Assignment 2

How do companies integrate different corporate cultures following M&A transactions?

Qualitative Analysis

Course: Business Research Methodology in Accounting and Finance

Professor: Ender Demir
Student: Albert Catalan Barat
 1. Introduction

Mergers and acquisitions (M&As) are often used as a strategy for companies to gain a competitive
advantage and increase market share (Marks & Mirvis, 2011). Nonetheless, the success of M&As
largely depends on the ability of the companies to integrate their operations and corporate cultures
(Buono, Bowditch, & Lewis, 1985). Because of that, cultural integration has been identified as one of
the key challenges in M&A transactions, as it involves aligning the values, norms, and behaviors of the
companies involved in the deal (Cartwright & Cooper, 1992). As such, failure to effectively manage
cultural integration can lead to a range of negative outcomes, including decreased employee morale,
decreased productivity, and decreased financial performance (Mirvis & Marks, 1992).

Given the importance of cultural integration in M&A transactions, the research question for this paper
is: How can companies effectively manage cultural integration in M&A transactions to maximize post-
merger performance?

The purpose of this paper is to explore the key factors that influence the success of cultural integration
in M&A transactions, and to provide recommendations for companies to effectively manage cultural
integration in order to maximize post-merger performance. The findings of this paper will therefore
contribute to provide practical insights for companies seeking to improve their M&A performance
through effective cultural integration.

2. Literature Review

Mergers and acquisitions (M&As) are complex business transactions that involve the combination of
two or more companies into a single entity. One of the biggest challenges of M&As is managing
cultural differences between the merging companies, which can have a significant impact on the
success or failure of the transaction. Cultural integration refers to the process of blending the unique
values, beliefs, and practices of each organization into a cohesive culture that supports the newly
formed entity. As such, managing cultural integration in M&As is critical for achieving strategic goals,
retaining key employees, and realizing financial synergies.

2.1. Cultural Differences in M&A

Cultural differences can arise from a variety of factors, including national, organizational, and
individual factors. Whereas national culture is shaped by the values, beliefs, and customs of a
particular country or region, organizational culture is defined by the shared values, beliefs, and
practices of a specific company. Moreover, individual differences can also play a role in cultural
integration, as employees from different backgrounds may have different expectations,
communication styles, and work habits.
Several studies have highlighted the importance of cultural differences in M&As. For instance, a study
by Cartwright and Cooper (1996) found that cultural differences were the second most common
reason for the failure of M&As, after financial issues. Similarly, a study by Buono and Bowditch (1985)
found that cultural differences were the most frequently cited reason for the failure of cross-border
M&As.

2.2. Managing Cultural Integration in M&A

Managing cultural integration in M&As requires a varied approach that addresses both the structural
and cultural aspects of the organizations. Thus, several strategies have been proposed for managing
cultural integration, including cultural due diligence, communication and collaboration, and cultural
adaptation and change.

2.2.1. Cultural Due Diligence

Cultural due diligence is a process that aims to assess and understand the cultural differences between
the organizations involved in a merger or acquisition. The purpose of it being to identify potential risks
and challenges that could arise during the integration process, and to develop strategies to mitigate
those risks (Birkemeyer & Leca, 2019). Research has shown that cultural differences can have a
significant impact on the success or failure of M&A transactions. For instance, cultural clashes have
been cited as a major reason why many M&A transactions fail to achieve their intended objectives
(Cartwright & Cooper, 2012). Thus, conducting cultural due diligence is essential to ensure that the
cultural differences between the organizations are considered during the negotiation and integration
processes.

In order too conduct cultural due diligence, a number of methods can be used, including interviews
with key stakeholders, focus groups, surveys, and observation (Kim & Mauborgne, 2015). The data
collected through these methods can be analyzed to identify cultural similarities and differences, and
to develop strategies for managing these differences during the integration process.

Moreover, one approach to cultural due diligence that has been proposed is the "cultural synergy
assessment," which aims to identify areas of cultural similarity and difference between the two
organizations, and to assess the potential for creating a new, integrated culture that draws on the
strengths of both organizations (Schweiger, Ivancevich, & Power, 1987).

2.2.2. Communication and Collaboration

Several studies have emphasized the importance of communication in managing cultural differences
in M&As (e.g., Marks and Mirvis, 2011; Schilling and Singh, 2014). On the one hand, effective
communication can help to manage expectations, build trust, and ensure that all stakeholders are
informed about the progress of the transaction. On the other hand, collaboration can help to identify
potential synergies between the organizations and to develop a shared vision for the future (Dettmer
& Kotrba, 2019).

Likewise, research has shown that communication and collaboration are often overlooked during the
M&A process, and that this can lead to a range of challenges and obstacles. For instance, lack of
communication can result in misunderstandings, rumors, and resistance to change, while lack of
collaboration can make it difficult to integrate the two organizations and to achieve the intended
synergies (Groysberg & Abrahams, 2017).

As such, to facilitate effective communication and collaboration during the M&A process, a number
of strategies can be employed, i.e., creating a communication plan that outlines the key messages,
channels, and audiences for communication, establishing cross-functional teams to facilitate
collaboration and coordination, and providing opportunities for employees to provide feedback and
input (Haleblian, Devers, McNamara, Carpenter, & Davison, 2009).

Moreover, it is also important to recognize that communication and collaboration are ongoing
processes that continue after the deal has been completed. Integration can take several years, and it
is important to maintain open lines of communication and collaboration during this time to ensure
that the integration is successful (Marks & Mirvis, 2011).

2.2.3. Cultural Adaptation and Change

Cultural adaptation and change involve modifying the culture of one or both organizations to align
with the new entity's strategic goals and values, which can include promoting cultural awareness and
understanding, identifying, and addressing cultural gaps, and implementing cultural change initiatives.
Several studies have highlighted the importance of cultural adaptation and change in managing
cultural integration in M&As (e.g., Prasad and Mirvis, 2001; Weber and Camerer, 2003). Cultural
change can be a slow and challenging process, but it is essential for creating a cohesive and integrated
culture.

For instance, in a study researchers found that creating cross-functional and cross-cultural teams can
help bridge the cultural divide between two merging companies. By fostering collaboration and
teamwork across different cultures, companies can leverage the strengths of each culture and
promote innovation (McKinsey & Company, 2019).

2.3. Conclusion

Managing cultural integration in M&As is critical for achieving strategic goals, retaining key employees,
and realizing financial synergies. Cultural differences can arise from a variety of factors, and failure to
manage these differences can lead to the failure of the transaction. Effective management of cultural
integration requires a multifaceted approach that addresses both the structural and cultural aspects
of the organizations.

3. Data collection
3.1. Selection of companies

Once established the research question it is necessary to create a data base of all the M&A
transactions that we want to analyze. To do that, and considering the kind of research that it would
involve, the market will be narrowed only within Iceland. As such, to identify which companies have
undergone M&A transactions in the Icelandic market, we can consult various sources such as financial
databases and news articles. Financial databases such as Bloomberg and Thomson Reuters provide
comprehensive information on M&A transactions, including the deal size, the parties involved, and
the transaction date (Lee et al., 2019). News articles from reputable sources such as the Financial
Times and The Economist can also provide valuable information on M&A transactions in Iceland and
can provide insights into the cultural aspects of these deals (Saka-Helmhout & Puck, 2019).

3.2. Methodology

In order to collect data on managing cultural integration in M&A transactions in the Icelandic market,
a qualitative research approach is the most appropriate (Bryman, 2016). On the one hand, one method
of data collection that could be used is interviews with key stakeholders involved in the M&A process,
since they provide an opportunity for the researcher to ask open-ended questions, allowing for rich
and detailed responses (Seidman, 2013). Because of that, once known which companies realized M&A
transactions in the past, some mails could be sent to the companies trying to approach those
stakeholders asking them to have a face-to-face interview or simply asking questions on a telematic
approach.

On the other hand, observation is another method that could be used to collect data on cultural
integration in M&A transactions. For instance, observing meetings, discussions, and other interactions
between employees during/after the M&A process can provide valuable insights into the ways in
which cultural differences are managed (Bryman, 2016).

4. Data analysis

In order to analyze the data from the Icelandic M&A market, the data should be cleaned and organized.
Because of that, different software such as Stata could be used to remove any duplicate or irrelevant
information (Ahmed & Maitlo, 2019; Baum, 2016). Therefore, a summary of the data could be
established and thus, patterns or trends identified (Dawson, 2014). Moreover, Stata would be able to
perform graphical analysis to visually represent the data (Kosslyn & Rosenberg, 2014).

Nonetheless, it is important to take in mind the purpose of the paper, which is to analyze how to
improve or incorporate corporate cultures within a business before or after an M&A transaction
occurs. Considering the qualitative root of the analysis it would be interesting to do a previous
screening of different variables in order to compare the different business structures with which we
are dealing with. For instance, the size of the companies involved in the M&A transactions, the
industry in which they operate, the financial performance of the companies pre- and post-merger, and
the cultural differences between the companies (Hitt et al., 2001). Moreover, the results of the
different interviews that were realized should be included as well. For instance, different values could
be assigned to different questions presented to the interviewee, i.e., assigning values from 0 to 1
depending on if they consider that the business has integrated different cultures adequately.

Nevertheless, in order to conduct a comprehensive and effective qualitative analysis of the cultural
differences between business practices, it would be prudent to carefully consider and incorporate the
diverse perspectives and thoughts of the individuals involved, recognizing that they are the primary
drivers of such cultural distinctions (Creswell, 2013). Because of that, once compared the different
corporations and their success on integrating different cultures, different approaches could be
subtracted from the qualitative analyses. For instance, comparing the thoughts of those employees
whose corporation has succeeded in comparison with those who has not. Thus, discerning which
differences made one company succeed whereas the other did not.

5. Conclusion

In conclusion, managing cultural differences in an M&A transaction is crucial for the success of the
deal. As discussed, cultural differences can lead to various challenges, such as communication
breakdowns, employee disengagement, and integration issues. Nonetheless, by employing effective
strategies and tactics, such as analyzing the strengths implemented by a successful M&A transaction
regarding cultural differences within the corporation, thus conducting a cultural due diligence that will
be accomplished once the qualitative analysis is finished, companies can mitigate the risks and
maximize the opportunities of those cultural differences. Likewise, a successful merger or acquisition
is not just about the financial and operational aspects but also about the cultural fit and alignment.
Since businesses more and more integrate employees from different backgrounds, companies that
can effectively manage cultural differences will gain a competitive advantage and thrive in the long
run.

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