Quote of the Month:
“Ideas won’t keep; something must be done about them.”
Alfred North Whitehead
The theme of this Newsletter is culture issues involved in acquisitions and
integrations. Culture issues are not readily obvious to us since often we
have come to believe that our cultural values are the norm – but the reality
is that our values and the cultures that arise from them are a choice. They
may be positive ground for the newly combined organization or may
undermine efforts as the new combined company begins its integration
processes.
It is easy to be blindsided by culture issues, especially if the
acquirer is not actively looking at what they might be nor appraising their
potential impact. If these issues are not acknowledged and resolved no
amount of technical expertise or strategic finesse will be sufficient to make
the acquisition the success it could be.
The first article contains highlights of a presentation dealing with the culture
challenges Chinese companies have to resolve when they engage in cross
border acquisitions. Jay Chatzkel of Progressive Practices and Dr. Artie Ng
of the Hong Kong Polytechnic University gave this presentation at the
Knowledge Cities Summit in Shenzhen, China on November 6, 2009.
The second article is a conversation with Maarten Nijhoff Asser of THT
Consulting, a premiere international consulting firm that focuses on
corporate culture issues. THT has worked with Fortune 500 companies and other entities around the world in this area. THT bases its efforts on its extensive and long term research into how to work through the seven key cultural dilemmas that every company must resolve.
In This Issue:
• Why “Traditional Wisdom” Matters in Chinese
Multinational Acquisitions and Integrations
• A Conversation with Maarten Nijhoff Asser, of THT
Consulting: Dealing with Culture Issues During an
Acquisition/Integration
Why “Traditional Wisdom” Matters in Chinese Multinational Acquisition Integrations Cultural Issues Lead to Underperformance in Chinese Cross Border Acquisitions
In recent years, Chinese enterprises from the Chinese mainland have
emerged in the global business arena following the earlier rapid growth and
development initiatives of Hong Kong and Taiwan-based firms. Unlike their
predecessors, firms from the Chinese mainland are gaining more attention in
international business for their increasingly active use of mergers and
acquisitions (M&A’s) as a means for their strategic growth and expansion
into the cross-border markets. Critics have noted the limitations on the
success of the cross border acquisitions by firms from emerging economies,
due to the issues relating to culture.
As Charles Hampden-Turner and Frans Trumpenaars put it: “culture is the
way in which a group of people solves problems and reconciles
dilemmas” and “culture is like gravity: you do not experience it until you
jump six feet into the air.”
Culture, as an intangible, has significant but often unrecognized effects on how an organization operates and its
effectiveness in all areas, including its level of performance in acquisitions and their integrations.
Growing numbers of cross-border M&A’s originated from contemporary
Chinese enterprises where a significant component for the acquisition is to
acquire technologies and know-how from their foreign counterparts. Both
cultural harmony and intellectual capital integration in post-mergers are
critical issues to deal with in these acquisitions and their integrations and to
gain capabilities as a result of these acquisitions.
Recent studies of crossborder M&A’s with Chinese multinational firms (CMN’s) explored the
objectives of acquiring strategic assets to enhance their critical
competencies rather than to organically developing their existing assets,
through upgrading new technology and transferring intangible assets at
existing operations in China. What was found was unsatisfactory post-performance among these merged CMN’s and specific challenges involved in
effectively carrying out these M&A integrations.
Chinese “Ancient Wisdom” as a Factor in Chinese
Management
CMN’s have adopted elements of Chinese traditional Wisdom as key building
blocks in their management philosophy. Principles of Confucianism, but also
of Taoism, Legalism and other ancient philosophies have been incorporated
into their operating worldview.
One Confucian input is that people are expected to “revere the rulers with right attitudes so as to maintain
harmony”. This can mean that tolerance is valued above conflict (regardless
of the need to have the conflict out), and that science-based innovation can
been seen as secondary to achieving harmony.
Other traditional wisdom places country, society and family above self, a focus on balance and mean,
inward expansion rather than outward, and emphasis on the past more than
the present. These values can be positive for a CMN in that they provide
continuity during rapidly changing conditions, but they can also clash with
potential Western acquisition targets that value individualism, a priority in
science over harmony, an emphasis on outward expansion and a pragmatic
stress on the present as opposed to the past. While legal, political and
economic considerations may get the lion’s share of attention when a CMN
moves to acquire a significant US, Asian/Australian or European entity,
cultural considerations may ultimately determine whether the acquisition will
succeed or fail.
Particularly, under an environment involving technological uncertainty,
culture has tended to revert as the default in dealing with integration
issues. Additionally, cultural clashes can occur when confronting
implementation of new technology. Further, disparity in culture can create
constraints to successful post-merger integration.
Such cultural disharmony would mean ineffective deployment of technology
and know-how which is expected to be acquired for value creation in a
merged firm. As a consequence of a more rigid, hierarchical culture and
centralized decision-making embedded in a Chinese organizations, if that
CMN acquires a firm driven by technological innovation, there could be a refocus on the domestic market, which is perceived as more familiar
culturally and therefore have less risk and uncertainty.
There could also be excessive concerns over short-term financial results rather than allocating
resources for innovation and R&D activities for future returns as practiced in
technology-based firms of the West. Inflexibility on the part of the Chinese
acquiring firm, due to cultural rigidity, can result in an inability to
understand, capture and leverage these capabilities across the new
organization as well. This in turn, can lead to underutilization of the
intellectual assets and capabilities of the acquired firm.
The Challenge of Shifting to a Heterogeneous, Globally
Effective Cultural
One of the underlying challenges involved in post-merger integration is that
management would not be aware of its bounded routines of hierarchical
orders that may adversely interfere with appropriate actions for effective
integration. Though Chinese wisdom may be advantaged through
embracing a broader set of principles and perspectives from a variety of
schools of thoughts for acting, a stiff mode of wisdom could be a
disadvantage and a drag by imposing arbitrary restraints on strategic
thinking and action. Such complexity would need to be reconfigured by the
CMN’s in their course attempting to integrate with overseas components of
heterogeneous culture.
Secondly, in dealing with the challenges in post-merger integration,
development of new corporate culture is necessary no matter whether it is a
merger of organizations of two different country cultures or not. In order to
facilitate successful post-merger integration, a merged organization needs to
develop springboards for quantum leap framework in a timely manner or
else it may fail. Without formation of a renewed corporate culture and
leadership principles, subsequent operations could hardly take advantage of
the intangibles and synergy expected to be created after a merger.
Therefore, effectiveness of post-merger integration could affect the
development of intellectual capital inside an organization and that, in turn,
can influence its capability to compete in the future based on innovation
capability.
A Conversation with Nijhoff Asser, of THT
Consulting: Dealing with Culture Issues During an
Acquisition/Integration
THT Consulting is a global firm that helps business leaders, managers and
their organizations deal with cross-cultural challenges and dilemmas by
actively supporting them in managing the business value of cultural
diversity. THT Consulting serves a diverse range of clients, from the top
Fortune 500 global companies and familiar household names, through to
more local or specialist companies. Its methodologies and processes also
apply equally well to the public sector and other non-profit organizations it also assists.
Dilemma Management: A Framework for Dealing with Culture and Values Issues
JC: What is your general framework for viewing culture and values issues in
an organization?
MA: The most important thing we learned from facilitating integrations of
any kind is to focus first on the ‘value orientation’ level of the people vested
in the merger/acquisition. We all try to make sense of our experiences and
form value orientations. Along the way we are influenced by our upbringing,
our family, our education, organizations of people that we associate with
(including work), what we read and want to believe as well as many other
seemingly unconnected individuals and events.
This ‘value orientation’ process, in which we ‘secure’ our values, beliefs, and principles over time,
culminates in our way of thinking and our way of approaching problems.
However open we believe we are, we generally settle on one side of what
could be perceived as a value spectrum that runs from one side of a
dimension to another. Going forwards, we tend to favor one side of such
value spectrum over the other side and find confirmation in our beliefs in the
people we surround ourselves with. This is the side of the value orientation
spectrum that we generally use to ‘enter into a dilemma’.
Dilemma Theory is based on the premise that there are always at least two
equally valuable sides to values, beliefs, stories and events that appear to
be opposing one another. When we can analyze each side with logic and
linear analyses and we could very well find both sides to be true in their own
context. The basic premise here is that rather than think in singularities and
“my way”, “your way” and “either/or”, which leads to confrontation, it may
prove more useful to think in terms of equally valuable dual sides of the
value spectrum. Duality or Dilemma Theory shifts the focus from singular
value orientations to dualities and integration.
The heart of our thinking is that everything we value in business life comes
to us in the form of a dilemma or a trade-off. This is particularly true in
integrations/mergers, reorganizations, and other reshuffling or
responsibilities and accountabilities. In mergers and acquisitions we find
that the best way to capture the actual business challenges is in the format
of dualities, which we define as dilemmas. We turn these dualities into two
desirable, positive and beneficial, yet seemingly opposing value
orientations.
For example, on one hand we like standardization and
consistency and rules. On the other hand we appreciate and need
exceptions and flexibility. The latter allows us to argue that “It really
depends. It’s situational.” Both sides are positive here: for example,
consistency and flexibility. We try to measure consistency in the context of
flexibility and measure flexibility in the context on consistency. We aim to
eventually reconcile all dilemmas.
The word dilemma comes from the Greek language: two propositions or, two
possibilities. We have developed an approach for just about any dilemma that people deal with. Most of these dilemmas stem from a framework of
dilemmas that we have been using in consulting and research for the last
twenty-five years. This framework finds its roots in cultural value
dimensions and differences.
A Pathway for Reconciling Dilemmas in an Integration
JC: What is the pathway for reconciling dilemmas in companies involved in
an acquisition and integration?
AM: All people and all cultures face similar dilemmas. Cultures approach
dilemmas from different angles, but they survive because they reconcile
their dilemmas. Companies that merge or acquire another culture would do
well to have a reconciliation process that creates a new mix of dualities.
From these dualities we create value and wealth.
Our first step or approach to integration always goes to redefining the joined
vision and mission and the values that support these. The process is
generally a wholesome, reflective exercise wherein the integration team
starts to think and feel what the mission of the joint company really needs
to be, given the opportunities that the combined entity has and the
dilemmas it might face.
Our systematic approach indicates that mergers across cultures elicit at
least seven different value orientations. We have found integration teams
that address the integration mission, vision, tasks and key purposes early
on, learn to appreciate the fact that team members have different views,
values and behaviors based upon which they address the integration
dilemmas. Serious misunderstandings happen when these underlying values
are not made explicit. The ‘cultural’ differences are generally hidden from
view, behind the spoken word and official documents and often underneath
rather than on the table.
Our process is geared towards making tough and non-transparent issues
transparent and explicit.
The Multiplier Benefits of Using Dilemma Reconciliation
JC: What do you provide organizational leaders through your work in
dilemma reconciliation?
MA: We provide leaders a multiplier, a lever to become great leaders by
teaching the true art of integration in highly complex contexts. We have
measured leaders’ effectiveness in integrating seemingly opposing values
and correlated this with highly successful leaders of organizations. We find
the high degree of correlation very encouraging. We are on our way to
establishing a global leadership competence.
Over the years, we have made our tool more practical, yet it remains non-linear and therefore can alarm various MBA trained leaders. We understand
that sometimes life seems a lot scarier if you become aware of all the
dualities/dilemmas we live through personally and professionally. Yet, if we
start with differences, rather than sameness, we have a good sense of how
to create value through integration rather than trying to overpower and
smother one side, or destroy a lot of value afterwards by not addressing
underlying dilemmas to a merger.
Why Understanding the Role of Values is So Significant
JC: Why are values so significant in accomplishing an effective acquisitions,
integrations, synergies, and ultimately organizational renewal?
AM: If we look at what really moves and impacts people, it is not the new
strategy; it is not a new leader who has a new slogan. It is the underlying
values and the translation of these values into behavior. Based upon
behavior we act. The action is a consequence of a behavior. If we do not
focus on values and cultural obstacles for example, we can have the best
strategy but people are going to withhold information, commitment, and
involvement. When strategy and culture clash, culture always wins. The
strategy of culture change can only happen when there is a commitment for
the culture to change.
People have to get motivated to see that there is something to gain from a
new iteration of the organization. This is of course true for societies,
organizations, and individuals/leaders.
Our methodology focuses on four steps:
1. Recognition of our own value orientations
2. Respecting others’ value orientations
3. Reconciling the dilemmas, and
4. Realizing the benefits thereof
Values are significant because beliefs are based on them. Many beliefs are a
reason for us to behave in a certain way. These value driven behaviors turn
into action. A very critical part of our process is a step called “values to
behavior”. It starts by identifying what the values of the integration team
are. Let’s take ‘transparency’ as an example. We ask the team to say, “If
you take transparency as a value, what are the desirable and undesirable
behaviors that you have noticed around you that support or not support this
value.” It is a very simple thing. We use a flip chart with stickies and list
desirable and undesirable behavior associated with the value transparency.
We learn that an undesirable behavior is having a hidden agenda in the
team. Undesirable behavior is taking charge of a meeting with your
personal issue and disregarding other people’s insights. People don’t say
this because they read it in a book. People say it because it has happened,
and they don’t want it to happen again. We make it explicit for all to see,
such that it is easy to keep each other accountable to the values of the team. (For the full conversation click:
www.beyondthedeal.net/NewsletterNovember09.pdf.)
Maarten Nijhoff Asser
Maarten Nijhoff Asser manages the THT office in Cambridge, Massachusetts.
His international client list includes General Motors, Rockwell Automation,
Dow Corning, Telenor, Goldman Sachs, Dow Chemical Company, Cable &
Wireless, etc., with whom he develops executive learning programs and
engages in consulting projects around THT’s Culture for Business concept,
which includes Integration, Globalization, Vision and Values and Corporate
Identity projects. He has been responsible for the continuous development
of the company’s interactive, multi media and publishing activities, such as
“The Culture Compass”.
Maarten’s new book on Strategic Sustainable Integration Across Cultures
with Fons Trompenaars will be out in Spring 2010. He is also a co-author of
the book “21 Leaders for the 21st Century”, by Fons Trompenaars & Charles
Hampden-Turner. Maarten has taught at various international business
schools, most recently at IPADE, Mexico, D.F., Harvard Business School, and
Columbia University’s Graduate School of Business.
Maarten’s areas of expertise include the facilitation of change management
processes at the senior management level, and the development of scenario
planning workshops. His special interests are strategic dilemma
reconciliation, organizational learning, information and technology transfer, and intellectual property.
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