Over the past ten years ER Consultants have worked with UK, US, French, Swiss and Japanese-based multinational companies, helping them with acquisitions and joint ventures. Our work has been to coach and support business integration, organisation development and organisation restructuring. In this article Mark Goodridge examines some of the main issues involved.

Competition is becoming more global. There is yet more room for exploitation of the European Union opportunity, Central and Eastern European markets are opening up and the Asia Pacific region continues to grow apace. Becoming global to survive is a business imperative for many companies. However, how do we manage our international companies? Strategists urge us to think globally and act locally. But how can we achieve this without massive investment? The question facing companies is how to achieve global or at least, international, reach. For many, the solution is found in acquisitions or joint ventures. Acquisition is most often preferred to organic growth as it achieves more quickly, builds on existing success and does not require the detailed understanding of the market that is needed if a new entrant is to succeed. Generally, the acquired can provide the knowledge required to succeed. However, this begs the question of how we can build a global dimension to the acquisition’s local presence.

Much has been written about the under-performance of many acquisitions, mergers and joint ventures. This is becoming increasingly apparent in the takeover of Central and Eastern European companies. Economies buoyant after the fall of the old regimes are stalling, productivity has been much slower and more difficult than anticipated, and the liabilities are not always fully assessed. The acquisition model rests on a series of assumptions inherent in the business culture of the parent company. However, the expectations of those in the acquired company will be based upon the assumption of its own business culture – often, these two sets of assumptions are very different.

In this article I want to look at some of these assumptions and how they create barriers to making acquisitions successful. More often than not, it is the clash between these assumptions that make the ‘think local act global’ slogan an impossibility. I then go on to outline some different models of integration.

Assumptions about knowledge and ‘know how’

Much of the logic of an acquisition is to acquire the knowledge of the other party. Of course, assets are an important part, but it is rare for the assets to be the dominant reasons for the venture. Where trade barriers still exist, there may be good reason to have manufacturing assets within a new country of operation, but in most countries manufacturing capacity is not the key. What tends to be vital is the acquisition of the ‘goodwill’ – the brand, the relationships already established with suppliers and customers, logistics and distribution, the labour market and understanding of both the formal and informal ways of doing business.

Much of this is captured within the knowledge of the staff who are being acquired, and we assume that this knowledge will be freely available to the acquirer. And we assume that it will not be encumbered with issues of control and management. The company has been acquired, we are the conqueror, and they the conquered – so they will do as they are told, and that they expect to be told.

If this arrogant assumption does not challenge our chances of success, our next steps surely will. The knowledge that we require is often in the heads of those who have power and influence in the business. Often in our desire to exert our own power and influence over a new company and to remove personal competition, we inadvertently dismiss the power holders – and along with it the knowledge that we had hoped to acquire.

Assumptions about communication

To access the knowledge we make assumptions about communications. Language is an obvious point, but some barriers are more subtle. Communication is too often assumed to be a matter of translation. In reality it opens up a whole array of issues over meaning and expectations. Different societies have many subtle differences in how meaning is communicated. My Dutch friends often say: ‘Why can’t the English say what they want?’ They see us as being indirect in giving instructions: ‘Would you mind changing this’? actually means: ‘Change this’ but we do not say so.

Part of communication is about understanding expectations. We assume that, since they accepted the deal, their expectations are broadly matched to ours, one of which is that we will manage them. So often, however, their expectations are quite different, and the illusory common bond created through the deal dispels with the first management meeting when these expectations surface and the only clear message is one of difference.

For the acquired, access to R & D, development resources and new sources of funds are reasons for signing the deal. However, often, in addition to finding they have to ‘pay’ for these services out of their own local profits, the acquired may find themselves burdened with corporate overhead charges that result in diminishing their performance figures. As the new parents, the belief that immediate added value is available, means that often, higher target performance figures are set and the whole conflictional situation becomes ever exacerbated. Furthermore the costs of conformance to corporate procedures and to attending corporate meetings mount rapidly. In one of my earlier lives I calculated that had I attended all the working meetings required of me then that would have taken up 42% of my working time. I refused and gave feeble excuses. My priority was to run the business, but in the process, I alienated colleagues and potential supporters because my behaviour was interpreted as ‘not wanting to play’ or that of the reluctant bride.

Assumptions about added value

How do we wish to integrate, and how do we believe that value will be added?

I am sometimes surprised how little attention is given to defining precisely what the acquirer wishes to get out of the acquisition. Again we go back to expectations and how well defined they are. The assumption too often is that ‘added value,’ in terms of support, resources, and direction flows from the centre (the parent) to the victim (the acquired) and that profits (different added value) flow back. Whether there is a concept of holistic additional value or even integrated additional value in most acquisition situations is hard to spot.

That added value should occur almost by right, as long as you have done the sums, seems to be another expectation based solely on financial concerns. And because the sums indicate that added value is a possibility, the tendency is to watch, hawk-like, for any move which may work against that hope. So where support, coaching and a process of learning and development are required, the reality may become one of tighter and tighter controls.

The more that support and coaching are expected it seems the more that control is what is received instead. Both parties end up frustrated and dissatisfied – and the notion of added value becomes a serious problem.

Assumptions about a way of working

‘Ways of working’ can be divided into three aspects:

• structures, process and procedures – the overt ‘how we do things around here’
• understanding and beliefs of managers about management
• national cultural characteristics

Let us take each in turn.

Structures, procedures and processes

Many newly acquired companies are left in the dark about the overt processes of management. It is assumed by the parent that its own structure and processes are self-evident and do not require explaining. Even for the more collaborative
ventures, the reality may be equally obtuse – the intention is there, but as it is not made explicit, then even greater confusion results. In any business relationship there is an almost infinite number of issues, which can be subject to central control and co-ordination. Campbell and Gould’s model of strategic style give us a range of ways of describing the ‘density’of corporate interest in its subsidiaries. But few businesses label themselves in these academic terms, or indeed seek to label themselves at all, and with no other language to describe ‘strategic style’, the resultant lack of clarity causes confusion.

Too often frustration mounts because newly acquired companies do not adhere to basic systems. Rounds of questions, followed by unsatisfactory answers build up tensions that may lead to breakdown and departure. At the root of it all is a fundamental difference in the way people work. Without an understanding of that difference and a means of aligning the styles, the situation can only go from bad to worse.

In a number of companies we have encouraged the development of a ‘modus operandi’ which would comprise a summary of the way of working and the key roles and expectations, concentrating as much on the expected lateral relationships as on the vertical relationships. This helps align people in respect of how they do things around here, and at least surfaces the assumptions which otherwise create a negative spiral of distrust and resentment.

Understanding and beliefs about management

I was asked recently to spend a day with the Managing Director of a successful Polish company who wanted to know about Western management techniques. Having been on the losing side of the binary ideological war between capitalism and communism, he assumed, understandably, that the Western model of management was good, and therefore his own management practice was somehow deficient.

As we contrasted our different styles and characteristics of management we were less faced with the remains of an ideological war but more a case study of how culture impacts our assumptions of business.

In the socialist prescription of management the plant director is all-powerful and all involved. Our concept of delegation of decision-making pushes much of this direct power and control down to lower level managers. In Poland lower level managers tend to behave more as though they are delegates from the plant manager, checking back all significant decisions. This may seem strange to us and it certainly frustrates the processes of change management. But it does have its advantages. The manager is very close to both internal and external customers and exerts ‘walking the job’ style of leadership so admired by some past Western gurus. The lesson is not one of right or wrong but is more about synthesis and being able to tolerate difference in management styles and approach.

National cultural characteristics

If we define cultural characteristics as the underlying values in people, then we can see that these impact quite directly on beliefs about managing and by implication the structures and processes of work. In a sense, it is the underlying values that cause much of the conflict since often these values are unconscious. They are also very difficult to change, since they may well have been embedded over generations, not just a lifetime. However, there are ways of addressing these barriers, and the degree to which we need to address these assumptions depends on the depth of integration we anticipate between the organisations. So how does this help us to manage acquisitions and mergers? I will look now at a simple model of integration and some of the practical steps companies can take to increase cross-border acquisition effectiveness.

A simple model of integration

Ways of managing internationally can be viewed as a continuum. At one end is the ‘colonial’ company, which works on the same basis as our forefathers who conquered some of the world. This view rests on a belief that the success of the parent company is founded upon a formula that can work equally well wherever companies are acquired. Few companies will own up to this view as it is rarely consciously expressed. However, it is often an unconscious assumption.

At the other end of the continuum is the collaborative model. Here, power and influence are more evenly divided. Different models of management can be accommodated and there is a limit to which the business is seeking to impose a ‘global culture’. While some organisations will strive for a global framework of competence, fitting every role into an all-embracing model, the collaborative organisation will seek to develop frameworks for each business unit, recognising that their local markets and customers may demand different responses to those of other business units. Nevertheless it is likely that they will have a generic set of competencies alongside business unit specific ones, and in some degree have a unifying element to their frameworks.

The ‘colonial’ model may work quite well so long as the level of desired integration is low. Once it starts to increase, for whatever reason, misunderstanding and conflict will proliferate. Attempting to move from a colonial approach to a collaborative approach is unlikely to be successful without fundamental change (Figure 1).

For the holding company, the question of integration does not arise – as long as the revenue stream meets the expectation, then diversity in style and culture can be readily accommodated. They are not represented on the integration continuum, and would resist any attempt to move in that direction.

The practice of integration

Many companies make effective use of a post-acquisition team, which starts work immediately the deal is done. The starting place for the team will be getting to know the new company, learning about its ways of working and its people. This can go a long way, if the members of the team are properly prepared, towards welding an effective implementation. People expect change on completion of the deal, and that is often the best time to start the journey to integration by setting out new requirements, new practices and new ways of working.

What is essential is that both parties understand and are prepared for change, and for a coming together of styles and practices, for integration is not a one-way street. It is likely that the parent company will have a louder voice in respect of what will be appropriate, and that the acquired may have further to move. However, it is critical that those with farthest to go are provided with the means to understand what is required and how they can change – and that they can engage creatively with the process. The more the acquired company’s managers can feel a part of the parent, the better. In this way we can identify ways to bring them into the body of the parent, acknowledge their particular skills and knowledge, while repositioning what they do.

There will always be a theoretical advantage in centralisation and conformity, be it in the purchase of personal computers, personnel policies or the adoption of standard operating practices. But there is a price to pay. To be really effective, we have to choose between the likelihood of realizing these theoretical benefits against the risk of diluting local ability to be flexible.

For further information, please contact Mark Goodridge:
T +44 (0)1223 315944
E mark.goodridge@erconsultants.co.uk