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.
 Schoenberg, R. (2000). The influence of cultural compatibility within cross-border acquisitions: A review. Advances in Mergers & Acquisitions, 1, 43-59.
 Weber, Y. (1996). Corporate cultural fit and performance in mergers and acquisitions. Human relations, 49(9), 1181-1202.
 Krishnan, H. A., Miller, A., & Judge, W. Q. (1997). Diversification and top management team complementarity: Is performance improved by merging similar or dissimilar teams? Strategic Management Journal, 18(5), 361-374.
 King, E. B., Hebl, M. R., & Beal, D. J. (2009). Conflict and cooperation in diverse workgroups. Journal of Social Issues, 65(2), 261-285.
 Tajfel, H., & Turner, J. C. (1979). An integrative theory of intergroup conflict. In W. G. Austin & S. Worchel (Eds.), The social psychology of intergroup relations (pp. 33-47). Monterey, CA: Brooks/Cole.
 Turner, J. C. (1978). Social comparison, similarity and ingroup favouritism. Differentiation between social groups: Studies in the social psychology of intergroup relations, 235-250.
 Branscombe, N. R., Ellemers, N., Spears, R., & Doosje, B. (1999). The context and content of social identity threat. In N. Ellemers, R. Spears & B. Doosje (Eds.), Social identity: Context, commitment, content (pp. 35-58). Oxford: Blackwell.
 Jetten, J., Spears, R., & Postmes, T. (2004). Intergroup distinctiveness and differentiation: a meta-analytic integration. Journal of Personality and Social Psychology, 86(6), 862.
 Cartwright, S., & Schoenberg, R. (2006). Thirty years of mergers and acquisitions research: Recent advances and future opportunities. British Journal of Management, 17(S1), S1-S5.
Gah, I’m awaiting C. I pretty much read the entire article waiting for C. But no C exists (yet).
I’ve interpreted from the above that C cannot be painted over an organisation with a broad stroke. It can’t be assumed that cultural similarities will lead to a beneficial business merger and vice-versa for cultural differences.
It seems to me like the approach would have to be extremely granular. Which – I’m almost mirroring your ‘friend’ in the other article here – a business simply won’t get right or take the time to do (it is too time consuming, too confusing, not as immediately profitable as a broad general action might appear to be).
Anyway, I’ll wait for the follow up article….you bastard.
Apologies for not being able to squeeze it all into the one post. There is a lot to say. If you want to read ahead on this particular topic the following paper is one good starting point:
Haslam, S. A., & Ellemers, N. (2005). Social identity in industrial and organizational psychology: Concepts, controversies and contributions. International review of industrial and organizational psychology, 20(1), 39-118.
In terms of your other thoughts, you definitely are right to infer that there can be no obtuse solution to the human aspects of mergers and acquisitions. Fortunately though, social identity derived proposals are not, as you fear, too complex to be practical. In fact, sometimes only small, but critical, changes to the merger or acquisition process are needed. A lot of the time we humans have a pretty intuitive grasp of the impact of social identities. If we are lucky the explicit social identity understanding simply means the shift from good to optimum.
Maybe the best reason to be optimistic about seeing social identity ideas/interventions adopted by organizations is that it is already happening. I hate to do this to you again, but with time expect to see some very cool examples detailed in the blog.
This is not to say that its use is widespread. It is certainly still a minority movement. At the moment you need a rare co-occurrence. That is, a manager who has been exposed to the ideas and is not ideologically opposed them, and access to someone with the necessary social identity expertise to assist with implementation (at least we can help with the latter).
With regard to the time resources, to be blunt, organizations might just have to spend a little less on bogus personality assessments and introspection workshops.
Anyway, I hope the above is somewhat reassuring, and of course let me know if you want more homework reading.