Mergers and acquisitions are tough enough without adding a cultural component to the mix when companies from different parts of the world are involved. In fact, interviews with senior executives show that an overwhelming cause for the failure of mergers and acquisitions “is the people and the cultural differences.” Read about the three critical steps to achieve people integration in multicultural acquisitions.

1. frontpage
2 | 10
®
The Magazine of WorldatWork ©
Best Practices for Integrating Talent Across
Cultures & Geographies
A cquisitions are notoriously challenging, and we are
all familiar with the very public failures of such
transactions. Integration and obtaining synergistic value
between two organizations is fraught with challenges.
When you add cultural dissonance the entire process is
at tremendous risk. But mergers and acquisitions also By Rajiv Burman, Jubilant Organosys
present an opportunity for HR professionals to shine
through the successful integration of cultures. QuICk look
In recent years, companies in the BRIC — a term
According to a KPMG study, “Eighty-three percent of all
coined by Goldman Sachs labeling Brazil, Russia, India mergers and acquisitions failed to produce any benefit for
and China — countries have used their newly acquired the shareholders and over half actually destroyed value.”
wealth and confidence to acquire distressed or strategic A heavy-handed approach of imposing the norms of
assets in the West. These acquisitions have been in the acquiring will lead to a covert or explicit backlash
including unionization.
commodities (oil, steel, gas and minerals), high tech-
Focus on understanding which people strategy in the
nology and pharmaceuticals. Acquisitions have provided acquired company made it a valuable asset to be
companies with an easier entry into unknown markets acquired; assess practices in the industry, geography
and overcome brand or legislative barriers. and legislative differences before making changes.
Contents © WorldatWork 2010. WorldatWork members and educational institutions may print 1 to 24 copies of any WorldatWork-published article for personal, non-commercial,
one-time use only. To order 25 or more print presentation-ready copies, or an electronic copy for distribution to colleagues, clients or customers, contact Gail Hallman, 877-951-9191
ghallman@tsp.sheridan.com at Sheridan Press, 717-632-3535, ext. 8175. To order full copies of WorldatWork publications, contact WorldatWork Customer Relationship Services, www.worldatwork.org
customerrelations@worldatwork.org, 877-951-9191.

2. have an opportunity to build solutions
and create business success through
successful integration. This can lead
Global HR professionals have an to recognition at the board level for
the value provided by the HR function.
opportunity to build solutions and Managing Integration
of Acquisitions
create business success There are cultural differences among
first-world countries, and between
through successful integration. the old and new first worlds. At the
extreme end are transactions between
the G7 and third-world companies,
some of whom are getting in the game
for the first time. Since no two acquisi-
tions can be the same, uniqueness
due to the industry, local culture and
Acquired G7 (a forum consisting of Of Fortune’s ranking of the top 500 expectations will require you to fine-
the seven richest countries: France, global companies, 62 are from emerging tune this template.
Germany, the United States, Canada, markets, up from 32 in 2003. Despite Successful integration in acquisitions
Italy, Japan and the United Kingdom) the global downturn, 41 percent of the is possible when all areas of the
companies include the Anglo-Dutch privately held businesses plan to grow process, people and technology are
steel manufacturer Corus Group, which through acquisitions in the next three covered. This enables the acquiring
was purchased by India’s Tata for years to acquire established brands or company to ensure that it is able to
US$6.2 billion following a BRIC-led new technology, according to the 2009 realize the strategic plans behind the
competitive bid between Tata and International Business Report by Grant acquisition. But without a well-planned
Companhia Siderúrgica Nacional Thornton. In 2009, BRIC companies integration, the acquired company will
of Brazil, and IBM’s PC business, account for 15 percent of the world falter, cause internal distraction and
acquired by China’s Lenovo Group for economy and 40 percent of the world lead to value erosion. Given the large
US$1.25 billion. Among other BRIC population, and hold 42 percent of number of acquisitions in the past few
nations, Russia’s Severstal recently global currency reserves. decades, companies and consultants
agreed to buy Esmark Inc.’s extensive There will, invariably, be specific areas have developed tools for achieving cost
steel manufacturing operations in of friction between the company’s reductions through business process
the United States for US$775 million. new head office and the newly relegated improvements, consolidation and
India’s Tata Chemicals acquired General G7 branch office. According to a technology integration. But the field
Chemical Industrial Products Inc. in the KPMG study, “Eighty-three percent of of people integration has received
United States for just over US$1 billion all mergers and acquisitions [M&As] insufficient attention, and this has
in 2008, and Infosys signed an agree- failed to produce any benefit for the caused many acquisitions to falter.
ment to acquire McCamish Systems for shareholders and over half actually Although most companies recognize
US$38 million. destroyed value.” Interviews of more the value of people talent, it is the
These acquisitions are not isolated than 100 senior executives involved financial processes and technology
examples. Both the KPMG’s Emerging in these 700 deals during a two-year integration activities that receive most
Markets International Acquisition period revealed that the overwhelming of the focus and funds. Subjective,
Tracker and research carried out by cause for failure “is the people and difficult-to-measure metrics, as well
the United Nations Conference on the cultural differences.” Difficulties as lack of financial metrics on cultural
Trade and Development report that encountered in M&As are amplified integration complicate the picture.
BRIC-nation companies are increas- in cross-cultural situations, when the Companies routinely underestimate
ingly willing to engage in mergers and companies involved are from more than the value of integrating cultures and
acquisitions activity with G7 companies. one country. Global HR professionals its stickiness. Increasingly companies
16 workspan 02/10

3. have realized the folly of this approach. 1967 and 1973 covering more than lower at 51. The higher the country
Low morale, resignations, unionization, 70 countries. He identified five dimen- ranks in this dimension, the greater
expensive retention Band-Aids, political sions to define culture. These are power the gap between values of men and
infighting and outright conflict lead to distance, long-term orientation, indi- women. India is a male-dominated
a sapping of energy and an inward focus vidualism, masculinity and uncertainty society, and generally male managers
rather than competing in the market. avoidance. These elements are critical are more easily accepted than female
in understanding the large gaps among managers. Hence, assertiveness,
Steps to Success countries. Using Hofstede’s cultural performance, success and competition
There are three critical steps to achieve dimensions as a framework in a cross- are emphasized. India’s lowest-ranking
people integration in multicultural border acquisition will prove very dimension is uncertainty avoidance
post-acquisitions. Successful integration helpful. Building on this framework, (UAI) at 40, compared to the world
requires significant change on the part you can help create understanding and average of 65. On the lower end of
of both the acquired and the acquiring solutions like training, counseling, this ranking, the culture may be more
company. A process of mutual adjust- identifying communication and open to unstructured ideas and situa-
ment and acculturation must take place relationship pitfalls in advance. tions. The population may have fewer
for successful integration. The following provides an example of rules and regulations with which to
differences between cultures of India attempt control of every unknown
STeP 1: Understand the gaps and the United States. (See Figure 1.) and unexpected event or situation,
between the acquiring and acquired India has power distance index (PDI) as is the case in high-uncertainty-
companies in culture; train employees as the highest Hofstede Dimension avoidance countries. This is reflected
for sensitivity. for the culture, with a ranking of 77 in a strong entrepreneurial spirit
Culture is the way things are done compared to a world average of 56.5. in India, creative solutions and
in an organization. It is the glue that This power distance score for India an ability to think outside the rule
binds its employees and enables the indicates a high level of inequality of book. It also leads to poor process
company to operate smoothly. Its power and wealth within the society. mapping and documentation.
manifestations are diverse — from This condition is not necessarily On the other hand, the values align-
decision-making to dress code — and subverted upon the population, but ment between Canada and the United
it is built from the country’s and orga- rather accepted by the population States (see Figure 2) confirms the
nization’s values. A structured process as a cultural norm. PDI is the most reason why integrating organization
like the Hofstede’s cultural assessment indicative dimension of managerial cultures between these two countries
is a great starting point to understand and corporate culture. India’s long term is so much easier.
the country’s cultural values. orientation (LTO) dimension rank is 61, After understanding these differences,
Professor Geert Hofstede conducted with the world average at 48. A higher it is important to establish a plan for
perhaps the most comprehensive study LTO score can be indicative of a culture sensitizing employees. This can be done
of how values in the workplace are that is perseverant and parsimonious. through exchange visits of leadership
influenced by culture. Hofstede India has masculinity as the third- team members, and key employees,
analyzed a large database of employee highest ranking Hofstede Dimension at organizing familiarization training for
values scores collected by IBM between 56, with the world average just slightly employees to build an appreciation of
Successful integration requires significant change on the part of
both the acquired and the acquiring company.
18 workspan 02/10

4. the differences. Doosan, a South Korean are a key organization design element a particular purpose,” said Phyllis and
company, successfully used this method that helps acquiring companies avoid Leonard Schlesinger in The Portable
for its acquisition of the BobCat unit surprises, as well as the risk of being MBA in Management. Organizational
from Ingersoll Rand Co. out of control and incurring future design allows the acquired company
For the organization’s cultural gaps, financial liabilities. “It is helpful to continue to operate in fast-moving
observing, surveying, discussing and to think of organizational design markets without referring all decisions
identifying different business practices elements as building blocks that can to the acquiring company. Most
is key to avoiding inefficiencies and be used to create a structure to fulfill importantly it provides the acquired
in worst-cases clashes. Successful
integration plans also include explicit,
FIGURE 1: THE 5D MODEl OF PROFESSOR GEERT HOFSTEDE — U.S. AND INDIA
interactive feedback systems through
work groups, task forces, etc., so that
100
members of the “new” organization can
learn what it means to be a part of the
new company. For example, when HP 80
and Compaq merged, HP required each
operational manager to conduct a half- 60
day session, with the support of human
resources staff, on the differences
40
between the two previous company
cultures. The sessions revealed that
HP staff typically used voice mail 20
while Compaq’s people typically used
e-mail. People from either side did 0
PDI IDV MAS UAI LTO
not have the same ideas about how to
collaborate, which lead to confusion PDI | power distance index UAI | uncertainty
❚ United States
avoidance index
and misunderstanding. IDV | individualism
❚ India
lTO | long-term orientation
MAS | masculinity
STeP 2: Build the new organization
and decision chart of authority
New organization charts and the FIGURE 2: THE 5D MODEl OF PROFESSOR GEERT HOFSTEDE — U.S. AND CANADA
accompanying decision charts of
authority provide much needed clarity 100
in the early days of post-acquisition
integration. They also clarify the 80
degree of operational interdependence
or need for autonomy to retain the
60
acquired companies’ competencies.
There can be a complete preservation
40
of existing structure, absorption or
symbiosis of the two organizations.
Ideally, a detailed organizational 20
chart will provide the business owner
or manager with an accurate overview
0
of the relationships of these units/ PDI IDV MAS UAI LTO
responsibilities to one another and a
❚ Canada PDI | power distance index UAI | uncertainty
reliable indication as to whether the avoidance index
❚ United States IDV | individualism
firm is positioned to meet the business’s lTO | long-term orientation
MAS | masculinity
fundamental goals. Decision charts
workspan 02/10 19

5. FIGURE 3 SAMPlE CHART OF AUTHORITY company’s managers a sense of
control and empowerment — a much
needed sentiment after having been
Acquiring company
Elements local office authority
authority
acquired. Acquisitions lead to a sense
of uncertainty and confusion. Clarity
Adding headcount Approves positions below direct
Global HR and CEO head in decision making mitigates these
approve all positions in
within approved reports of CEO. Head of HR and
leadership team at local
feelings. HP and Compaq built a
budgets CEO approve.
company. careful partnership, starting at the
top, between both companies to
Oversees replacement hiring Global CFO and CEO
Headcount due to voluntary and involuntary approve all headcount make critical executive selections and
attrition. and budget variances. organization structures in advance of
the deal, and then announced their
Global CFO and/or CEO
Negotiate contracts within estab- decisions shortly after the deal went
Customer contacts approve exceptions to
lished financial metrics
financial metrics. through. This, among other integra-
tion actions, helped make theirs a
Approves distribution based
on performance management Compensation committee successful acquisition.
Compensation —
program and bonus plans within approves merit and bonus
merit and bonus
overall pool. Leadership team pool.
A complete organization chart
jointly approves. will identify the new hierarchy and
decision-making process flow. An
Head of HR and finance jointly
Vendor and insur-
sign off on new contracts within Approves budget.
accompanying chart of authority
ance contracts
approved budget. will cover elements of headcount,
compensation, talent management,
Board approves all
Board delegates investment
plan design changes capital, expenses and employee
401(k) plan committee authority for plan
and appoints investment relations (see Figure 3). Having
administration.
committee.
taken over from Tata Liebert, coping
with the challenge of change was
surely the dominating concern for
Emerson Power Network. And this
FIGURE 4: PEOPlE STRATEGY
drove the company into rolling out a
set of people practices. This included
creating a cross-functional team,
empowering these teams to deploy
a new organization structure in the
organization, and making customer-
Rewards People centricity the focus of the complete
HR action plan.
STeP 3: Build the new people strategy
This helps focus the acquired organi-
Decision-Making Work Processes zation on the future and understand
the acquiring company’s vision. It
avoids the negative outcome that
comes from employees getting bogged
Information Managerial down in comparing policy differences
and knowledge Structure
between companies.
Companies have to deal with the
need to change policies and programs
to align with the acquiring company
philosophy and values. This is a tricky
20 workspan 02/10

6. EXAMPlE OF AN HR STRATEGY
FIGURE 5:
AT A NUClEAR REACTOR SUPPlIER
This has been identified using the strengths
of both organizations. The intent is to build
[Aligning with the acquiring company] on the success of both companies.
We will aim to hire, retain and train best-
is a tricky process since ... losses to in-class nuclear engineers and develop the
world’s most reliable and safest nuclear
reactor design.
past practices and benefits can quickly Employer of Choice
lead to a drop in morale. • Achieve Gallup score of 70+ and be
recognized as a “Best Place to Work.”
• Achieve a zero-incident safety record
at every plant.
• Invest in training and development
at 4+ man-days per employee.
Acquire and Retain High-Performing Talent
• Create a strong employer brand.
process since employees are overly business strategy. Lincoln has grown
• Target pay and benefits at 50P
sensitive and losses to past practices through acquisitions and it has learned for “Meets Expectations;” 75P
and benefits can quickly lead to a to build an HR strategy that reflects for “Exceeds Expectations.”
drop in morale. Hence a wholesale the cultural factors at societal and • Hire for cultural fit.
• Have a compliant, equitable and fair
substitution of the acquired companies’ organizational levels. professional environment.
programs by the acquiring companies’ People strategy must encompass
programs could lead to employee six dimensions (see Figure 4). Long- Pay for Performance
relations problems, especially if the term vision coupled with clarity on the • Performance incentive programs to cover
100 percent of salaried employees
new programs are lower in value to basics of their employment relation-
• Employee growth based on performance.
the employee. Instead, focus on under- ship helps employees move higher up
standing what people strategy in the the Maslow’s hierarchy. Abraham
acquired company made it a valuable Maslow proposed that human beings
asset to be acquired, and assess move up a hierarchy of five levels of resourCes Plus
practices in the industry, geography basic needs. In the levels of the five
For more information related to this article:
and legislative differences before basic needs, the person does not feel
www.worldatwork.org
making changes. the second need until the demands
Type in any or all of the following keywords
Develop and paint the new people of the first have been satisfied, and or phrases on the search line:
vision and strategy. Describing the path so on. These needs are physiological, • Mergers and acquisitions
• Culture
and process to get there will create a safety, belongingness, esteem and
• Acquisition integration.
positive energy for employees. Involving self-actualization. For most business
www.worldatwork.org/bookstore
employees and overcommunicating professionals satisfying the need for
• Mergers & Acquisitions: How-to
through all possible means — town esteem and self-actualization are Series for the HR Professional
• Mergers & Acquisitions: A Checklist
halls, departmental meetings, Web crucial to be able to operate at their for Total Rewards Professionals
site and e-mails — will be critical productive best. See Figure 5 for an • Culture at Work: Building a Robust
Work Environment to Help Drive Your
in quashing rumors, clarifying example of an HR strategy. Total Rewards Strategy.
questions and selling the rationale.
www.worldatwork.org/education
The acquisition is a major change ABout tHE AutHoR • Organizational Culture Change —
for the employees, and you need to Rajiv Burman is the vice president of human A Work-Life Perspective, Work-Life
Certification Course: W4
help them move from the fear to resources, North America, for Jubilant Organosys, • Introduction to Work-Life Effectiveness —
excitement phase. which acquired Hollister-Stier, Clinsys, Successful Work-Life Programs to
Attract, Motivate and Retain Employees,
The Lincoln Electric Co. based in Cadista and Draxis businesses in the United Work-Life Certification Course: W1
Cleveland has a well-developed process States and Canada. He can be reached at • Strategic Communication in Total
Rewards, Compensation Certification
to build an HR strategy linked to its rajiv_burman@jubl.com or 416-903-0493. Course: T4.
workspan 02/10 21