You are required to assist the work of TATA Ltd. One of the worlds most dynamic and trusted business conglomerates, Tata has more than a century of experience in the UK and a growing presence in several business sectors. The company wants to improve its efficiency throughout its divisions and believes that using cultural diversity factors may be the key.
3). Cultural Differences are held responsible for many failures in mergers and acquisitions (M&A). Critically discuss which business aspects are likely to be affected. Managing and working with multicultural teams requires an understanding of cultural diversity to create an effective team. Critically discuss the issues
Usually used under the name of M&A (Mergers & Acquisitions), this term refers to a consolidation of companies. Merger is a strategic alliance whose the aim is to create a new entity. An acquisition is the fact to acquire a new company by purchasing it. Tata wants to improve its efficiency, its performance and its benefits by the using of M&A. The Indian group Tata has been founded in 1868 by the Indian entrepreneur Jamsetji Tata. Nowadays, Tata is a powerful international group implanted in more than 80 countries. The group's activity is divided into numerous sectors, for instance: technology, cars, services, electricity, consumer products, beverages, materials and chemicals. Tata wants to improve its business thanks to M&A but to reach that goal; it has to consider that cultural differences affect numerous business aspects in this kind of strategic alliance. For Adler and Gundersen (2008), cultural differences may have positives and negatives effects on a multicultural team's performance.
Indeed, the cross-cultural differences are linked to performance. The cultural differences are one of the most important features to take into account to succeed in a M&A; maybe the most important. The culture is complex; it is a shared system of attitudes, beliefs and behaviour. Nowadays, the business is globalized and international; we can almost talk about a business culture run by the globalization (Hopper, 2007). Indeed, the world is not becoming smaller but people and their culture are moving closer. Tata has to understand that ignore the cultural differences would be a terrible mistake: the M&A would not work or would not be as effective as expected.
Tata should not make the same mistakes than the Merger between Chrysler (American) and Daimler-Benz (German) in 1998. It is a well-known example of how cultural differences can be held responsible for a failure in a M&A. According to Stertz and Vlasic (2001), the main cause of this failure was the cultural differences. Indeed, Chrysler and Daimler had the same objectives but the cross-cultural gap between both was too deep and not enough was considered to succeed (Schneider, 1997). Strategically, the merger was a good deal for both. However little by little, the cultural differences have led the merger to failure. The reasons were on the one hand, the cultural differences but also on the other hand, the difference of management style. It has been a disaster for the both companies because they didn't take the human factor into account. Daimler and Chrysler were culturally different on a number of points. Daimler was more rigorous and disciplined than Chrysler which let more place to creativity and did not hesitate to take risks. Daimler-Benz had a strong sense of hierarchy and identity much larger than the American firm. Chrysler wanted to impose its American culture which did not please the German company. The differing resulted with a rejection from the American culture by Daimler-Benz. They were no synergies between with two "giants". This strategic alliance finished by an important economical (more than half a billion dollars) and social cost (redundancy). (To extend?)
This example is the perfect proof than cultural differences badly assimilated can bring a M&A to poor productivity and sometimes failure. Many mergers and acquisitions fail. The authors do not agree on the exact rate of failure due to the difference of assessments although it is rather high. According to Trompenaars and Asser (2010), it varies between 20% and 33%. For Forstman (1998), 50% of all mergers and acquisitions fail no matter how they are measured. Even if the average rate of failure is between 40-80%. Stahl and Voigt (2008) say that this rate of failure is relatively high and the impact of cultural differences remain most of the time, badly assimilated. Shareholders have tendency to underestimate the cultural factors in mergers and acquisitions. According to Stahl and Voigt (2008), the main reason of a failure in M&A is 'cultural differences'. Trompenaars and Asser (2010) agree with that statement by saying that in a number of these failures, the cross-cultural difference is held responsible. For Ferraro (2002), one of the biggest mistakes is to think that if a person is successful in his job, he will necessarily succeed in an environment culturally different.
According to Harris and Moran (2000), culture acts on communication, strategies, relations, organizations and structures. Indeed, the cultural differences affect numerous business aspects such as organisation, financial performance, negotiation, communication, ways of getting work done, the human relationships, the time, the environment and the management. Insufficient awareness of cultural differences may provoke damages. (Trompenaars and Hampden-Turner, 1997). In fact, cultural differences badly mastered can lead to: misunderstandings, incorrect exchange of information, ruined negotiations, loss of sales, poor labour relations, a loss of talented employees, limited co-operation, hostility and rivalry. (To change: Sian Taylor's lesson).
Joynt and Morton (1999) state that the cultural differences have a strong impact on the organisation. M&A may provoke numerous changes in the organisation structure. When there are hierarchical and organisational changes, the shareholders may have some difficulties to agree with the opinion or the status of the new "colleagues". It may cause tensions and frictions between them. The human resources services and the management team field have an essential rule to play in this kind of strategic alliances. (Source bad example to extend and to change)
Culture has also a strong impact on the productivity. The cultural aspects may affect numerous other business aspects which influence indirectly on the performance of the M&A in particular making benefits (Stahl and Voigt, 2005). For them, "To increase effectiveness across cultures, training must be the focus of the job, while education thought of with reference to the individual, and development reserved for organizational concerns".(To change?) Culture differences badly assimilated product poor results and performance. However, the relationships between the M&A performance and the cultural differences are not as easy as it could seem. (To Change and extend) King et al (2004) state that "despite decades of research, what impacts the financial performance of firms engaging in M&A activity remains largely unexplained". (To change?)
The negotiation is also an aspect affected by the cultural differences. For instance, bad master of the culture or the local customs can lead to misunderstandings and confusions (Schein, 1993). It involves the meetings, the contacts and all the components of the negotiation between two interlocutors culturally different. Each culture has its own way to negotiate even though certain are similar. For instance, the Indians are used to negotiate because it is something daily and at every moment of the day. They rarely say "no" by politeness and sometimes their answer may seem "unclear", that is why, a foreign negotiator should be able to decode the non-verbal language to know what they really think (such as cross legs or arms).
Barriers to communication can be a problem. Javidan and House (2002) state that during a M&A, cultural differences may have negatives impacts on communication. (Too change). Moreover, communication is as important as any other business aspects. According to Schein (1993), in a business, the dialogue is primordial. The communication is divided in 2 forms: the verbal through the language and the non-verbal via the moves. The main problem of the communication is the language. For Ferraro (2002), language and culture are strongly linked, in particular by the vocabulary. The nonverbal dimension is as important as the language: the body posture, the hand gestures, the facial expressions, the eye contact, the touching… Its affects numerous fields such as: the management of people, negotiation, meetings, contracts, socialising, presentations, and advertising. During a M&A, the communication is a determining factor: of success or failure (Trompenaars and Asser, 2010).
According to Stahl and Voigt (2008), in M&A, the culture strongly impact the "ways of getting work done". Sometimes these cultural differences may interfere into a deal. It can have a negative effect for Javidan and House (2002). Tata has to be very careful about that.
Cultural differences may be barriers to the performance when they negatively impact the relationships between people and especially between the employees (to extend) of the M&A. In particular, the way of dealing with conflict (To change). Often, people have a fixed idea of a particular type of person or thing, it is called a stereotype. Culture is like an iceberg. At the top, the elements we can see physically such as the behaviour, the clothing and the food. Whereas underneath, there is all the things we cannot see at the first sight such as meanings, beliefs, attitudes and values. Every single human being is conditioned by his cultural roots which are very often transmitted by the family. (Too change, Sian Taylor's lesson). Cross-cultural difference can have negative impacts on the human relationships (Javidan and House, 2002). According to Kleppestø (1998), we may see sometimes, the creation of in-group and out-group. (too extend). A bad entente between employees has for main consequence the fall of productivity. Indeed, the difference of culture does not simplify the relationships, especially when shareholders have to make important and essential choice. The cultural differences divide more than they gather, which might be problematic when shareholders have to take a single and common strategic decision. In fact, the human behaviour is an essential feature to take into account.
Tata has also to take into account the time. Indeed, it is influenced by the cultural origins and determinant in the success of a M&A. It can have important influences on the planning and on the way of how people manage their time. For Harris and Moran (2000), the definitions of time vary according to the culture, "some are exact and others are relative". According to Trompenaars and Hampden-Turner (1997), "primitive societies" just consider the matter of the "before" and the "after" whereas the "educated societies" judge the matter of time differently. For them, the time is an infinite succession of event. (To change)For instance, Tata has a contract to negotiate with a French company. Both cultures have a different on the notion of time. Tata is an Indian group and culturally their relation with the time is more "relax" than the European philosophy. (to change) The French businessman will go in India during a little while to negotiate and will be in a hurry. The Indian businessman will play on that factor to make longer the negotiation. The French who wants to do as quickly as possible will lose patience and could crack up.
Moreover, one of main cultural difference is the attitude of people with the environment. Some cultures have more importance for their own human-being life rather than other cultures attach more importance to the world in general than to the individuals.(To change) (Trompenaars and Hampden-Turner, 1997). Harris and Moran (2000) say that persons culturally different live and organize their environments in their own specific way.
However, Tata has to know that a team composed of different cultures may have numerous potential benefits. Indeed, culture is also an opportunity and a source for the Indian group of competitive advantage. (Sian Taylor, Too change) Cultural differences may also have positives impacts on multicultural teams only if they respect certain conditions. In fact, diversity can lead to higher performance only when members of the group understand each other, and can combine and build on each other thoughts and ideas (Chell, 2001). (To change, Sian Taylor's course). Cultural differences in the same organisation can also a great opportunity. (too extend)(source)
Define culture is necessary to well understand what are the cultural diversities and which impacts they have on performance. For Hofstede (1980), culture is "the interactive aggregate of common characteristics that influence a group's response to its environment". Cultural differences change the way people solve problems. In fact, Trompenaars and Hampden-Turner (1997) say that we can differentiate every culture individually by the way they solve problems. The cultures distinguish from each other by the specific solutions they use when there is an issue. For instance, two groups of students have an essay to hand in for a due date. The first group is French and the other one is American. Both groups are late but they react differently because they are culturally different: the American group will reach the deadline and scarify the quality whereas the French group will go over the deadline and try to improvise.
According to Chell (2001), the synergy in a multicultural team can improve significantly the performance and increase benefits. A multicultural team in which members live well together will be more productive and effective. Indeed, the cultural differences can create potential competitive advantages such as a better productivity, innovation, learning or ambience. It may also increase the productivity. Indeed, in a same situation, employees culturally different can have different way of thinking and therefore bring several solutions and improve the performance (Adler and Gundersen, 2008, p.134).
Indeed, multicultural team means wider range of opinions, ideas and consequently encourage the innovation. According to Adler and Gundersen (2008), this creativity enables to find better solutions to problems, take better decisions. Moreover, Chell (2001) think intercultural team is strength for a team. In fact, different nationalities enable to master different languages and consequently a bigger flexibility geographically and linguistically. Moreover, being cultural different may also enable to learn new things such as another way of managements or another ways of getting the work done. A multicultural team were the members understand each other enable to have a better ambience in the firm. The role of the manager has a strong impact on the ambience which is an essential feature to reach the synergy (Adler and Gundersen, 2008).
If Tata wants to succeed in a M&A with cultural differences, they should consider how to organize and manage an intercultural team. Managing and working with multicultural teams requires an understanding of cultural diversity to create an effective team. A multicultural team needs some features essential to be successful for example: the motivation to communicate, a good relationship between each members, a reciprocal respect. (to change Sian Taylor's courses)
Tata must be aware of the role of the manager: it has changed due to the new cultural diversity in a same team (Harris and Moran, 2000). Nowadays, he must be skilful, master several languages and know the cultural features of his employees and the shareholders. The role of the manager is also to avoid the cultures shock and cultures clashes between the employees. According to Ruben (1983), the multinational manager should have seven skills to gather the employees' strengths and bring them to the performance: tolerant, respectful, have good interpersonal skills, not to be prejudiced against people, feel empathy, observant and persevering. For Trompenaars and Asser (2010), the managers have a tendency to focus on the results of deal rather than the way the people reach together these objectives. The human dimension and the cultural differences are unfortunately used to be underestimated in a merger or acquisition. They are in particular ignored by the managers who prefer focus on results and performance rather than the way the job is done. Moreover, the notion of "feedback" (between manager and employees) is essential to fix the differing and underline the good things. Indeed, their first objective of the manager is to reach the synergy: to gather all the shareholders and bring them to an only and same goal with this kind of tools.
The cultural differences strongly affect the way of managing people. Indeed, M&A often involve the mix of firms and consequently, the mix of employees who are sometimes culturally different. Especially because culture is not something we cannot figure out at the first sight; it is something inside us. Trompenaards and Hampden-Turner states, it is not on surface but deep in every person. (Too change p.3). According to Tylor (1924), culture is not something simple or limited to one dimension in one field, it is the entire contrary. Indeed, he states that the culture is composed by numerous components such as: habits, language, religion, belief and morals. To create an effective team, the team have to understand the culture of each member and learn cross cultural knowledge (Harris and Moran, 2000). The creation of a multicultural effective team takes time because the manager must make aware each members of his own culture (Chell, 2001). One of the essential points is to respect the others cultures and the fact to be different because the culture takes an important place in people's lives. Understand another culture also means be respectful about these differences. In fact, Chell (2001) say that the members have to have in mind that there is no dominant culture and everybody is equal whatever his origin. Indeed, according to them; we have to master early our culture before learning to know all the features of another one. Schein (1993) said "We have to learn to listen to ourselves before we can really understand others". It is called the polycentrism: attempt to overcome your own cultural assumptions and to develop openness towards other cultures (To change course Sian Taylor). At the contrary the worst behaviour to adapt is to be ethnocentric: to look the word only through my own culture. (To change) Moreover in multicultural team, some cultures are more likely to fit with one than another. In a globalized world, the cross-cultural relationship has changed the way of managing a team.
To conclude, Tata must be conscious that intercultural issues not well mastered may lead to poor productivity. However, if the cross-cultural differences are considerate, cultural differences may become a great opportunity for the Indian group. It could improve collaboration and increase the performance of this international group. The future of a M&A depends on the ability of a multicultural team to gather their strengths in the same project even if they are culturally "different". Indeed, bring a multicultural team to the synergy is the main aim and role of the manager. Diversity can lead to higher performance only when members of the group understand each other, and can combine and build on each other's thoughts and ideas. (Sian Taylor)
