IBM, which derives 63 percent of its revenue overseas, has made dozens of cross-border acquisitions since 1995, a trend that culminated early this year when it snapped up Canadian software developer Cognos for $5 billion. As soon as the deal closed, IBM integration expert Mohamad Ali and a dedicated team began crisscrossing the globe to visit Cognos regional offices. One goal was to integrate products and technologies, but another was to ensure that the companies’ cultures meshed, so that anxiety or low morale did not sap productivity.
Two companies based in the same home country seldom speak exactly the same language. In cross-border mergers, two cultures may resemble apples and somaasappelen (oranges, in Dutch). Mergers must address native differences quickly or else face ugly consequences.
Cultural integration is perhaps the most critical piece of the puzzle, says Ali, who adds that IBM often partners with companies before it acquires them, which can ease integration headaches. As a multinational corporation with long tenure in many countries, IBM has another advantage: the acquired company is integrated into the branch of IBM that has, in many cases, been doing business in the country in the local language for some time. As a result, the cultural chasm may be far narrower than what a smaller U.S. firm moving into a country for the first time might have to confront.
Coincidentally, it was a former IBM researcher turned academic who pioneered the study of transnational culture clashes. Beginning in the late 1960s and early ’70s, Geert Hofstede analyzed tens of thousands of IBM surveys from employees based in more than 70 countries. (Ali of IBM says his work is not specifically based on Hofstede’s, but that employee questionnaires continue to provide valuable insight in this regard.)
Using five traits that affect organizational behavior, Hofstede divides the world into cultural blocks to assess the differences between them. The result, called “cultural dimensions,” can help CFOs predict looming cultural roadblocks between organizations.
Power Distance reflects a culture’s attitude toward leaders. The higher the score, the more a culture accepts a leader and authority without question.
Individualism measures the degree to which individuals are integrated into groups. The higher the score, the more individualistic the society. The lower, the more collectivist, meaning people assign a higher priority to a fixed group identity than to individually chosen affiliations.
Masculine vs. Feminine refers to assertive, competitive cultures versus tender, nurturing cultures. High-scoring countries place more value on competition and assertion.
Uncertainty Avoidance measures a society’s tolerance for uncertainty and ambiguity. High-scoring cultures try to minimize uncertainty with strict laws and rules and place a premium on experts. Low scores indicate more tolerance to different opinions.
Long-Term Orientation measures adherence to such values as patience and hard work. Low scores indicate a short-term orientation.
While over time there have been some changes in national cultures, they have not altered underlying relationships, insists consultant Salvador Apud. His Swedish firm, ITIM International, has licensed the right to apply Hofstede’s principles to customers in Europe and has licensed Accenture to do the same in the United States, says Apud.
If nothing else, the rigor that Hofstede brought to his work can help managers bring a quantitative quality to a field that would seem to defy it. Companies rate the aforementioned five criteria on a 0–100 scale. The actual numbers matter less than how far apart two companies may be. A distance of more than 10 points is considered material.
Sometimes the analysis may simply signal that certain modifications may be in order: a U.S. company with a strong individualistic culture may not want to export its “Employee of the Month” program to an overseas acquisition where a more collective spirit prevails. Companies at opposite ends of the masculine-vs.-feminine scale may find that cultural differences require more than a tweak — they may demand serious attention from management as to how to lead and communicate.
In the end, culture can be seen as the proverbial third leg on the stool. “First,” says Apud, “the merger has to make sense financially and operationally.” Only then does the potential wobbliness of that third leg merit a closer look, and perhaps a repair.
Avital Louria Hahn is a senior editor at CFO.