Dissertation Mergers and Acquisitions 2
Dissertation Mergers and Acquisitions 2
Dissertation Mergers and Acquisitions 2
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STATEMENT OF CONFIDENTIALITY
This project is my original work and has not been submitted in any institution of learning
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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.
during the entire period of the study. In addition, I would like to thank my friends who
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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
1.3 Justification………………………………………………………………………………...4
1.8 Summary…………………………………………………………………………………..7
Chapter Two
Literature review
2.0 Introduction………………………………………………………………………………...9
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2.5 Key cultural factors which lead to the success or failure of M&A…………………….16
2.7 Summary…………………………………………………………………………………...27
Chapter Three
Research Methodology
3.0 Introduction………………………………………………………………………………...28
3.8 Limitations…………………………………………………………………………………38
3.9 Summary…………………………………………………………………………………..38
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Chapter Four
4.0 Introduction………………………………………………………………………………..39
4.1.1Employees rank…………………………………………………………………………40
4.1.3 Age………………………………………………………………………………………..43
4.1.4 Gender……………………………………………………………………………………43
4.3.4 Nature of the cultural factors which influence performance of mergers ….…….48
4.4 Summary…………………………………………………………………………………..49
Chapter Five
5.0 Introduction………………………………………………………………………………...50
5.4 Summary………………………………………………………………………………….59
Chapter 6
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Conclusion and recommendations
6.0 Introduction………………………………………………………………………………..61
6.1 Conclusion………………………………………………………………………………...63
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
acquisitions is conducted. In the review considers the elements which result into
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
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
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.
statement of the problem which identifies a gap in mergers and acquisition with regard
objectives which act as a guideline for the study are outlined in subsection 1.4. This is
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
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
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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
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.
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
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
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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
There may be existence of different culture within the same organization. This
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
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
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
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team of firms involved has to ensure that employees from the two parties involved work
together smoothly.
1.3 Justification
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
competitive advantage. Recklies (2001, p.1) opines that developing and sustaining a
outlined below.
To identify the key cultural factors which lead to the success or failure of merges
To describe the nature of the cultural factors in which influenced mergers and
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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.
organizations can result into effective management of mergers and acquisition. Gaining
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
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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
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
cultural differences towards the success or failure of mergers and acquisitions will
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
the existing cultural differences by analyzing the associated degree. For example, if the
hand, if it is 66%, it is considered being high. The study will also aid firms that have
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
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).
differences in the success or failure of mergers and acquisitions in the Networking and
industry with specific reference to Cisco Systems and Bay Networks. Due to time and
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
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
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
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
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
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
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
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,
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
numerous failures in mergers and acquisitions over the past decade are as a result of
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.
Cultural differences are one of the core issues which should be considered when
cultural clash is one of the major factors which result into a failure of mergers and
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
and internal confusion. As a result, the firms involved experience inefficiencies and loss
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
strategy (Gitelson et al, 2004, p. 1). Mergers and acquisitions can also result into a
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
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.
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.
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
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
if the parties entering into a merger and acquisition relationship are from different
Despite the firms involved in mergers and acquisition operating in the same industry, its
scale to considerer the existence of these differences during the pre-merger and post-
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
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
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
challenges associated with ambiguity. One of the ways through which management
the existence of the cultural differences and developing strategies on how to harmonize
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
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
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 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
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
integration. These processes include cultural selection, cultural integration analysis and
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
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
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
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
culture through mutual absorbing and strengthening of the various cultural trait via
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
organizational culture increases stress thus reducing their satisfaction and hence
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
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
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
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
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,
this, the Values Survey Model was devised and it’s a very useful model for use in the
Culture is something that is collective yet in most cases intangible. It’s nonetheless, the
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
other hand are virtues like honesty, responsibility, accountability and dedication.
Power distance: this in areas like UK where there is low power distance, there is
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
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
nothing like division of labour in that the more assertive roles are allocated to men. The
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,
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.
investments include real estate investment and savings. The time for leisure is not very
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In practise: with increasing need to expand globally, many people find
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
teams to do a research.
The firm has been successful over the two decades it has been in operation. Due to
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
IP telephony, switching, wireless technology and routing, optical networking and website
management tools. Growth of Cisco System into an international firm is associated with
mergers and acquisition. Through this strategy, the firm has been able to access new
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
acquisition is considered by the firm’s management team as a key force in the process
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
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
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
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
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
functional and corporate levels. Some of the issues considered by the firm’s
management team in its cultural integration process include reward system, decision
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
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.
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
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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)
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
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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
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.
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
success after considering the vast difference in corporate cultures. In addition, the two
Communication was based in Boston. According to Sadri & Lees (2001, p. 1),
organizations. This results from the fact that employees develop different values forcing
the organization to align its organizational culture in accordance with its immediate
Networks. On the other hand, Cisco System Incorporation minimizes cultural distance
with regard to cultural differences that result from geographical distance. In order to
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
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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
2.7 Summary
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
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
research design and data collection techniques under utilization in previous studies. The
following chapter will describe the research design and the data collection procedures
xxxvii
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
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
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
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
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
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
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),
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
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
xxxix
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
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
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
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
xl
interpreting the data, the researcher is able to make effective. Linking qualitative and
triangulation. Flick (2009, p.26) opines that triangulation enables the researcher to
According to Morse and Field (1995, p. 54) data collection is the process of
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
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
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
the preliminary research, the researcher is able to understand various issues such as
language, practices, norms and social issues (Miller & Salkind, 2002, p.45).
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
degree of freedom in answering the questions. According to Morse and Field (1995,
of all the required information. This means that the error of omission is eliminated to a
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
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
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
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
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.
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
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.
cultural differences affect their operation. In addition, those in management have the
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
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
This means that grounded theory enables the researcher to expand the on a given
xlv
will be possible for management teams to gain knowledge on how to conduct cultural fit
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
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,
and the respondents. The resultant effect of this is to make the interviewing session
contributes towards ensuring that there is a high level of respect during the process of
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
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 linkages between qualitative and quantitative research design thus allowing for
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.
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
resources and time constraints were encountered. Data collected will be presented and
xlviii
Chapter Four
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
analysis of Individualistic versus collectivist culture of the entities and the summary of
Chapter Four
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
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.
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
This chapter is organized into a number of sub- sections. Sub-section 4.1 entails
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
and Bay Networks employees. Diverse demographic data was evaluated in conducting
the research. Demographic data was also utilized in conducting the study. This was
4.1.1Employee rank
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
The study considered the different departments that exist within the two firms.
The core objective was to determine how cultural differences affected performance of
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
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
Department of Work
lii
4.2 Primary and Secondary Data Analysis
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
acquisitions.
liii
Nature of the relationship between key cultural factors that result into
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
cultural factors that were listed on the question number six. These factors included
The atmosphere that is generated by these factors has an effect on the mergers and
acquisitions success.
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
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
liv
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
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,
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
treated as being equal. If firms with different management styles enter into a merger
and acquisition the probability of the merger failing is high. The table below gives an
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
lv
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
acquisitions. This makes the deal to be less sensible of the real business environment
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
lvi
in an organization is defined as the process through which information is disclosed
respondents cited open and closed communication styles. Open communication entail
free sharing of information and opinions. On the other hand, closed communication style
limited.
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
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
lvii
culture. On the other hand, collectivist culture tends to work in groups. In this 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.
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
amongst the high context culture in an effort to maintain harmony amongst the
employees.
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,
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
lviii
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
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
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
understanding. The theories of culture, individualist and collectivist are used in analyses
Chapter 5
5.0 Introduction
This chapter will present the discussion and interpretation of the research
lix
analysis of cultural fit in determining the success or failure of mergers and acquisition
and acquisition will be presented while relating it with aspects of organizational culture
in Bay Networks and Cisco Systems Incorporation. Finally, the relationship between
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
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
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
entrepreneurs to shift their focus to the ‘human side’ (Marmenout, 2008, p. 3). With
entrepreneurs. This arises from the fact that there are numerous complex issues that
lx
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
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
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
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
lxi
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,
personalities. In addition, it also entails the team orientation, management style and the
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
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
lxii
short term. This makes it challenging the firm’s management team to develop a cultural
productivity, low employee morale and a high rate of employee turnover. According to
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
In the process of undertaking its merger and acquisition, the respondents from
Cisco System Incorporation management team said that the firm conducts a
able to identify and develop an understanding of the culture formed by employees of the
culture of the firm with that of its acquisition target’s culture. Some of the issues, which
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
lxiii
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
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
subcultures existing in the organization. This means that organization culture aids in
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
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
lxiv
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.
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
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
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
lxv
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
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
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
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.
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
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
lxvi
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.
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
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
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
lxvii
of the culture between the two firms. Cultural analysis helps to determine the most
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.
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
particular course. Considering the rate of dynamism within the business environment, it
will be possible for the organization to incorporate the changes which occur in the
external environment.
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
lxviii
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. 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
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
employees of the potential partner with emphasis on the values, products, and location
and company beliefs amongst others. To succeed, it becomes vital for the
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
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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
cultural differences are outlined. In the next chapter a conclusion of the entire study is
Chapter 6
6.0 Introduction
This chapter will first present the conclusion of the entire study in relation to the
mergers and acquisitions in their strategic management process. Finally, areas that may
lxx
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
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
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
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.
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
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management teams of firms integrate the concept of merger and acquisition.
6.1 Conclusion
acquisitions results from the benefits associated with the concept. According to Pablo
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
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).
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.
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In their operation, organizations have different corporate culture despite them
operating within the same industry or country. Cultural differences arise from diversity of
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
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
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
acquisitions. In order to address their needs and requirements, the management team
considering the concept of due diligence which entails pay attention to employees or
workforce priorities. Due diligence enables the management team to put into
structure and human capital. Cultural assessment entails comparison of the existing
lxxiii
organization culture of the firm with that of its acquisition target’s culture. Some of the
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.
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
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.
lxxiv
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
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
evaluation of the values between the two firms prior to formation of mergers and
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
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
lxxv
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
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
strategies should be based on the extent of cultural difference existing between the two
human priorities between the two firms. This will contribute towards establishment of
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
integrating this concept in their operation. Over the past few years, mergers and
lxxvi
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
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
the most effective way through which acculturation should be implemented in the
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.
trust amongst employees during the post-merger integration process. The effectiveness
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
lxxvii
6.3 Summary
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
culture within the organization which is attained via mutual absorbing and strengthening
of the various cultural traits existing between the two firms. Effective communication
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
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
lxxviii
post-merger integration process and the most effective way through which
lxxix
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Appendix 1
Dear sir/Madam
of cultural differences on the success or failure of mergers and acquisitions in the in the
assistance in collecting relevant information related to the study. The information will be
Part One
Personal information
Gender
Age
Part Two
General questions
ii. Production
lxxxvii
(2). In what ways was your department affected by the merger and acquisition? Please
explain.
a. Management
b. Ordinary employee
(4). If your rank is within the management, which level do you hold?
(a). Yes
(b). No
(6). If yes, which are the main cultural differences which you have identified between
(7). Is there any way in which the differences identified have affected the performance
lxxxviii
(8). What is the nature of the relationship between the key cultural factors which
Appendix 2
3. When situations get out of control, then there is no way to contain them (1,2,3,4,5)
(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
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)
18. people are never equal, as seen from the way they live (1,2,3,4,5)
A. Uncertainty avoidance is highlighted in questions 1,3,10, and 17. The answers that
B. Power distance is brought out in questions 2,9,14 and 18. Answering 1 and 2 shows
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
that the organization is more masculine meaning that the policies are tough,
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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
xci