Company mergers and, more commonly, acquisitions, are renowned for failure. Estimates of failure rates usually start at 50% and can be as high as 90%. That’s a lot of failure.
This disastrous track record is often attributed to something called ‘the people problem’. In other words, everything on paper is fine (e.g. the finances, the competencies, the strategic integration), but once the employees get involved it all falls apart. It was in response to this pessimism that the concept of ‘cultural fit’ emerged. Here researchers made an effort get a handle on the people problem.
And it seems to be doing the job pretty well. Under the banner of cultural fit we now have popular additions to the merger planning process that deal practically and directly with human factors. We are urged to wade into each entity and look for differences in culture that could undermine operations of the merged business. McKinsey’s Outside-in Assessments is a good example of this. Here they offer a cultural fit assessment where their consultants pore over the publicly available information and identify cultural differences across nine key dimensions; the goal being to “assess their cultural differences and find ways to address them”.
The research, however, tells a different story. Cultural fit, understood in terms of cultural similarity, is not straightforwardly associated with successful mergers and acquisitions. While there are research findings documenting the predicted detrimental effects of cultural differences on success, there are also findings where those predicted effects are not observed, and even examples where opposite effects are found. Specifically, differences in employee backgrounds are found to be related to increased performance in a subsequently merged team.
So what do we make of this?
This can be explained partially by organizational synergies. That is, at times cultural diversity can mean an increase in the capability and flexibility of the business. There is another aspect to these findings though. One that recognizes the powerful social identity processes operating within organizational contexts. What I am referring to is our human motivation for positive distinctiveness.
Positive distinctiveness is one of the tenets of the social identity approach. In short, it is our sense that we compare favourably with others. For social identity theorists, people are intrinsically motivated to strive for positive distinctiveness. Just like our need for food, there is a core human need for favourable self-conception. This is true when we define ourselves as individuals (e.g. I bet I can eat more chilli than Emily) and when we define ourselves in terms of social categories or groups (e.g. I bet our team can win the championship match).
So what does this mean for cultural fit and cultural similarity?
The issue is that similarity can undermine feelings of being positively distinct. In other words, while similarity can lead to a share sense of ‘we’ and ‘us’ and increase things like cooperation, it can also threaten our sense of being comparatively good. In the latter case we can expect people to make efforts to regain their sense of positivity. This can include competition, discrimination, and conflict.
In the context of a merger, this means that a matching culture should not be presumed to inoculate against cultural conflict. In fact, under some conditions bringing together two groups who are highly similar will increase discord within the workplace. If the psychological boundaries remain intact then similarity will only force employees to fight harder to demonstrate their comparative worth.
This should resonate with anyone who has suffered through high school. Just think of a time where every effort you made to fit in was met by emphatic rejection; no matter how much you conformed, there was always some reason to exclude you. Alternatively, if your high school experience was different to mine, think back to a time where you found yourself more and more frustrated by others’ attempts to mimic you. In both scenarios a key part of the equation are positive distinctiveness motivations; increased similarity requires increased distancing.
So why does the myth persist?
To be frank, one reason is that the corporate world has such woeful standards of rigour. Products can be built around intuition, no further reading required. All of the above points are there for the taking, either in the intergroup behaviour literature, or right there in the mergers and acquisitions literature. Lazy “experts” can simply afford to not do their research.
Another reason is that those coming from a corporate background are likely to be a little bit blind to these ideas. Decades of being confounded by the ‘people problem’ feeds the instinct that culture reflects human irrationality in an otherwise rational economic world. Culture is something to be mitigated, not valued. In contrast, through analysis using the social identity approach we understand culture as an end unto itself; one that is just as rational as any other. This opens our minds to all sorts of possibilities.
What are those possibilities?
These will have to wait for another time. For the meantime it will have to suffice to say that the social identity approach provides for us (a) a more complete explanation of the role of similarity in intergroup relations, (b) a well-supported predictive model of the conditions under which competition and discrimination can be expected, and (c) a number of possibilities for managing intergroup relationships in mergers and acquisitions.
All good things to those who wait.
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