Organizational Culture and Control

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Organizational Culture and Control
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Organizational culture and the control of
behavior in organizations

• What is organizational culture?
• What is its relationship to organizational design
  and decision making?
• How do we integrate organizational cultures in
  mergers and acquisitions?

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What is organizational culture?

• Way of life in an organization (Hatch)
• Collective phenomena that reflect peoples
  responses to uncertainties and chaos (Trice
  Beyer)
• Pattern of basic assumptions that group uses to
  cope with problems of internal integration and
  external adaptation (Schein)

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Scheins Three Levels of Organizational Culture
Set of assumptions, values, norms, and
expectations that are shared among organizational
members
Visible, but difficult to decipher
Artifacts and behaviors
Values
Some awareness
Assumptions
Taken for granted
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Sources of Organizational Culture

• National ideology differences in cultural
  values
• Industrial ideology banking vs. advertising
• Occupational ideology scientists vs. artists
• Regional and community values north vs. south
  urban vs. rural
• Values of leaders and founders McWane
  Industries vs. American Cast Iron Company

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National Cultural Differences

• Different value orientations across cultures
• General values Kluckhohn Strodbecks work
• Work values Hofstedes and Bonds work

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Kluckholm Strodbecks Value Orientations
 
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Work Values Across Cultures(Hofstede)
Individualism vs. Collectivism Uncertainty
Avoidance Power Distance Career Success vs.
Quality of Life Confucian Dynamism
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Limitations of Reliance on Cultural Values

• These are generalizations---inaccurate and
  sometimes dangerous to apply to any one
  individual
• They are first best guesses prior to learning
  more about the culture
• They should be consciously held to allow for
  learning and modification to occur
• Despite globalization, differences between
  cultures are not disappearing quickly

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Cultural Artifacts Deciphering the Meanings
Embedded in the Organizational Culture

• Physical Manifestations
• Behavioral Manifestations
• Verbal Manifestations

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Physical Manifestations

• Physical layout of office buildings and plants
  (e.g., office design use of space)
• Décor/art/logos (e.g., ceiling and wall hangings,
  use of color and form, lighting)
• Dress and appearance (casual vs. formal
  uniforms)
• Material objects (e.g., furniture, equipment,
  tools)

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Behavioral Manifestations

• Ceremonies and rituals
• Communication patterns
• Traditions and customs
• Rewards and punishments

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Verbal Manifestations

• Anecdotes and jokes
• Jargon, nicknames, and acronyms
• Stories, myths, historical narratives
• Heroes and villains
• Metaphors and proverbs
• Explanations of how things work around here

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How Do We Measure Culture?

• Clinical Approach observation, interviews,
  ethnographical methods of observation and
  descriptive feedback
• Survey approaches questionnaires
• Q-sorts 54 characteristics are sorted into
  piles that are most characteristic/least
  characteristic of organization

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Relationship of Culture to Organizational Design

• Organizational design affects and is affected by
  organizational culture
• Mutual reinforcement of desired behaviors
• Fit between design elements and cultural values
• Culture as an alternative control system to
  behavioral and market controls

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Relationship of Culture to Organizational Design

• Hierarchy
• Bureaucratic vs. freewheeling
• Location of power
• Strategy formulation processes
• Top-down vs. emergent from below
• Work flow processes and technology
• Interdependence vs. independence
• Departmentalization
• Functional vs. self-contained units
• Creation of subcultures

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Human Resource Systems and Culture

• Socialization practices
• Communication practices
• Selecting the right people
• Weeding out the wrong people
• Training
• Promotion and Reward systems
• Succession leadership

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Cultural Change Issues

• Pervasive, high magnitude changes (revolutionary)
  vs. cumulative reshaping (evolutionary)
• Political and technical changes
  (re-organizations) usually affect culture
• Top leadership changes usually bring about
  opportunities for culture change

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Cultural Change Issues

• Mergers and acquisitions usually require focus on
  cultural issues
• Discontinuous events (e.g., crises, major
  technological, legal, or market changes) might
  require cultural changes
• Culture changes usually require changing human
  resource systems, such as socialization,
  training, selection, reward systems
• Identify and support culture change champions

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Mergers and Acquisitions (MAs)

• What are the different reasons behind MAs?
• What types of MAs can be identified?
• What is the proper preparation strategies for
  engaging in MAs?
• What human resource issues need to be dealt with
  in MAs?

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Some Findings

• In 1999, companies spent 3.3 trillion on MAs
• Cross-border mergers are becoming the biggest
  methods by which the worlds economies are being
  integrated
• Less than half of all MAs reach their strategic
  and financial goals

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Why do companies engage in MAs?

• Pursue strategies that are too risky or costly to
  do on ones own
• Defensive moves to protect market share and
  reduce industry capacity (HP-Compaq)
• Gain expertise and financial backing for growth
  (Quaker Oats and Snapple in 1993)
• Troubled company seeks a savior buyer (Triarc
  and Snapple in 1997)

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Why do companies engage in MAs

• Get footholds in new geographical markets to
  increase market share (Daimler-Benz and Chrysler
  in 1998)
• Leverage competencies and share resources
  (Johnson Johnson acquiring DePuy Inc. in 1998)
• Used to get RD or other expertise rather than
  developing it in-house (Cisco Systems)
• Industry convergence (AOL-TimeWarner)

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Five Basic Types Overcapacity MA (Bower, 2001)

• One of the most common types
• Acquiring company eliminates excess capacity,
  gain market share, and create a more efficient
  operation
• Must rationalize processes quickly to get the
  efficiency desired
• Deal with power and cultural issues between two
  companies

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Five Basic Types Geographic Roll Up (Bower,
2001)

• Aim is to achieve economies of scale and scope
  while building ones markets
• Need to retain target companys resources (e.g.,
  managers, customers, brands, etc.) while
  introducing new processes (e.g., purchasing, IT,
  human resource systems, etc.)
• Implementation of new processes should go slowly
  may drive key people away

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Five Basic Types Product or Market Extension
MA(Bower, 2001)

• Extend product line or markets, especially
  international
• More problems if the companies being merged are
  of equal size works better if acquired company
  is smaller and younger
• Must know what you are buying due diligence is
  critical
• Cultural and governmental differences may
  influence success of combination

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Five Basic Types MA as RD(Bower, 2001)

• Similar to product and market extension, except
  focus is specifically on innovation processes
• Used frequently by biotech and high tech
  companies to get critical knowledge competencies
  quickly
• Excellent evaluation processes required to make
  good acquisition decisions
• Cultural due diligence is critical these
  assets have shoes
• Need for speedmust integrate relatively rapidly
  for returns
• Watch out for the not invented here syndrome

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Five Basic Types Industry Convergence MA
(Bower, 2001)

• Combination invents a new industry using
  companies whose boundaries are disappearing
  (e.g., entertainment)
• Entrepreneurial skill necessary because new
  industries are being created
• Quick need to rationalize accounting and control
  systems across all acquisitions, and then other
  processes can follow more slowly
• Get rid of businesses that dont seem to fit new
  model
• Top executives must be strategically involved in
  linking the businesses, but businesses need
  operational autonomy

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Stages of Successful MAs

• Pre-combination stage conception of deal and
  negotiations by top executives legal approval by
  regulators and shareholders
• Combination stage integration planning and
  implementation decisions
• Post-combination stage actual integration of
  business processes

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What has to be done to prepare for MA?

• Too much focus on financial issues of the MA in
  the pre-combination stage
• Hard criteria drive out thinking about the soft
  criteria (cultural values, peoples thinking,
  management issues)
• MA teams should include operational, technical,
  and HR experts on the team, as well as the
  financial experts

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What has to be done to prepare for MA?

• Focus on four Ps of strategic and psychological
  preparation
• Purpose strategic intent of MA and clear
  criteria in looking for a partner
• Partner conduct due diligence in search and
  selection (strategic, financial, human resources,
  and cultural) to determine values, motives, and
  managerial talent
• Parameters defining the end state clearly
• People dealing with psychological mindsets and
  HR issues

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Defining the End State of the Combination
High
Transformation (of both companies)
Absorption
Degree of Change in Acquired Company
Best of Both
Reverse Takeover
Preservation
Low
High
Degree of change in acquiring company
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What has to be done to prepare for MA?

• People Issues
• Know psychological mindsets of buyers and sellers
• Buyers superiority, dominance, urgency
• Sellers defensiveness, defeatism, anxiety,
  anger, resistance, hostility
• Deal with these mindsets through psychological
  preparation for the merger dialogue, workshops,
  presentations, HR system development (selection,
  training, outplacement, severance issues)