent to which various sub-units co-operate and

communicate effectively towards the achievement of the overall organisational objectives

Soft due diligence: The cultural audit undertaken prior to a merger or acquisition in order to

determine cultural fit

Take Over: Similar to an acquisition except the purchasing company is usually much larger

than the acquired company. It is either regarded as friendly or hostile

Values: Relatively stable and enduring beliefs

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1. INTRODUCTION

The focus of this study is to determine whether there are common trends that can be

identified, and lessons that can be learnt through a comparative case study of organisations

that have undergone mergers or acquisitions. Previous research in this area focuses on a

general overview of why mergers tend to fail or succeed, and how to avoid or manage these

problems. Recent studies highlight the significant impact of organisational culture in the long

term. The study aims to identify aspects of organisational culture that are vital to the

successful management of cultural transition in mergers. Research shows that organisational

culture is at the heart of a successful integration and by focusing solely on shareholder value,

long-term stability and success will not be achieved.

1.1. Background to the Research

Due to the need for global competitiveness, we have seen a marked increase in the number of

mergers taking place today. The traditional focus has, in the past, primarily been devoted to

the financial and strategic factors which motivate the merger, and relatively little attention

has been paid to the importance of organisational fit in terms of culture. A successful merger

relies on exploiting the core competencies common to the organisations (Ghobodian, James,

Liu and Viney, 1999: 54-56). These reside in the organisation’s intellectual and system’s

capabilities and not merely in its physical assets (Quinn, Anderson and Finkelstein, 1996:

71).

Conventional due diligence in the past has focused on the financial and strategic aspects and

ignored the management of organisational and human resource integration. The human

resource issues are the most difficult to quantify and are often overlooked. Alternatively this

process is usually seen as secondary to the merger, and as something that can be addressed

once the financial and legal matters have been finalised (Ashkenas, DeMonaco and Francis,

1998: 165). However the cost of managing organisational culture differences is one of the

most pervasive in terms of long-term hidden costs.

1.2. The Problem Addressed and the Purpose of the Dissertation

Through a comparative analysis of four recent case studies into the effect of mergers or

acquisitions on corporate culture, this report will determine whether there are any practical

insights to be gained and lessons that can be drawn.

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The current problem is that although companies have realised there is a vital need to conduct

due diligence on the human resources side, there is little research pertaining to this aspect in a

South African context.

This research aims to determine whether lessons and common themes can be identified in a

South African context. It is hoped that these lessons, themes and trends will provide

managers with relevant and meaningful insights into future endeavours in this area.

1.3. Format of the Report

This research investigates the merger and acquisition activity of four organisations. The

report assumes the following approach:

The Research Problem and Reason for the Study

Merger and acquisition activity in South Africa has increased in line with the rest of the

world. Previous research has focused on strategic and financial implications of these

transactions. This study however highlights the importance of cultural fit and human

resource issues, especially within the unique South African context.

The four case studies, which cover a wide spectrum of industries, have been used to identify

the impact of the merger on the employees and organisation and through a comparative study

to recognize themes and common trends. From this, the research has sought to distinguish

critical success factors necessary for a successful merger.

Literature Review

The literature review covered two broad areas:

Culture

Mergers and acquisitions

The cultural overview includes a theoretical overview and definition of organisational

culture, as well as culture specifically pertaining to mergers and acquisitions. This looks

specifically at the types of organisational cultures and the dynamics of organisational

combinations. The relationship between organisational culture and performance is also

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identified. The fifteen cultural dimensions as defined by van der Post, De Coning and Smit

(1997: 149-150) have been chosen as an instrument to measure organisational effectiveness.

The theory on mergers and acquisitions defines the terms and describes the differing power

relationship between the two transactions. As one of the case studies includes a management

buy out, the specifics of this type of acquisition are outlined. The literature also looks at the

effects mergers and acquisitions have on individuals and organisations and the problems

associated therewith. Best practices associated with differences in organisational culture in a

merger are identified through various models and phases. This information was used to

formulate recommendations for future management of mergers.

Research Methodology

This research used secondary data, which was derived from four case studies conducted in

1999. Using the Grounded Theory approach as described by Easterby-Smith, Thorpe and

Lowe (1991: 108) the data was studied and analysed in order to investigate the major and

minor propositions of the study.

Findings, Analysis and Recommendations

After a thorough investigation and study of the data, patterns and common trends began to

emerge. These have been outlined and discussed in depth in the findings. The analysis

discusses these findings in greater depth and applies the principles identified in the literature

overview where appropriate. The discussion gives rise to generic recommendations, which

emphasise the benefits of actively managing a merger or acquisition, specifically relating to

cultural and human resource issues.

Conclusion

Due to the continued activity of mergers and acquisitions within South Africa, critical success

factors have been provided to assist managers with future endeavours in this area, and

provide a platform for future research.

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2. DEFINITION OF THE PROBLEM

Mergers and acquisitions are increasing due to economic and financial pressures on

organisations as a result of globalisation. Organisations are gradually striving to achieve

increased market share and penetration. Market dominant strategies have also grown in

popularity. The potential impact of these ambitious strategies is such that regulatory bodies

have intervened in order to prevent monopolistic conditions. Although previous research has

been conducted on the effects of mergers and acquisitions on organisational culture and

performance in companies outside of South Africa, not much information is available with

respect to South African companies.

Although South Africa’s banking system is undoubtedly in need of improvements in certain

areas in order to effectively meet the challenges posed by globalisation, the Competition

Commission recently prevented the proposed merger between Nedcor and Standard Bank

Investment Corporation (Stanbic). Market conditions are said to have dictated whether a

merger would be permissible. Finance Minister Trevor Manuel blocked Nedcor’s bid citing

the lack of competition in South Africa’s retail banking market as one of the main reasons. It

was also felt that any efficiency gains due to economies of scale would have been

overshadowed by the social costs, which included ten to fifteen thousand job losses. This

represented a net loss to society, which could not be offset by the potential efficiency gains or

public interest considerations. The concentration of economic power in the hands of a single

entity was a central concern. A merger would have had the potential to reduce competition,

which, in the long term, came at a cost to the economy. The potential efficiency gains would

therefore not exceed the public interest concerns of diminished competition, potential market

concentration and job losses, should this merged entity have failed. The JD-Ellerine merger

was similarly pronounced unfit for authorisation in its current form by the Competition

Commission for analogous reasons.

However, continued merger and acquisition activity in South Africa is evident in the recent

R5.5 million bid by Investec for Fedsure Holdings interests in the financial services and

assurance markets. The merger was undertaken due to the synergies that exist between the

two businesses, which will enable the new group to unlock value. It also provides the

opportunity to restructure the cross-shareholding between the two organisations. The

transaction, which is still subject to a due diligence, regulatory and shareholder approval, is

part of the ongoing consolidation and rationalisation in the financial services industry.

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Merger and acquisition activity for those involved is an extraordinary destabilising life event,

which requires considerable personal adjustment. The consequence of mergers is habitually a

combination of organisations with often very dissimilar cultures. Furthermore, this problem

is exacerbated in post-apartheid South Africa where organisations are becoming

progressively more racially and culturally diverse.

Due to South Africa’s history of racial discrimination and inequality, white and black South

Africans, as a result of their vastly different experiences, have developed different

worldviews and cultures. Furthermore, as South Africa currently lags world productivity

standards, in order to achieve economic growth it is important for South African

organisations to develop cultures and enhance performance and productivity. It is important

that the different sectors of the population learn to work together and to interact and

cooperate with each other in a positive manner in order for the country as a whole to benefit.

This research aims to determine whether lessons and/or common themes can be identified

through a comparative case study of four organisational mergers. The aim is to provide

managers with relevant and meaningful insights into future activities in this area.

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3. LITERATURE REVIEW

3.1. Organisational Culture

3.1.1. Defining Organisational Culture

There are many prevalent definitions of organisational culture within management literature.

All tend to reflect the essence of the classic sociological/anthropological definition of the

concept as concerning the internalisation of the set of values, feelings, attitudes and

expectations, which provide meaning, order, and stability to members’ lives and influence

their behaviour (Cartwright and Cooper, 1996: 60).

“Culture is taken to be the shared attitudes, values, beliefs and customs of members of

a social unit organisation” (Martin, 1985, in Cartwright and Cooper, 1996: 60)

“Organisational culture… shared meanings – patterns of belief, symbols, rituals and

myths that evolve across time and that function as social glue” (Smircich, 1983: 347)

“…fairly stable taken for granted (set of) assumptions… meanings and values that

form a kind of backdrop for action” (Smircich, 1985, in Cartwright and Cooper, 1996:

60)

“A pattern of basic assumptions – invented, discovered or developed by a given group

as it learns to cope with its problems of external adaption and internal integration –

that has worked well enough to be considered valid and, therefore, to be taught to new

members as the correct way to perceive, think and feel in relation to those problems”

(Schein, 1990: 9).

Cartwright and Cooper (1996: 61) describe a variety of ways in which culture can manifest

itself:

The way in which people interact, their terms of address, their language and technical

jargon

The norms which govern an organisation

The organisation’s self image and internal and external dominant values

The way an organisation treats its employees and responds to its customers

The evaluative criteria of the organisation

The climate of the organisation, conveyed through its physical layout and general

atmosphere.

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3.1.2. The Origins of Organisational Culture

The idea that organisations, as mini societies, can be considered as having a culture has its

theoretical origins in sociology and anthropology. This concept is fundamental to the

understanding of any society or societal group. Culture is considered to be a powerful,

enduring and pervasive influence on human behaviour. Through socialisation, individuals

learn the norms and expectations of membership of the society. These include the right and

wrong ways of doing things, acceptable and unacceptable forms of behaviour and language.

It is through their culture that society maintains regularity and order (Cartwright and Cooper,

1996: 58).

Culture is a collective phenomenon that is at least partly shared with people who live or work

within the same environment (Cartwright, Cooper and Jordan, 1992, in Cartwright and

Cooper, 1996: 59). Values are at the core of culture. These are broad tendencies, which tend

to prefer certain states of affairs over others and act to influence behaviour. Morgan (1986, in

Cartwright and Cooper, 1996: 59) describes the metaphor of culture as a shared sense of

reality. Those that do not possess a culture that is compatible do not share the same reality

and therefore cannot enact this reality with each other.

Culture in terms of business activity can operate at two levels: national and organisational.

National cultures are shaped by tradition and reflect economic and social history, climate and

other demographic conditions. As a result, different nations have different cultures. These

national cultures may influence the style of work, organisations and organisational cultures to

some extent. However, different organisations as subgroups within the same national culture

have different cultures. These may differ in terms of the strength, coherence, pervasiveness

and type of organisational culture. According to Cartwright and Cooper (1996: 59), the type

of organisational culture is defined by a variety of factors, namely its history and ownership,

its size, the technology it employs and the nature if its business activity, the external

environment and product market, and the people, particularly the founders and leaders.

Culture is therefore something an organisation is rather than has. Within organisations there

may be a multiplicity of subcultures, which add to the problems of integration however, the

argument that any organisation can be considered as having an overarching dominant culture

of one particular type is not weakened by their presence. A company like a nation is

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composed entirely of subgroups with their own cultural identity yet it is still meaningful to

talk of national cultures, characteristics and cross-cultural differences.

3.1.3. Key Components of Organisational Culture

The Two Levels of Organisational Culture

These differ in terms of their visibility and resistance to change. At the deeper less visible

level, culture refers to values that are shared by people in a group. At a more visible level,

culture represents the behaviour patterns of an organisation that new employees are

automatically encouraged to follow (Kotter and Heskett, 1992: 4).

Artifacts

These take the form of stories, myths, jokes, metaphors, rites, rituals, and ceremonies, heroes

and symbols. This is the most visible level of culture but often not decipherable (Schein,

1990: 14).

A System of Values, Beliefs and Attitudes

In most cases these provide the underlying reasons for individual behaviour. Beliefs reflect

the generally accepted truths about the inter-relationships of entities, events and outcomes.

Values express the importance and desirabilities given to entities, events and outcomes

(Veldsman, 1997: 7). Beliefs and values are often very difficult to distinguish between

because beliefs are often intertwined with values. Attitudes connect beliefs and values with

feelings. An attitude is a subconscious tendency to respond in a favourable or unfavourable

manner to a particular thing or idea.

Basic Assumptions

These are views that are taken for granted and provide a shared position by understanding,

interpreting and responding to entities, events and outcomes. They are held unconsciously

and are very difficult to surface.

Culture and Subculture

Organisations may contain identifiable subcultures, whose beliefs, values and assumptions

often compete with the dominant culture. As organisations are often broken up into various

parts or departments, this enhances the likelihood of these different cultures evolving, as they

share different experiences and face a different set of problems (Brown, 1995: 16).

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The Inner and Outer Context of Organisational Culture

The inner context is the organisation’s view of its organisational culture. It is made up of

cultural elements and often reflects a desired end state as opposed to a present day reality.

The outer context of an organisational culture is determined by actual settings within which

the organisation can be found and by how the organisation positions itself within these.

3.1.4. The Relationship between Organisational Culture and Performance

Linkages between management practices and patterns of behaviour and underlying

assumptions, beliefs and values are an important part of organisational culture and

performance. Peters and Waterman (1982: 13-15 in van der Post, De Coning and Smit, 1997)

presented clear evidence linking organisational performance with a strong, dominant and

coherent culture.

Denison’s model (1990: 5) can be used to suggest how four integrated mechanisms of

organisational culture may influence its performance:

Direction

Direction highlights the importance of a shared definition of the function and purpose of an

organisation and its members, for example a mission. A properly defined and communicated

mission provides purpose and meaning in addition to a number of non-economic reasons for

the importance of an organisation’s performance. A mission provides clear direction and

goals that define an appropriate course of action for an organisation and its members.

Success is more likely when individuals are more goal-directed and members collectively

work together towards a common goal.

Involvement

Involvement develops directly from the human relations theory. The central theme is that

organisational performance is a function of the level of involvement and participation of an

organisation’s members. High levels of involvement and participation create a sense of

ownership and responsibility, which results in a greater commitment to an organisation.

The involvement mechanism asserts that the inclusion and participation of members in the

process of an organisation will outweigh dissention, inconsistency and nonconformity, which

is associated with a more undemocratic internal process. Employees, by being involved, have

an opportunity to contribute their knowledge, skills and decisions and will therefore reflect

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multiple viewpoints, be apparent as legitimate and have a higher likelihood of

implementation. Over time, this process results in improved decisions and responses form

the organisation, resulting in better performance.

Consistency

This stresses the impact that a strong culture can have on performance. A shared system of

beliefs, values and symbols that is widely understood by an organisation’s members has a

positive impact on the ability to reach consensus and carry out coordinated actions. Shared

meaning has a positive impact as an organisation’s members who all work from a common

framework of values and beliefs that form the basis for communication. A strong culture,

with well-socialised members, improves performance because it facilitates the exchange of

information and coordination of behaviour.

Integration also affects organisational performance. Integration, which is analogous to shared

meaning, refers to the existence of a strong system of norms and expectations that are widely

agreed upon between members and serves to control behaviour in a manner that formal

structures, rules and bureaucracy cannot achieve.

Adaptability and Innovation

A cultural theory of organisational adaptation is a system of norms and beliefs that can

support the capacity of the organisation to receive, interpret and translate signals from the

environment into behavioural changes that improve the organisation’s chances for survival,

growth and development.

The adaptability mechanism is likely to impact on organisational performance in three ways.

Firstly, there is the ability to observe and respond to the external environment. One of the

distinguishing characteristics of successful organisations is their obsession with external

customers and competitors. Secondly, there is the ability to respond to internal customers.

Insularity regarding other departments, divisions or districts within the same organisation

denotes an external lack of adaptability, which has a direct impact on performance. Finally,

adaptation to either internal or external customers requires a capacity to restructure and

reinstitutionalise a set of behaviours and processes that allow an organisation to adapt.

Without an ability to implement an adaptive response, an organisation’s performance may be

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detrimentally affected. All of these three stages are either supported or inhibited by an

organisation’s culture.

Innovation in this framework refers to the process of bringing a new problem solving idea

into use. Innovation is the generation, acceptance and implementation of new ideas,

processes, products or services that can occur in any part of the organisation. Organisations

must create conditions that allow individuals to create, develop, test and experiment. All

employees on all levels can contribute to solving organisational problems, or inventing new

methods or strategies.

3.1.5. The Functions of Organisational Culture

Culture is generally emphasised to be an asset. Hampden-Turner (1990: 11) suggests that

“the culture of an organisation defines appropriate behaviour, bonds and motivates

individuals and asserts solutions where there is ambiguity. It governs the way a company

processes information, its internal relations and its values.” More specifically, the most

significant functions include conflict reduction, co-ordination and control, reduction of

uncertainty, motivation and competitive advantage. However, Sathe (1985, in Kotter and

Heskett, 1992: 7) argues that an organisation’s culture can also be a liability, as shared

beliefs, values and assumptions can interfere with business and cause people to think and act

inappropriately.

Conflict Reduction

Culture is described as the ‘glue’ or ‘cement’ that binds an organisation together. A common

culture promotes consistency of problem definition, perception and preferences for action.

As organisations can also be highly conflictual and antagonistic, culture can be a useful force

for integration and consensus. According to Schein (1990: 109-119), organisations need to

evolve consensus on two sets of issues:

Those which help a group to survive in and adapt to the external environment

Those which help an organisation to integrate its internal processes in order to survive

and adapt.

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Co-ordination and Control

As culture generally promotes consistency of outlook, it also facilitates organisational

processes of co-ordination and control. Cultural stories and myths provide a norm of

behaviour that enable agreements to be reached and processes to accomplish decisions.

Cultural preconceptions limit the extent to which employees are free to express their

individuality in a manner that is more subtle and beguiling than formal rules and regulations.

Reduction of Uncertainty

Individuals and organisations face considerable uncertainty and complexity in the conduct of

work activities. The adoption of a coherent culture enables individuals to perceive reality in a

particular way, make assumptions regarding what is important, how to behave and how

things work. The adoption of culture makes choices easier and rational action seem possible.

This is similar at the level of the organisation. However, through a culture’s myths,

metaphors, symbols and stories, an organisation is able to construct its own world.

Motivation

As organisational culture can be an important source of motivation for employees, it has a

significant influence on the efficiency and effectiveness of an organisation. Most

organisations attempt to motivate their employees through the use of rewards, for example,

bonuses and promotions whilst the threat of punishment is in the form of demotions and

salary reductions. An appropriate and cohesive culture can influence employees to think of

themselves as high performers doing worthwhile jobs, which creates a sense of belonging.

Competitive Advantage

Kotter and Heskett (1992: 7-8) suggest that a strong organisational culture can be a form of

competitive advantage. As a strong culture promotes consistency, co-ordination and control,

reduces uncertainty and enhances motivation, culture therefore facilitates organisational

effectiveness and subsequently improves the chances of being successful in the marketplace.

However the relationship is not always positive, and high performing companies may have

weak cultures, and strong cultures may be possessed by poor performing organisations.

3.1.6. Types of Organisational Culture

Hofstede, Neuijen, Daval-Ohayr and Sanders (1990: 286) account for differences between

organisations in terms of their practices, according to the following dimensions:

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Process oriented versus results oriented

Employee oriented versus job oriented

Parochial (employees derive their identity from the organisations) versus professional

(employees derive their identity from the job they perform)

Open versus closed system of communication

Loose versus tight control (degree of formal internal structure)

Normative (an organisation perceives their task towards the outside world as the

implementation of inviolable roles) versus pragmatic (customer orientation is market

driven).

With the exception of employee oriented versus job oriented and open versus closed system

of communication, which are related to the philosophy of cultural founders and leaders, an

organisation’s position in these dimensions is considered to be the result of the type of

business activity that it engages in.

Harrison (1972: 121-123) suggested four main types of organisational culture:

Power Cultures

Power in organisations usually rests with a single individual, generally the founder, or a small

nucleus of key individuals. Power cultures are considered more typical of small

organisations because they are difficult to sustain as an organisation grows larger,

necessitating the diffusion of power. As the emphasis is on individual rather than group

decision making, power cultures have the advantage of being able to move and react swiftly.

These cultures are associated with inequitable reward systems, in that salary and other

benefits are often rewarded on the basis of personal preference, in return for demonstrated

loyalty, perceived favours or long service, as much as on ability. As a power culture is

essentially autocratic, low morale and feelings of powerlessness are frequent features. Long

established power cultures tend to be overlade with tradition.

Power cultures can be further differentiated in terms of the type and perceived legitimacy of

the power exercised into patriarchal as opposed to purely autocratic power cultures:

Patriarchal Power Cultures

Power derives from ownership of the means of production or at least a financial or a

recognised personal stake or commitment to the continued future of the business. Although

the exercise of power is considered legitimate and therefore understood, such cultures may be

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experienced as oppressive. They also exercise a high degree of concern towards their

employees as the psychological contract between the organisation and the majority of its

members is similar to that that exists between parent and child (Handy, in Cartwright and

Cooper, 1996: 66).

Autocratic Power Cultures

In contrast, purely autocratic cultures are those in which power is justified as a result of

leadership status or position in an organisation. Furthermore those in authority are not

considered to be genuinely interested in the continued future of the organisation as they are

likely to move on to other opportunities. These cultures are frequently experienced as

oppressive and dissatisfying because power is resented.

Role Cultures

The organisation’s view of itself is as a collection of roles to be undertaken rather than a

collection of people or personalities. These are frequently found in organisations with highly

specialised dimensions of labour. These cultures tend to be exclusively results orientated,

with finance and accounting often recognised as the most important organisational functions.

Formal procedures and regulations concerning the way in which work is to be conducted are

central features of role cultures. Role requirements, boundaries of authority and reporting

arrangements are clearly defined. These organisations tend to be hierarchical, extremely

status orientated and competitive. They offer security and predictability but are often

constrained in terms of innovation and risk-taking behaviour. Employees tend to feel like

‘small cogs in a big wheel.’

Task/Achievement Cultures

The emphasis of this culture is on the completion of the task. A large amount of energy is

spent securing the necessary task related resources and skills. This is generally more of a

team culture where the commitment to the task bonds and energises the individuals. What is

achieved is more important than how it is achieved, therefore relevant task expertise is highly

valued and frequently more powerful than personal or positional power. These cultures are

characterised by their flexibility and high levels of worker autonomy making them potentially

creative and satisfying environments to work in. However, the lack of formal authority

means that control is problematic and often, in times of crisis, they tend to change into role

cultures.

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The Person/Support Cultures

The main characteristic of the person/support culture is egalitarianism. Structure is minimal

and the culture exists and functions solely to nurture personal growth and development of its

individual members. Information, influence and decision making are shared collectively.

The organisation is subordinate to the individual for its existence.

3.1.7. The Implications of Culture Types for Inter-organisational Combinations

Cultural compatibility between combining organisations would seem to imply cultural

similarity. Therefore a successful merger or acquisition hinges on the ability of decision-

makers to identify a potential merger partner or acquisition target that represents both a good

strategic and cultural match.

As in practice financial and strategic considerations are likely to outweigh any selection

criteria based on cultural similarities, combinations between organisations of different culture

type are inevitable. It is therefore more appropriate to ask whether a particular combination

of dissimilar cultures has more chance of success than another combination. For example,

the combination of a ‘role culture’ with a ‘task culture’ has more chance of success than a

‘power culture’ with a ‘person/support culture.’

The issue therefore of cultural compatibility is related to the type and the implicit terms of the

organisational ‘marriage’ contract or partnership agreement. There are three possible forms

such a contract may take. These are dependent on the motive, objective and power dynamic

of the combination.

The Open Marriage

This occurs when the acquirer or dominant party is satisfied with the present performance of

the acquired organisation, and has confidence in its existing management and their ability to

achieve its future growth potential. This type of acquisition usually represents a purely

strategic extension of the acquiring organisation’s activities. The acquirer’s role is primarily

to support its acquisition and to provide investment in order to facilitate its development and

growth. The essence of an open marriage is non-interference and the acquired organisation

operates autonomously and maintains its existing culture, provided the expected financial

results are achieved. Open marriages occur more often in unrelated acquisitions, but can also

work in related acquisitions.

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Many acquisitions deteriorate because the acquirer does not resist the temptation to change

things or they are not prepared to tolerate any multiculturalism amongst their acquired

organisations. Open marriages falter if financial results decline or the management changes.

As a result, the acquirer loses trust and confidence in the organisation and will either dispose

of the organisation or revert to a more traditional form of relationship.

The Traditional Marriage

This occurs when the acquirer or dominant partner is dissatisfied with the present

performance of the acquired organisation and its management. The acquisition is often made

for strategic or financial reasons. The acquirer’s role is to redesign the acquired organisation.

Change is radical and wide-scale and the acquired or ‘merged’ organisation adopts the

practices, philosophies, procedures and culture of the acquirer.

The success of a traditional marriage depends on the willingness of the combing partner to

adopt and assimilate the acquiring organisation’s culture. Difficulties develop when the

acquired organisation resists or seeks to renegotiate the terms, resulting in the acquirer either

responding with a ‘heavy hand’ or firing people.

The Modern or Collaborative Marriage

This occurs when there is a high degree of respect between parties and recognition that

integration of operations or expertise will be of mutual benefit. Both parties have

complementary forces and make a contribution. The essence is shared learning.

Collaborative marriages seek to build on and integrate both organisations’ cultures.

Collaborative marriages are rare.

Culture types are therefore less important in ‘open marriages’ than in traditional or

collaborative marriages.

3.1.8. The Relationship between Cultures Types

There are four basic culture types which can result in ten possible combinations: (1) power

with power, (2) power with role, (3) power with task, (4) power with support, (5) task with

support, (6) role with role, (7) role with task, (8) role with support, (9) task with task, and

(10) support with support.

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Only four of the above ten permutations relate to combinations between similar types, of

which support with support is unlikely to occur. Therefore it is more likely that a merger will

result in a combination of organisations with dissimilar cultures.

Once the culture types of the organisations have been identified, the degree of

similarity/dissimilarity between them must be considered. There are few pure or ideal of

cultures types and it is therefore appropriate to regard the types as ranging on a continuum in

terms of the degree of constraints they place on individuals. By plotting the relative position

of both parties to any combination on the continuum at the outset, the degree of

similarity/dissimilarity of the initial cultural relationship between the two can be assessed.

As the objectives of ‘traditional marriages’ and ‘collaborative marriages’ are different,

acquirers require different characteristics in their partners. Success for a traditional marriage

depends on the ability of the acquirer to change the culture of the acquired, whereas success

in a collaborative marriage depends on the degree to which the cultures can work together

and integrate. When there is a genuine merger and the relationship takes the form of a

collaborative marriage, integration requires compromise. The degree of dissimilarity

between the two culture types is important in determining the degree of change each partner

will be required to accommodate in order to reach a new ‘best of both worlds’ culture. If

partners in a merger are not matched in culture types, it is important to the success of the

merger that they are of adjacent types and not at opposite ends of the continuum.

Figure 1: Potentially Successful Merger between ‘Role’ and ‘Task’ Cultures and the

Potentially Unsuccessful Merger between ‘Power’ and ‘Support’ Cultures, due to their

Proximity on the Continuum

Cultural Integration

Autocratic Patriarchal Closed Open

Task/achievement Person/support

Merger partner Merger partner

Power Role


Autocratic Patriarchal Closed Open

Task/achievement Person/support

Merger partner Merger partner

Power Role

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3.1.9. The Cultural Dynamics of Organisational Combinations

According to Cartwright and Cooper (1996: 83-84), when two organisations join the result is

invariably some form of cultural shock, particularly if the contact has not been chosen. The

more dissimilar the cultures are, the greater the resultant shock. Individuals assess the culture

of the other partner by taking into account two factors:

The extent to which they value their existing culture and consider it worth preserving

The extent to which members perceive the culture of “the other” to be attractive.

There are four implications of this process of cultural evaluation in terms of potential

outcomes for the organisation:

Assimilation

An individual prefers the ‘other’ culture to his/her own present culture and is therefore

willing to relinquish it, adopt and be absorbed into the ‘other’ culture. If the majority of the

employees make this evaluation, there will be assimilation.

Integration

An individual finds certain aspects of ‘the other’ culture attractive and would like to

incorporate these aspects into his/her own culture. However, he/she also values aspects of

his/her own culture and wishes to retain these. If the vast majority of employees of both

organisations share this evaluation, there is the potential for successful cultural integration.

Separation

He/she prefers his/her own present culture and does not wish to change it. ‘The other’ party

however does not respect this and any attempt to change the culture will be met with

resistance. If the majority of employees make this evaluation and decide to maintain their

existing culture, separation can occur.

Deculturalisation

He/she is indifferent to both and dissatisfied with his/her present culture, yet perceives ‘the

other’ culture to be equally dissatisfying or valueless. When a member is dismembered from

his/her existing culture, any contact with the other culture heightens feelings of alienation. If

the response of the majority of employees of one or both of the organisations is similar, wide

scale alienation or deculturalisation results.

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Successful marriages are the outcome of the cultural dynamics of the combinations. The

culture types of both organisations before integration plays a crucial role in determining

whether an acquired culture will change or integrate.

There are two basic types of successful marriage as proposed by Cartwright and Cooper

(1996: 91):

A Good Culture Match

Cultural similarity is not necessarily a precondition for satisfactory assimilation. Traditional

marriages, which most mergers are, are likely to be successful if the intended direction of

culture change is seen as increasing employee participation and autonomy. Meaningful

cultural integration through a collaborative marriage is only likely to occur in genuine

exchange mergers. In this circumstance, where there is a potential to create a ‘best of both

worlds’ culture, a reasonable degree of similarity is required in order to achieve integration in

a relatively short time.

Mutual Agreement of Members of Both Combining Organisations as to the Terms of the

Marriage Contract

Members of the acquired organisation must recognise and accept the terms of the marriage

contract in order for a merger or acquisition to be successful. Due to the power dynamics,

acquired employees are more likely to recognise that they are expected to assimilate and

adopt the culture of the acquirer. As the power dynamics in mergers are more ambiguous, the

terms of the marriage often have to be negotiated and clearly communicated, as well as

accepted by those involved.

3.1.10. Approaches to Cultural Change

Bate (1990: 16) suggested four broad approaches to cultural change:

The Aggressive Approach

Acquirers that take over organisations that are smaller or less successful than themselves

generally adopt this approach. The aim of the aggressive approach is to wipe out or tear

down the old culture rapidly, by whatever means necessary, regardless of how unpopular.

This usually requires getting rid of or threatening to get rid of employees. Characteristics of

this approach include time urgency and lack of respect for the organisation’s past. Change is

achieved by disruption and fear, and employees are expected to accept the new culture

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because they have to. Whilst this approach is effective in triggering the process of culture

change and may ‘unfreeze’ the old culture, the insensitivity often has an alienating effect.

The Conciliative Approach

This approach aims to respond to people as rational beings without external coercion.

Provided the new culture is sensible, it is assumed that employees will accept it. This is an

effective approach in avoiding conflict and introducing the new culture gradually, however

the soft sell of the approach may result in a non-response.

The Corrosive Approach

This is a political approach that is dependent on the participation of various alliances and

coalitions within the acquired organisation for success. This approach can be effective, in

that by directing change at specific powerful individuals or groups, change throughout the

rest of the organisation will automatically follow. However, key individuals may sabotage or

resist cultural change, instead of accepting and endorsing its implementation.

The Indoctrinative Approach

This approach aims to teach the new culture to its members through planned learning and

training programmes. It is effective in communicating the ‘contents’ of the new culture to its

members at a deep structural level. However if the programmes are passive they may be

responded to as mere ‘propaganda’ and result in resentment and cultural resistance.

There is no ‘one best way’ or approach to cultural change and any approach should be

complemented by at least one other.

3.1.11. Measuring Organisational Culture

Gordons and Cummins identified eight measures of organisational culture, namely

organisational clarity, decision-making, organisational integration, management style,

performance orientation, organisational vitality, compensation and human resources

development (1979: 29, in van der Post, De Coning and Smit, 1997). Furthermore, Peters

and Waterman identified eight characteristics of excellent organisations: a bias for actions,

closeness to the customer, autonomous and entrepreneurial leadership, productivity through

people, strongly managed value systems, knowing their business, simple organisation

structures and decentralised authority (1982: 13-15, in van der Post, De Coning and Smit,

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1997). Robbins suggested ten dimensions along which culture could be measured,

specifically, individual initiative, risk tolerance, direction, integration, management support,

control, identity, reward system, conflict tolerance and communication patterns (1990: 439,

in van der Post, De Coning and Smit, 1997). Finally, Bettinger identified twelve dimensions

of organisational culture, namely attitude towards change, strategic organisational focus on

goals and objectives, performance standards and values that contribute towards success,

rituals to support and reinforce values, concern for people, rewards and punishments that

positively reinforce behaviour, openness in communication and supervision, conflict

resolution aimed at minimising dysfunctional results, market and customer orientation, a

sense of pride in the mission and objectives of the organisation, commitment to the

organisation and teamwork (1989: 38-42, in van der Post, De Coning and Smit, 1997).

Due to the fact that many of these dimensions overlapped, they were not found to be unique.

In order to develop an instrument to measure organisational culture, it was necessary to distil

a set of unique dimensions. The result of synthesising the one hundred and fourteen

dimensions identified was, the emergence of fifteen culture dimensions as categorised and

described below (van der Post, De Coning and Smit, 1997: 149-150):

Conflict resolution – employees perception that they are encouraged to air conflicts

and criticisms openly

Culture management – the extent to which an organisation is actively and deliberately

engaged in shaping its culture

Customer orientation – the seriousness with which an organisation views the opinions

and feedback from their customers and actively responds to this

Disposition towards change – the encouragement of employees to be creative and

innovative and to constantly search for more efficient ways to get things done

Employee participation – the perception of the employees as being part of and

participating in the decision-making process of the organisation

Goal clarity – the clarity with which the organisation creates objectives and

performance expectations

Human resources orientation – the organisation’s perceived regard for its human

resources

Identification with the organisation – the degree to which employees are encouraged

to identify with the organisation

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Locus of authority – the responsibility, freedom and independence that individual

employees have within the organisation

Management style – the degree to which managers provide clear communication,

assistance and support to their subordinates

Organisation focus – the perception that the organisation is concentrating on the

activities which are fundamental to the business

Organisation integration – the integration of subunits within the organisation and the

active encouragement of co-operation between these units by co-operating effectively

towards the achievement of overall organisational objectives

Performance orientation – the emphasis placed on individual accountability for

clearly defined results and a high level of performance

Reward orientation – the allocation of rewards for employee performance

Task structure – the degree to which rules, regulations and direct supervision are

applied to manage employee behaviour.

Organisation integration, management style and locus of authority however, are some of the

more critical aspects of mergers and acquisitions.

Van der Post, De Coning and Smit (1998: 30) state that although there is a lack of statistical

evidence, it is widely acknowledged that corporate culture has the potential of having a

significant effect on organisational performance. Studies have indicated that corporate

culture can have a significant impact on a firm’s long-term financial performance and is an

important factor in determining the success or failure of organisations. Finally, although

corporate cultures are difficult to change, they can be made more performance enhancing

(Kotter and Heskett, 1992: 11-12).

3.1.12. Analysis of Organisational Culture

Developing a concept as to what organisational analysis implies is a problematic issue.

Martin (1992: 13 in Ogbanna and Harris, 1998: 37-38) provides one framework where he

identifies three categories of organisational culture:

The integration perspective uses organisational consistencies as the basis for studying

organisational culture

The differentiation perspective analyses opposites as a base and focuses where there is

lack of consensus

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The fragmentation perspective studies the changing reality of the organisation and the

integration between sub-cultures.

Martin argues that in order to gain a comprehensive view of organisational cultures, all three

perspectives must be applied (Ogbanna and Harris, 1998: 38). This study highlights both the

similarities and differences within an organisation and examines changes in the way staff and

management perceive organisational culture.

Kotter and Heskett (1992: 27-47,58) proposed that almost all theories on organisational

culture and performance could be classified in terms of three categories:

The first theory associates strong culture with excellent performance through three

main ideas: goal alignment, motivation and the creation of the necessary structures

and controls

The second theory’s perspective is that only contextually or strategically appropriate

cultures will be associated with excellent performance

The third theory exposes the need for culture that is able to anticipate and adapt to

environmental change in order to achieve superior performance in the long-term.

3.2. Mergers and Acquisitions

3.2.1. Definition of Mergers

The Oxford dictionary defines a merger as “the joining or gradual blending of two previously

discrete entities”. Mergers take place when two companies integrate to form a new company

with shared resources and corporate objectives (Ghobodian, James, Liu and Viney, 1996: 56).

3.2.2. Definition of Acquisitions

The Oxford dictionary defines an acquisition as “an outright gain of something (especially

useful).” An acquisition occurs when on organisation acquires sufficient shares to gain

control or ownership of another organisation. Such takeover bids are classified as either

‘friendly’, that is when the first bid made is accepted, ‘contested’, that is when there are

specific issues that have to be debated, or ‘hostile’. The distinction between friendly and

hostile acquisitions refers to the attitudes of the shareholders and the negotiating senior

management, rather than the acquired workforce.

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3.2.3. The Subtle Difference Between Mergers and Acquisitions

For the workforce, being acquired or merging reflects a mere semantic difference as,

regardless of the context or the quality of the relationships between the negotiating team, the

merger or acquisition event creates considerable uncertainty.

In general, the overt power relationships existing between parties to an acquisition is likely to

differ from that between merger partners, especially at the time of the initial announcement.

In an acquisition there are clear winners and losers. Power is not negotiable, but is

immediately surrendered to the new parent (Mangham, 1973 in Cartwright and Cooper, 1996:

34). From the perspective of the employees and the business community in general, the

acquisition of another company is a symbol of the success and confidence of the acquiring

organisation. Conversely, being acquired is interpreted as a symbol of failure at both the

organisational and personal level. Employees need not be directly involved in the negotiation

or execution of a merger or acquisition, to feel its impact, as it produces a psychological

ripple that can be felt throughout the organisation.

Cartwright and Cooper (1996: 35) suggest a merger is rarely a marriage between two equals,

but as parties are likely to be evenly matched in size, the distribution of power is likely to

evolve over time. There will be greater and more overt initial resistance to change within

hostile acquisitions than in voluntary mergers or acquisitions, as in such circumstances

feelings of defeat and powerlessness are likely to be greater. The distribution of power has

significant implications for merger outcomes in setting the scene and the direction of future

cultural change.

Mergers and acquisitions differ from other major organisational change processes in three

important aspects:

The speed of change

The scale of change

The critical mass of the unknown they present for both parties.

Although mergers and acquisitions are legally different transactions, they tend to be treated

synonymously within the literature, primarily because in practice a merger is rarely a

marriage of equals (Humpal, 1971 in Cartwright and Cooper, 1996: 33). Management buy

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outs differ from ordinary acquisitions in two ways: Firstly, a large fraction of the purchase

price is debt financed, and secondly, the organisation is privatised, its shares no longer trade

on the open market and management are now the owners of the equity.

3.2.4. History of Mergers and Acquisitions

Merger and acquisition activity has been described as occurring in waves. In the United

Kingdom the first wave was in the 1920s, the second in the 1960s and the third in the early

1970s. The fourth, the largest and most sustained wave occurred in the 1980s. There has

been a phenomenal growth in merger and acquisition activity. Mergers and acquisitions are

favoured strategic alternatives to organic growth and during the past decade the number,

frequency and scale of mergers and acquisitions has increased significantly, with deals

announced worldwide in 1999 setting a new single year record of US$3.4 trillion (Ernst and

Young, 1999: 31).

Due to rapid globalisation, mergers have become an inevitable part of doing business and an

essential element of corporate survival. Often however, the resulting whole is not greater

than the sum of the parts, or equal to them (Fisher, 1998: 70). Although the opportunity to

merge or acquire is presented to shareholders as a strategy for wealth creation, it is estimated

that more than half prove to be financially unsuccessful. Preoccupation for the incidents and

outcomes of these organisational marriages increased in the 1980s as mergers and

acquisitions became a worldwide growth industry (Cartwright and Cooper, 1996: 24).

3.2.5. The Motive for Mergers and Acquisitions

Price (1999: 39) states that the primary motive of mergers and acquisitions is to benefit the

organisations in the following ways:

To increase shareholder value

To dominate or penetrate new markets

To develop new products or services

To acquire new capabilities and resources

To achieve economies of scale or cut costs

To defend against a takeover.

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3.2.6. The Impact of Mergers

Cartwright and Cooper (1996: 38) on the basis of their own and previous research in mergers

and acquisitions, suggest there are sufficient commonalities to propose that the scenario of

events that immediately follow a merger announcement is likely to be typical. These events,

which have been called the ‘five absolute truths’ about mergers and acquisitions, are as

follows:

Mergers and Acquisitions are Emotive Events, which Affect Everybody

Although mergers may be merely financial events to those negotiating the deal, to the

employees involved, they represent a potentially emotional and stressful life event. The

imagery and terminology associated with mergers is extremely emotive and similar to that

used to describe intimate personal relationships, for example, marriage or parenting. Mirvis

(1985, in Cartwright and Cooper, 1996: 39) suggested that the psychological response to

mergers can be understood within the Kubler-Ross model of personal bereavement.

According to Mirvis (1985, in Cartwright and Cooper, 1996: 39-40), employee reactions pass

through four stages:

Stage 1: Disbelief and denial

Stage 2: Anger through rage and resentment

Stage 3: Emotional bargaining beginning in anger and ending in depression

Stage 4: Acceptance.

Mergers and Acquisitions Create an Expectancy of Change and Increase Organisational

Cohesiveness

The change created by mergers that is associated with the onset of conflict, causes employees

to close ranks. Increased cohesiveness results from a temporary shared sense of loss, which

causes people to hold on to what they have. Mergers and acquisitions are effective in

breaking down communication barriers and encouraging intra and interdepartmental

interaction.

Merger or Acquiring Management are Invariably Over-confident in their Estimation of the

Speed and Ease with which they can Achieve Integration

The financial planning aspects of a merger usually receive most of the management’s time

and concentration and little regard is given to the human aspects of the process. Management

often automatically expect and assume the acquired employees will adopt their culture, a

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process that is often met with resistance and results in adverse affects. ‘People problems’ and

the time scale associated with this process are often underestimated.

Mergers and Acquisitions Result in Unplanned Personnel Losses

As job losses and redeployment often occur in mergers as a result of rationalisation and

duplicity, the most common merger fear is therefore that of redundancy. In addition

unplanned personnel losses occur at all levels, however the highest turnover and absenteeism

takes place at blue-collar and shopfloor levels. Employees leave for various reasons

including the feeling that they will be unable to fit into the new organisation and the

uncertainty caused by the merger process.

Mergers and Acquisitions are Stressful

In addition to the stress caused by mergers, employees must also cope with the uncertainty of

the situation. This can be manifested in five immediate concerns and relate to:

Loss of identity

Lack of information and increased anxiety

Survival becomes an obsession

Lost talent

Family repercussions.

In addition common merger stresses include, fear of job loss, changes in colleagues, bosses

and subordinates, loss of or reduced power, poor or inconsistent communication and changes

in rules, regulations, procedural and reporting arrangements.

3.2.7. Key Principles in the Successful Integration Programme

Price (1999: 41-42) and Horwitz (2000: 21) outlined four distinct phases, which extend over

a period of two to three years:

The Start-up Phase (3-9 months)

The start-up phase spans the period from the announcement date to the closure of the deal.

Characteristics of this include intense pressure for senior management, uncertainty and a loss

of direction and focus for employees. Transparency, short term operational plans and

communication are vital at this stage.

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The Transitional Phase (3-6 months)

This phase is characterised by severe pressure and anxiety regarding job security for all

employees. Often employees defend their territory and this may or may not be accompanied

by political activity and aggression. Any inappropriate behaviour from management can

have potentially catastrophic effects on employee morale. This stage requires well

formulated personnel structures, processes and fairness.

The Integration Phase (7 months – 2 years)

Ideally differences between the organisations are worked out at this stage and the

organisation focuses on the conscious creation of a widely accepted new organisational

culture. Sensitivity with regards to values and culture is important at this stage. A great deal

of pressure is put on middle management during this period as they are responsible for the

implementation of change and are directly exposed to the day-to-day practical issues arising

from clashes and power struggles. It is fatal to ignore the importance of managing the

emerging culture and therefore, this stage requires both leadership and conflict management

skills.

The Closure Phase

This is an important phase for the integration of the organisation as there is a strong sense of

relief once everyone has bought into the new culture and values. If closure is not reached,

employees’ behaviour is often reflective of their previous environment and a sense of

resentment develops as a result of issues from the merger not being adequately resolved. The

creation of successful group teamwork will assist in this regard.

3.2.8. Identification of Problems Associated with Managing Cultures during Mergers

Irrespective of the criteria selected, research evidence has repeatedly demonstrated that

mergers have had an unfavourable impact on profitability. Rather than achieving economies

of scale, they have become associated with lowered productivity, increased strike action,

higher absenteeism and poorer accident rates. The literature of mergers highlights the

difficulty of managing organisational cultures and the lack of attention usually give to the

process. The methodology of integration in mergers has not been sufficiently developed.

Mergers are often seen as a painful process that managers want to put behind them.

Moreover, most organisations do not go through this process often enough to develop a

refined and repeatable pattern (Ashkenas, DeMonaco and Francis, 1998: 165).

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Price (1999: 41) cites the most commonly recurring problems in mergers and acquisitions:

The role, behaviour and aptitude of management detracts from how well employees

cope with change

Poor communication

Lack of a clearly defined transformation process to manage human resources issues

Underestimating the need for human resource guidance and contribution

Lack of a well defined human resources transformation strategy

Culture clashes between organisations are inevitable and a main cause of failure.

The key message of the above according to Price (1999: 39) is, “ignore the people issues at

your peril.”

GE Capital, through dozens of acquisitions to form the world’s largest financial services

organisation, is an exception. Although their model has been developed for acquisitions, it

contains important guidelines for the management of organisational cultures in mergers. The

model consists of four action stages to be used as a framework to identify related problems

(Ashkenas, DeMonaco and Francis, 1998: 166-167).

The First Stage: Pre-acquisition

The first stage is the pre-acquisition stage consisting of due diligence, negotiation and closing

of the deal. Associated problems include:

The hidden costs, especially human resource related issues

A lack of understanding of the differences between organisational cultures relating to

the strategic fit of the organisations

Those arising from the announcement, which result from the choice of messengers,

content of the announcement and the cultural differences between organisations.

The Second Stage: Foundation Building

This is the foundation building stage consisting of the launch, the working out of the merger

integration and the strategy formulation. Associated problems include:

Polarisation of attitudes as a result of inadequate communication (Cartwright and

Cooper, 1996: 127)

The weaker or smaller company’s fear of being swallowed (Fisher, 1998: 71)

Failure to develop a new identity resulting in loss of focus and direction

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An inability to make tough decisions quickly and get structures for management of

the merger in place.

The Third Stage: Rapid Integration

This consists of the rapid integration of the organisation through implementation of the

integration plan, and the course assessment and adjustment. Associated problems include:

A fall in productivity due to uncertainty

Failure to create a unified culture

Inconsistent decision making

Managers neglecting normal responsibilities due to pressure to manage the merger

Lack of clear objectives

Idealisation of pre-merger organisational culture in resistance to any change.

The Fourth Stage: Assimilation

Stage four involves an evaluation and adjustment of the long-term plan and capitalising on

the success of the merger. Problems considered solved may unexpectedly crop up again.

3.2.9. Key Practices that Enhance the Chance of Integration

Tetenbaum (1999: 29-35) lists seven key practices for integrating people and cultures:

Provide Input into a Go-No Go Decision

Invite the Human Resources manager and integration team leader to participate in the initial

discussions surrounding the potential merger. The earlier in the process they can participate,

the better as these parties are able to provide an important and respected opinion as to

whether the companies should or should not merge.

Build Organisational Capability

Have the right people in place to effectively perform the tasks needed to achieve

organisational goals. This focuses on retention, riffing, which is important in reducing

redundancies and achieving cost savings, and recruitment, which is vital in order to fill the

gaps.

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Strategically Align and Implement Appropriate Systems and Procedures

Ensure that these are in keeping with the strategic intent of the merger or acquisition and

establish success indicators that are consistent with the business strategy.

Manage the Culture

In the first phase, identify an appropriate culture to support the business goals and affect a

meaningful value system for the new organisation. The second phase concerns inspiring the

new culture throughout the organisation. This may be difficult for three reasons: firstly, the

size of an organisation becomes an issue; secondly, many mergers are built on previous

mergers and employees are change weary; and finally, culture addresses individual and

organisational beliefs and values that are difficult to change. An integration team is crucial in

this regard.

Manage the Post Merger Drift by Managing the Transition Quickly

Employees become preoccupied with their own self-interest and distracted from their work.

Until they know their role in the new organisation, they are reluctant to commit. At the same

time however, when a merger or acquisition is announced, people expect change and are

relatively receptive to it. The window of opportunity should therefore be utilised to do what

needs to be done.

Manage the Information Flow

Communication is essential. Ensure that messages reach all levels of the organisation and

utilise all channels of communication. Patience is required, as messages often need to be

conveyed repeatedly, or in an alternate manner.

Build a Standardised Integration Plan

Develop a procedure within the organisation to streamline the process. If inexperienced in

this regard, one should be developed through collaboration with merger and acquisitions.

3.2.10. Models for Managing Organisational Cultures during Mergers

The following table illustrates the different stages of GE Capital’s Pathfinder Model (1998)

and the Ernst and Young Model (1997).

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Figure Two: Comparative Table of Stages in the GE Capital’s Pathfinder Model (1998) and

the Ernst and Young Model (1997)

Pathfinder Model (1998) Ernst and Young Model (1997) Stage I Pre-acquisition Search for enhanced strategic synergy

Start a cultural assessment of the acquired company Identify business and cultural barriers to integration success Select an integration manager Assess the strengths and weaknesses of the business and function leaders Develop a communication strategy

Core competencies and capabilities and associated strengths and weaknesses must be understood Insight must be sought for “missing” synergies and need for strategic leveragePrior merging history of acquirer and development of a proper acquisition strategy

Stage II Foundation building Initiation, conclusion and announcement of the deal

Formally introduce the integration manager to staff Orientate the new executives to GE Capital’s business rhythms and non negotiable issues Jointly formulate an integration plan including a 100 day plan and a communication plan Visibly involve senior management in the process Provide sufficient resources and assign accountability

Determination of organisational fit Develop a proper insight into the histories of the prospective parties Adopt a multi-disciplinary perspective on the respective companies, addressing the manner in which the deal develops and closes, their degree of compatibility, the identity of the new organisation, critical success factors and the degree pace and intensity of integration

Stage III Rapid Integration Integration of the Organisations Use of process mapping and cross cultural analysis to accelerate integrationUse the audit staff to process audits Using feedback and learning to adapt the integration plan Initiation of short term management exchange

Integration momentum must be sustained to attain:

Strategic leverage rapidly Management of risk and damage controlProtection and actualisation of strategic leverage Management of critical success factorsManagement of change Building of a new identity Establishing an in-depth reciprocal understanding

Stage IV Assimilation Launching the Renewal of the Newly Formed Organisation

Continue to develop common tools, practices, processes and language Continue longer-term management exchangesUtilise the corporate education centre Use the audit staff for the integration audit

The organisation must be transformed and change managed on a continuing basisCompany must focus on its strategic intent and alignment

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As a result of their extensive experience in acquisitions, GE Capital has learnt four important

lessons. These provide some insight into successful mergers and are as follows:

1. Acquisition integration is not a discrete phase of a deal but rather a process beginning

with due diligence and running through the ongoing management of the new enterprise

2. Integration management is a full-time job and must be recognised as a distinct business

function

3. Decisions about management structure, key roles, reporting relationships, layoffs,

restructuring and other career affecting aspects of the integration should be made,

announced and implemented as soon as possible after the deal is signed

4. Successful integration combines not only the various technical aspects of the business but

also the different cultures.

3.2.11. The Successful Management of Mergers

Pritchett and Pound (1997: 2-31) defined the key ground rules for the successful management

of mergers and acquisitions as follows:

1. Start Managing the Transition When the Deal is Announced

Things will begin changing as soon as people learn of the deal. They will begin to think and

act differently and an entirely new set of dynamics will emerge. These attitudinal shifts and

employee concerns can dramatically alter the corporate climate. Transition management

should begin as soon as the deal is announced and not wait for the deal to be signed,

otherwise the bulk of management’s time will be spent trying to fix problems rather than

preventing them. Proactivity as opposed to reactivity is paramount if management wish to be

positioned to shape circumstances as opposed to being a victim of them.

2. Protect Productivity

The merger is a major distraction and interferes with employees’ work focus and undermines

job commitment. Productivity is thus likely to suffer a severe decline. This drop in

productivity may be interpreted as evidence of a ‘bad merger’. However, at the same time,

destabilisation increases the organisation’s energy level. But unless this can be channelled

along productive lines it will result in a destructive force, sabotaging corporate effectiveness.

Several ground rules are recommended:

Operate with very short-term goals and objectives

Initiate new, merger specific incentive programs

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Monitor performance more closely

Provide employees with quick and accurate feedback

Quickly clarify roles and responsibilities for each employee

Pass out more ‘psychological paycheques’ to employees

Raise performance standards and enhance the pressure

3. Tighten the Integration Period Time Frame

The most common complaint from employees is that the merger is moving too slowly and

management should just ‘get on with it’. Instinctively during this phase employees seem to

know what is best. Moreover, they need answers and want closure. Therefore, a slowly

paced integration is considered to be high risk and prolongs the period where damage may

occur as a result of generic organisational merger problems. The number of months from

start to finish is regarded as a key predictor of the merger’s success or failure. A nine to

twelve month period is recommended in order to considerably increase the likelihood of the

merger’s success.

4. Control the Amount of Destabilisation

Destabilisation manifests itself in a variety of underlying problems. With a well-conceived,

professionally guided integration strategy, can ensure management that both the substance

and the timing of the integration are expertly designed and that all key management positions

are aligned. Management should focus on working through differences on the front end,

rather than after the roll out. Although, management cannot afford to second-guess their

strategy, fine-tuning and redirection are inevitable and demonstrate a degree of flexibility. A

carefully structured and systematically managed integration process, however, remains

crucial. It is important to remember that obvious moves may not be the smart moves in this

situation.

5. Be Realistic about the Cultural Differences

The ‘best of both worlds’ strategy brings traumatic destabilisation, and typically one culture

nonetheless emerges on top. It is thus recommended that one culture is integrated as

opposed to two. The argument usually is in favour of the dominant or most financially

successful company. Seize the window of opportunity afforded by the merger shake-up to

work towards a new and better culture. As the key purpose of a corporate culture is to bring

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stability to an organisation, there is little wisdom tearing down both cultures at a time where

there are so many other pressures.

6. Manage the Turnover

Natural attrition produces a loss of quality employees and minimal turnover among marginal,

weak players. While it may be advantageous to downsize, a strategy reliant on normal

attrition often offers no hope for strengthening the organisation as the talent leaves first.

Furthermore, it is lethargic approach and not good management. Rather management should

look for opportunities to consolidate and streamline the organisation and move rapidly to re-

recruit high quality employees. It is much easier to succeed with a team of quality players.

The loss of key employees is not unusual according to Cartwright and Cooper (1996: 45) who

found that, apart from early retirement, redundancies and circumstances amounting to

constructive dismissal, mergers and acquisitions are associated with the highest amount of

voluntary resignations. Many unplanned personnel losses occur throughout the organisation.

This may be as a result of the broken psychological contract, which Handy says exists

between the individual and his/her organisation (Cartwright and Cooper, 1996: 47). When

the organisation ceases to exist, or becomes fundamentally altered, is gives rise to a period of

self-appraisal and reassessment as to whether they would like to establish a new contract with

the organisation.

7. Conduct the Necessary ‘Soft’ Due Diligence

Failed mergers often reflect a sloppy job of ‘soft’ due diligence. Key critical success factors

for such a cultural audit are an understanding of:

Management strengths and weaknesses

Organisation structure and needs/opportunities for redesign

Salient differences in corporate culture to be reconciled

Organisational ‘soft spots’ that could put a merger at risk.

It is important to take into consideration that people’s strengths often become weaknesses

during the merger transition period. The staunchest defenders of the old culture have the

most difficult struggle. An objective, professional appraisal of people’s competencies and

potential is therefore required. The focus should lie with those individuals who are able to

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tolerate ambiguity and uncertainty, facilitate the change process, take appropriate risks,

communicate effectively and enjoy the challenge.

8. Set your Priorities Carefully

Priorities must be correctly established and focused on. The mistake of giving your time and

attention to the person or problem that makes the most noise is a very unreliable predictor of

true priorities. Another area of entrapment lies in what is familiar. Focus should be on what

counts the most rather than personal preferences. Well-placed priorities include:

Shorten the transition period

Rapidly stabilise the organisation

Strengthen the talent level

Reposition the organisation to better serve the marketplace

Protect the bottom line.

Activities that do not directly contribute are a poor investment of time and energy. Also,

constantly changing priorities often creates the effect of multiple mergers. Operating from the

outset with a coherent, purposeful strategy with well-defined objectives will result in a

positive return in investment of time, energy and money.

9. Be Bold

Mergers call for uncommon management, bold moves and a rejection of status quo

management. Merger problems set their own tempo and mergers often fail because

management makes the classic mistake of letting problems spiral out of control.

Decisiveness during a merger process is an advantage whereas caution is a curse. Pritchett

proposes that that the very best merger managers are those who are unconservative, flexible,

risk-taking, aggressive, decisive and creative.

10. Put Dollar Signs on Decisions

Success is measured in numbers and thus the financial angle should always be taken into

consideration. This includes calculating the trade-offs of time for money, something

management frequently fail to do. Costly decisions are often made in management’s attempt

to buy goodwill. They overspend in an attempt to buy loyalty or to reduce their feelings of

guilt. Companies should be fiscally responsible, not foolishly generous.

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11. Offer Quick Impact Training on Merger Management

The same old style of management, on the job training or a learn-as-you-go approach is not

appropriate during a merger as often too much is at stake and there are no second chances. In

addition, the learning curve is likely to lengthen the transition process and translate directly

into lost productivity and financial losses. It is imperative that management are educated on

what to expect, given training, shown the shortcuts to success and given a grasp of proper

priorities. This results in a common frame of reference for all and enables an alignment of

effort in the integration effort.

12. Give your Workforce a Proper Merger Orientation

As change, ambiguity and surprises mark the merger transition period, this often results in

trouble as employees typically resist change, dislike surprises and are fearful of ambiguity. It

is therefore best to meet the challenge head-on and prepare employees for the certainty of

uncertainty. With a proper orientation, employees find the merger less traumatic and are

more understanding of the generic problems. Above all this builds management’s credibility

and aids the organisation in a more successful navigation.

13. Take Care of the ‘Me’ Issues.

Self preservation instincts powerfully influence people’s behaviour. Employees are first and

foremost concerned with themselves and how they, as individuals, are going to be affected by

the merger. Their main priorities are their own personal concerns. People will not worry

about the company’s survival unless they are assured of their own. It is therefore a

management responsibility to answer employee’s issues and provide them with a reason for

wanting the merger to work. These issues cannot be left unresolved as it implies that

employees are a second priority.

14. Give Yourself Permission to Make Some Mistakes

Mistakes are unavoidable, and playing it safe is often the biggest risk of all. There is no such

thing as a ‘zero defects’ merger and an unwillingness to make mistakes is often a

fundamental error. It is recommended that the merger manager’s time be utilised by taking

some chances, finding the errors and then fixing them. This necessitates a degree of risk-

taking. Finally, if management do make mistakes, they must admit to them and then continue

with managing the business.

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15. Keep the Focus on Clients in your Marketplace

As customer service can suffer during a merger, this provides an excellent opportunity for the

competition to gain market share. Steps should therefore be taken internally to encourage

employee’s attention to clients and customers. These steps should be designed to counter

people’s distraction and preoccupation with personal concerns and include implementing new

service initiatives, giving employees quick, accurate feedback, and developing new merger-

specific incentive programs. It is essential to remember however, that employees are there

because there is a business to be run, not because there is a merger taking place, and they are

getting paid to help run a business and should therefore concentrate on this.

The Cisco Approach

Due to an awareness of the frequent failure of mergers and acquisitions, Cisco have devised

an approach to maximise the success of their numerous acquisitions – one per quarter since

1993 (O’Reilly, 1998: 3). These include a set of criteria that could be used to determine the

suitability of an acquisition and the reliance on empowered teams and programmes to

increase the speed of assimilation. They acknowledge that the acquisition of technology is

the acquisition of people and thus never engage in hostile takeovers. In order to ensure that

the entire process is characterised by honesty and trust – both before and after the acquisition

- Cisco insist that all employees are fully informed throughout the acquisition in order to

avoid negative surprises and maximise retention and trust.

Cisco has a dedicated mergers and acquisition unit comprised of both finance and human

resources personnel. Criteria of success include:

Shared vision

Likelihood of short-term win-win for the acquired company and Cisco

Long-term win-win for all parties

Right chemistry or cultural compatibility

Reasonable geographic proximity.

Their due diligence commences with informal interaction between senior members of the

respective organisation. The target company is subsequently assessed on what information

they are prepared to share or not share. Cisco believes excessive secrecy signals a lack of

openness and honesty. This due diligence also attempts to establish how widely target

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organisations share their equity within the organisation. The latter is encouraged by Cisco -

they believe this is an effective way to retain people and therefore talent. Cisco believes that

if executive management is not retained, rank and file is lost. In addition, careful scrutiny is

made of management styles, organisational structure and cultural fit issues.

“We’ve killed nearly as many acquisitions as we’ve made…even when they are very tempting. I believe it takes courage to walk away from a deal. It really does. You can get caught up in winning the acquisition and lose sight of what will make it successful. That’s why we take such a disciplined approach.”

John Chambers, CEO Cisco Systems, 1998

Cisco establishes integration teams in order to integrate new companies into Cisco as quickly

as possible. The Human Resources director of the corporate acquisition group welcomes new

employees with the acknowledgement that change is painful and will therefore be fast.

Integration takes place at both a cultural and a structural level. Culture integration includes

the assignment of ‘buddies’ and special orientation sessions while key elements of Cisco’s

acquisition process include:

The vision of the acquired companies leader must be compatible with Cisco’s

The recognition or realisation that only one culture can survive

Clear expectations of how the merged entity will function

Transactions are done quickly

There must be short-term and long-term wins for stakeholders of both organisations.

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4. RESEARCH METHODOLOGY

4.1. Research Proposition

This study will investigate the following major and minor propositions in the context of a

comparative analysis of four case studies focusing on mergers in South Africa.

Major Proposition

Without successful management of a merger there will be a negative impact on

organisational culture.

Minor Propositions

There are common trends that can be identified, which will result in a successful cultural

transition in a merger.

Lessons can be drawn from this comparative study to assist organisations in successful

mergers.

There is a marked similarity between the trends evident in successful mergers in a South

Africa setting to those identified by international research.

4.2. Research Procedures

This research report will conduct a thorough comparative analysis of the secondary data

within the following case studies. An asterix (*) has been used to denote the merged

organisation to avoid confusion.

1. Momentum Southern Life: Examining the Effects of Organisational Culture and

Profitability during a Merger (Bezuidenhout, 1999)

This case study focuses on the merger between Momentum Individual Life and Southern

Life. The merged organisation came to be known as Momentum Life*.

2. The Identification of the Corporate Cultures in Macsteel (Pty) Ltd and Iscor Steel

Ltd Prior to and Post Merger (Cohen, 1999)

This case study concerns the merger between Macsteel (Pty) Ltd (Macsteel) and Iscor

Steel Ltd (Iscor). The merged organisation is known as Macsteel International*.

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3. The Effects of Mergers and Acquisitions on Organisational Culture, Climate and

Financial Performance (Kirsten, 1999)

This case study is a confidential document concerning both a merger and an acquisition.

As a result the names of the organisations have been altered. For the purposes of this case

the acquiring organisation will be referred to as Pathology Services, and the acquired

organisation will be referred to as G.P. Edwards. As the merged organisation maintained

the name of the acquiring organisation, it will be referred to in this research as Pathology

Services*.

4. Protea Industrial Chemicals - A Division of Protea Industrial Chemicals (Pty) Ltd:

Evaluation of Organisational Culture Pre and Post a Management Buy-Out (van

Heerden, 1999)

This study focused on a management buy out. The organisation under new ownership

will be referred to as Protea Industrial Chemicals*.

The focus is to determine whether there are common trends, lessons and themes that can be

gained from this analysis. The research is of an exploratory nature, conducted primarily

through desk research.

This study relied on data collected in the execution of the four case studies. In addition, more

recent information reflected in current literature has also been applied.

4.3. Research Approach

This research makes use of content analysis, which represents a formal approach to

qualitative data analysis. Content analysis as a research method uses a set of procedures to

make valid inferences from text. These inferences are about the message itself. Mostyn

(1985, in Hussey and Hussey, 1997: 250) refers to content analysis as “the diagnostic tool of

qualitative researchers, which they use when faced with a mass of open ended material to

make sense of.”

Content analysis can be used for many purposes, (adapted from Berelson, 1952 in Weber,

1990: 9) of which areas pertinent to this study are to:

Identify the intentions and other characteristics of the communicator

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Describe attitudinal and behavioural responses to communication

Reflect cultural patterns of groups, institutions or societies

Reveal the focus of individual, group, institutional or societal attention

Describe trends in communication content.

Aries (1973, in Weber, 1990: 11) illustrates that content analysis may be:

Applied to substantive problems at the intersection of culture, social structure, and

social interaction

Used to generate dependent variables in experimental designs

Used to study small groups as a microcosm of society.

Content analysis offers a number of advantages as a method of analysing qualitative data as:

Content analytic procedures operate directly on text or transcripts of human

communications

Communication is a central aspect of social interaction

It yields unobtrusive measures in which neither the sender nor the receiver of the

message is aware that it is being analysed, therefore there is little danger that the act

of measurement itself will act as a force for change that confounds the data (Webb,

Campbell, Schwartz and Sechrist, 1981 in Weber, 1990: 10)

Culture indicators can be used to assess quantitatively the relationships among

economic, social, political and cultural change

It is best used on content analytic studies using both quantitative and qualitative

operations on texts. This method of analysis combines what are usually thought to be

opposing methods of analysis.

More specifically, in analysing the qualitative data for this study, a derivation of content

analysis, the Grounded Theory approach, described by Easterby-Smith, Thorpe and Lowe

(1991: 108), was used. The Grounded Theory approach is a holistic approach to qualitative

analysis, in which the researcher remains immersed in the data while examining any

developing themes or patterns. Emphasis is placed on intuition and feel, as opposed to

numbers and frequency. This method of research is especially pertinent for non-standard

data, for example transcripts of in-depth interviews. The framework is derived from the data,

as opposed to imposing an external structure on the data as with the analysis of quantitative

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data. Common or contradictory themes, patterns and trends are drawn out of the data.

Research should be used to generate Grounded Theory, which ‘fits and works,’ rather than

forcing data within logico-deductively derived assumptions and categories (Jones, 1987, in

Easterby-Smith, Thorpe and Lowe, 1991: 108). Glaser and Strauss (1967, in Easterby-Smith,

Thorpe and Lowe, 1991: 108-111), identify seven major stages in this type of analysis:

Familiarisation

Transcripts are read and re-read to enable the researcher’s first thoughts to emerge. This

stage is exploratory and involves familiarisation with the data to be analysed.

Reflection

The researcher attempts to make sense of the data available and to ascertain whether the data

gathered supports existing knowledge or whether it challenges or supports previously

unanswered questions. Awareness of previous research and models is necessary at this stage.

The process of evaluation and critique becomes clearer and cataloguing is important in order

to take into consideration and evaluate previous research. Ideas begin to formulate, but

explanations and solutions are still instinctively based on ‘gut feel.’

Conceptualisation

A set of variables and key concepts, necessary to understand what is emerging from the data,

are identified. The researcher once again searches the data in order to highlight these

exploratory variables. Any further variables or concepts are identified and added to the list.

The data is searched until the data is exhausted. The reliability and validity of these concepts

are however, unconfirmed at this stage.

Cataloguing

Once a correlation is established between the concepts identified at conceptualisation and

explanations given, a cataloguing system is developed as a quick reference guide. It is useful

at this stage for the researcher to arrange the data into a form, which can readily be analysed

and reported on. This should be an intuitive process and care should be taken at this stage not

to allow it to become mechanistic, as this would damage the power of the explanation.

Recoding

The data is now reviewed in order to determine whether some of the concepts were used in

different contexts or to explain another phenomena. In addition, data is reviewed in order to

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determine whether the researchers’ understanding is the same as the original meaning.

Finally data is revised in order to determine whether different concepts are being defined

using the same concepts or variables by different people. At this time, concepts are redefined

and recoded. It may be necessary to collapse some of the codes into more general ones, or

visa versa.

Linking

As the analytical frameworks become clearer, patterns begin to emerge and concepts start to

fit together. These can be linked to general models and holistic theory. The data is then

linked to theory and a first draft begins to emerge.

Re-evaluation

Areas requiring further analysis are identified. Some areas may have been omitted, whereas

others may have been overemphasised. This stage may be undertaken more than once as

issues such as these are reconsidered and rewritten.

4.4. Assumptions, Limitations and Weaknesses

This study assumes that these cases are representative of mergers within a South African

context. However, an investigation into more than four cases is required in order to identify

generic trends, patterns and lessons.

Furthermore, this comparison focuses predominantly on the organisation’s cultural transition,

which is just one factor pertaining to the success of mergers. It is generally assumed that the

purpose of an organisation is to provide high returns and create value for shareholders. The

success of a merger is therefore often defined by the aforementioned characteristic. This

research is limited by the unavailability of financial information and the impact of the

respective merger or acquisitions on productivity and profitability. This restricts the ability to

assess the financial success of these four case studies. Other factors that impact on success or

failure of mergers, such as strategic choice, financial due diligence, market forces and

competitiveness of operations, have not been included in this report. The focus of this

research therefore, is on the alternate attributes of success, that is, the people and the culture

of an organisation.

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This study relies upon data collected during the four case studies and is therefore subject to

their same weaknesses and limitations. In addition, there is a heavy reliance on qualitative

data within these studies, which often tends to be biased. Furthermore, the writing style and

focus of each of these four case studies varies considerably. Consequently this research is

limited by the data or lack thereof within the case studies, and certain assumptions had to be

inferred.

This research includes an analysis of two pure mergers, a simultaneous merger and

acquisition, and a management buy out. It is important to note that although the literature

treats these terms synonymously, they are legally different transactions. The fourth case

study is an anomalous case study involving a management buy out. This was included as a

management buy out is often seen as an alternative to a merger or acquisition. However,

there are aspects of this anomalous case, which are not applicable to all areas of research

within this study. References to this case have therefore been omitted where irrelevant or

where there is no evidence.

Finally, due to the confidential nature of the third case study, fictitious names have been

assigned to the companies involved.

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5. FINDINGS

The aim of this investigative study is to determine whether lessons, themes and trends can be

identified from mergers within a South African context that can enlighten managers with

relevant and meaningful insights into future endeavours in this area. These findings are

drawn from secondary data through a comparative case study of four organisational mergers.

The following trends, themes or patterns emerged from this investigative study:

All the mergers were analogous combinations of organisations with contrasting

organisational culture types, as opposed to matches of a similar type

The type of marriage contract or partnership agreement between the organisations

depended on the motive, objective and power dynamics of the merger

Following the merger, almost all the organisations showed characteristics of a

dominant culture

No ‘soft’ due diligence to determine organisational fit was conducted on any of the

organisations prior to the transaction, or if it was, it was not evident in the data

analysed

Most of the organisations seemed to lack a clear merger operations strategy and there

was a divide between organisations where the integration was actively managed or

initiated by a specific person or group

There were limited similarities in the transition processes of the organisations, and

where these similarities were present, they were primarily examples of what not to do

Only two of the organisations had a definite sense of urgency during the merger

process

Most employees experienced uncertainty regarding their positions in the new

organisations

None of the four organisations actively managed employee turnover following the

merger

Communication in almost all the organisations was not managed as effectively as

possible

In addition to overall cultural changes, almost all the organisations showed significant

changes in individual cultural dimensions

Most employees felt that their respective organisations were not operating as fully

integrated units.

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Figure Three: Comparative Table of Findings

MomentumLife*

MacsteelInternational*

Pathology Services*

Protea Industrial Chemicals*

Culture Type Combination Momentum: Task

Southern: Role

Macsteel: Task

Iscor: Role

Pathology: Role

GP Edwards: Task

Pre-MBO: Role

Post MBO: Task

Marriage Type Traditional Traditional Collaborative N/A

Dominant Culture Momentum Macsteel G. P. Edwards N/A

‘Soft’ Due Diligence No No No N/A

Reason for Transaction Financial and Strategic

Financial and Strategic

Financial and Strategic

Strategic

Merger Operation Strategy No No No No

Merger Orientation No No No N/A

Managed by Person or Group

SteeringCommittee

No No No

Full-time Management No No No No

Extent of Clear Planning and Phases

Partial None None None

Effective Communication Yes No No No Evidence

Management of Employee Turnover

Partially No No No Evidence

Sense of Urgency No Yes No Yes

Management of Uncertainty Yes No No Partial

Human Resource Strategy No No No No

Integrated Unit No No No No

Outcome of Cultural Combination


Cultural Assimilation

Cultural Separation N/A

Specific Cultural Dimensions Requiring Management

Employee Participation

Goal Clarity

Locus of Authority

Organisation Focus

Disposition to Change

Performance Orientation

N/A

Stage 1: Announcement Well Handled

No Evidence No No No Evidence

Stage 2: Polarisation Partial Initially Yes N/A

Stage 3: Conscious Effort to Create a Unified Culture

No No No No

Stage 4: Unified Culture Not yet attained Not yet attained Not yet attained Not yet attained

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In this section, the main findings that emerged from the case studies are expanded upon and

discussed in greater depth.

5.1. All the mergers were analogous combinations of organisations with contrasting

organisational culture types, as opposed to matches of a similar type

Three out of four of the merger or acquisition processes studied were as a result of a

combination of culture types. Both the Momentum Life* and Macsteel International*

mergers represented combinations between role and task culture types. However, despite the

fact that both Southern Life and Iscor were predominantly role cultures, they also showed

traces of autocratic power cultures. Although Pathology Services* did not seek to define the

culture type of each organisation, G.P. Edwards had traits specific to a role culture and

Pathology Services had traits specific to a task culture. As the transition process within

Protea Industrial Chemicals* was a management buy-out and did not involve two parties,

there was no combination of cultures but rather a shift from a role to a task culture.

5.2. The type of marriage contract or partnership agreement between the

organisations depended on the motive, objective and power dynamics of the merger

The underlying motives and objectives of both the Momentum Life* and Macsteel

International* mergers were financial and strategic; these are typical of a traditional marriage.

Southern Life, in addition to a good name and the highest ratio of insurance policies per

customer in the industry, offered the opportunity to enter new markets and achieve economies

of scale. Momentum Individual Life, on the other hand, had one of the lowest cost structures

in the industry and was seeking growth. Therefore, this marriage sought to redesign the

weaker organisation, thereby unlocking synergistic benefits. Similarly, Macsteel brought

knowledge and expertise to the merged organisation and its primary role was to redesign

Iscor. The essence of this traditional marriage was that of radical and wide scale change,

whereby Iscor totally adopted the practices, procedures, philosophies and culture of Macsteel.

Although in the case of Pathology Services* the distinction is not as clear, the merger

represents a modern or collaborative marriage, with traces of a traditional marriage.

Pathology Services required growth and did not have a sufficiently large enough customer

base to sustain itself whilst G.P. Edwards needed a new strategic partner. As the merger

would increase Pathology Services’ customer base and provide access to markets they had

previously struggled to penetrate, it made sense both strategically and financially. An

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important distinction however, is that G.P. Edwards, the acquired organisation, dominated

and their practices, procedures and culture were adopted.

5.3. Following the merger, almost all the organisations showed characteristics of the

dominant culture

A significant difference was found between the culture scores before and after the

Momentum Life* merger. Metaphors used indicated that Momentum Individual Life had a

stronger culture and that this was being followed by the new organisation. What is more,

some metaphors used by Southern Life employees and ex-employees were that Southern Life

was “pulled apart”, “completely swallowed up” and “already in limbo due to restructuring”.

An unusual situation existed at Pathology Services* where G.P. Edwards’s culture was

dominant resulting in the employees at Pathology Services feeling “overwhelmed” and as if

“they had taken us over.” A reason given for the seemingly weaker culture of Pathology

Services is that it had been in existence for less than two years and therefore had not yet had

sufficient time to develop a strong culture. As the acquired company was a larger, more

profitable firm, with more experience, an unusual power relationship resulted with G.P.

Edwards dominating over the less-experienced Pathology Services, both financially and

culturally.

In contrast, the inherent characteristics in Macsteel’s performance oriented culture were what

Iscor was striving to attain. As a result, Iscor was far more amenable to changing their

culture and assimilating with Macsteel’s culture.

5.4. No ‘soft’ due diligence to determine organisational fit was conducted on any of

the organisations prior to the transaction, or if it was, it was not evident in the data

analysed

Although due diligence was undertaken prior to the merger between Southern Life and

Momentum Individual Life, the focus of this was primarily financial and strategic. Little

evidence exists of any prior contemplation of organisational fit or other human resources

issues. Similarly, an extensive evaluation was undertaken prior to the Macsteel

International* merger, yet the deciding factors were once again strategic. Although Iscor was

seeking to establish a performance oriented culture, there is no evidence in the case to suggest

that ‘soft’ due diligence was conducted. Furthermore in Pathology Services*, no cultural

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audit or analysis was conducted on either of the companies prior to the merger, or if it was,

the employees were unaware of it. Once again the purpose of the merger was both strategic

and financial.

5.5. Most of the organisations seemed to lack a clear merger operations strategy and

there was a divide between organisations where the integration was actively managed or

initiated by a specific person or group

A steering committee, consisting of top executives, was established to guide and coordinate

the Momentum Life* merger. Although this merger steering committee consisted of only

seven people, employees from various parts of the organisation were involved through

working groups, which were established to analyse issues relevant to the merger, and during

the transitional phase, Gemini Consulting was appointed to make recommendations regarding

the restructuring of the organisation. The working groups worked according to a set of

guiding principles and presented their finding to the merger steering committee where

decisions were made on the basis of the business case.

The management at Macsteel International* did not appear to have an official merger

operations strategy, nor did any specific individual or group manage the integration. Rather,

the management was consumed with running the business and working out the finer details of

the agreement and therefore ignored aspects of the acculturation process. Although the eight-

month ‘honeymoon period’ prior to the transaction being concluded was effective, this was

an unplanned process and came about as a result of a moratorium placed by the Competitions

Board on the agreement.

In terms of Pathology Services*, no formal merger operations strategy appeared to have been

implemented nor was the integration actively managed or initiated by any specific person or

group. This is evidenced by the fact that some employees felt the integration had occurred

spontaneously.

The management team, as the new owners, of Protea Industrial Chemicals* made strategic

focus more conservative and planned, and instilled various changes. Furthermore, a definite

time perspective was placed on strategic issues. Strategies were devised for the transition

however, there was a concern that uncertainties existed and that not all the owners had the

same expectations. In addition, different strategies for different departments appeared to

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have been counter productive. Although action was taken to facilitate change there was no

drive to change awareness or to communicate what was expected from employees, how the

changes would affect them or what the organisation wished to achieve.

5.6. There were limited similarities in the transition processes of the organisations,

and where these similarities were present, they were primarily examples of what not to

do

As none of the four cases studied divided their integration processes into clear and

discernable phases, the authors of this research have attempted to categorise these events into

the respective stages based on the limited evidence available and assumptions made. The

stages recommended by Price (1999: 41-42) and Horwitz (2000: 21) were used in this regard.

Momentum Life*

The First Stage - Start Up Phase

The merger was announced on 10 March 1998 and took effect from 1 April 1998. As this

affected the structures of the holding companies of Momentum Individual Life and Southern

Life, a new operational structure and internal restructuring were required. A merger steering

committee was set up approximately two weeks after the announcement and operated for five

months.

The Second Stage - Transitional Phase

The merger steering committee played an integral role in informing employees of their roles

within the new organisation. This process was viewed as fair and transparent.

The Third Stage - Integration Phase

The two companies operated separately for almost a year sharing an integrated information

technology platform. As a result, no conscious attempt was made to create a unified culture.

In July 1999, however, it was decided to integrate the two companies further, as the desired

synergies had not yet been achieved.

The Fourth Stage – Closure Phase

At the time of the study, the company was not yet considered fully integrated due to the

recent decision to fully integrate the two companies operationally.

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Macsteel International*


After an extensive evaluation, Iscor selected Macsteel as the ideal partner and the deal was

announced in June 1995. During this time there was a general negative sentiment amongst all

employees due to a lack of knowledge regarding the deal, although Macsteel employees

appeared to be more informed about the deal than the Iscor employees.


After the announcement, employees began to draw conclusions about ‘the other culture’

almost immediately. Comparisons were made, and differences in culture, as opposed to

similarities, were focused on. But, in January 1998, at the start of the eight-month

‘honeymoon period’, Macsteel International*’s trading division moved into Iscor’s head

office. This ‘lucky’ period afforded both organisations the opportunity to act as separate

entities, yet work closely together. During this period, employees of both companies

perceived their positions in the new organisations to be under threat.


The joint venture finally moved into its newly completed office block. The ‘honeymoon

phase’ was over and there was a sense of urgency. The new company could waste no time in

getting up to speed as the markets were trading and they had to be competing in order to

survive.

Deep-seated changes began to take place in employee values, beliefs and practices. The

acculturation process however, was ignored and it was assumed that employees would

eventually come round to accepting the new culture. At the time the study was conducted,

Macsteel International* was still entrenched in the integration phase. Employees from the

different companies held different perceptions and the areas of conflict within the new

organisation had not yet been fully identified. Evidence of a common sense of purpose,

common goals and performance objectives were present although no attempt appeared to

have been made to clearly map the future or create a common culture.


There is no evidence of this stage within the case.

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Pathology Services*


Due to the sensitive nature of the deal, employees were unaware of the merger until the day

before it was announced, at which time it had already been legally concluded. The lack of

communication and information regarding the transaction made employees angry and

resentful. Employees were also issued with an ultimatum regarding their employment

positions, which further increased this stressful period.


The finalisation of job specifications and positions in the merged company was

communicated verbally to employees at different times, either individually or to a group. The

delay in informing people regarding their new positions however further compounded

people’s fears and exacerbated this already stressful period. There was resistance to the

merger, which made people reluctant to work, and reduced productivity levels.


Customer service quality and reliability were negatively affected during this period as the

focus of the new organisation shifted from its core activities to more peripheral activities. A

marked difference was also evident in the perceptions and attitudes of employees regarding

the culture of the merged company. Employees from the acquired company felt the merged

company was operating as a completely integrated entity. The managers of the acquiring

organisation echoed this sentiment, however, lower level employees felt the merged company

was not functioning as a complete unit and some employees found it difficult to work

together. No conscious effort appeared to have been made to form a cohesive organisational

culture.


Given the above, it was therefore evident that the company had not yet reached the genesis

stage.

5.7. Only two of the organisations had a definite sense of urgency during the merger

process

Although there was no evidence of a sense of urgency in the Momentum Life* merger, the

establishment of the merger steering committee and working groups suggests that action was

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taken to speed up the process. Furthermore, this committee met ten times over a period of

only five months, which suggests that they did not want to prolong the process.

Once the Macsteel International* deal had been finalised by the Competitions Board, a sense

of urgency became apparent. The new company could not afford to waste any time in trading

on the markets and competing for their survival.

Although at the time of writing, the Pathology Services* merger was only nine months old,

much appeared to have already been accomplished. This would suggest an intrinsic sense of

urgency within the process. However, the fact that some employees waited three months for

confirmation of their employment positions, signals that a clear timeframe had not been

allocated to certain aspects of the process. There is no evidence to support either the

existence or non-existence of a specific merger timeframe.

Since the management buy out of Protea Industrial Chemicals* strategic issues have been

given a definite time perspective. These were reflected in the organisation’s three to five year

and five-year and longer vision.

5.8. Most employees experienced uncertainty regarding their positions in the new

organisation following the merger

Momentum Life* was one of the exceptions in this regard in that their process was

completely transparent. In addition to a merger map outlining the minutes of the steering

committee’s meetings, which was distributed to all employees, people who were directly

affected by the merger were spoken to personally and informed regarding the merger’s

implications. However, the senior management at Southern Life was more severely affected

by the merger.

At Macsteel International*, on the other hand, there was a great deal of uncertainty regarding

employment positions amongst both Iscor and Macsteel employees. This resulted in a

general negative sentiment in both organisations following the announcement.

At the Pathology Services* merger, employees were given an ultimatum to either accept the

positions they were offered in the new company or face retrenchment. In addition,

finalisation of job specifications and positions were communicated verbally to employees at

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different times, over a period of one week to three months, which further compounded

people’s fears and increased stress and anxiety.

In contrast, the new learning environment, which permeated Protea Industrial Chemicals*

after the management buy out, signalled that employees felt more secure within their roles

and involved with the organisation as a whole. Feelings of uncertainty were not evident in

this case.

5.9. None of the four organisations actively managed employee turnover following

the merger

The loss of most of Southern Life’s top management, through voluntary retrenchment

packages, left many of Southern Life lower level employees feeling “pulled apart,”

“completely swallowed up,” and “in limbo.” It does not appear from the evidence that staff

turnover was actively managed nor an effort made to retain valuable core competencies.

Likewise, the management of Macsteel International* remained relatively unconcerned with

the acculturation process and little effort was made to actively manage the staff turnover.

Little action appeared to have been taken to prevent the loss of key players, talent and core

competencies.

The Pathology Services* merger handled this aspect particularly poorly. Employees were

issued with ultimatums to either accept their newly allotted positions in the company, or

leave, yet there was a delay in communicating these new positions to them. Some managers

felt the firm was “better off” as a result of some employees leaving. Moreover, no attempts

appear to have been made to alleviate these feelings or manage the process.

Although a lack of a dedicated human resources team at Protea Industrial Chemicals*

resulted in little attention being paid to the training and career development of employees,

and thus the aspect of employee turnover, there is no evidence that anyone left as a result of

the transaction.

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5.10. Communication in almost all the organisations was not managed as effectively as

possible

Due to the fact that there was no discrepancy in the perceptions of management and non-

management at Momentum Life*, it is concluded that communication regarding the merger

was well handled. To facilitate communication, use was made of merger maps and

information cascaded through workgroups to the rest of the organisation.

In contrast, Macsteel employees appeared to have been more informed about the deal and

have more information than the Iscor employees. However, both parties felt that issues

regarding employment positions in the new organisation were poorly communicated. Due to

the fact that a common sense of purpose, common goals and performance objectives were

present it is assumed that some form of communication had taken place. It would appear

from the evidence though, that the way ahead still needed to be communicated and clearly

mapped.

One of the main problems cited regarding the merger between G.P. Edwards and Pathology

Services was poor communication. This was especially apparent during the first few weeks,

where the turbulent transition was heightened by the employees’ ignorance of the merger

until the day before the announcement. There was also a delay in communicating employee’s

positions in the new organisation. As a result of the lack of communication and information,

disbelief and denial, coupled with anger and resentment was evident amongst all employees.

It was also felt that the goals and objectives had been communicated with more clarity prior

to the merger. In addition, there was a lack of vision, core values and beliefs, or if there

were, they were also not communicated to staff. It should be noted however, that employees

from G.P. Edwards felt that management was helpful and supportive and provided clear

communication, whilst in contrast employees from Pathology Services felt unable to air

conflicts and criticisms openly. In addition, feedback from employees highlighted a need for

improved communication between top management and lower level staff, as well as

improved interpersonal interaction and communication between all employees generally.

Similarly, employees at Protea Industrial Chemicals* felt uninformed of the aims and goals

of the organisation. Furthermore employees were unaware of how the new systems would

affect their workload and positions in the new organisation. The situation was exacerbated

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by the apparent lack of communication between the owners who did not appear to have the

same strategy in mind.

5.11. In addition to overall cultural changes, almost all the organisations showed

significant changes in individual cultural dimensions

In comparing the culture scores for both organisations after the Momentum Life* merger,

Momentum Individual Life showed a significant difference in five of the fifteen cultural

dimensions, namely employee participation, goal clarity, identification with the organisation,

management style and locus of authority. Southern Life, on the other hand showed a

significant difference in only four of the fifteen cultural dimensions: disposition towards

change, human resources orientation, identification with the organisation and management

style.

From Iscor’s perspective there were significant changes in seven of the fifteen cultural

dimensions. Changes were evident in management style, locus of authority, performance

orientation, task structure, employee participation, organisation focus, and disposition

towards change. With the exception of organisational focus and disposition towards change,

Macsteel similarly experienced changes in these dimensions.

Employees from Pathology Services felt that the new organisation’s culture was significantly

weaker. This was evidenced by a change in twelve of the fifteen individual cultural

dimensions, namely conflict resolution, culture management, customer orientation, employee

participation, goal clarity, human resource orientation, identification with the organisation,

management style, organisation focus, organisation integration, locus of authority and task

structure. In contrast, G.P. Edwards felt that the culture of the new organisation was only

slightly weaker and experienced changes in only six of the fifteen individual cultural

dimension scores. These were customer orientation, goal clarity, identification with the

organisation, organisation focus, performance orientation and task structure.

After the management buy out of Protea Industrial Chemicals* there was a significant change

in the overall culture. This was evident in twelve of the fifteen individual cultural dimensions

specifically, customer orientation, disposition towards change, employee participation, goal

clarity, human resource management, identification with the organisation, management style,

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organisation focus, organisation integration, performance orientation, reward orientation and

locus of authority.

Specific Changes to Critical Cultural Dimensions

Prior to the merger, Momentum Individual Life’s organisational structure was flat and

informal. Their management style focused on setting and achieving specific goals, but how

the goals were attained was left up to the individual. Southern Life, on the other hand, was

governed by rules and regulations and had a very autocratic management style. After the

merger Momentum Individual Life indicated a change in locus of authority whereas Southern

Life did not. Both organisations however experienced a change in management style.

Remarkably, although Southern Life ran as an integrated company prior to the merger and

Momentum Individual Life operated as different profit centres, neither organisation indicated

a change in organisation integration after the merger.

Perceptions from both parties at Macsteel International* indicated an effect on their locus of

authority. Iscor employees felt there was a change in the manner of the execution of duties;

they felt less governed by rules and regulations and more by the achievement of objectives.

Furthermore, there was increased interaction with management of a more informal nature.

Macsteel employees however, felt rules, regulations and procedures had begun to hamper

their ability to perform, and that the informality that had once infused the organisation no

longer existed. Both organisations similarly indicated a change in management style. Prior

to the merger Iscor had a procedurally driven autocratic management style with a high degree

of formalisation. In contrast, Macsteel’s management emphasized the accomplishment of

tasks, and kept “their finger on the pulse.” No employees indicated any change in

organisation integration after the merger.

Similarly, perceptions varied at Pathology Services*. Employees from Pathology Services

felt the merger had negatively impacted on the degree of freedom and independence they had

in doing their work. In addition they felt marginalised and isolated, and that there had been a

change in the locus of authority in the new organisation. Although all employees felt more

restricted and stifled in the merged company, the employees from G.P. Edwards did not

indicate a change in locus of authority after the merger. Similarly, a change in management

style was also only experienced by the employees of Pathology Services. The G.P. Edwards

employees in contrast felt management was helpful and supportive and provided clear

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information. The G.P. Edwards employees also felt the organisation was operating as an

integrated unit and therefore, unlike the Pathology Services employees, they did not

experience any change in organisation integration.

The flatter organisational structure after the management buy out of Protea Industrial

Chemicals* opened up a direct reporting channel to the owners and directors of the

organisation. Staff at ground level also had an increased sense of responsibility, ownership

and accountability, and the new business units and systems improved interaction within the

organisation. Management style also changed from being individualistic to more

participative. The above therefore confirms that there was a positive change in locus of

authority, management style and organisational integration.

5.12. Most employees felt that their respective organisations were not operating as

fully integrated units

There was a significant difference found between the organisational cultures of Southern Life

and Momentum Individual Life after the merger, which indicated that the two cultures were

not yet effectively integrated and that a unified culture still needed to be created.

Employees from both Macsteel and Iscor had different perceptions regarding the merged

organisation and indicated that areas of conflict had not yet been fully identified. Although a

common sense of purpose, common goals and performance objectives were present, evidence

suggests that a common and unified culture still needed to be created.

Differences also existed in the perceptions and attitudes of the employees at Pathology

Services* regarding the culture of the merged company. Although all employees from G.P.

Edwards felt the merged company was operating as a completely integrated entity, a

sentiment echoed by the managers of Pathology Services, non-managerial staff at Pathology

Services felt the merged company was not yet functioning as a complete unit.

Organisational integration at Protea Industrial Chemicals* however, improved. The

management buy out resulted in the organisation performing differently and more profitably,

and encouraged a learning culture. Although evidence showed that interdivisional profits still

existed at Protea Industrial Chemicals*, the divisions were more involved with one another,

had a shared vision and goal, and operated as one unit. In addition, systems were

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implemented to facilitate sharing of information, employees were more open with each other

and, when decisions or changes are now made, the effect on the organisation as a whole was

considered.

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6. DISCUSSION

As the findings were not mutually exclusive and contained considerable overlap in areas, the

discussion and analysis has been broken down into thematic areas for discussion in order to

prevent unnecessary repetition of information and theory.

6.1. Types of Organisational Culture

As reflected in the literature, there is a greater probability that a merger or acquisition will

result in a combination of organisations with dissimilar cultures as opposed to similar

cultures (Cartwright and Cooper, 1996: 80). This is especially typical of an acquisition where

the acquired company is usually smaller and/or less successful than its acquirer.

Furthermore, due to the fact that financial and strategic reasons are usually considered above

cultural issues, combinations between organisations of different culture types are inevitable

(Price, 1999: 41). This is demonstrated by the reasons underlying all three combinations

within the case studies, which ultimately resulted in purely financial and strategic

amalgamations of disparate culture types.

Quite coincidentally all three transactions were combinations of ‘role’ and ‘task’ culture

types. Even though no ‘soft’ due diligence was conducted prior to the merger, this is

significant as this combination has the greatest potential for success, since these are adjacent

culture types and not at opposite ends of the continuum (Cartwright and Cooper, 1996: 82).

As the objectives of traditional marriages and collaborative marriages are different, the

respective partners require different characteristics. Success for a traditional marriage

depends on the ability of the acquirer to change the culture of the acquired, whereas success

in a collaborative marriage depends on the degree to which the cultures can work together

and integrate (Cartwright and Cooper, 1996: 81).

Both Momentum Life* and Macsteel International* represented traditional marriages with an

aim to significantly alter and redesign the weaker organisation in the partnership. The

Momentum Life* merger however, had a significant impact on Southern Life, as is evidenced

by the qualitative data and metaphors such as “picking the eyes out of,” “absolute

annihilation” and “migrate to the Momentum way.” A possible explanation for this is that, as

Southern Life felt threatened by Momentum Individual Life, they used their pre-merger

culture as a defence mechanism. In addition, the strength of Momentum Individual Life

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resulted in Southern Life employees feeling that the transaction was more like a take-over

than a merger.

Pathology Services and G.P. Edwards on the other hand represented a modern or

collaborative marriage where there was a recognition that the integration of operations or

expertise would be of mutual benefit. The parties were complimentary forces and each made

a contribution: Pathology Services offered black empowerment, whilst G.P. Edwards offered

an increased customer base, growth and a wealth of experience. This collaborative marriage

sought to build on and integrate both organisations’ cultures (Cartwright and Cooper, 1996:

79) where success was dependent on the degree of compromise both organisations were

willing to make. The success of this marriage was however hampered by the difficulty

experienced by the organisations in reaching a compromise; G.P. Edwards dominated due to

its size and stronger, more entrenched culture. Furthermore, the degree of change required

was increased by the complete lack of ‘soft’ due diligence. This would have revealed one

culture to be significantly more dominant. Instead, the two cultures were simply combined

and expected to integrate without any prior understanding of the cultural ‘fit’. In addition,

this marriage involved both a merger and acquisition simultaneously and therefore, the power

and cultural dynamics usually at play in these separate transactions were more complex.

6.2. The Cultural Dynamics of Organisational Combinations

6.2.1. The Outcomes of Organisational Combinations

According to the literature there are four potential outcomes of organisational combinations

depending on the cultural evaluation of ‘the other’ party. Although the cultures of Macsteel

and Iscor were dissimilar, Iscor preferred the ‘other culture’ to their own. They were

therefore willing to relinquish their culture and adopt and be absorbed into Macsteel’s culture

(Cartwright and Cooper, 1996: 84). Iscor thus, to a large extent, assimilated with Macsteel’s

culture.

In contrast, Momentum Individual Life and Southern Life both found certain aspects of ‘each

other’s culture’ to be attractive and thus hoped to incorporate these into the new

organisation’s culture. At the same time however, both organisations also valued aspects of

their own cultures, which they also wished to retain. Even though during the process,

Southern Life employees felt threatened and made a concerted attempt to hold on to their

previous culture, there still appeared to be the potential for a successful cultural integration.

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Unfortunately employees of Pathology Services felt so threatened by G.P. Edwards, the

unexpectedly dominant party, that they resisted any form of change or integration. As

Pathology Services were in fact the acquiring organisation, this situation was unexpected and

the employees did not expect to be so “completely swallowed up” by the organisation that

they had in fact acquired. Furthermore, G.P. Edwards did not respect these feelings of

engulfment or acknowledge the unforeseen turn of events. Any attempts to change the

culture were met therefore with resistance from Pathology Services’ employees and resulted

in a cultural separation.

6.2.2. The ‘Dominant Culture’

According to van der Post, De Coning and Smit (1997: 149) and Cartwright and Cooper

(1996: 76,80), the probability of all fifteen cultural dimensions being similar in both

organisations prior to a merger is extremely small. The chances are far greater that mergers

will be a combination of organisations with differing cultural dimensions. Following from

this, one of Pritchett and Pound’s (1997: 10) key ground rules to mergers and acquisitions is

to “be realistic about the cultural differences.”

In all three mergers, in addition to a significant difference in the post merger culture,

characteristics of the dominant culture were prominent in the merged organisation. Although

Momentum Individual Life and Southern Life had significantly different cultures prior to the

merger, the resultant culture of the merged organisation was more reflective of the pre-

merger culture of Momentum Individual Life. Momentum Individual Life had a track record

of financial success, whereas Southern Life, in addition to a history of bad financial

performance, was governed by rules and regulations and hence considered as having the

weaker culture. Pritchett and Pound (1997: 10) warn that a ‘best of both worlds’ strategy can

cause destabilisation. In addition, it is more difficult and time consuming to blend two

cultures than it is to manage one. When one culture is integrated as opposed to two, the

culture of the more financially successful company is usually naturally favoured. This was

the case in Momentum Life*. Although the qualitative data indicated that Momentum

Individual Life’s culture would dominate, it might have eased the process had this been a

conscious decision with a well-communicated rationale.

Similarly, Macsteel and Iscor’s cultures prior to the merger were extremely different, and

Macsteel’s culture, which was dominant, ultimately became the underlying ethos of the

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merged organisation. This situation was as a result of a conscious decision taken by Iscor

who wanted to abandon their own oppressive culture, and therefore sought the performance-

orientated culture inherent in Macsteel. The merger process thus, as proposed by Pritchett

and Pound (1997: 11), provided an opportunity for Iscor to adopt and work towards a new

and improved culture.

Likewise, the process followed by Pathology Services*, where the culture that dominated and

was eventually adopted, was also that of the more financially successful company (Pritchett

and Pound, 1997: 10). However, as the culture of the larger, more profitable firm, and

therefore the resultant dominant culture, belonged to the acquired organisation, this situation

was unique and unexpected. Consequently, the employees of Pathology Services were more

adversely affected and aggrieved by the merger process. Contrary to the intention of a

collaborative marriage, where the expectations of the employees are not to go with one

particular culture but rather, as suggested by Cliffe (1999: 32) to create a unified

organisational culture that combined the best of both cultures, this turn of events accounts for

and explains the greater degree of unhappiness experienced by the Pathology Services

employees.

Furthermore, in an acquisition, there are usually clear winners and losers, power is not

negotiable and is usually surrendered to the acquirer whereas in the case of a merger, the

distribution of power between two parties usually evolves over a period of time. This

unusual situation, where the acquired company dominated over the acquiring organisation, is

likely to have occurred in Pathology Services*, in addition to the above factors, due to the

fact that this transaction was not a pure merger or acquisition, but rather a combination of the

two simultaneously. As mentioned, the power and cultural dynamics usually in play in a pure

merger or acquisition as separate transactions, therefore did not apply in this situation.

6.3. Managing the Culture During the Merger or Acquisition

6.3.1. ‘Soft’ Due Diligence

In all the organisations, the lack of ‘soft’ due diligence resulted in numerous consequences.

As has traditionally been the case, the financial planning aspects of the mergers received

most of management’s time and concentration, and little regard was given to the human

aspects of the process. The result was a lack of understanding of the differences between

organisational cultures and those relating to the strategic fit of the organisations. The GE

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Capital Pathfinder model describes this as a typical problem associated with the first stage of

the merger process.

A cultural audit is not meant to stifle a deal, but rather to discover likely trouble spots and to

develop a plan in order to manage the differences. ‘Soft’ due diligence is essential in order to

assess the strengths and weaknesses of the respective management teams; to determine the

organisational structure and opportunities or needs for the redesign or restructure thereof; to

determine whether salient differences in corporate culture can be reconciled; and finally, to

determine whether there are issues that could place the merger at risk (Pritchett and Pound,

1997: 14). There was no evidence to support the fact that audits of this kind were undertaken

in any of the organisations examined.

Moreover, the organisations did not take into consideration the fact that people’s strengths

often become liabilities during the transition process. This is necessary, according to

Pritchett and Pound (1997: 14), in order to determine whether there are staunch defenders of

the culture, as they have the hardest time adjusting to the new organisation and its culture.

This could provide an explanation why most of Southern Life’s senior management left the

organisation, either during or after the merger. It is more than likely they were unable to

tolerate the ambiguity and uncertainty, and facilitate the change process. While the loss of

these managers was partially sought through the offer of a voluntary package, the indirect

effect of their resignations left the Southern Life employees feeling at risk of losing their

cultural identity. As a result, the organisational culture in existence at Southern Life prior to

the merger became entrenched as a defence mechanism in opposition to the merger.

6.4. The Approach to the Merger

As each merger process was unique and diverse, they demonstrate little in the form of

similarities in style. The similarities in this regard, therefore lie predominantly in the area of

things not done well, as opposed to those that were. Thus, the lessons to be gleaned from

research into this aspect are mainly from mistakes or errors made by the organisations in the

merger process itself.

6.4.1. The Presence of an Integration Strategy and Full Time Integration Team

None of the organisations examined demonstrated a well thought out merger integration

strategy. A well-conceived, professionally guided integration strategy ensures that both the

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substance and timing are well planned and that essential management positions are aligned to

control the amount of destabilisation experienced. The focus of this should be in favour of

the initial stages, as opposed to the later stages. This was an error Macsteel International*

made when they allowed the acculturation process to take its natural course. While this had a

positive outcome for the Iscor employees who preferred their new culture, it left Macsteel

employees feeling frustrated and constrained, and more inclined to leave the new

organisation. Had management played a more active role, it is probable these feelings of

dissonance might have been more effectively eased. A strategy that addressed the integration

of the two cultures would have paid huge dividends in this case (Pritchett and Pound, 1997: 2

and Tetenbaum, 1999: 28).

The above discussion is also relevant when discussing the other three cases under

examination. Momentum Life* however, was the only organisation with any semblance of a

strategy. Their merger steering committee and working groups performed a vital role in

initiating the merger integration and appear to have provided a solid foundation for the

merger process. Protea Industrial Chemicals*, like Macsteel International*, however had

neither an obvious integration strategy, nor an assigned integration team. Pathology

Services*’ employees likewise mentioned the complete lack thereof, especially with regard to

the latter. The insufficient attention paid to establish a connection between two organisations

is a common dilemma (Tetenbaum, 1999: 26). It is crucial to identify an appropriate culture

to support the business goals at the initial stage of the process, affect a meaningful value

system and then manage the process. As stressed above, management should have had a

definite strategy in place and begun the transition either before or as soon as the deal was

announced (Pritchett and Pound, 1997: 2). This was not in place in the cases under

investigation and management became preoccupied with fixing, as opposed to preventing

problems, as things started to change as soon as people learnt of the deal.

The role of the integration team and its leader should be designated as a full time role since it

consumes an inordinate amount of time and carries a huge amount of responsibility

(Tetenbaum, 1999: 28 and GE Capital’s Pathfinder Model, 1998). GE Capital, as mentioned

earlier, also stresses the need for this team to be recognized as a distinct business function.

Although this was not the case at any of the four organisations, the Momentum Life* merger

was actively managed by a merger steering committee and subsequent working groups over a

five month period. In addition, Gemini Consulting assisted with the restructuring of the

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organisation. As the merger steering committee consisted of top executives, it is assumed

that these were part-time roles, undertaken in conjunction with their normal duties and

responsibilities. The merger committee did an effective job while it was in place, however it

should be noted, that a change in organisational culture should be managed as a long-term

process.

Similarly, the transition at Protea Industrial Chemicals* was handled by an in-house

management team. Whilst this did not involve the coming together of two cultures, the

organisational systems and structures did undergo massive changes and employees felt that a

dedicated team should have been delegated to manage the process. In addition to aiding the

more effective implementation of systems, this would also have ensured everyone’s buy-in

and involvement with the process.

Neither Macsteel International* nor Pathology Services* had a specific person or team

managing their merger process. As per the literature (GE Capital, 1998 and Cartwright and

Cooper, 1996: 140) it is recommended that a full-time integration manager be appointed to

co-ordinate and steer the management of the merger. The additional benefit of this is that

line managers who would otherwise spend considerable time handling integration issues, are

freed up and can concentrate on operation issues. It is also essential that a specific person be

assigned to handle communication regarding the merger. This will ensure that all

information provided is consistent and reliable, thereby reducing rumours and uncertainty.

Finally, as managing the differences in organisational culture is such a difficult and complex

issue, adequate resources must be allocated to the integration manager.

6.4.2. Stages in the Merger or Acquisition Process

The First Stage – Start Up Phase

Barrett (1973, in Cartwright and Cooper, 1996: 117) argues that the ultimate success of a

merger or acquisition is determined by the way in which the transition is managed in the

initial period. Handling of the announcement is the first major task and is important because

it is the primary source of ‘official’ information employees receive regarding their future.

The content of the announcement and the manner in which it is communicated are critical as,

in addition to paving the way for change, provides an opportunity to allay fears, dispel

rumours and introduce the ‘other parties’ to each other. It should be noted however, that once

formed, attitudes and behaviours are potentially resistant to change. This is especially likely

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in a merger where employees experience a delay before actually confronting any behavioural

evidence that is inconsistent with their initial impressions or expectations.

Although evidence has repeatedly demonstrated that first impressions are important, as they

powerfully shape attitudes and future behaviour, announcements that are characterised by

minimal information, insensitive handling and poor timing are not unusual (Cartwright and

Cooper, 1996: 118). Pathology Services* is an example of an organisation who handled the

announcement period particularly poorly. In addition to the sudden announcement, this stage

was exacerbated by the ultimatum issued which intensified employee uncertainty and

resistance. It does not appear that the management in this case understood the stress caused

to employees by the merger. Poor management at the announcement period was also

apparent in the Macsteel International* merger where, similarly employees from both

organisations knew very little about the deal and its consequences. A great deal of

uncertainty was manifested within the workforce as a result of a lack of information.

Momentum Life* on the other hand, followed a proactive approach and attempted to shape

their merger process. This was facilitated through the establishment of the steering

committee at the time of their announcement to deal with issues of communication, thereby

alleviating uncertainty.

None of the organisations appeared to have provided their workforce with a proper merger

orientation. This could have been instrumental in lessening the ambiguity and surprise,

which resulted in some initial resistance to change. Had management been able to meet the

challenge head on and prepare employees for the uncertainty, employees may have found the

merger transition to be less traumatic and have been more understanding about the resulting

generic problems (Pritchett and Pound, 1997: 24). This might have further enhanced

managements’ credibility at this crucial initial stage.

The Second Stage – Transitional Phase

During the second or transitional stage of the merger, polarisation between Iscor and

Macsteel employees began to emerge as employees immediately began to draw conclusions

about the other culture. However, as a result of their ‘lucky honeymoon period’, employees

from the respective organisations were introduced and became acquainted with one another

prior to the deal being legally concluded. In addition, this important fusion period allowed

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for the slow introduction of Macsteel’s policies and procedures. It also facilitated the

building of a degree of mutual respect and an understanding of the rationale behind the

merger, as well as the recognition that the integration was mutually beneficial. Fortunately

Iscor, the weaker company, was open to a cultural shift, in favour of ‘the other’ culture, and

consequently did not exercise any resistance (Cartwright and Cooper, 1996: 84). In addition,

by Macsteel employees moving onto Iscor ‘turf’, Iscor employees felt they had retained some

degree of power.

Regrettably, this was not the case in the Pathology Services* merger, where the acquiring

company felt they had been completely swallowed by the more dominant acquired

organisation. A further delay in communicating employees’ positions within the new

organisation compounded people’s fear, built a resistance to the merger and reduced

productivity levels. This is a classic mistake made at this stage, where the primary concern

for employees has to do with issues surrounding job security (Price, 1999: 41). In order to

strengthen people’s commitment to the merger and maintain the merger momentum, a well-

defined human resources transformation strategy should have been devised, prior thought

given to the future of the employees in the new organisation, and this information

communicated as soon as the process began.

In contrast, Momentum Life*’s merger steering committee and working groups performed a

central role in alleviating some of the uncertainty concerning employees’ future roles within

the company. The process was completely transparent and the rationale behind decisions was

available to employees at any time. Furthermore, those who were directly affected by the

merger changes within the organisation, were spoken to face-to-face and informed about

what would happen and why. As recommended by Price (1999: 41), Momentum Life* had a

process in place that was inherently fair and open, which was instrumental in achieving

stability in this phase.

The Third Stage – Integration Phase

Although the differences were acknowledged and apparent between the merging cultures, no

conscious effort was taken in any of the organisations to create a widely accepted new

corporate culture. Price (1999: 41) describes this as one of the vital steps in this phase. As

mentioned, the management of Macsteel International* simply left acculturation to take its

natural course. Pathology Services* contained no evidence of this kind of endeavour and,

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due to the residual discrepancies between the perceptions of employees it is assumed that no

conscious attempt was made. Although a merger steering committee was in place at

Momentum Life*, involving employees from various parts of the organisation, it does not

appear to have been concerned with building a unified culture. This is again evident by the

different perceptions held by employees of these two organisations and that there were still

numerous areas, which needed to be managed in order to create a unified culture.


The closure phase or Genesis of each merger does not appear to have been achieved in any of

the case studies. Although the Momentum Life* merger was said to be financially

successful, there were still convincing differences in employee perceptions within all four of

the organisations studied. A possible explanation for this is that at the time of writing it may

have been too short a time period may have elapsed since the merger. However, it cannot be

assumed that change will occur through the influx of time. This was evidenced by Nampak

Metalbox merger, which operated under this dual title for a decade after the merger. This

signified the lengthy period taken by the organisation to feel they had reached closure.

Additional time however, does not automatically predispose an organisation to change.

Rather, cultural integration must be actively managed and the new culture inspired

throughout the organisation. Price (1999: 42) believes that it is important for organisations to

reach this fourth stage in order to attain closure. Closure is said to be reached when a unitary

culture has developed and all employees are clear about the organisation’s values and goals.

This is discussed in further depth in Cultural Integration, Section 6.10.

6.5. Managing the Uncertainty with Respect to Employment Position

“Having the company you work for acquired is probably the worst thing that can happen to somebody, other than the loss of a family member… All the things you have learnt, all the truths you have known – your boss, where you get your paycheck from, your security – change in one day.”

Jack Welch, CEO, General Electric, 1995

Mergers and acquisitions are important events in the lives of employees over which they have

no control. They are seen as forcing change upon employees that they usually do not want or

accept. As a result, self-preservation instincts powerfully influence employee behaviour and

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their top priorities become their own personal concerns. The most common fear is that of

redundancy (Cartwright and Cooper, 1996: 45) and unless employees have been assured of

their own survival, it is unlikely that they will concern themselves with the organisations.

Pritchett and Pound (1997: 26) and Tetenbaum (1999: 33) stress the need for management to

address these concerns early in the process. The management teams of the four cases in

question had a responsibility to answer these burning issues, making employees their first

priority and provide them with a reason for wanting the merger to work (Pritchett and Pound,

1997: 27).

The management of uncertainty regarding employment positions was severely lacking in two

of the cases in question. All employees at Macsteel International* indicated they felt

uninformed regarding their futures within the new organisation and that their jobs were under

threat. Similarly, Pathology Services* created turmoil by the manner in which they

addressed the issue of future employment. Not only were employees issued with sudden

ultimatums, but also finalisation of job specifications and the communication of this took up

to three months. The apparent lack of a clear human resources transformation strategy and

poor communication were the primary contributing factors to this problem. As mentioned

before, Momentum Life* alleviated much of this uncertainty through the steering

committee’s transparent processes. The people affected were also dealt with directly. Their

process is therefore considered well handled, and the exception in this regard.

The uncertainty, or rather the certainty of change could have been improved upon by each

organisation in order to increase organisational cohesiveness. According to Tetenbaum

(1999: 33), when a merger or acquisition is announced, people expect change and are more

receptive to it. Employees however, get impatient and often feel the organisation is moving

too slowly. At this time, Pritchett and Pound have found that employees feel they know what

is best. Above all, they desire answers and closure.

6.6. Managing the Timeframe

Although all four of the cases studied involve recent transitional processes, only Protea

Industrial Chemicals* and Macsteel International* displayed clear evidence of wanting to

tighten the transition period. At Protea Industrial Chemicals*, strategic issues were given a

definite time perspective by the new owners. Likewise Macsteel International*, after their

‘honeymoon period’, also experienced an urgency to begin working together and trading.

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Pritchett and Pound (1997: 6) highlight the benefits of a tightened integration period, as a

slow paced integration increases the risk and prolongs the period where damage may occur.

These authors recommend that the integration period does not exceed twelve months. While

this conflicts with Price (1999: 41) and other authors who designate a time period of

approximately two years, this is likely to be dependent on the size of the organisation and the

degree of change required. Tetenbaum (1999: 33-34), however also cites the virtues of

making changes quickly, while employees are open to change and not prolonging the agony

and uncertainty.

Despite the fact that Momentum Life* and Pathology Services* showed signs of not wanting

to prolong this process, management could have speeded up the process considerably by

assigning dedicated and full time integration teams and having a definitive strategy in place

beforehand. This may have enabled the organisations to take advantage of the window of

opportunity presented to them at the time of the announcement, where employees of the two

organisations were more receptive to change (Tetenbaum, 1999: 33).

6.7. Managing Employee Turnover

Cartwright and Cooper (1996: 45) found that in order hasten the change process it is often

easier to replace people. Senior managers are the most vulnerable in this regard, as was

evident in the Momentum Life* merger. The new management saw the merger as the ideal

opportunity to ‘spring clean’ their workforce. The voluntary retrenchment packages offered

to senior management however did not appear to be part of a well planned strategy. Rather,

they provided an opportunity for those who felt that they could not or did not want to

continue with the new organisation to leave. The process did not appear to target specific

individuals but rather relied on natural attrition and resulted in the loss of most of Southern

Life’s top management. Not all action taken in this regard by Momentum Life* was flawed

however. Each decision made by the steering committee regarding lower level employees

was based on the essence of the business case, which signalled a more thought out and

focused strategy in this regard.

The fact that Macsteel International’s* management left acculturation to take its natural

course resulted in an adverse effect on the organisation. Macsteel employees were less

satisfied with the overall outcome and less positive in their attitudes to the joint venture and

demonstrated a greater inclination to leave the new organisation. Iscor employees on the

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other hand, developed more favourable attitudes once they began to learn and experience the

culture of Macsteel International*. Little action appears to have been taken to prevent the

loss of key players, talent and core competencies.

Similarly, although numerous employees left Pathology Services*, it was not evident whether

these employees were dismissed or elected to leave. In addition some senior members felt

that this was the perfect wake up call for those not pulling their weight and that the firm was

“better off” without these individuals. According to Cartwright and Cooper (1996: 48), this

is not an unusual situation in mergers and is often seen as an opportunity to get rid of ‘dead

wood’. However, several of the employees left voluntarily as they found it difficult to work

with their new colleagues and were unhappy with the changes. Furthermore, there was a

discernible decrease in the number of managerial posts held after the merger by the acquiring

company’s employees. The reason provided for this is that G.P. Edwards’ employees had

more experience and were therefore given preference. As more people left from the

acquiring organisation, this is assumed to be reflective of the greater degree of unhappiness

within this group. An additional reason offered was that they had experienced a loss of

managerial autonomy (Hayes and Hoag, 1974 in Cartwright and Cooper, 1996: 46).

Although it has been noted that employees were given preference as a result of experience, it

does not appear that this process was actively managed. If this were the case, there would not

have been the noticeable number of voluntary resignations. These however, are not unusual

according to Cartwright and Cooper when the psychological contract between the individual

and the organisation is broken (Handy, in Cartwright and Cooper, 1996: 47).

6.8. Communication

Communication is the vital thread that weaves through every aspect of the merger process.

The literature review emphasizes the need for management to remain in touch and to

continuously communicate with the rest of the workforce (Cartwright and Cooper, 1996: 122,

Price, 1999: 42, and Tetenbaum, 1999: 34). Ensuring that all employees have both heard and

understood the messages sent out may require repetition or changing the way in which it was

said (Tetenbaum, 1999: 34). Moreover, it is essential that all communication is consistent

and reliable, with face-to-face communication preferable to the written word. As the findings

indicate, only two of the four case studies described organisations that communicated

effectively with their workforce. While in place, the merger steering committee and working

groups at Momentum Life* were instrumental in this regard. To facilitate communication,

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they made use of merger maps and cascaded information through workgroups to the rest of

the organisation. This allowed a wide range of individuals to contribute information from

which decisions regarding the merger process were made. The merger maps were also

effective in communicating the results of the merger steering committee meetings and

reasons why decisions were made. All findings were transparent and available to anyone

who wished to see them. Moreover, people who were directly affected by the merger were

spoken to face-to-face and informed about the implications. One aspect that does not appear

to have been communicated effectively however was the rationale for following the

organisational culture of Momentum Individual Life.

Employees at Protea Industrial Chemicals* stated that communication in the organisation

after the management buy out had improved. However, communication between the new

owners necessitated some improvements. The employees of the remaining two organisations

felt entirely left out of the information loop, and as a result, demonstrated more uncertainty.

Both Pathology Services* and Macsteel International* employees felt communication could

have been improved, especially surrounding the issue of future employment positions, and

future goals and objectives. This would have alleviated unnecessary fear and uncertainty.

One of the common problems associated with lack of adequate communication, as described

by GE Capital, is the polarisation of attitudes. This is evident in each organisation to some

extent, and was particularly severe in the case of Pathology Services*. In addition,

communication must be bilateral. Employees need to be able to raise their fears, voice their

uncertainties and air their criticisms. The employees of Pathology Services* signified that

there was no forum that allowed them to air conflicts and criticisms openly. They therefore

felt that management was not willing to hear their opinions. As a result, the organisation was

perceived to lack vision, core values and beliefs, and seemingly marginalised employees from

the decision making process.

6.9. Measuring Organisational Culture

Van der Post, De Coning and Smit’s (1997: 149-150) fifteen cultural dimensions have been

used as an instrument to measure organisational culture. This was achieved by comparing

these fifteen individual cultural dimensions with measures and definitions of organisational

effectiveness. The reason for focusing on the effectiveness of the organisation, rather than

the strength of the culture, is that a strong culture is just as likely to lead an organisation to

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failure, as to success (Kotter and Heskett, 1992: 21). The effectiveness of an organisation is

determined by its ability to adapt to the external environment and to meet market and other

external demands, which result in good business performance. An organisation’s capacity to

adapt rapidly to external demands is enhanced by its management style and goal clarity. This

capacity is increased through customer orientation and organisational focus. Furthermore, all

fifteen individual cultural dimensions support business performance and therefore provide a

good indication of organisational effectiveness.

In a merger, the individual cultural dimensions that must be emphasized, are the areas where

there is a significant difference in the means of the financially successful organisation and no

difference in the means of ‘the other’ organisation. The reason for focusing on these areas is

that the more successful company before the merger can be assumed to have had the more

effective organisational culture (Bezuidenhout, 1999: 51).

The areas where there was a significant change in Momentum Individual Life, and no change

in Southern Life’s culture, need to be considered when managing organisational culture.

These are employee participation, goal clarity and locus of authority. In the case of Macsteel

International*, areas for consideration are organisational focus and disposition towards

change. Finally, there was evidence of only one area of change at G.P. Edwards, the more

financially successful organisation, and not at Pathology Services, namely performance

orientation. Thus each combination provides unique results and should be managed and

evaluated on a case-by-case basis.

Specific Changes to Critical Cultural Dimensions

It should be noted, that as locus of authority, management style and organisational integration

are the critical aspects in managing mergers, special attention should be given to changes in

these areas. This is the case, for example, in Momentum Life* where the locus of authority

has changed.

The literature defines locus of authority as “the degree of responsibility, freedom and

independence individual employees have in their jobs” (van der Post, De Coning and Smit,

1997: 151). Areas considered when analysing the locus of authority are: where the authority

is located; whether the management is centralised or decentralised; and the degree of

empowerment employees are given to make decisions and execute their positions. What is

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evident in all three of these mergers is that there was a discrete difference in the perceptions

and degree of change that occurred regarding the locus of authority. Employees from both

Momentum Individual Life and Pathology Services reflected a negative change in their locus

of authority, whilst in contrast the employees from Southern Life and G.P. Edwards indicated

no change. Although only non-managerial employees of Pathology Services felt their locus

of authority had changed, all employees at the merged organisation felt more restricted. In

contrast, both parties at Macsteel International* indicated their locus of authority had been

affected, although employees from Iscor indicated a positive change whereas Macsteel

employees experienced a negative change.

Management style is especially important as it sets an example to the employees. How

managers behave, what they do and think is watched by everyone in the organisation and is

often duplicated throughout the organisational structure. Van der Post, De Coning and Smit

(1997: 151) define management style as “the degree to which managers provide clear

communication, assistance and support to their subordinates.” All employees at Momentum

Life* and Macsteel International* indicated a change in management style after the merger.

Although all employees at Macsteel International* felt management styles had changed, their

perceptions differed. Employees from Iscor perceived the management style to be more open

and communicative, whereas employees from Macsteel felt the informality the organisation

had once infused, no longer existed. The perceptions at Pathology Services* also differed,

where employees from the acquiring organisation felt there had been a change in

management style whilst G.P. Edwards employees experienced no change.

None of the employees at Momentum Life* or Macsteel International* indicated a change in

organisational integration after the merger. The situation at Pathology Services* however,

was once again divided. Organisation integration measures the degree to which various

subunits within the organisation are actively encouraged to operate in a coordinated way.

The employees from Pathology Services however felt that there were still some parts of the

organisation, which were working in isolation from each other and therefore organisational

integration since the merger had changed. The employees from G.P. Edwards, on the other

hand did not experience a change in this dimension.

In the case of Protea Industrial Chemicals*, all three of the above critical dimensions, were

included in the twelve cultural dimensions that changed after the management buy out. As

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was the case in the overall cultural change, these changes were positive. Management style

changed from an individualistic to a more participative style, resulting in increased

productivity through people. Organisation integration improved through the business units,

which, since the management buy out, are more involved with one another, share a vision and

goal and operate as one unit. Operational authority and responsibility, in addition to

empowering employees, enabled executives to have a more strategic focus. Additionally, the

delayering of the organisation also enhanced the responsibility, freedom and independence

individual employees had within the organisation, and was reflective of a positive change in

the locus of authority. Management believed that, with these changes in the organisational

structure and systems, a change in organisational behaviour would result. This belief was

confirmed.

6.10. Cultural Integration

The literature suggests that for organisational culture to be successfully managed, a unified

culture needs to be created. According to Cartwright and Cooper (1996: 144) a merger can

only be considered to have stabilised, when an understandable, coherent and unitary culture

has developed throughout the organisation. In addition, all employees must be clear

regarding the new organisation’s values and goals; they must share and accept these values

and know what is expected of them. The authors argue that it is impossible to estimate the

exact time scale when post-merger stabilisation will occur, but it is at this point when

problems cease to be attributed to the merger, and they once again become ‘organisational’

problems.

At Momentum Life*, although the merger was financially successful, there was a significant

difference in perceptions of the organisational cultures after the merger. This suggests that

the organisational culture in this instance was not successfully managed, and indicates that

the two cultures were not yet effectively integrated.

Similarly, although a common sense of purpose, common goals and performance objectives

were present at Macsteel International*, the evidence showed that the way ahead still needed

to be clearly mapped and a common culture created. In addition, there were differences in

the perceptions of the culture, which implies that overall cultural integration, had not yet been

achieved.

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The perception that existed amongst some of the employees at Pathology Services* was that

the combined organisation was not operating as an integrated entity. This suggests that a

shared system of beliefs and values did not exist between the two groups, and that cultural

integration of the two organisations and a unitary culture had not yet been achieved. It

should be noted though, that at the time of writing only nine months had elapsed since the

merger and it may have been too soon for such an integration to have occurred. However,

due to the sentiments of employees who indicated the merger had felt like more of a take over

than a merger, the heightened feelings of defeat and powerlessness may have contributed to

Pathology Services and Southern Life employees, feeling more overt initial resistance to

change.

Although Protea Industrial Chemicals* involved a management buy out, and therefore did not

necessitate the blending of two cultures, there is evidence that the various sub-units within

the organisation have become more integrated. In addition, all employees were aware of the

organisational goals. However, although the organisation appeared to be operating as an

integrated unit, there were still areas that needed to be managed. For example, a concern was

that not all owners were thought to have had the same strategy for the organisation in mind,

and employees were not always aware of what was expected from them.

It is critical, that the above situations are actively managed, as integration, which is

equivalent to a shared meaning, plays a significant role in organisational performance. The

importance of managing this area is further substantiated by GE Capital who, as a result of

their vast merger and acquisition experience, state that integration is not a discrete phase of a

deal but rather a process beginning with ‘soft’ due diligence and running through the ongoing

management of the enterprise.

Furthermore, the emergent conclusion is that employees from the two organisations are

affected differently as a consequence of the merger. In addition, in order to create one culture

and method of doing things, the dissonance in terms of the degree of role satisfaction varies.

In all three of the case studies where there was a combination of cultures, there was no

absolute change from one culture to another but rather traces of each culture remained. This

resulted in employees from both sides having different perceptions and feelings about the

new culture. Many employees were dissatisfied and felt they had lost whilst ‘the other side’

felt they had gained.

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7. PROPOSITIONS

Major Proposition

The merger and acquisition processes within each organisation were not actively managed:

no ‘soft’ due diligence was conducted prior to any of the transactions; none of the

organisations had an integration strategy or a full time integration team in place; employees

experienced uncertainty, especially with regard to job security, in all the organisations; and

employees turnover was not actively managed. Finally, none of the organisations provided

clear evidence that a unified, integrated culture had been created. Thus, the proposition, that

without successful management of a merger there will be a negative impact on corporate

culture, is confirmed by this research.

Minor Propositions

Common trends can be identified from the research. These pertain primarily to common

mistakes and flaws in the merger and acquisition approach and process, and result in

unsuccessful cultural transitions within the mergers and acquisitions in question. Therefore,

although common trends can be identified, these trends resulted in unsuccessful mergers.

Thus, the sub proposition can only be partially confirmed.

Lessons can be drawn from the negative trends revealed by this research. These are based on

the mistakes made by the respective organisations’ approaches to the merger or acquisition

and the laws within their respective processes. These lessons will assist managers in future

endeavours not to repeat the same errors. Thus, the sub-proposition that lessons can be

drawn from the comparative study to assist organisations in successful mergers is confirmed.

Through the analysis and discussion of the findings, it is clear that there is a marked

similarity between successful mergers in a South African setting to those identified by

international research. As a result, this sub-proposition in also confirmed.

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8. RECOMMENDATIONS

As shown by this research many mergers and acquisitions are still not managed at an optimal

level and the cultural aspects are largely ignored. The following highlights specific lessons

learnt in the aforementioned cases. Although these are specific to the cases in question, they

are regarded as generic. The following recommendations emphasise the benefits of a

proactive approach, which will assist managers to avoid these common merger pitfalls and

the long-term hidden costs.

1. An objective professional appraisal of the organisation’s cultural fit is essential. This

‘soft’ due diligence is necessary in order to determine the degree of change required. A

successful merger hinges on the ability of decision makers to identify a potential merger

partner or acquisition target that represents both a good strategic and cultural match. As

organisational culture is at the heart of a successful integration, a realistic appraisal of the

respective cultures is required. This will enable organisational ‘soft spots’ that could put

a merger at risk to be identified. Cisco’s tried and tested approach to mergers and

acquisitions provides valuable insights into this process. If there are any doubts as to the

cultural compatibility of the organisations, it is the recommendation of this study that an

alternate prospect be sought.

2. One of the common problems identified in this research is that mergers are entered into

without a clear plan or integration strategy. Added value will depend mainly on what

happens after the deal has been completed yet many dealmakers neglect this side of the

business. This is a dangerous oversight as too much is at stake in these transactions, and

there are no second chances. Failures in consolidation are attributed primarily to the lack

of an integration plan that focuses on people and human resources issues. A well thought

out and expertly designed integration strategy ensures that the amount of destabilisation

after the merger is contained. In addition, operating from the outset with a coherent and

purposeful strategy, with well defined objectives, will result in an excellent return on

investment in terms of time, energy, and money. Management should therefore focus on

working through differences and defining their strategy at the front end as opposed to

after the roll out.

3. It is strongly recommended that organisations focus on immediate induction, training

needs and team building exercises to assist the closure of gaps between the two

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previously distinct entities. Effort should be devoted to the creation of a welcoming

culture that will ensure the effective integration of the new staff. Attention should also be

given to the role these new employees play in the new organisation. The inclusion and

participation of employees gives them the opportunity to contribute their knowledge and

skills. Their input in decision making will reflect multiple viewpoints and have a higher

likelihood of implementation. A human resources transformation strategy, prepared prior

to the closure of the deal, is beneficial in alleviating employee uncertainty.

4. Quick decision-making will limit the destabilisation caused by uncertainty. As

employees expect change, structural changes should be made quickly and decisively.

Seize the window of opportunity afforded by the change surrounding the merger to work

towards a new and better culture. The management of the organisation needs to be

flexible and acknowledge mistakes. Merger problems often set their own tempo and

mergers often fail because management make the classic mistake of letting problems

spiral out of control. In situations such as these, decisiveness is an advantage and caution

is a curse. This research therefore proposes an unconservative, flexible, risk-taking and

creative management style.

5. A full-time integration team is instrumental in providing guidance throughout the

implementation phase, making the day-to-day decisions that drive the process forward

and coordinating working groups and the recommendations from employees. This is an

effective way of providing a feedback mechanism for employees to air criticisms, ask

questions and propose solutions, and ensures their involvement in the process. The

integration team is focused on the transition and involved in setting priorities and

allocating resources. The benefit of an integration team is that it frees up managers and

allows them to maintain their focus on running the business.

6. The lack of communication and the ensuing results thereof have been discussed in

numerous aspects within this analysis. Inadequate communication impacts negatively on

employee motivation and increases resistance. This demonstrates the integral role it plays

in each and every aspect of the merger process in terms of communicating the rationale

behind the decisions, future goals and objectives, the roles and responsibilities of each

employee, the expectations of management, and the mission and vision of the new

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organisation. It is important that communication and feedback be honest and constructive

in order to build relationships based on trust between management and employees.

7. As natural attrition produces a loss of quality employees and minimal turnover among

weak and marginal employees, the importance of actively managing employee turnover

must be emphasized. While downsizing has its advantages, a strategy that is purely

reliant on natural attrition does not strengthen the organisation, but rather encourages the

talent to leave first. Furthermore, this is a lethargic approach and not good management.

It is much easier to succeed with a team of quality individuals. Active management of

employee turnover, based on a human resources transformation strategy, ensures that the

organisation is equipped with a team of quality individuals to lead them into the future.

8. In addition, as employees tend to be distracted during a merger or acquisition,

productivity is likely to suffer. While the impact of this on the organisations in question

is not immediately apparent, it is necessary to keep a watchful eye for signs thereof, as it

may be interpreted as evidence of a ‘bad merger’. Furthermore, any fallout from low

staff morale is likely to be snapped up by the competition, not only in terms of poaching

key people but also in gaining market share. Therefore, the importance of ‘morale

management’ is critical. According to Dippenaar, Chief Executive Officer of FirstRand,

“restoring and sustaining morale and getting the support of staff are the biggest issues in a

merger” (Harris, 2000: 14).

9. Finally, individuals may respond to a merger as representing a personal threat. Middle

managers especially feel trapped as many are too young to qualify for voluntary

retirement and others are too old to find employment elsewhere. Many of the ‘survivors’

suffer from guilt, uncertainty, further job insecurity, and are generally negative in reacting

to change. Conscious strategies are essential to assist those who remain behind to

manage the “survivor syndrome.” This must however, focus on the real and compelling

work of integrating two organisations as opposed to mere ‘canned’ team-building

exercises.

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9. CONCLUSION

The aim of this qualitative study was to determine whether common themes and trends

existed in mergers and acquisitions in a South African context. This report draws together

the findings of four individual studies in this area carried out by Bezuidenhout (1999), Cohen

(1999), Kirsten (1999) and Van Heerden (1999). Insights and lessons gleaned through this

analysis are presented in this report to assist managers in future endeavours in this area.

Mergers and acquisitions are increasing in prevalence within South Africa and the rest of the

world. Furthermore due to the changing demographics of South African business, diversity

within and amongst organisational cultures is steadily increasing. These lessons and critical

success factors are therefore considered relevant and applicable in the business arena and

instrumental in creating a whole that is greater than the sum of its parts. In addition, it is

hoped that they will provide a solid foundation on which future research can be conducted.

From this research the following critical success factors have emerged:

A cultural audit or ‘soft’ due diligence needs to accompany the financial and strategic

investigation into the compatibility of the concerned organisations

A thorough understanding of the acquired organisation or other merger partner must

be attained. This includes the way the organisation operates, particularly at grass-

roots level

The merger or acquisition must be approached with a well-conceived, professionally

guided merger operations strategy, as well as a human resources transformation

strategy

Action must be quick, decisive, flexible and proactive

A full-time integration team should be responsible for overseeing the integration of all

administrative, physical, organisational and cultural aspects of the consolidation

Effective, honest communication throughout the organisation is vital

Establish trust

Actively manage employee turnover.

The consequence of ignoring these factors is that cultural integration is either difficult or not

achieved. This is evidenced by the four case studies investigated where unified cultures had

not been successfully created and strong differences in perceptions still existed between

employees of the legacy organisations. Although the impact of this was not evident in the

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data analysed, it is proposed that there would be a negative effect on productivity,

profitability and therefore the success of the merged organisations.

In conclusion, as a result of the information and insights from this qualitative investigation, it

is felt that further research into mergers and acquisitions in a South African context should be

conducted. It is suggested that future research focus on a larger sample of cases, which

details both the cultural aspects of the merger, as well as its impact on productivity and

profitability over a long-term period. This would provide a more complete picture on the

management of integration of the organisational culture and the impact of this on

performance and financial success.

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