Mani2010Topic:

Mergers and Acquisitions

An Investigation Into The Impact Of Cultural Differences On The Success Or Failure Of

Mergers And Acquisitions In The UK Networking and Communication Devices Industry

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(04, 07, 2010)

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STATEMENT OF CONFIDENTIALITY

This project is my original work and has not been submitted in any institution of learning

towards fulfillment of any degree requirement.

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ACKNOWLEDGMENT

I would like to thank my supervisor for the great advice and support that I

received throughout the process of undertaking the research, which was invaluable.

Secondly, my appreciation and thanks goes to my family for supporting me

during the entire period of the study. In addition, I would like to thank my friends who

were inspirational to me in good and bad times.

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Table of contents

Title page……………………………………………………………………………….…….i

Statement of confidentiality………………………………………………………………...ii

Acknowledgment…………………………………………………………………………….iii

Table of contents…………………………………………………………………………….iv

Abstract……………………………………………………………………………………….viii

Chapter One

1.0 Introduction…………………………………………………………………………………1

1.1 Background information…………………………………………………………………..1

1.2 Problem statement………………………………………………………………………..3

1.3 Justification………………………………………………………………………………...4

1.4 Research Objectives……………………………………………………………………...4

1.5 Research Question……………………………………………………………………….5

1.6 Significance of the study………………………………………………………………...5

1.7 Scope and Limitations……………………………………………………………………7

1.8 Summary…………………………………………………………………………………..7

Chapter Two

Literature review

2.0 Introduction………………………………………………………………………………...9

2.1 Cultural differences……………………………………………………………………….11

2.2 Cultural factors affecting mergers and acquisitions……………………………………12

2.3 Effect of cultural differences on communication in a merged entity…………………14

2.4 Link between organization culture and acquisition……………………………………15

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2.5 Key cultural factors which lead to the success or failure of M&A…………………….16

2.5.1 Cultural assessment…………………………………………………………………….16

2.5.2 Cultural integration analysis……………………………………………………………17

2.5.3 Cultural selection…………………………………………………………………….. 19

2.6 Case study…………………………………………………………………………………20

2.6.1 Managing cultural differences in mergers and acquisitions……………………….20

2.6.1.1Case study 1: A case of success; Cisco System Incorporation…………………20

2.6.1.2 Case study 2: Case of failure; Bay Networks…………………………………….24

2.7 Summary…………………………………………………………………………………...27

Chapter Three

Research Methodology

3.0 Introduction………………………………………………………………………………...28

3.1 Research design…………………………………………………………………………..29

3.2 Data collection…………………………………………………………………………….31

3.3 Data coding………………………………………………………………………………..33

3.4 Sampling, Sample size and selection of respondents……………………………….34

3.5 Justification of the sample selection……………………………………………………35

3.6 Data analysis………………………………………………………………………………35

3.7 Ethical consideration……………………………………………………………………...38

3.8 Limitations…………………………………………………………………………………38

3.9 Summary…………………………………………………………………………………..38

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Chapter Four

Data Presentation and Analysis

4.0 Introduction………………………………………………………………………………..39

4.1 Description of the respondents…………………………………………………………40

4.1.1Employees rank…………………………………………………………………………40

4.1.2 Organization department……………………………………………………………...41

4.1.3 Age………………………………………………………………………………………..43

4.1.4 Gender……………………………………………………………………………………43

4.2 Analysis of Research questions…………………………………………………………43

4.3 Factors leading to success or failure of mergers and acquisition………………….44

4.3.1 Due diligence……………………………………………………………………………44

4.3.2 Communication style…………………………………………………………………..44

4.3.3 Individualistic versus collectivist culture………………………………………………47

4.3.4 Nature of the cultural factors which influence performance of mergers ….…….48

4.4 Summary…………………………………………………………………………………..49

Chapter Five

Discussion and Interpretation

5.0 Introduction………………………………………………………………………………...50

5.1 Cultural fit in mergers and acquisition………………………………………………….52

5.2 Relationship of cultural factors with mergers and acquisition………………………54

5.3 Communication and leadership…………………………………………………………58

5.4 Summary………………………………………………………………………………….59

Chapter 6

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Conclusion and recommendations

6.0 Introduction………………………………………………………………………………..61

6.1 Conclusion………………………………………………………………………………...63

6.2 Future Research…………………………………………………………………………..67

6.3 summary………………………………………………………………………………….68

Reference list…………………………………………………………………………………70

Appendix ……………………………………………………………………………………..77

Appendix 1……………………………………………………………………………………..77

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Abstract

The study entails an analysis of cultural differences on the success or failure of mergers

and acquisitions. In conducting the study, a case study involving a firm which has

succeeded and failed its merger and acquisition process is evaluated. The two firms

considered in the study include Cisco Systems Incorporation and Bay Networks. A

comprehensive review of literature related to success or failure of mergers and

acquisitions is conducted. In the review considers the elements which result into

emergence of cultural differences within the organization. The effects of cultural

differences on communication in a merged entity are reviewed.

The study also details the key cultural differences which result into either success or

failure of mergers and acquisitions. Cultural assessment, cultural selection and cultural

integration analysis and their contribution towards the success of mergers and

acquisitions are also conducted with specific reference to the two firms considered in

the study. The methodology used in undertaking the study is also evaluated. This

includes the research design and approaches used in conducting the study. The

findings from the study are interpreted to ensure that entrepreneurs understand the

importance of addressing cultural differences in the process of forming mergers and

acquisitions. Finally, a conclusion and a set of recommendations are made to enable

entrepreneurs improve their merger and acquisition process. The future research

section entails areas which practitioners and scholars should considered conducting

research.

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Chapter One

1.0 Introduction

This chapter will first present the background information of the study with

particular interest on the success or failure of mergers and failures. The statement of

the problem which identifies a gap in mergers and acquisition with regard to existence

of cultural differences between the merging organizations will be presented followed by

the research objectives which will act as a guideline for the study. Moreover, the

research question that delves on the cultural factors that influence the success and

failures of the mergers will be presented. Finally, the chapter will present the scope and

limitations of the study while giving the summary of the entire chapter.

This chapter is organized in a number of subsections. Sub section 1.2 presents a

statement of the problem which identifies a gap in mergers and acquisition with regard

to existence of cultural differences which is justified in subsection 1.3. The research

objectives which act as a guideline for the study are outlined in subsection 1.4. This is

followed by corresponding research questions in subsection 1.4. The significance of the

study to the various stakeholders is outlined in subsection 1.6. The scope and limitation

of the study are evaluated in subsection 1. 7. Finally, a summary of the entire chapter is

given in subsection 1.8.

1.1 Background information

Over the past two decades, there has been a rampant shift within Networking

and Communication Devices Industry. This has been instigated by a number of factors

such as increment in the intensity of competition. In addition, both individual and

organizational customers are incorporating electronic commerce in executing their

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duties. Firms operating in this industry are increasingly formulating strategies on how to

attain a high competitive advantage through acquisition of a large market share and

increment in their profit levels (Sherman & Hart, 2006, p. 36). One of the strategies that

they have incorporated includes formation of mergers and acquisition.

Merger entails integration of 2 or more firms whereby the selling firm’s asserts

and liabilities are absorbed into the purchasing entity. Despite a new entity being

established, the purchasing firm mainly retains its original name. Alternatively, mergers

can be defined as joining of 2 firms. This mainly occurs via exchanging the shares. On

the other hand, acquisition refers to purchasing another firm’s asset or the entire firm.

As an operational strategy, firms in different economic sectors have been able to

develop their financial stability. Due to the effectiveness of merger and acquisition

strategy, both large and medium enterprises are integrating this concept in their

strategic management processes (Sherman & Hart, 2006, p. 36). According to Brodkin

(2009, para. 1), numerous mergers and acquisitions were conducted in networking

industry during 2009. Some of the companies that were involved in mergers and

acquisition include Oracle, Dell Hewlett- Packard, International Business Machines and

Cisco. Integration of e-commerce presents a potential of growth in mergers and

acquisition. In conducting mergers and acquisition, understanding the existing

organizational culture of the two parties is paramount (Alvesson, 2002, p.1). This arises

from the fact that organizational culture plays a significant role towards the success or

failure of mergers and acquisition.

According to Dwivedi (1995, p.9), organizational culture is defined as a system

consisting of shared meaning amongst members of a given firm which distinguishes it

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from other organizations. A number of factors define organizational culture. These

include values, norms, attitudes and beliefs. Despite operating in the same industry,

there are differences that exist in relation to organizational culture. As a result, the

success of mergers and acquisition is dependent on the effectiveness with which the

existing cultural differences are managed.

1.2 Problem statement

There may be existence of different culture within the same organization. This

mainly occurs in large organizations where some departments have developed a

definite way of doing things. By entering into a merger and acquisition, there is high

probability of cultural clash occurring due to lack of organizational alignment. This arises

from diversity in cultural factors such as values held, artifacts, norms, management

styles, believes, assumptions and organizational behaviors (Carleton & Lineberry,

p.136). In a merger involving a large and small enterprise, the large firm may impose its

culture on the small and less powerful firm. This may result into success of the merger

due to fast cultural integration. However, the resultant effect is that value of the less

power firm that was intended to grow through formation of the merger will be destroyed.

If the two firms had different cultures, it is important for the management team to

determine the most appropriate culture for the new firm.

In the operation of organizations, teamwork is one of the vital elements in the success

of the firm. Integration of teamwork in many firms has failed in their operation over the

years due to lack of cooperation. According to Recklies (2001, p.1), most of these

failures are associated with culture. In mergers and acquisition, culture is more

challenging considering the existing cultural differences. However, the management

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team of firms involved has to ensure that employees from the two parties involved work

together smoothly.

1.3 Justification

Formation of mergers and acquisition is aimed at increasing shareholders value.

According to Chatterjee, Lubatkin, Schweiger and Wember (1990, p.1), numerous

literature have been advanced in relation to the importance of mergers and acquisitions.

Most of these literatures assert that attainment of the intended shareholder value is

dependent on the compatibility of cultures between the two firms. According to Stahl

(2005, para. 1), cultural differences are considered as an obstacle towards the success

of mergers and acquisition. Stahl further concurs with findings of studies conducted on

mergers and acquisition which reveal that a considerable number of firms have failed to

attain the intended integration benefits of mergers and acquisition due to existence of

cultural differences. On the other hand, firms which have considered cultural factors in

implementing mergers and acquisitions have been successful in attaining a high

competitive advantage. Recklies (2001, p.1) opines that developing and sustaining a

shared culture is vital in the success of mergers and acquisition.

1.4 Research Objectives

In conducting the study, a number of research objectives have been considered as

outlined below.

To identify the key cultural factors which lead to the success or failure of merges

and acquisition in Cisco System Incorporation and Bay Networks.

To describe the nature of the cultural factors in which influenced mergers and

acquisition performance of Cisco System Incorporation and Bay Networks.

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To explain the nature of the relationship between the key cultural factors which

improve mergers and acquisition success in Cisco System Incorporation and Bay

Networks.

To make practical recommendations on how to successfully implement key

cultural factors on Cisco System Incorporation and Bay Networks. In order to

improve future mergers and acquisition success.

1.5 Research Question

How did cultural factors affect success of incorporation of mergers and

acquisition in Cisco Incorporation?

1.6 Significance of the study

Through the study, management teams of firms intending to integrate mergers

and acquisition in their strategic management will be able to develop sufficient

knowledge of the importance of developing competency with regard to cultural

differences. Developing an understanding of the existing cultural differences between

organizations can result into effective management of mergers and acquisition. Gaining

knowledge on the existing cultural differences will contribute towards efficiency in

managing ambiguous and confusing issues relating to organizational culture that arises

on daily operation of the firm. The resultant effect is that the firm will be able to attain

the intended synergy. The study will also aid management teams in appreciating the

importance of values in analyzing organizational culture during formation of mergers

and acquisitions. According to Roger (2000, p.3), some of the elements to be

considered include the firm’s mission statement and its goals.

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Addressing cultural differences can contribute towards the firm attaining a high

competitive advantage. This arises from increased productivity since there will be

harmony amongst the firm’s employees. By only considering firms which have a cultural

fit in the process of implementing mergers and acquisitions, it will be possible form the

merger to succeed. Higgs (n.d, para. 2) asserts that human capital is paramount in

developing sustainable competitive advantage. Evaluation of cultural differences in

mergers will help in evaluating the extent to which firms can manage existing cultural

differences. For example, it will be possible to determine the extent to which the

employee can tolerate to either ambiguity or uncertainty. Appreciating the contribution of

cultural differences towards the success or failure of mergers and acquisitions will

contribute towards effective decision-making on whether to continue with the merger

and acquisition deal or terminate it. If cultural fit exists, there is a high probability of the

merger succeeding. According to Gertsen, Soderberg and Torp (1998, p.77), culture

difference in organization can be classified as low, medium or high. Through this

classification, it the management is able to determine whether it is possible to manage

the existing cultural differences by analyzing the associated degree. For example, if the

percentage difference is less than 33%, it is considered as manageable. On the other

hand, if it is 66%, it is considered being high. The study will also aid firms that have

incorporated mergers and acquisition in their strategic management to develop

programs aimed at conducting cultural integration upon completion of merger deal. One

of the ways through which this can be achieved is incorporation of pre and post-merger

intercultural training program. In addition, it will be possible for the management team to

deal with intercultural differences that arise in the course of operation. This will arise

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from formulation of a mutually accepted intercultural framework. According to

Kwintessential (2010, para. 7) intercultural framework acts as a guideline for ensuring

that post-merger synergy is attained. In addition, effects of cultural differences can be

minimized by integration of cultural due diligence which entails a step by step process

of conducting cultural assessment between the acquiring firm and the target (Thomas,

2000, p. 29).

1.7 Scope and Limitations

The analysis of this paper is aimed at investigating the impact of cultural

differences in the success or failure of mergers and acquisitions in the Networking and

Communication Devices Industry. This will be conducted by analyzing firms in the

industry with specific reference to Cisco Systems and Bay Networks. Due to time and

resource constraints, the research will be conducted on only a small group of

respondents.

1.8 Summary

From the background of the study, it is evident that there is an increment in the

rate at which firms are incorporating the concept of mergers and acquisition in their

operation. Despite the prominence of mergers and acquisition, it has been realized that

their success or failure is determined by how they deal with the cultural differences

existing between the two firms involved in the merger and acquisition. The increasingly

failure and inefficiencies occasioned by mergers and acquisitions has made it important

for the study. Although limitations in terms of time and financial resources, the

researcher was able to carry out a comprehensive study on the cultural factors affecting

success and failure of the organizations hence addressing the research objectives. The

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next chapter entails a review of relevant literature that will enhance the comprehensive

understanding of the various aspects in cultural differences that are important in

mergers and acquisition. More importantly, review of the literature will enlighten the

study hence creating a linkage between this study and common trends under utilization

in other organizations.

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Chapter Two

Literature review

2.0 Introduction

This chapter will first present literature on the general knowledge surrounding all

aspects of mergers and acquisitions in modern business environment with emphasis on

the role of corporate level strategy and the various level of culture. An analysis of the

cultural differences in the organizations in combination with the cultural factors affecting

mergers and acquisitions will also be discussed. In addition, the chapter will present the

effects of cultural differences on communication in the resultant outfit and an evaluation

of the linkage between organizational culture and acquisition. In tandem with the

research objectives, a review of the cultural factors affecting mergers will be presented.

More importantly, two case studies describing real life situations of failure and success

on the effect of cultural differences on mergers will be presented. Finally, a summary of

the chapter will be presented at the latter stages of this chapter.

The purpose of this chapter is to conduct a comprehensive review of relevant

literature. This will enable the researcher to gain a comprehensive understanding of the

various aspects related cultural differences in mergers and acquisition. The chapter is

organized into a number of subsections. Subsection 2.1 entails an analysis of cultural

differences in organization. The cultural factors affecting mergers and acquisitions are

evaluated in subsection 2.2. Subsection 2.3 gives the effects of cultural differences on

communication in the merged entity. The link between organization culture and

acquisition is evaluated in subsection 2.4 .The various key cultural factors affecting

success of merger and acquisition are evaluated in subsection 2.5. In order to illustrate

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the effect of cultural differences on the success of mergers and acquisition in real life

situation, a case study of a success and failure is included in subsection 2.6.

Incorporating an effective corporate level strategy has become a priority among

firms in different economic sectors due to increment in the intensity of competition. One

of the corporate level strategies being considered by firms entails formation of mergers

and acquisition. Over the past two decades, management of firms in different economic

sectors have realized that incorporation of Mergers and Acquisition (M&A) in their

strategic management processes is one of the ways through which they can be able to

respond to the dynamic business environment (Bruner, 2004,p. 3). Stahl and

Mendenhall (2005, p.3) assert that M&A are becoming popular in a firm’s effort to attain

diversification and corporate growth. As a result, mergers and acquisition have become

a competitive business activity. Bruner (2004, p.3) asserts that the concept of M& A is

currently being characterized as aggressive change agents within the economy.

For mergers and acquisition to be successful, it is paramount for the

management teams involved to consider integrating three main dimensions related to

business strategy. These include process, context and content. These dimensions

should be used in evaluating cultural differences existing amongst the firms. The

ultimate effect will be success of the merger and acquisition (Saee, 2007, p. 8).

According to Vaara (2000, p. 81), there are 3 main levels of culture in relation to

an organization. One of the levels entails artifacts which includes the visible, audible

and tangible results. The second level relates to values which consist of the goals,

philosophies and standards which are considered to be of intrinsic value to the

organization. The third level includes the basic assumptions, that is, beliefs that are

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taken for granted in relation to human nature and reality. These concepts result into

emergence of differences in organizational culture. Vaara (2000, p. 82) asserts that

numerous failures in mergers and acquisitions over the past decade are as a result of

cultural differences. Findings of studies conducted on mergers and acquisitions reveal

that approximately 80% of all mergers and acquisitions formed do not attain their

intended objective. On the other had, approximately 50% of firms which incorporate this

concept fail (Mohibullah, n.d, p. 2). One of the reasons associated to cause these

failures relate to lack of cultural fit. According to Recklies (2001, p.1), failure of mergers

may either occur during the pre-merger negotiation phase or post merger integration.

2.1 Cultural differences

Cultural differences are one of the core issues which should be considered when

considering integration of mergers and acquisition strategy. According to Mohibullah,

cultural clash is one of the major factors which result into a failure of mergers and

acquisitions. Findings of a study conducted by KPMG revealed that existence of

cultural differences amongst firms is a key contributor towards failure of mergers

(Gitelson et al, 2004, p. 1).

There is a strong direct correlation between how an organization deals with

intercultural challenges in relation to mergers and acquisition and its performance. This

mostly occurs in post-merger phase. This further affects the firms’ long-term failure or

success (Kwintessential Limited, 2010, para. 5). However, the strength of the correlation

with regard to cultural differences varies from one organization to another and from

industry to industry.

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In the process of conducting mergers and acquisition, it is important for the

management team of the firm to evaluate the key cultural differences existing between

the two organizations. This will aid in determining the probability of the merger

succeeding. The initial stage of the strategy process entails identification of potential

firm to consider in forming the mergers and acquisition. Effective evaluation of cultural

differences among potential firms will ensure that only firms in which minimal cultural

difference exist are considered. In order to attain this effectively, the firm’s management

team must consider the context of the potential firm by identifying the industry in which

both firms operate (Saee, 2007, p. 8). To minimize the existing cultural differences,

management team should consider firms operating within the same industry.

Identification of cultural differences will enable the firm to identify the content of

the cultural differences. The ultimate effect is that the firm’s management team will be

able to formulate the most effective strategy to deal with the differences. For example, if

the existing cultural differences are minimal, the management team may consider

integrating a harmonization strategy.

2.2 Cultural factors affecting mergers and acquisitions

According to Gitelson et al (2004, p. 1), culture clash translates into in-fighting

and internal confusion. As a result, the firms involved experience inefficiencies and loss

of time. Consideration of cultural differences in mergers and acquisition is vital in

determining how a firm’s employees respond to the new firm formed. Culture clash is

defined as the conflict which arises from existence of differences with regard to

company values, missions, styles, norms, attitudes, beliefs and philosophies. Culture

clash in a merger is made evident by a number of issues which include what is valued,

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treatment of employees, decision making process, how to communicate and what is to

be measured. It may also result from difference in opinion with regard to opinions and

arguments related to the process to be undertaken in implementing ne business

strategy (Gitelson et al, 2004, p. 1). Mergers and acquisitions can also result into a

change in orientation, character and nature of either merger partners.

Most of the researches conducted on merger and acquisition have failed to

highlight the importance of harmonizing the cultural differences existing between

organizations. However, harmonization of these issues presents a challenge to firms

and may take a considerable number of years before the employees feel incorporated

into the new entity. Effective harmonization of culture between firms plays a significant

role in ensuring the success of the merger. Considering the intensity of cultural

differences existing between the two partners, employees experience numerous

challenges in the process of adjusting to post merger periods. A large proportion of the

firm’s employees are concerned with loss of job and the consequent financial debt.

Gitelson et al (2004, p. 1) asserts that news of eminent merger affects the

productivity of employees. This arises from the fact that employees will be preoccupied

with how such a change will affect him or her. Such an organization change result into

both the managers and line employees reducing their productivity with a margin of 15%.

This arises from misinformation, rumors and worry. In addition, the merger may mean

that the employees will be under a new management team which is quite distressing.

Gitelson et al (2004, p. 6) postulates that formation of mergers and acquisitions results

into the existing teams becoming ineffective. By establishing a merger and acquisition,

the existing teams are disintegrated. Coming under a new management coupled with

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new team members may hamper the freedom that existed in raising sensitive issues

due to lack of trust in the new team. Mohibullah (n.d, p. 4), asserts that mergers and

acquisition may result into loss of cooperation that existed in the individual firms prior to

the merger. In addition, cultural differences may result into difficulty in attaining the

intended synergy. According to Kelly, Cook and Spitzer (2009, p. 9), synergies are

paramount in the process of mergers and acquisition succeeding. A large number of

firm’s management teams involved in mergers and acquisitions have realized that it is

difficult for them to succeed in business without the necessary synergy (McGarvey,

1997, p.6). However, if the management team does not deal with cultural differences, it

will be difficult for the firm to attain the intended synergy. In addition, it will also be

difficult to resolve conflicts that arise in the firm’s course of operation.

The degree of complexity in relation to mergers and acquisition is relatively high

if the parties entering into a merger and acquisition relationship are from different

countries or geographically separated due to existence of cross cultural differences.

Despite the firms involved in mergers and acquisition operating in the same industry, its

employees may react to similar circumstances in a totally different manner. Therefore it

is paramount for firms involved in mergers and acquisition on a local or international

scale to considerer the existence of these differences during the pre-merger and post-

merger integration phase.

2.3 Effect of cultural differences on communication in a merged entity

Upon formation of a merger and acquisition, there is a high probability of

existence of ambiguity in terms of communication. Ambiguity in an organization arises if

there is no clear definition of a number of events. In addition, ambiguity may occur in the

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entire firm or amongst individuals. It also depends on cultural knowledge amongst the

employees. Existence of ambiguity in a merged entity is directly associated with

insufficient communication within the firm. Ambiguity can also be defined as lack of

consistent information. Upon merging of two firms, the employees who were working

independently are required to adapt to a new working environment. This is emphasized

by Gitelson et al (2004, p. 2) who asserts creation of a critical mass in relation to

operational change is one of the contributors towards the success of mergers.

Significant changes will be incurred in relation due to differences in work environment.

On the firm becoming organized, there is a high probability that the expectations of the

employees will be totally different. Fost and Sullivan (2010, para.3) are of the opinion

that incorporation of an effective communication can result into minimization of the

challenges associated with ambiguity. One of the ways through which management

teams of firms can enhance success of mergers and acquisitions is by acknowledging

the existence of the cultural differences and developing strategies on how to harmonize

them. Communication is vital in minimizing resistance amongst the employees.

Effective communication should be enhanced from top to the lower levels. It should be

ensured that there is continuous communication during the entire transformation period.

Young and Post are of the opinion that effective communication is the most important

tool in managing change especially during establishment of mergers and acquisition.

2.4 Link between organization culture and acquisition

For mergers and acquisitions to be successful, it is important for there to be

established a fit in the culture of the firms involved. One of the ways through which this

can be attained is by ensuring that there are similarities in relation to the management

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style incorporated and the corporate culture adapted. This means that the firms involved

must work towards integration so as to establish a homogeneous corporate culture.

According to Gitelson et al (2004, p. 1), corporate culture is one of the key drivers which

can result into the firm attaining superior performance. This arises from the fact that

organization culture has an effect on issues related to customer satisfaction, innovation,

organization flexibility, team work and quality of products and services that the firm

deals with.

2.5 Key cultural factors which lead to the success or failure of M&A

In the process of integrating mergers and acquisition in the operation of a firm,

management teams of firms pay more emphasis on issues related to legal, business

factors and financial issues. Minimal consideration is given to cultural issues. The

resultant effect is that the new entity experiences difficulties later in the future. With

regard to existence of cultural differences, there are a number of factors that

management teams of firms should consider in an effort to ensure successful cultural

integration. These processes include cultural selection, cultural integration analysis and

cultural assessment.

2.5.1 Cultural assessment

This is usually undertaken during the process of conducting the merger and

acquisition due diligence process. Due diligence refers to paying more attention to

employees’ or workforce priorities. According to Hewitt (2009, p. 2), due diligence

should be considered in evaluating human capital issues. Employees of a firm intending

to undertake a merger and acquisition are more concerned on the cultural fit (Albe,

2007, p.6). As a result, a considerable amount of time should be devoted to ensure that

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a comprehensive assessment of organization structure and human capital. Cultural

assessment entails comparison of the existing organization culture of the firm with that

of its acquisition target’s culture. Some of the issues which have to be considered

during cultural assessment include values, products, and location and company beliefs

amongst others. This occurs approximately 30 days prior to finalization of the merger.

For cultural assessment to be successful, the management team of the firm undertaking

acquisition must consider a number of issues related to individual firms separately.

Some of the issues to be assessed include the firm’s mission and vision statement, core

values, goal and objectives, strategic intent and direction, integration policies, customer

focus, employee empowerment, ability to respond to cope with new environment and

cope with change.

2.5.2 Cultural integration analysis

Formation of mergers and acquisitions result into in-depth and extensive

combination of strategies and structures between the firms’s involved. As a result,

employees become uncertain with regard to corporate culture culminating into loss of

trust amongst the employees. This means that there is a high probability of the

intended value being destroyed. In order to prevent this, it is important for the

management team of the firms involved to conduct a cultural integration analysis.

According to Mercer (2006, p. 1365), cultural integration is aimed at shaping a new

culture through mutual absorbing and strengthening of the various cultural trait via

effective communication. Alternatively, cultural integration is defined as the process of

eliminating contradictions that arise from conflicts after formation of mergers and

acquisition.

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Through culture integration analysis, the acquiring firm is able to identify the

existing cultural gaps and also opportunities presented for improvement. Culture

integration is also referred to as cultural acculturation. A number of studies conducted

on mergers and acquisitions have revealed that lack of congruence amongst

organizational culture increases stress thus reducing their satisfaction and hence

productivity. In addition, organizational cultural differences may also culminate into

symbolic conflict. This entails where one group formed as a result of the merger

breaches core team values. This arises from the fact that organizations groups socialize

in a given pattern. The resultant effect is that the employees are accustomed to specific

values, ideas and practices. Mercer (2006, p. 1365) asserts that cultural differences

may result into a strenuous relationship within the organization (Sarala, 2004, p. 147).

This may limit transfer of knowledge within the organizations through the teams formed.

Mercer (2006, p. 1365) further asserts that there are four main modes of acculturation

which can be integrated in mergers and acquisitions. These include assimilation,

integration, separation and deculturation. Assimilation entails the culture of the merging

firm totally replacing the culture of the merged firm. This means that the merged firm is

totally absorbed by the merging enterprise. On the other hand, integration entail

development of a hybrid culture which consists of the major related to the two firms.

Culture integration is aimed at developing a strong culture by merging the two cultures

(Dwivedi, 1995, p.9). Separation involves keeping the culture of the two firms involved

in the merger and acquisition distinct. In most cases, this mode of acculturation is

incorporated if the employees of the firms involved (merged) refuse to accept culture of

the other firm (merging). This mode is aimed at avoiding intense conflict amongst the

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parties involved. Deculturation often arises if employees of the emerging firms do not

intend leave organizational values that they are conversant with. In addition,

deculturation may also result if employees of the merged firm refuse to identify the

culture of merging firms. The resultant effect is that psychological and the cultural

bridge that is expected to be established amongst the different employees is broken.

This culminates into organizational values and behaviors becoming chaotic.

There is a high probability of the firms involved in mergers and acquisition to have

adopted different communication structure. This may result into cultural conflict within

the new entity. Effective communication plays a significant role in ensuring that there is

effective cultural integration. According to Mohibullah (n.d, p.5), lack of effective

communication in relation to merging firms is a problem since it may result into

uncertainty, reduction in employee loyalty and reduction in trust. It is universally

acknowledged that development of a high degree of trust in an organization results from

incorporation of superior managerial beliefs, actions and philosophies. This serves in

reducing transaction costs.

2.5.3 Cultural selection

This entails conducting a discussion with the management team of potential

acquisition. Cultural selection entails identification of top performing employees. This

enables the firm to make a decision on the employees to retain based on defined

cultural criteria. The discussion enables the acquiring firm to identify potential leaders

from the firm being acquired and their cultural matches. Lack of communicating to the

top performing employees in time may result into their exit (Dwivedi (1995, p.8). 

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5.0 RECOMMENDATIONS

2.6 The Hofstede theory

Hofstede did a great job studying culture and he developed dimensions that

define the work related values in the context of national culture. These factors have

been integrated into organizational culture since many companies that are successful

have gone global (Hofstede, 2001, p. 12). They use merger and acquisition as a

strategy to expand into other countries. These factor include, power distance,

individualism, masculinity, long term achievement and avoidance of uncertainty. From

this, the Values Survey Model was devised and it’s a very useful model for use in the

study of cultural difference in organizations and their impact. According to Hofstede,

Culture is something that is collective yet in most cases intangible. It’s nonetheless, the

concept that differentiates one particular group of people, an organization or a country

from another (Hofstede, 2001, p. 12). Hofstede asserts that culture is made up of two

main elements, the internal and invisible aspects very the external elements that are

very visible and in most cases described as practices. Latter Practices include things

like courtesy in greeting, character of employees, and communication. Values on the

other hand are virtues like honesty, responsibility, accountability and dedication.

2.6.1 Dimensions of Culture

Power distance: this in areas like UK where there is low power distance, there is

minimal inequalities among the people. Organizations are decentralized in their

operations and activities. The subordinates expect that the mangers would consult them

and there are very little privilege and status symbols. Conversely, high power distance

will be a description of a society that relies on few superiors who are very powerful.

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Organization is likely to b centralized and the subordinates are separated from the

management by great margin in terms of salary, privileges and powers(Hofstede, 2001,

p. 17).

Individualism: the ties among people are loose and every individual is expected

to take care of him/herself and his/her family. The UK organizations show that

individualism is more important and they place very little emphasis on loyalty and

protection. In the collectivist culture, employees would tend to expect a lot from the

employers. Individualism, however, individual effort is more important to the success of

the organization(Hofstede, 2001, p. 22).

Masculinity: masculine organization like the UK communication industry, there is

nothing like division of labour in that the more assertive roles are allocated to men. The

success of the organizations is based on the academic prowess, competence and

career achievement (Hofstede, 2001, p. 22). France on the other hand is conserved a

feminine country and the organizations success is thought to stem from relationships,

life skill and cooperation.

Uncertainty avoidance: weak uncertainty in UK means that it does not perceive

things that are not familiar to be dangerous as those with strong uncertainty. Such

organizations seek to reduce the risk by rules to enhance order and coherence.

Long-term goals: this deals with the virtues that are set to support future rewards.

This is where personal adaptability is emphasised (Hofstede, 2001, p. 22). The

investments include real estate investment and savings. The time for leisure is not very

critical and soothing being bad or good depends on the circumstance.

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In practise: with increasing need to expand globally, many people find

themselves working with or in the management positions of organisations from different

cultures. Hofstede is enthusiastic to stress on the fact that ‘dimensions’ are not a strict

prescription or strategy to work out success but rather a mere concept. Their role is to

equip the manager and workers with tools to analyse and help in understanding

intercultural differences, For instance, when multinational companies build international

teams to do a research.

2.7 Case study

2.7.1 Managing cultural differences in mergers and acquisitions

2.7.1.1 Case study 1: A case of success; Cisco System Incorporation

Cisco Systems was established in 1984 within information technology industry.

The firm has been successful over the two decades it has been in operation. Due to

effective management, the firm has incorporated the concept of internationalization

enable it to become a global firm. This has also resulted from the high rate of industry

growth. The expansion of the firm resulted into the firm expanding its product lines to

include products such as network management software, diverse networking solutions,

IP telephony, switching, wireless technology and routing, optical networking and website

management tools. Growth of Cisco System into an international firm is associated with

formulation and implementation of effective business strategy.

One of the operational strategies incorporated by the firm entails formation of

mergers and acquisition. Through this strategy, the firm has been able to access new

technologies. Adoption of the concept of formation of mergers and acquisitions by the

firms was perceived as a major weakness by other firms in the high technology industry.

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Cisco’s System management team considered integration of merger and acquisition to

be the most effective and efficient way of attaining competitive advantage (Cisco

System Incorporation, 2004, p.3). One of the firm’s recent mergers entails Cisco

System and Starent Networks at cost of $ 2.9 billion. Incorporation of this strategy

arises from consideration of forming mergers and acquisitions as the firm’s key growth

strategy. Through this strategy, it is possible for the firm to attain a high level of

customer satisfaction through innovation of next generation products. In line with this,

the firm’s management team has developed an acquisition philosophy which entails

consideration of acquisition as the key strategy in accessing scarce intellectual assets

(Cisco System Incorporation, 2004, p. 4). In addition, formation of mergers and

acquisition is considered by the firm’s management team as a key force in the process

of identifying driving market transitions.

In conducting mergers and acquisition, the management team of Cisco System

Incorporation is guided by 3 key objectives. These include employee retention, return on

investment and new product development. The firm’s management team is committed

at ensuring that it retains a large percentage of employees from the firm it acquires.

This results from realization of the fact that unsatisfied employees will definitely leave

the firm or if retained in the new firm they may result into inefficient performance of the

firm. In order to eliminate occurrence of this, the firm’s management team has

integrated a criterion with regard to cultural compatibility for all the firms it considers

having a potential of being acquired (Paulson, 2001, p. 103). The firm’s management

team has developed this strategy upon realizing that it is a challenging task to make

incompatible cultures cooperate to the extent that the all the employees of the acquired

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firms will be satisfied. In conducting its acquisition process, the firm ensures that it only

considers firms which have similar cultures. The firm has often walked out of a merger

and acquisition deal as a result of lack of cultural fit despite the financial terms being

appealing (Jeffery, 2008, p. 8). According to the firm’s Chief Executive Officer (CEO),

Cisco does not prefer acquiring other firms if it is sure that it will lay off all the acquired

firm’s employees due to cultural differences.

Incorporation of employee retention objective has enabled Cisco System

Incorporation to successfully manage cultural differences in the firms that it acquires. In

order to minimize cultural differences, the firm’s management team ensures that one

third of the top management positions in the new firm established after completion of

merger and acquisition are set aside for employees from the acquired organization. The

firm’s employee retention as a strategy to eliminate cultural differences is also

undertaken through incorporation of employee benefits (Pfeffer & Sutton, 2001, p. 8).

One of the ways through which this is attained is by provision of stock options. Upon

completing a merger and acquisition process, the firm’s management team ensures that

it concerts the stock options of the acquired firm into its own stock. This provides a high

potential of the acquired stock options appreciating. The resultant effect is that the

firm’s employees execute their duties more seriously since they consider it as an

opportunity for acquired stock options appreciating. In relation to employee retention,

the firm’s management team has formulated a strategy which entails key employees of

the acquired firm signing a non-compete whose duration is two years. This is the time

limit before these employees can leave the firm. In addition, this time is sufficient for the

firm to develop another product. By limiting the employees from earning income from

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another firm in their industry, the firm is able to incorporate a sufficient culture amongst

the employees. This results from the fact that a strong incentive amongst the employees

to stay in the firm is developed. Through effective management of cultural differences

that occur in mergers and acquisition, the firm’s Chief Executive Officer (CEO) asserts

that the firm has been successful in retaining personnel. For example, Chambers, Cisco

System CEO asserts that the firm witnessed minimal voluntary employee attrition in

relation to the employee of the acquired firms at a rate of 6% in 1999 compared to the

previous two years.

In its cultural integration process, Cisco System Incorporation management team

ensures that in invests substantially in acquisition of integration resources in all its

functional and corporate levels. Some of the issues considered by the firm’s

management team in its cultural integration process include reward system, decision

making process and the organization structure.

Cisco System Incorporation has developed a comprehensive cultural integration

process. The first step involves developing a lucid understanding of the mergers and

acquisition rationale by all the parties involved. The management team also ensures

that all parties understand the intended outcomes. Clarification of specific behaviors

necessary for effective operation of the new entity is undertaken. The key drivers which

are necessary for the success of the behavioral change are evaluated. In order to

ensure that cultural differences are sufficiently dealt wit, the firm’s management team

ensures that change management is conducted.

In selecting a firm with which to enter into merger and acquisition, Cisco System

Incorporation ensures that only firms with shared technological and business vision are

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considered. In addition, compatibility with regard to core values is also considered in an

effort to ensure that culture differences are eliminated. This serves in developing an

environment conducive for the success of the merged entity. The firm’s management

team also conducts a comprehensive discussion with the top management team of the

firm it intends to acquire. The objective of this discussion is to receive feedback related

to the top performing employees. This enables the firm to formulate effective

organizational culture strategies thus enhancing its capacity to retain employees of the

acquired firm.

2.7.1.2 Case study 2: Case of failure; Bay Networks

In 1994, Synoptic Communications and Wellfleet Communications which were

operating within the networking industry merged resulting into formation of Bay

Networks. The objective of the merger was to form a strong player within the industry

(Markoff, 1994, para. 1). Bay Networks have experienced a series of problems since its

inception. One of the major challenges faced by the firm includes lag in developing and

introducing new products. This has greatly cost the firm’s competitive advantage. For

example, despite the firm venturing into production of Automated Teller Machine

switches, it was overtaken by Cisco Systems Incorporation. Bay Networks was also

overtaken by Fore System which ventured into this market at the same time with Bay

Networks. Due to effective product development Fore System managed to become the

market leader. In addition, Cisco Systems attained a market share of17% compared to

Bay Networks which had a market share of 6% in 1995 as illustrated below.

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Figure 1: Pie chart illustrating Bay Networks and Cisco Systems ATM switch

Market share

(Source: http://news.cnet.com/Bay-Networks-failed-expectations/2009-1001_3-

239247.html?tag=mncol)

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The firm has not been able to market its products effectively. This results from

difficulties in managing its sales force. According to Cnet (1996, p. 1), Bay Network’s

management team was not able to integrate its sales force since the formation of the

merger. According to Cnet (1996, p. 2), there were cultural differences between

Synoptic and Wellfleet Communications in relation to motivation and management

styles. This had a strong negative impact on the entire Bay Networks’ sales force. The

firm experienced challenges in integrating direct and indirect distribution channels of the

two firms. The resultant effect was the competition between the firm’s direct sales force

and resellers.

The idea of establishing Bay Networks by merging Synoptic Communications

and Wellfleet Communication was appealing on paper. However, the success of the

new entity was limited by existence of differences in corporate cultures between the two

firms. Wellfleet Communication’s management team was doubtful of the mergers’

success after considering the vast difference in corporate cultures. In addition, the two

firms had a large geographical divide in relation to location of their headquarters.

Synoptic Communication was based in Santa Clara in California while Wellfleet

Communication was based in Boston. According to Sadri & Lees (2001, p. 1),

geographical separation culminates into a difference in corporate cultures amongst

organizations. This results from the fact that employees develop different values forcing

the organization to align its organizational culture in accordance with its immediate

environment. Existence of geographical distance resulted into poor performance of Bay

Networks. On the other hand, Cisco System Incorporation minimizes cultural distance

with regard to cultural differences that result from geographical distance. In order to

xxxvi

undertake this, the firm’s management team gives priority to firms operating in

networking industry that are located in Silicon Valley or those located close to its remote

sites (Cisco System Incorporation, 2004, p. 5). In 1998, Bay Networks was acquired by

Nortel at a cost of $ 9.1 billion (Weston & Heskett, 1998, para.2). Poor management of

cultural differences is one of the factors that contributed towards failure of Bay

Networks. Currently, Cisco Systems Incorporation continues to dominate the market.

2.7 Summary

From the study above, it is evident that consideration of cultural differences

between firms is important in formation of mergers and acquisitions. The various cultural

factors affecting mergers and acquisition are identified. In addition, the effect of cultural

differences on communication is evaluated. In order to understand the impact of culture

on the success of mergers and acquisition, the link between culture and acquisition is

identified. The importance of cultural assessment, integration and selection are also

analyzed. Incorporation of a case study involving Bay Networks and Cisco Systems

Incorporation gives the researcher a clear understanding of the impact of cultural

differences in mergers and acquisitions. Literature review provides an insight on the

research design and data collection techniques under utilization in previous studies. The

following chapter will describe the research design and the data collection procedures

used in this study.

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Chapter Three

Research Methodology

3.0 Introduction

This chapter will present the research design utilized in conducting the study. In

addition, the data collection techniques with emphasis on data coding will also be

presented. The sampling techniques, sample size and selection of respondents are then

presented before a justification of the sample population is offered. Moreover, the

qualitative and quantitative methods of data analysis and ethical considerations will be

presented in the latter stages of the chapter. Finally, presentation of the limitations

encountered during the study followed by a brief summary of the study will be

presented. The objective of this study was to conduct an in-depth analysis of the cultural

factors that cause failures in mergers and acquisitions with specific reference to the

Networking and Communication Devices Industry. The study was instigated by an

increase in the number of mergers and acquisitions which fail during pre or post merger

phase. One of the major reasons which contribute to these failures is existence of

cultural differences. In order to attain this, a number of objectives were formulated.

These include identification of the cultural factors which contribute towards success of

mergers and acquisition. In addition, the nature of the relationship between key cultural

factors aimed at improving mergers and acquisitions in the Networking and

Communication Devices Industry was determined. Through the analysis, it will be

possible to make recommendations on how to implement cultural factors in the industry.

This chapter is structured in various subsections. Subsection 3.1 entails

identification of the research design used in conducting the study. The method used in

xxxviii

collecting data from the field is analyzed in subsection 3.2. In order to condense the raw

data collected, the concept of data coding is evaluated in subsection 3.3. Due to the

large size of the population, sampling technique is incorporated in selecting the

respondents. Sampling, sample size and selection of respondents are considered in

subsection 3.4 while justification of sample selection is illustrated in subsection 3.5. The

method of data analysis and ethical consideration are outlined in subsections 3.6 and

3.7 respectively. The limitations of the research methodology are discussed in

subsection 3.8. Finally a summary of the chapter is given in subsection 3.9.

3.1 Research design

In order for a research study to attain the stipulated objectives, a well defined

research design should be incorporated (Saunders et al, 2009, p. 23). The research

design acts as a framework which guides the study. The resultant effect of incorporating

research design is that the study becomes logical. According to Creswell (2003, p.203),

research can either be explanatory or descriptive. Explanatory research mainly deals

with answering ‘why’ questions. This means that a well defined causal relationship have

to be established. Considering the nature of the research question of the study, this

study is characterized as being explanatory. This is due to the fact that it is aimed at

evaluating why and how cultural differences have an effect on the success or failure of

mergers and acquisition.

Consideration of a research design enables the study to be logical thus resulting

into appropriate findings. Selection of the research design should ensure that it results

into a high degree of accuracy in relation to the findings. The design adopted should be

reflexive of the entire research process. According to Maxwell (2005, p.2), a good

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research design is characterized as one in which all the components work harmoniously

in promoting the findings of the study. On the other hand, a flawed research design

results into failure. The research design adopted is dependent on whether the research

questions considered is explanatory or descriptive. There are two main research design

incorporated by researchers in conducting a study. These include qualitative and

quantitative research designs. Qualitative research design is also considered as being

detailed which enables it to provide in-depth assessment of the issue under

consideration. This arises from the fact that there is no definite procedure of conducting

the study by utilizing this research design. According to Thomas (2003, p.1), qualitative

research design is defined as a multi-method of research which is interpretive in nature.

In addition, qualitative research design is naturalistic in nature. This means that the

researchers conduct a study on the subject matter by considering their natural setting.

Qualitative research design gives the researcher capacity to utilize a wide range of

empirical materials such as interviews, observation, personal experience and case

study in collecting data. Maxwell (2005, p.3) postulates that qualitative research design

entails a back and forth process of in relation to the various research design

components. This enables the researcher to effectively assess the objectives, research

questions and methods. The research design selected must not only have a fit with its

use but should also consider its environment.

In an effort to improve ease of interpretation of the research findings, the

researcher integrated quantitative research design. According to Thomas (2003, p. 3)

quantitative research design incorporates a number of statistical methods. This is made

possible by use of numbers specific to the phenomenon under investigation. By

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interpreting the data, the researcher is able to make effective. Linking qualitative and

quantitative research designs enabled the researcher to incorporate the concept of

triangulation. Flick (2009, p.26) opines that triangulation enables the researcher to

effectively focus on the issue under consideration.

3.2 Data collection

According to Morse and Field (1995, p. 54) data collection is the process of

obtaining useful information related to the phenomenon under investigation. In order to

improve reliability of the data, it is important for the research to collect the most relevant

data. Reliability in a study ensures that the results of the research are repeatable

(Bryman & Bell, 2007, p. 40). The quality of data collected contributes towards an

improving the decision making process by only focusing on relevant information. To

ensure that the data collection process was organized; the researcher developed a data

collection plan. This resulted into elimination of subjective elements by clearly defining

operational parameters for the study. The data collection plan was developed during the

Plan-Do-Check-Act cycle. According to Morse and Field (1995, p. 53), PDCA provides a

comprehensive framework for the researcher to develop a concrete understanding of

the data collection and interpretation process culminating into improvement of the real

process. Despite data collection planning process being time consuming, it is vital since

it acts as guidance towards obtaining the correct data. In conducting the study, the

researcher considered the field as the key source of data. This enabled the researcher

to obtain relevant data. Considering the fact that the study was aimed at analyzing how

cultural factors affect mergers and acquisition in relation to firm’s within the Networking

and Communication Devices Industry, data was collected from employees of Cisco

xli

Systems and Bay Networks. Prior to the actual data collection, the researcher

conducted a reconnaissance so as to familiarize with how the firms operate. Through

the preliminary research, the researcher is able to understand various issues such as

language, practices, norms and social issues (Miller & Salkind, 2002, p.45).

In order to improve reliability of the study, various methods of data collection

were considered. According to Pearce and Axinn (2006, p. 28), incorporation of mixed

methods of data collection culminates into production of high quality results. Both

primary and secondary methods of data collection were utilized. Primary methods

involved conduction of interviews and use of questionnaires. The researcher made a

decision to use semi-structured questionnaires so as to give the respondents a certain

degree of freedom in answering the questions. According to Morse and Field (1995,

p.94), use of semi-structured questionnaires culminates into the researcher acquisition

of all the required information. This means that the error of omission is eliminated to a

certain degree. In addition, use of self administered questionnaires enables the

researcher to ask leading questions which easily help in getting the required answers

from the respondents (Lancaster, 2005, p.130). It was ensured that open and closed

ended questionnaires were used. The resultant effect is that the findings obtained were

intense. In addition, close ended questions based on yes or no were also incorporated.

Use of yes and no questions were integrated where the researcher wanted to obtain

specific information. Before administering the questionnaires to the respondents, the

questions were reviewed to ensure that there is clarity and that any form of ambiguity is

eliminated. By ensuring clarity, it was easy for the respondents to respond to the

questions.

xlii

With regard to interviews, the researcher incorporated both face to face and

telephone interviews. These were used in collecting data from those in the firm’s

management level and the other lower level employees. Telephone interviews were

considered so as to minimize the cost involved. An electronic voice recorder was used

in collecting data obtained through telephone interview. An interview guide was also

developed so as to ensure that the interview was well organized. Creswell (2003,

p.195), asserts that interview guide enables the researcher to emphasize on the topic

under consideration during the actual process of conducting the interview. According to

Longnecker (2008, p.31), interviewing enables the researcher to understand the

underlying reasons in relation to a certain individuals or a groups attitude or behavior.

3.3 Data coding

The data collected was assigned codes based on the responses. Data coding

was considered so as to increase the ease of the data analysis process. Through data

coding, the researcher was able to incorporate various statistical data analysis tools

such as the Statistical Package for Social Sciences (SPSS) and Microsoft Excel (MS

Excel). Incorporation of these data analysis tools arise from the fact that qualitative data

is transformed into variables which are easy for the two data analysis tools to

understand. To ensure effectiveness in the utilization of the SPSS, the various codes

were developed into a matrix by considering the various responses. This made it

possible for the researcher to incorporate the Likert Scale. As a result, it was possible

for the researcher to identify the attitudes of the respondents with regard cultural

differences in mergers and acquisitions. Data coding also contributed towards

significant reduction in the volume of data collected from the field. According to

xliii

Longnecker (2008, p.56) data reduction culminates into the data becoming sharp and

focused through elimination of data which is not relevant.

3.4 Sampling, sample size and selection of respondents

Sampling and selection entails identification, choosing relevant data sources

which will be used in generating information (Bryman & Bell, 2007, p.185). In order to

integrate the concept of sampling, a target population was identified. This included all

Cisco Systems and Bay Networks Incorporation employees. Sampling technique was

incorporated from realization of the fact that it is not possible to collected data from all

the employees. The resultant effect is that the researcher was able to overcome time

and cost constraints. Sampling technique enabled the researcher to select a sample

population from the target population. Through sampling, all the parties in the sample

population had the same probability of being selected hence eliminating bias. A sample

population is defined as the total number of objects in a study which have the same and

independent potential of being selected as the actual sample. From the sample

population, a sample which is the finite part of the statistical population is selected.

According to Kent (2007, p.23), the respondents should have common

characteristic to ensure that the feedback is related. The sample consisted of

employees in the management level and other ordinary employees working in Cisco

Systems and Bay Networks. This was attained through use of simple random sampling

which made it is possible for the researcher to eliminate sampling bias. The selected

sample is considered to be representative of the entire population.

The sample consisted of 60 respondents. Twenty four of the respondents were

selected from the management team .Twelve respondents managers were selected

xliv

from each company. These respondents were from different management levels. Six of

them were top managers while the other half was from the lower management levels.

Thirty six of the respondents were ordinary employees belonging to different department

of the two firms. 18 of these respondents were selected from each company.

3.5 Justification of the sample selection

Consideration of both ordinary employees and those in management level as

respondents was considered so as to gain understanding of their perception on how

cultural differences affect their operation. In addition, those in management have the

capacity of knowing how cultural differences affect performance of mergers and

acquisitions. This is due to the fact that they are charged with the responsibility of

managing the new entity formed. On the other hand, ordinary level employees have

concrete understanding on how cultural differences affect them in the process of

executing their duties.

3.6 Data analysis

Grounded theory was integrated in analyzing the data collected. Grounded

theory involves a research method in which the data collected is used in developing the

theory relating to the phenomenon under study (Schwab, 2005, p.83). According to

Lincoln and Denzin (2003, p.249), grounded theory is qualitative in nature and utilizes

systematic procedures in an effort to develop theories related to a given phenomenon.

This means that grounded theory enables the researcher to expand the on a given

phenomenon by identifying various elements related to the subject under study.

In addition, grounded theory was important in conducting a research if the

researcher intends to generate or explain a given situation. Through grounded theory, it

xlv

will be possible for management teams to gain knowledge on how to conduct cultural fit

analysis before implementing merger and acquisition decisions.

3.7 Ethical consideration

Consideration of ethics is an integral part of the research process no matter the

nature of research (McBurney & White, 2009, p. 49). According to Gravetter & Forzano

(2008, p. 97,) there are two main elements which should be considered when dealing

with ethics. One of them entails responsibility to various individuals involved in the

research (human and non-human). The second element involves being responsible to

discipline of science. This means that the researcher has to integrate honesty and

accuracy in the reporting process. In conducting the research, the researcher ensured

that voluntary consent in relation to the parties involved in the research was ensured.

This was achieved by ensuring that the respondents had a legal capacity to give their

consent on whether to participate in the research or not. There was no any element of

force, duress, deceit, fraud, over-reaching, any form of intervention or ulterior for of

coercion or constraint. As a result, the respondents had the capacity to pull out of the

study as desired without any form of loss in relation to the benefits he or she was

entitled. There was no any form of penalty associated with pulling out of the study.

It was also ensured that the respondents selected had comprehension and

sufficient knowledge with regard to the subject matter of the research. This

consideration ensured that the respondents had a capacity to fully participate in the

research.

Before the actual study, the researcher ensured that the respondents were

conversant with the nature, purpose and duration of the research. This was considered

xlvi

so as to increase the degree of confidence amongst the respondents. The respondents

were made aware of the benefits associated with participating in the study as one of the

outcomes. Additionally, any foreseeable discomfort and risks were made known to the

respondents well in advance. In order to increase freedom of respondents’ participation,

the researcher ensured that a high degree of confidentiality was ensured. The need to

protect confidentiality arises from the realization of the fact that qualitative research is

conversational in nature and hence it is important for the researchers to maintain a well

defined boundary of what they tell the participants and what they are told. In addition,

the researcher ensured that the concept of beneficence is incorporated. This

contributed towards development of an environment conducive between the researcher

and the respondents. The resultant effect of this is to make the interviewing session

interactive (Johannison, 2006, p.34). In addition, creating an informed consent greatly

contributes towards ensuring that there is a high level of respect during the process of

conducting the research. Individual consent was presented to the researcher in

understandable language. In conducting the research, the researcher obtained consent

from the local authorities. This will be attained by approaching the management teams

of the selected companies and explaining the objective of conducting the research.

3.8 Limitations

The study was limited in a number of ways. For instance, it was not possible for

the study to consider all the employees as respondents due to resource scarcity in

relation to time and financial constraints. This prompted the researcher to use sampling

technique. It was assumed that the results obtained from the selected sample were

representative of the cultural differences experienced in mergers and acquisitions. The

xlvii

study was also limited in that some of the respondents were not exhaustive in replying

to the questions asked. This made the study challenging to the researcher.

3.9 Summary

The study utilized an integrated quantitative research design which enhanced

the linkages between qualitative and quantitative research design thus allowing for

triangulation in the study. Questionnaires and interviews were employed in data

collection owing to the reliability and validity conferred by utilization of mixed methods of

data collection. Data coding was considered so as to increase the ease of the data

analysis process thus enabling the researcher to incorporate various statistical data

analysis tools such as the Statistical Package for Social Sciences (SPSS) and Microsoft

Excel (MS Excel). A sample of 60 participants was selected from the management level

and other ordinary employees working in Cisco Systems and Bay Networks.

Consideration of both ordinary employees and those in management level as

respondents was considered so as to gain understanding of their perception on how

cultural differences affect their operation. Through grounded theory, it became possible

for the researcher to conduct data analysis. Before the actual study, the researcher

ensured that the respondents were conversant with the nature, purpose and duration of

the research. More importantly, informed consent was sought from the participants

while permission was granted by the management in the two entities. Limitations in

terms of lack of exhaustive responses from the respondents coupled by financial

resources and time constraints were encountered. Data collected will be presented and

analyzed in the next chapter.

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Chapter Four

Data Presentation and Analysis

4.0 Introduction

This chapter will first present the demographic description of the respondents in

the study with emphasis on their gender, management level and their respective age.

Next, an analysis of the research questions and the factors leading to the success and

failure of the organizations will be presented. An analysis of the cultural factors with

regard to due diligence, communication style and nature of the cultural factors which

influence performance of mergers and acquisitions will also be presented. Finally, an

analysis of Individualistic versus collectivist culture of the entities and the summary of

the chapter will be presented in the latter stages of the chapter.

Chapter Four

Data Presentation and Analysis

4.0 Introduction

There has been an increment in the rate at which firms are scanning the

environment in order to identify potential partners to enter into merger and acquisitions

with. Despite the increased integration of mergers and acquisition, their success is not

guaranteed. However, success of mergers and acquisition depends on the

effectiveness of its management. Some mergers which have been formed have been

disappointing. On the other hand, some mergers such as those undertaken by firms

such as British Petroleum, Cisco and General Electric have been successful.

According to Gertsen, Torp and Soderberg (2004, p. 76), mergers and

acquisition result into a significant degree of disruption and transformational change

xlix

within the organization. One of the issues of great concern relates to cultural

differences. Culture is a key factor which determines whether the merger will fail or

succeed. Therefore, it is paramount for the management team to determine the most

effective way of managing culture.

This chapter is organized into a number of sub- sections. Sub-section 4.1 entails

a descriptive characteristic of the respondents. Some of the key characteristics

considered include gender, age and employee rank and organization department. Sub-

section 4.2 entails an analysis of the research questions used in conducting the study.

The research questions are analyzed by identifying the various components. In sub-

section 4.3, the various factors leading to success or failure of mergers and acquisition

are analyzed. This is attained via identification of various factors. A summary of the

chapter is given in subsection 4.4.

4.1Primary and Secondary Data Presentation

In conducting the study, the researcher considered Cisco System Incorporation

and Bay Networks employees. Diverse demographic data was evaluated in conducting

the research. Demographic data was also utilized in conducting the study. This was

attained by considering a number of demographic variables that included gender,

management level and their respective age.

4.1.1Employee rank

Both employees in the management level and ordinary employees were

considered. Selection of these respondents was considered because they experience

cultural different issues related to cultural differences. The study took into consideration

t the top, middle and lower level managers. Decision to consider different management

l

levels arose from realization of the fact that their roles are different. As a result, a

difference existed in relation to the effect of culture on their operation.

4.1.2 Organization department

The study considered the different departments that exist within the two firms.

The core objective was to determine how cultural differences affected performance of

employees in various organizational departments.

4.1.3 Age

The study took into consideration the age differences that exist amongst the

respondents. Decision to incorporate age arose from need to determine the efficiency

with which the employees can cope with the change which results due to formation of

mergers and acquisitions.

4.1.4 Gender

Sixty percent of the respondents considered in the study were male employees

while the rest forty percent were female. The table below gives an illustration of the

demographic data considered in the research.

Tabular Presentation of the Data Collected

Table 4.1 The Questionnaire Results

Presentation of demographic data

Gender

Male (60%), Female (40%)

Age range Management Level Ordinary employees

20-30 6 5

li

31-35 5 5

36-40 5 6

41-45 4 7

46-50 5 4

51 and above 5 3

Rank in the department

Management level (rank)

Top level managers 8

Middle level managers 9

Low level managers 13

Ordinary employees 30

Department of Work

Department Number of respondents

Purchasing and procurement 9

Marketing 10

Finance 8

human resource 13

Research and development 9

Production 11

Major Cultural Differenceslii

Cultural Factor Response

Difference in Organizational Value 70%

Difference in Organizational Norms 50%

Differences in Organizational goals 60%

Difference in language 20%

Difference in Organizational Practices 60%

Difference in Organizational Beliefs 50%

Difference in Organizational Behavior 70%

Presentation of demographic data

4.2Primary and Secondary Data Analysis

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In conducting the study, one research question was considered. This includes

‘How did cultural factors affect success of incorporation of mergers and acquisition in

Cisco Incorporation and Bay Networks?’ In order to enhance the effectiveness of data

analysis, a comprehensive analysis was conducted on the research question. This was

achieved by breaking down the research question into a number of components. The

various components considered are outlined below.

Cultural factors leading to success or failure of mergers.

Nature of the cultural factors that influence performance of mergers and

acquisitions.

Nature of the relationship between key cultural factors that result into

improvement of mergers and acquisitions.

4.2.1 Primary Analyses

4.2.1.1 Quantitative Results

Factors that result in the success of mergers and acquisitions: When the

respondents were asked to respond to the w question that asked which factors resulted

into the success or failure of mergers and acquisitions, they gave widely varied

responses. A considerable percentage of the respondents mentioned a number of sub-

cultural factors that were listed on the question number six. These factors included

reasons that related to organizational values, to organizational customs, beliefs,

traditions, the firm’s policies, to organizational objectives and to organizational behavior.

The atmosphere that is generated by these factors has an effect on the mergers and

acquisitions success.

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Seventy percent of the respondents were of the opinion that success of mergers

and acquisition is dependent on the effectiveness with which the firm appreciates value

in an organization. The core objective of entering into mergers and acquisition is to

attain synergy in the firms’ course of operation culminating into attainment of a high

competitive advantage. These respondents were of the opinion that firm’s management

teams do not conduct an evaluation of the existing values between the two firms to

determine whether the merger will succeed or not. A significant proportion of the

respondents cited differences in organizational philosophies as a major factor

contributing towards the success or failure of mergers.

Difference in organizational goals was also cited as a key cultural factor affecting

mergers and acquisitions. This arises from the fact that the management teams of the

two firms’ have adopted diverse strategies with regard to attainment of the formulated

goals and objectives.

Sixty percent of the respondents were of the opinion that differences in

management style have an effect on the success or failure of mergers and acquisition.

Chances of a merger where the two parties are having different management styles

succeeding are slim. The leadership skills that a firm can adopt include autocratic,

democratic or laissez faire. Democratic management style involves the employees in

the decision making process. For example, some respondents from Bay Network

asserted that they had the discretion to take their own approach towards attainment of

the stipulated goals. On the other hand, autocratic management style tends to be

authoritative in nature. Laissez faire leadership entails a situation where everyone is

treated as being equal. If firms with different management styles enter into a merger

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and acquisition the probability of the merger failing is high. The table below gives an

illustration of the varied responses in relation to mergers and acquisition.

4.2.1.2 Qualitative Results

The results of qualitative investigation were deciphered from the eighth question

that sought to find the relationship between the main factors of cultural inconsistencies

and similarities. These factors are critical in the determination of the success or failure

of the mergers and acquisitions. The connection between the different cultures is what

determines the compatibility of two different companies that are coming together t begin

on a new path with same goals, same management style and try to work out with same

strategies.

a. Due diligence

Most of the respondents in the management level were of the opinion that

mergers and acquisitions fail because of not conducting comprehensive due diligence.

According to Galpin and Herndon (2003, p. 21), mergers and acquisition are faced with

numerous chances of failure or success. Culture should be a critical issue during the

integration phase. However, cultural issues have not been considered central amongst

the executive level managers in the process of settling the deal. One of the reasons

cited to contribute to minimal due diligence entail the existing familiarity between the

executives of the firms conducting mergers and acquisitions. The resultant effect is that

there is sloppiness amongst the executives who are well aware of their partner. 65% of

the respondents were of the opinion that increased familiarity between the executives

culminates into numerous assumptions in the process of conducting mergers and

acquisitions. This makes the deal to be less sensible of the real business environment

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thus reducing its probability of success. According to Galpin and Herndon (2003, p. 23),

it becomes difficult for mergers and acquisition to reconcile existing cultural differences

which were assumed during conduction of due diligence process after the deal is

completed. The resultant effect is that these mergers and acquisitions fail upon their

inception.

b. Communication style

Fifty percent of the respondents were of the opinion that communication style is a

major factor that determines the success of mergers and acquisitions. Communication

in an organization is defined as the process through which information is disclosed

within an organization. When asked of the various communication styles, the

respondents cited open and closed communication styles. Open communication entail

free sharing of information and opinions. On the other hand, closed communication style

entails a form of communication where sharing of information amongst co-workers is

limited.

In addition, an organization can have either supportive or defensive

communication style. Supportive communication style refers to a style of communication

where the degree of honesty and openness is high. Supportive communication

improves employee’s job productivity while defensive communication reduces

communication effectiveness. If the two firms entering into a merger and acquisition

have different communication styles, there is a high probability of the merger failing.

This arises from the fact that employees of the two firms cannot get along with each

other smoothly since they are used to different types of communication.

4.2.2 Secondary Analysis

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a. Individualistic versus collectivist culture

The respondents were of the opinion that mergers and acquisition fail due to

diversity of cultures amongst the firms. In a firm with individualistic culture, the

employees are usually concerned with their personal interests. This attained by giving

the employees a given degree of freedom enabling them to attain their personal goals.

When asked why diversity in culture in terms of individualistic and collectivist culture

result into failure of mergers and acquisitions, the respondents asserted that the

decision making process during the merger is inconvenienced by the individualistic

culture. On the other hand, collectivist culture tends to work in groups. In this culture,

there is a high degree of loyalty amongst the employees. In a collectivist culture,

employees hold that the firm’s welfare is as important as their own. There is a high

probability of a merger and acquisition entailing firms with different cultures failing. This

arises from the fact that the employees have a different mindset.

b. Nature of the cultural factors which influence performance of mergers

and acquisitions

Divergences in cultural factors result into cultural clash within the organization.

There are two main cultural contexts identified in conducting the study. These include

high and low context culture. In a low context culture, the employees mainly rely on

verbal communication in expressing their ideas, feeling and thoughts to the

management. On the other hand, non-verbal methods of communication are used

amongst the high context culture in an effort to maintain harmony amongst the

employees.

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Another relationship, which was identified to influence performance of mergers

and acquisitions, relate to monochronic and polychronic concepts. Monochronic

employees tend to undertake a particular task at a given time. This makes them to

concentrate on their work while considering the set deadlines. On the other hand,

polychronic employees have the capacity to multitask. Despite their multitasking

characteristic, these employees are not able to successfully complete their tasks at the

end of the day. Polychronic employees are prone to interruptions and prone to

distractions. Monochronic employees require a lot of information for them to be effective

in conducting their duties. Polychronic employees already have the necessary

information to execute their duties. A merger entailing a firm with a large number of

monochronic employees with another having polychronic employees tend to fall since

the employees cannot work along each other well.

4.3Summary of the Chapter

This chapter helps in presenting the data collected to the reader in a manner that

they can easily understand and be to connect the outcomes to the questions that were

asked in the interview. Every question is strategically answered and presented in this

chapter. The reasons for certain answers are also assessed and presented in tables

that are concise for this information. The researcher is on the other hand able to make

the analyses from the data presentation and clearly link research question to data

presentation and eventually to the analyses. The variables considered include

employees rank, organization department, age and gender. This chapter offers simpler

data that will be used in the next chapter for interpretation and eventually discussion.

From the discussion, the conclusions will be drawn. The trends in then data

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presentation also guide the recommendation because interpretation helps in

understanding. The theories of culture, individualist and collectivist are used in analyses

to assist is explaining the reasons that hinder success during mergers.

Chapter 5

Discussion and Interpretation

5.0 Introduction

This chapter will present the discussion and interpretation of the research

findings based on various relationships espoused by the findings. To start with an

analysis of cultural fit in determining the success or failure of mergers and acquisition

will be discussed. Next, an evaluation of the relationship of cultural factors in mergers

and acquisition will be presented while relating it with aspects of organizational culture

in Bay Networks and Cisco Systems Incorporation. Finally, the relationship between

communication and leadership as one of the cultural differences in mergers and

acquisitions and the summary of the chapter will be presented.

In the 21st century, the global economy has witnessed rampant transformation.

Some of the changes which have been witnessed relate to increased incorporation of

mergers and acquisition. One of the reasons which have made entrepreneurs to

incorporate this strategy is the need to access new markets thus enhancing the

probability of attaining their profit maximization objective. According to a study

conducted on mergers and acquisitions, approximately 10, 000 and 11,000 mergers and

acquisitions were conducted in the United States and Europe in 2004 respectively

(Marmenout, 2008, p. 3). During the 1980s when the concept of mergers and

lx

acquisition was being incorporated in businesses, entrepreneurs realized that the

mergers and acquisition did not result into the intended synergy. However, there are

numerous challenges which are facing the success of mergers and acquisitions. Some

of these challenges arise due to existence of differences amongst the firms involved in

the merger and acquisition (Accenture, 2009, p. 7).

Increased failure of mergers and acquisition formed prompted scholars and

entrepreneurs to shift their focus to the ‘human side’ (Marmenout, 2008, p. 3). With

regard to the ‘human side’, mergers and acquisitions present a challenge to

entrepreneurs. This arises from the fact that there are numerous complex issues that

the entrepreneurs have to deal with to ensure that the strategy succeeds. One of the

issues which present a challenge to mergers and acquisition is the existence of cultural

differences among potential mergers. According to Uliin, Duysters and Meijer (2010,

p.1), the past decade has witnessed a significant growth in mergers and acquisitions

and strategic alliances. Despite their proliferation, a significant proportion of studies

which have been conducted on mergers and acquisition assert that their rate of failure is

alarming. Ulijin eta al (2010, p. 1) is of the opinion that the failure rate is as a result of

cultural differences. It was the objective of this study to explore substantive strategic

problems with regard to cultural differences in mergers and acquisitions and formulate

perspectives on how the problem can be tackled and making an assessment of the

future changes that will affect developments in the sector.

Considering the challenges facing mergers and acquisition as a result of

existence of cultural differences, it was the objective of this study to conduct a

comprehensive analysis of the success and failure of mergers and acquisitions as a

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result of cultural differences. This chapter entails a discussion and interpretation of the

research findings. The chapter is organized into three subsections. Subsection 5.1

entails an analysis of cultural fit in determining the success or failure of mergers and

acquisition. Subsection 5.2 entails an evaluation of the relationship of cultural factors in

mergers and acquisition. The section also details some of the findings which were

revealed from the study in relation to Bay Networks and Cisco Systems Incorporation.

Subsection 5.3 details the relationship between communication and leadership as one

of the cultural differences in mergers and acquisitions.

5.1 Cultural fit in mergers and acquisition

Cultural fit has been considered as a critical element in the formation of mergers

and acquisitions. In the operation of every firm, cultural fit between the firm and its

employees is very important. This arises from the fact that there is a direct relationship

between cultural fit and the firm’s profitability hence its success. An organization,

culture is formed as a result of the existence of employees’ experiences and individual

personalities. In addition, it also entails the team orientation, management style and the

working methods employed. In the initial stages of establishing mergers and

acquisitions, it is important for the partners being involved to determine the existing

cultural fit between the two organizations to determine the existence of cultural fit.

Hackett (n.d, p. 104) defines cultural fit as the existence of compatibility the attitudes,

values and behaviors formed within an organization and the employees. Lack of

cultural fit in mergers and acquisitions is one of the factors, which contribute towards the

failure of mergers and acquisitions. Before implementing the concept of merger and

acquisition in its operation, Cisco Systems Incorporation management team

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incorporated the concept of cultural fit. When asked why the management team paid

more emphasis on cultural fit, the respondents said that it was because of realization of

the fact that change occurs upon the formation of mergers and acquisition. Hackett

(n.d, p. 104) asserts that despite the employees work experience, knowledge and skills,

these elements may be of minimal importance upon the formation of a merger and

acquisition. This is due to the fact that work content and the assigned responsibilities

change upon the integration of the merger. As a result, the employees may be forced to

develop new skills in order to execute their duties more efficiently. However, their

attitude, values and beliefs with regard to their job may not change significantly in the

short term. This makes it challenging the firm’s management team to develop a cultural

fit within the organization.

Poor cultural fit within an organization results into a decline in employee

productivity, low employee morale and a high rate of employee turnover. According to

Marmenout (2008, p. 7), employees of a particular organization are embedded in the

culture established within the organization. In addition, they do not recognize the impact

that their behavior has on their organizations. During formation of mergers and

acquisitions, existence of cultural collisions makes them to appreciate this influence.

In the process of undertaking its merger and acquisition, the respondents from

Cisco System Incorporation management team said that the firm conducts a

comprehensive cultural assessment. The assessment considers the positions, which

will be adversely affected by the formation of merger and acquisition. As a result, it is

able to identify and develop an understanding of the culture formed by employees of the

potential partner. Cultural assessment entails comparison of the existing organization

lxiii

culture of the firm with that of its acquisition target’s culture. Some of the issues, which

have to be considered during cultural assessment, include values, products, and

location and company beliefs amongst others.

Seventy five percent of the respondents selected from Cisco System

Incorporation management team said that the firm conducts an on-the-job observation

of its potential partner. This is undertaken prior to Cisco System Incorporation entering

into negations regarding the merger and acquisition with its potential partner. As a

result, the firm is able to identify the culture established amongst the employees in the

course of executing their duties. Some of the observations made relate to the interaction

amongst the employees and with the management. In addition, the respondents said

that the management team observes how the employees solve conflicts amongst

themselves and how they express their emotions. In order to determine the most

effective strategy that will minimize occurrence of failure, Cisco System Incorporation

management team asks the employees which areas should be changed in order to

improve their productivity.

5.2 Relationship of cultural factors with mergers and acquisition

According to Sarala (2004, p. 147), cultural factors are a key determinant in the

success or failure of a firm. Considering the fact that different organizations have

adopted different ideologies and values a difference exists between these firms. An

organization culture can interpreted as an umbrella which encompasses the various

subcultures existing in the organization. This means that organization culture aids in

establishment of organizational cohesiveness. This is attained through establishment of

a link between an organization’s procedures, strategies and policies.

lxiv

Sixty five percent of the respondents considered in the study from Cisco Systems

Incorporation said that in implementing its merger and acquisition strategy, the firm

conducts an analysis of its potential partner procedures, strategies and policies. This

enables the firm to determine the degree of congruency between the two firms. One the

other hand, in the formation of Bay Networks, which entailed a merger between

Synoptic Communications and Wellfleet Communication, would be a success. The

decision was based on the assumption that the two firms were operating within the

same domestic context and hence organizational culture would not have been a major

hindrance in the operation of the firm. However, Sarala (2004, p. 147) asserts that there

is a high probability of diversity between the culture of the two firms involved in the

merger and acquisition despite them operating within the same domestic context. This

is further enhanced by studies conducted by Ulijn (2010, p. 99) who opines that there

should be no generalization regarding cultural aspects. This means that the formation of

merger and acquisition in Bay Networks was based on the fallacy of assuming the

existence of familiarity of culture between the two firms since they had a similar national

culture. Studies conducted by Sarala (2004, p. 148) on mergers and acquisition reveal

that national differences are more prominent in domestic context compared with

international acquisitions.

Existence of extensive cultural differences within an organization is one the

restraining factors which limit success of post-acquisition integration. Sixty percent of

the respondents in the management level were of the opinion that cultural differences

have a negative impact on the performance of those in the top management level.

When asked why, these respondents said that cultural differences between the two

lxv

firms involved result into tension and high stress levels. The resultant effect is that their

decision making capacity is negatively influenced and hence the performance of the

firm. According to Finkelstein (2009, p. 60), extreme stress is one of the factors which

contributes towards a high turnover amongst those in the management team in mergers

and acquisitions. The success of a merger and acquisition is directly related with the

extent of cooperation established between the employees. Forty percent of the

respondents interviewed who were selected from Bay Networks said that lack of trust

between employees of the two firms was one of the factors, which contributed to a

decline in their productivity. When asked why, these respondents said that teamwork

within the organization was adversely affected and hence the performance of the firm.

Finkelstein (2009, p. 60) asserts that cultural differences lead into formation of cultural

conflicts in an organization. This scholar further asserts that cultural conflicts have the

effect of diminishing commitment in addition to creating a negative with regard to

employee cooperation.

Seventy percent of the respondents interviewed said that the resultant effect of

the differences in culture between the two firms makes them to develop a feeling that

they are alienated from the new entity formed. This is in line with findings of a research

study conducted by Finkelstein and Cooper (p.21) which reveal that employee’s

identification with an organization can be threatened by implementation of the merger.

The resultant effect is that their loyalty, cooperation and dedication to the success of the

intended merger and acquisition. In addition, the employees said that cultural

differences affect the performance of mergers and acquisitions due to existence of

ambiguity with regard to employee’s roles.

lxvi

In assessing existence of cultural fit between the firm and its potential partner, it

is paramount for the management team to develop an understanding of the firm’s value.

According to Frensch (2007, p.60) an organization value is composed of those values

which are explicitly stated in addition to those which are implicitly held. In the process

of implementing its merger and acquisition, Cisco Systems Incorporation ensures that a

comprehensive examination of both types of cultures is conducted and intimately

understood. In order to attain this, the firm evaluates the mission statement of the firm to

be acquired. This enables the firm to gain an understanding of the firm’s goals. By

analyzing a firm’s mission statement, Cisco Systems Incorporation is able to gain

knowledge on what the potential partner’s organizational culture emphasizes. Seventy

percent of the respondents interviewed were of the opinion that an organization values

and beliefs underpin how an enterprise should treat its employees and other

stakeholders.

For a merger and acquisition to be successful, it is vital for the management

teams of the firm’s involved to conduct a comprehensive evaluation of the

organizational value existing between the two firms. This enables the firm to determine

the most effective culture which will suit the two organizations. In its merger and

acquisition process, the management team of Cisco System Incorporation evaluates the

relationship developed between its potential partner and its customers. Lack of proper

analysis of the relationship which exists between the firm and its customers is one of the

reasons which have contributed towards failure of Bay Networks. According to Network

World (1997, p. 55), lack of establishing the culture existing between Bay Network and

lxvii

its customers has limited the firm’s ability to convince customers to purchase its

products. On the other hand, Cisco Systems Incorporation has managed to be effective

In addition, the firm’s management team also evaluates whether all the

employees operations are geared towards developing attaining customer satisfaction.

Through cultural analysis, Cisco System Incorporation is able to determine the possible

hindrances which may result from existence of cultural differences (Cisco System

Incorporation, 2004, p.3). Analysis of cultural differences enables the firm to determine

which values will be retained in the firm and those which need to be changed. Frenshch

(2007, p. 65) opines that there is a high probability of the powerful partner imposing its

organizational culture on its partner. This mainly occurs if there is no optimal evaluation

of the culture between the two firms. Cultural analysis helps to determine the most

appropriate culture to be integrated within the new origination. In addition, cultural

analysis minimizes the chance of organizational value being destroyed. As a result, the

firm is able to attaint the intended synergy. Such an evaluation increases the probability

of cultural integration taking place at a faster rate. According to Ulijin (2010,p. 97), the

success of mergers and acquisition as going concern entity is not only dependent on

the existence of organizational and strategic fit between the two firms but also on

cultural fit.

5.3 Communication and leadership

Despite the importance of effective leadership in the operation of mergers and

acquisition, a number of firms which have incorporated this strategy have not addressed

this concept. One of the reasons which have promoted this is lack of clarity on the

impact of effective leadership in mergers (Frensch, 2007, p. 68). Leadership can be

lxviii

defined as the ability to influence the behaviors of subordinates so as to follow a

particular course. Considering the rate of dynamism within the business environment, it

is vital for effective leadership to be incorporated within an organization. As a result, it

will be possible for the organization to incorporate the changes which occur in the

external environment.

There are various leadership styles which an organization can incorporate.

However, the most appropriate leadership style should be incorporated within the

organization ( Frensch, 2007, p. 68). Considering the fact that mergers and acquisition

result into the organization having different types of employees with regard to their

behavior and beliefs, it is important for the management team to consider some

elements. Some of elements which determine the type of leadership style to be adopted

relate to the nature of subordinates and organization size (Gadiesh, Buchanan, Daniell

& Charles, 2005, p. 13). Mergers and acquisition can result into increase in the

organization size. Therefore, leadership should be distributed within the entire

organization. In such a case, democratic leadership style is the most appropriate. Lack

of effective leadership is one of the reasons which made Bay Networks merger not to

succeed compared to that of Cisco Systems Incorporation.

5.4 Summary

In the process of undertaking its merger and acquisition, the respondents from

Cisco System Incorporation management team said that the firm conducts a

comprehensive cultural assessment with special attention on the position to be affected.

As a result, it is able to identify and develop an understanding of the culture formed by

employees of the potential partner with emphasis on the values, products, and location

lxix

and company beliefs amongst others. To succeed, it becomes vital for the

management teams to conduct a comprehensive evaluation of the existing

organizational value between the two firms thus enhancing the determination of the

most effective culture which will suit the two organizations, as observed in the case of

Cisco System Incorporation. Lack of proper analysis of the existing relationship between

the firm and its customers contributed towards the failure of Bay Networks. The

success of mergers and acquisition as going concern entity is not only dependent on

the existence of organizational and strategic fit between the two firms but also on

cultural fit. Mergers and acquisition can result into increase in the organization size

hence the need of distribution of leadership within the entire organization. Lack of

effective leadership is one of the reasons which made Bay Networks merger not to

succeed compared to that of Cisco Systems Incorporation. The next chapter gives a

conclusion of the entire study. In addition, a number of recommendations to deal with

cultural differences are outlined. In the next chapter a conclusion of the entire study is

given. In addition, a number of recommendations and future research in relation to

cultural differences in mergers and acquisitions are outlined.

lxx

Chapter 6

Conclusion and Recommendations

6.0 Introduction

This chapter will first present the conclusion of the entire study in relation to the

research objectives. In addition, the chapter outlines a number of recommendations that

entrepreneurs should consider with regard to culture in the process of incorporating

mergers and acquisitions in their strategic management process. Finally, areas that may

require future research will be analyzed by identifying the gaps which exist with regard

to how management teams of firms integrate the concept of merger and acquisition.

Mergers and acquisitions is one of the methods which are increasingly being

favored by management teams in the attaining organizations growth targets. As a result,

the firms are able to attain wealth maximization objective of the stakeholders

(McDonald, Coulthard & Lange, 2005, p. 1). This is attained via increasing the value of

stakeholders. The core objective of the study was to analyze the impact of cultural

differences on the success or failure of mergers and acquisitions. A number of research

specific objectives were formulated in order to guide the study .This was undertaken by

considering a number of issues which include cultural factors which lead to the success

of mergers and acquisition. The nature of the relationship which exists between the key

cultural factors which affect the probability of success or failure of mergers and

acquisition were evaluated. In order to gain a better understanding of the impact of

lxxi

cultural differences in mergers and acquisitions, a case study involving a success and

failure was considered. The two firms considered in the study include Bay Networks and

Cisco Systems Incorporation which operates within the Networking and Communication

Devices Industry. A comprehensive review of literature regarding the merger of the two

firms was conducted. This enabled the researcher to identify various issues related with

organizational culture.

The chapter is organized into 3 subsections. Subsection 6.1 entails the

conclusion, which provides a standpoint after relating the discussion of the findings with

the research objectives and literature review. Subsection 6.2 entails the prospects of

conducting future research to address the gaps which exist with regard to how

management teams of firms integrate the concept of merger and acquisition.

Subsection 6.3 provides the summary of the chapter.

6.1 Conclusion

The concept of mergers and acquisitions has increasingly been incorporated in

organizations strategic management process. Decision to consider mergers and

acquisitions results from the benefits associated with the concept. According to Pablo

and Javidan (2004, p.55), effective implementation of mergers and acquisitions

presents an opportunity for firms to attain their profit maximization objective as going

concern entity. This is enhanced by the fact that mergers and acquisitions result into the

two firms’s complementing each other. In addition, mergers and acquisitions enable

entrepreneurs to venture into new markets. However, mergers and acquisitions are

faced with numerous challenges which threaten their success. This means that it is

lxxii

important for both for those involved in the merger to determine the most effective way

of ensuring that integration difficulties are effectively addressed (Straub, 2007, p.78).

One of these challenges relate to existence of cultural differences between the

two firms. The effectiveness with which a firm’s management team analyzes the cultural

differences existing between the firm and its potential partner determines whether the

new resulting from merger and acquisition will succeed of fail. From the case study

conducted, Cisco Systems Incorporation has been successful in its merger and

integration process. On the other hand, the merger involving Synoptic Communications

and Wellfleet Communications which resulted into formation of Bay Networks did not

succeed. This arises from the fact that the team involved in implementing the merger

did not conduct a comprehensive evaluation of cultural issues between the two firms.

In their operation, organizations have different corporate culture despite them

operating within the same industry or country. Cultural differences arise from diversity of

culture held by an organization’s employees in relation to values, norms, attitude and

beliefs. Harmonization of cultural differences between mergers and acquisitions

presents a challenge to firms. However, the associated benefits contribute towards the

success of the firm in the long term. This can be attained through conduction of cultural

analysis. Cultural analysis in mergers and acquisition enables the management team of

the acquiring firm to determine whether there is a fit between the two firms. This serves

in minimizing occurrence of cultural clash during the post integration phase which may

lead to the failure of the new firm established.

Through cultural analysis, the acquiring firm is able to identify important values in

the firm being acquired which should incorporated in the new firm. As a result, the firm

lxxiii

is able to attain its goals as a going concern entity. Studies conducted by various

scholars reveal that there is a high probability of the culture of the firm being acquired to

be suppressed. This may limit attainment of the intended synergy.

Employees are very important in the success or failure of mergers and

acquisitions. In order to address their needs and requirements, the management team

should conduct a comprehensive cultural assessment. This is undertaken by

considering the concept of due diligence which entails pay attention to employees or

workforce priorities. Due diligence enables the management team to put into

consideration issues related with human capital. As a result, a considerable amount of

time should be devoted to ensure that a comprehensive assessment of organization

structure and human capital. Cultural assessment entails comparison of the existing

organization culture of the firm with that of its acquisition target’s culture. Some of the

issues which have to be considered during cultural assessment include values,

products, and location and company beliefs amongst others.

Cultural integration analysis is also vital in the success of mergers and

acquisitions. This arises from the fact that it results into an in-depth and extensive

combination of strategies and structures between the firms involved. Mergers and

acquisitions may result into employees become uncertain with regard to corporate

culture culminating into loss of trust amongst the employees. This affects the

performance of the organization. For example, lack of trust affects cooperation amongst

employees and hence teamwork which is a key element in the success of mergers and

acquisitions. The resultant effect is that the productivity of the organization is adversely

affected.

lxxiv

Cultural integration aids in shaping a new culture within the organization which is

attained via mutual absorbing and strengthening of the various cultural traits existing

between the two firms. In addition, culture integration analysis enables the acquiring

firm is able to identify the existing cultural gaps and also opportunities presented for

improvement. This means that the acquiring firm is able to determine the most effective

way to develop culture within the new firm.

Effective communication also plays a significant role in the success of mergers

and acquisitions. Lack of effective communication in relation to merging firms is a

challenge in the success of mergers and acquisition. This arises from the fact that it

may result into uncertainty, reduction in employee loyalty and reduction in trust.

Development of a high degree of trust in an organization results from incorporation of

superior managerial beliefs, actions and philosophies which compose an organization

culture. Creation of an effective communication amongst the employees of the new firm

is one of the ways through which employees can understand these components. In

order to attain this, the management team should consider cultural selection. This

entails identification of the top performing employees which enables the management

team to determine which employees to retain. Cultural selection should be based on the

cultural match existing between the two firms. Lack of communicating to the top

performing employees in time may result into their exit.

 From the study, a number of sub-cultural factors were identified to result into

either success or failure of Cisco Systems Incorporation and Bay Networks These

related to values, customs, beliefs, traditions and the firm’s policies. The respondents

were also of the opinion that management teams do not conduct a comprehensive

lxxv

evaluation of the values between the two firms prior to formation of mergers and

acquisitions. Differences in organizational philosophies and goals were also cited as

some of the cultural factors which determine the success or failure of mergers and

acquisitions.

Existence of differences with regard management style is also a factor which was

cited to limit success of mergers and acquisitions. During the pre-merger phase, it is

important for the management team to evaluate whether there is a similarity between

the two firms with regard to management style. There are various management styles

which can be incorporated by a firm. These include democratic and authoritarian

management style. If the two firms being involved in a merger and acquisition have

adopted different management styles, the probability of the merger succeeding are slim

due to cultural clash. In summation, managers must have an understanding of the

cultural differences existing between firms despite them operating in the same industry.

Considering the fact that existence of cultural differences is one of the factors

which contribute towards failure of mergers and acquisitions, it is important for

management teams of firms intending to integrate mergers and acquisitions to conduct

a comprehensive cultural analysis. This will help in identification of potential cultural

differences existing between the two firms. As a result, the firm’s management team will

determine the most appropriate strategy to adopt. Some of the strategies which should

be considered include assimilation, integration, separation and deculturation. These

strategies should be based on the extent of cultural difference existing between the two

firms. A comprehensive cultural assessment should also be conducted to address

lxxvi

human priorities between the two firms. This will contribute towards establishment of

cultural fit between the two firms.

Existence of cultural fit is directly related with employees productivity and hence

the performance of firms. In order to ensure effective integration of cultural fit between

the tow firms involved, an integration team should be formed. The team should not

assume homogeneity of culture among the two firms. In addition, various components

which affect culture in organizations should be evaluated. These include organizational

norms, beliefs, values and behavior.

6.2 Future Research

Considering the benefits associated with mergers and acquisitions such as

attainment of competitive advantage, a large number of entrepreneurs are considering

integrating this concept in their operation. Over the past few years, mergers and

acquisitions have received numerous attentions by both scholars and practitioners.

Some of the issues mostly addressed relate to financial matters. However, the human

side of mergers and acquisitions is ignored. There are a number of challenges which

face mergers and acquisitions. Some of these relate to cultural differences. More

research should be conducted to analyze the effect of cultural differences in mergers

and acquisitions. One of the issues which should be addressed is the effect of cultural

differences during the pre-merger phase and how they affect attainment of the intended

synergy after the merger and acquisition deal is sealed. In addition, future research

should also entail the most appropriate way of identifying potential targets to acquire. In

relation to post-merger integration, more research should be conducted to determine

the most effective way through which acculturation should be implemented in the

lxxvii

organization. In addition, a research should be conducted to develop a criterion which

would enable management teams to identify a number of issues such as the most

appropriate structure to adopt in the new firm and critical human capital to be retained.

A research should also be conducted to determine the importance of developing

trust amongst employees during the post-merger integration process. The effectiveness

with which teamwork is integrated in the organization is dependent on the degree of

trust existing amongst the employees. Research should also be conducted on the most

effective way through which communication will be undertaken within the organization.

This arises from the fact ambiguity may occur to an individual an also within the entire

organization in relation to the cultural knowledge held. This means that different

employees within the organization may experience ambiguity due to ineffective

communication at different intervals.

6.3 Summary

The concept of mergers and acquisitions has increasingly been incorporated in

organizations strategic management process. Effective implementation of mergers and

acquisitions presents an opportunity for firms to attain their profit maximization objective

as going concern entity. In addition, the effectiveness with which a firm’s management

team analyzes the cultural differences existing between the firm and its potential partner

determines whether the new resulting from merger and acquisition will succeed of fail.

Cultural analysis in mergers and acquisition enables the management team of the

acquiring firm to determine whether there is a fit between the two firms. This serves in

minimizing occurrence of cultural clash during the post integration phase which may

lead to the failure of the new firm established. Cultural integration aids in shaping a new

lxxviii

culture within the organization which is attained via mutual absorbing and strengthening

of the various cultural traits existing between the two firms. Effective communication

also plays a significant role in the success of mergers and acquisitions. A

comprehensive cultural assessment should also be conducted to address human

priorities between the two firms thus contributing towards establishment of cultural fit

between the two firms. Existence of cultural fit is directly related with employees

productivity and hence the performance of firms. Considering the benefits associated

with mergers and acquisitions such as attainment of competitive advantage, a research

should be conducted to determine the effect of cultural differences during the pre-

merger phase and how they affect attainment of the intended synergy. Research should

be carried out on the importance of developing trust amongst employees during the

post-merger integration process and the most effective way through which

communication will be undertaken within the organization.

lxxix

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Appendix 1

Questionnaire used in the study

Dear sir/Madam

I………………………………………………intends to carry out a research on the impact

of cultural differences on the success or failure of mergers and acquisitions in the in the

UK networking and communication devices industry. I hereby request for your

assistance in collecting relevant information related to the study. The information will be

used for academic purposes and therefore confidentiality is assured.

Part One

Personal information

Please tick appropriately

Gender

(a) Male (b) Female

Age

(a) 20-30 (b) 31-35 (c) 36-40 (d) 41-45

(d.) 46-50 (e.) 51 and above

Part Two

General questions

(1). In which department do you work in? Tick appropriately.

i. Purchasing and procurement (ii) Marketing (iii) Finance

(iv) Human resource (v) Research and development

ii. Production

lxxxvii

(2). In what ways was your department affected by the merger and acquisition? Please

explain.

(3).Which rank do you hold in your department?

a. Management

b. Ordinary employee

(4). If your rank is within the management, which level do you hold?

a. Top level manager

b. Middle level manager

c. Low level manager

(5). Is there a difference in culture between the merged firms?

(a). Yes

(b). No

(6). If yes, which are the main cultural differences which you have identified between

the two merged firms?

a. Values b. Norm’s c. Language d. Practices

e. Beliefs f. Behavior e. Organizational goals

(7). Is there any way in which the differences identified have affected the performance

of the merger and acquisition?

(a). Yes (b). No

lxxxviii

(8). What is the nature of the relationship between the key cultural factors which

improve mergers and acquisition? Please explain.

Thank you very much.

Appendix 2

Five scale likert-questions

(1 - Strongly Agree, 2 - Agree, 3 - Undecided, 4 - Disagree, 5 - Strongly Disagree)

1. Do you think is Ok to arrive at a meeting a little late (1,2,3,4,5)

2. Do you think a promotion is an motivation to work harder (1,2,3,4,5)

3. When situations get out of control, then there is no way to contain them (1,2,3,4,5)

4. Maintaining a good relationship with colleagues at work is important part of job

(1,2,3,4,5)

5. It’s not a well-mannered thing to refuse others their request directly (1,2,3,4,5)

6. It’s a good practice to invest company money for the future (1,2,3,4,5)

7. Do you think men do a better job than women on most aspects (1,2,3,4,5)

8. Its proper to have adequate training before getting into a job (1,2,3,4,5)

9. Would you do whatever the boss says even if its contrary to organizational policies

or not legally right (1,2,3,4,5)

10.Planning project should embrace more flexibility (1,2,3,4,5)

11.you prefer working in a group than alone (1,2,3,4,5)

lxxxix

12. the work of women is to take care of children and their families and not in corporate

work (1,2,3,4,5)

13. it is absolutely necessary to hang-out with work mates after day’s work (1,2,3,4,5)

14.people need to be treated nicely respected and get rich (1,2,3,4,5)

15.you prefer making long term plans rather than the short term ones (1,2,3,4,5)

16.women should always respect men (1,2,3,4,5)

17. things usually happen according to fate (1,2,3,4,5)

18.people are never equal, as seen from the way they live (1,2,3,4,5)

19. in order to succeed, planning needs to be done (1,2,3,4,5)

20.women should not take leadership position is business (1,2,3,4,5)

A. Uncertainty avoidance is highlighted in questions 1,3,10, and 17. The answers that

give 1 and 2 have not tolerance for uncertainty

B. Power distance is brought out in questions 2,9,14 and 18. Answering 1 and 2 shows

that inequalities of power are allowed in the organization

C. Individualism is assessed in questions 4,5,11 and 13. Answering strongly agree

means that there is low individualism. The organizations will be well integrated

D. Long Term Orientation perception is answered in questions 6,8,15 and 19. Answers

1 and 2 show that there is high indicates that one organization culture is

perseverant and parsimonious

E. Masculinity is addressed in questions 7, 12, 16 and 20. Answering 1 and 2 means

that the organization is more masculine meaning that the policies are tough,

patriarchal and assertive.

xc

Dimension Weighter average Rating

Uncertainty avoidance 2.1 High

Power distance 1.8 High

Individualism 1.8 Low

Long Term Orientation 2.0 High

Masculinity 1.8 Low

The differences in the five major dimensions were observed to vary across the

lines of age and gender. The power distance, masculinity and individualism showed the

most significant variations.

.

xci