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IMT 581: Case Study Analysis: Post-Merger Cultural Issues

by on November 18, 2010

How psychology helps your managerial decisions in M&A?

The change of the organizational culture of a company after the merger is as hard as changing a well-established brand image.  Our paper looks into the cultural differences that pose serious business risks for any company engaged in mergers and acquisitions, and we give our recommendations on how to deal with organizational culture issues during different phases of the merger based on the cross-analysis of two cases.

The two cases are the merger of Daimler-Benz and Chrysler and the acquisition of Lehman Brothers by Nomura Holdings, a Japan-based major financial holding corporation.

Daimler proposed the merger for winning new market segments, without diversifying the Mercedes brand. On the other hand, Chrysler needed huge investment to stay competitive so that it could best Ford and GM. The merger was announced as “the merger of equals” and preceded in a timely fashion.

As we know, Germans are famous for rigid planning and “play-by-the-book” working style. On the contrary, Americans are known for their entrepreneur spirit and innovation-promoting work environment. A major obstacle for the management after the merger was how to help people from hugely different culture work together.

For various reasons, Daimler, who became the dominator of the merger, decided to impose its culture on the partner. Chrysler people had to change their way of working and communicating, feeling that they were marrying up to Daimler.

The merger ended up with the break up into Daimler and Chrysler, leaving both parts in deep trouble. And  the failure in handling the cultural issues was considered one of the main reasons of the failure of the merger.

In the Lehman Brothers-Nomura case, Nomura Holdings acquired bankrupted Lehman Brothers to achieve its long-standing ambition to play as a strong player in the investment banking business. Its intention was to implant Lehman Brothers’ “testosterone-fueled bankers” culture to Nomura. [1]

To make bankers from Lehman Brothers stay, Nomura announced to create a bonus pool of more than $1 billion, and offered to pay Lehman investment bankers the equivalent of bonus in 2007, in cash. [2] As a part of payment system reform, Nomura offered the performance-based pay system to Japanese investment banking staff as well. However, complaints were raised from domestic retail department, saying that new payment system was offered only to the investment bankers. [3]

As a result of the merger, in 2009, 19 out of 23 senior managing directors of Nomura are non-Japanese, and in May 2010, it nominated former London Stock Exchange (LSE) chief executive Dame Clara Furse and ex-British Airways chairman Lord Colin Marshall to join its board of directors, as the first non-Japanese board members.[4]

If you are in Daimler or Nomura’s shoes, what would you chose to do to deal with the culture issues?

Following are some questions that may help you to analysis the issue:

Is a clash of interests and depression of morale inevitable when a new culture is introduced after merger?

How to align your long-term interest with the merger of the culture?

How is the merger of culture in merger cases different from that of in acquisition cases?

Is the merger of the equals more helpful in culture change than acquisition?

What are the consequences if the change of culture is forced within an organization in a timely fashion?

Can experience in the change of culture from one industry be borrowed and used by another?

Fast or slow, which is better in term of the culture transition?

How to communicate the culture change with employees, upfront or on-the-go?

We try to answer these questions when we look into the cases, and here is our Conclusion.

Merger and acquisition is a very difficult process with a low success rate. As far as cultural issues are considered, it is hard to provide a silver-bullet that could be. However, there are some key indicators throughout the change process that can prove to be valuable. Such as, in any merger one of them will be a dominant participant based on their market standing. If the more powerful organization in the merger has dominance, then at the same time the onus of their mergers success also lies on its shoulders. It is upon the organization, to carefully utilize the potential strengths and leave aside the weaknesses. In addition, People factor is always meant to deal with utmost care; they determine the fate of the merger. Nomura realized this and succeeded whereas Daimler failed at the very same point. Business goals always come first. But business is driven by people. One used to power to merge the other used to people to merge.

Reference:

[1] Unknown. (2007, January 10). CEO Richard Fuld on Lehman Brothers’ Evolution from Internal Turmoil to Teamwork. Knowledge@Wharton. Retrieved November 10, 2010 from  http://knowledge.wharton.upenn.edu/article.cfm?articleid=1631

[2] Saigol, L. (2008, September 23). Nomura rescues Lehman’s European unit. Financial Times. Retrieved from http://www.ft.com/cms/s/0/795de6ba-8974-11dd-8371-0000779fd18c.html#ixzz15Hpm42Gu

[3] Tudor, A. (2009, July 29). Nomura Stumbles in New Global Push. The Wall Street Journal. Retrieved from http://compliancex.typepad.com/thewallstreetjobreport/2009/07/nomura-stumbles-in-new-global-push.html

[4] Nakamoto, M., & Tucker, S. (2010, May 17). Nomura looks beyond Japan for new board. Financial Times. Retrieved from http://www.ft.com/cms/s/0/221a3420-618c-11df-aa80-00144feab49a.html

[5] Frank Gibney Jr,. Joseph R. Szczesny., . (1999, May 24). Daimler-Benz-Chrysler: Worldwide Fender Blender. Times.com. Retrieved from http://www.time.com/time/magazine/article/0,9171,991030-5,00.html

By Swarnika L Mehta, Jitsuko Hasegawa, and Xiaopu Yu

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11 Comments
  1. All,

    An interesting case! The point that caught my attention the most is the notion of “merger between equals” — which, as you draw attention to at the end of the case, is seldom accurate. In general, it seems one company must dominate the other. Part of my curiosity, then, is this: why, if two companies typically have different market standing, would a merger be advised over an acquisition? Presumably, this has something to do with maintaining brand strength — that is, Chrysler, for all its failings, had loyal followers.

    How do you think this tend towards dominance changes M&A strategy? Should this be part of the explicit negotiations? How does the shifting power dynamic affect cultural exchanges, and what steps could C-level management take to mitigate these factors? I’m also curious how successfully you think Nomura’s plan “to implant Lehman Brothers’ ‘testosterone-fueled bankers’ culture” was?

    Thanks very much!
    Best,
    Ross, on behalf of Ahsan and Sanjeevi

  2. @Ross,the “merger between equals” was a term coined by the industry as it seemed that both the concerned parties were equally suited to take advantage of each others strengths to establish themselves as a leading group in the automobile industry .Chrysler had a strong distribution network with a strong economy of scale but was in need of radical innovations to differentiate itself from the market while Daimler was a luxury car provider which was well supported by German efficiency but still had a very small stake in the US market and was trying to expand and Chrysler seemed to be a perfect match.

    With regards to your statement about M&A always having dominating partners,it is true with regards to acquisitions but the basic principle of a merger is that its supposed to be “partnership” where the leadership roles are shared and no one group super imposes on the other.You really cant discuss that during the process unless you want to impose seeds of distrust and lack of mutual cooperation straight away

  3. Tien Nguyen permalink

    I wrote the case study for IMT 580 few months ago about Merger/Acquisition. It’s obvious that the differences in cultures between the two organizations caused the perfect deal to the end. The differences came out from the way they worked with each other internally. The differences also came out from the original missions of the two. While Daimler-Benz was trying to achieve its motto: “quality at any cost”, Chrysler was attached to its motto of producing low price vehicles in the US

    Have you looked at cases whereby merger strategies brought benefits to organizations? For example: Disney-Pixar in 2006, Sirius and XM in 2008. These cases are very good to be the other extreme.

  4. Surry Jones permalink

    Great case study — mergers and acquisitions have always fascinated me as it just seems an immensely difficult task. Just wanted to also note that that cultural issues are not always based on country (Germans “do this” while Americans “do that”) — the companies could be from the same area or country and have a culture unique to them that simply does not blend very well with a potentially merging company.

    –Surry, Jeroen, Gauravee

  5. Good one. My team are also doing the research paper about open source company acquisition. The culture clash is inevitable in acquisition process. Business goal is important, but I think business model is also important. Business model defines how business make profit. Without a deep understanding on the acquired company’s business model, the acquiring company can’t have a clear guideline to integrate company.

  6. As a matter of fact, globalization truly produced a lot of interesting phenomena. Today it’s very easy to get in touch with people from the other side of the world, buy stuffs from countries you would never travel there, even your boss or company you work for is from other countries. M&A in today’s business world is no longer an unusual strategy. More and more companies want to extend their influence and M&A is the fastest way to achieve it. However, cultural difference often impacts M&A business much more than a parent company would expect. In this case, Daimler-Benz AG tried to acquire Chrysler but end up with failure mainly because working style, Germans are generally rigid whereas Americans are more innovative. I am not criticizing either one, however, this not only effected worker’s morale, but also management level’s prestige. I have read lots of news regarding this failed merger but I haven’t looked into it from this aspect and I am really interested in reading more about this.

  7. While reading through articles, I have come across several merger stories including the major investment banks and the accounting firms. Also, bigger companies like Google, Yahoo and Apple acquire several small startups and companies that have great ideas to bring change and innovation in the market but do not have enough capital and name behind them. Often Mergers and Acquisitions (M&As) involve several complex decisions of dissolving the two different organizational cultures and work environment together. The outcomes of such deals are highly predictable, hence a proper planning and consideration of all aspects is essential. The case study of Lehman Brothers and Nomura demonstrates about effectively merging the cultures and building over the strengths of each other is the key for having a high success rate for M&A. M&A’s also bring about high impact on various factors like the brand value, leadership, economic scope and stock values of the firm. We would really like to know more about the positive and negative effects of M&A’s your team came across through analysis for the mentioned organizations.

    Shirish Munshi and Ke Ding

  8. Merger and Acquisition is a difficult process, especially if its a merger of two equals and acquisition of another powerful firm. As per records, more than nine out of 10 corporate mergers and acquisitions fall short of their objectives. Failure often occurs because business leaders get too bogged down with finance and technology issues to spend enough time integrating corporate cultures and management styles.

    Another perspective that had come up recently in news was the blame-game of failed M&A on culture. Culture had simply become an easy catch-all excuse for M&A failure, with the real reason often being that management had simply failed to make the deal work properly. Managers tend to focus more upon tangible values that show up on the balance sheet and fail to value intangible assets critical to M&A process such as such as business culture, human capital, company structure and corporate governance.

    It is important for executives involved in M&A to realize that “Culture is not an HR issue – it is a business issue” and should come higher up in priority list while considering & evaluating M&A objectives.

    _Ajay, Nishant and Paul.

  9. Really interesting case! Answers to the questions is really worthy. And I like the whole post, I’m looking for more so keep posting.

  10. If some one wants expert view about blogging and site-building then i suggest him/her to go to see this webpage,
    Keep up the good job.

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