in Integration

Processes
Anyone who has observed the international Merger and
Acquisition (M&A) scene over the past ten years will have
noticed that the number and size of take-overs has
increased but not the success-rate. In most studies this rate

by Prof. Dr. Rolf-Dieter Reineke

still averages under 50%, when the result is related to the

aims of the take-over. Although in newspaper reports many
M&A activities look similar, there are in fact considerable
differences as regards what motivates these new strategic
arrangements.These differences can simultaneously appea
in varying combinations.

BUSINESS
01 Integration
Processes

v\|nvestment bankers,
lawyers and strategy
consultants who are
significantly involved in
mergers do not generally
have appropriate cultural

&A activity is often defined by

get into trouble after an apparently good

reference to corresponding

start, that incompatible corporate cultures

international growth strategies.

are likely to be blamed. One gets the

Thus empirical studies have shown that

impression that imprecisely defined

shareholder value is created mainly by

cultural incompatibility is often brought

firms which can generate an above-average

in, when mergers fail to function, to cover

growth rate. Analysis has also shown,

up unmanageable power struggles or

however, that in 70% of cases this so-called

strategic errors. Investment bankers,

profitable growth was stimulated internally

lawyers and strategy consultants who are

and only in 30% of cases by M&A. Buying

significantly involved in mergers do not

or merging with other firms is actually an

generally have appropriate cultural

extremely risky growth strategy and only in

diligence as one of'their priorities, and

few cases is stronger growth in turnover or

there is usually no precise information in

even profit ascertainable later. A further

advance about possible intercultural

motive is basically the intensification of

problems and their relevance to

synergies. By means of common overheads,

integration. For the most part, experienced

purchasing and production activities,

intercultural organization consultants are

economies of scale can be exploited and

only called in when massive conflicts arise

synergy potential increased. Consistently .

after the merger, which are then only

realizing the strategy of cost leadership is

manageable with great difficulty.

highly relevant at this level. Of course, this

diligence as one of their

priorities, and there is
usually no precise
information in advance
about possible intercultural
problems and their
.,..^.*..._ .

y.....

synergy potential should appear after a

Levels of Integration

certain time on the company's "bottom

line" and unpleasant surprises should if

For successful integration, it is

possible be avoided in the costs of the

important to realize that the process always

integratipn. An attractive purchase price

takes place simultaneously on three levels,

can also be a significant motive for M&A

as the following quotations from a

activity. In particular, financial investors

German/US American merger make clear:

such as Apax, KKR or Morgan Grenfell aim

- the rational level (economic and legal

at buying firms cheap and selling them at a

factors):

profit later to industrial investors or on the

"The new company will give us world-

stock market.. >

wide competitive advantage."

- the political level (power and group

Differing Corporate
Cultures

interests)

"You must conform. This is the way it has

to be done, whether it makes sense or not."

In all these cases the new organization

and integration of the combined

Global Player I ] Q

- the emotional level (attitudes,

emotions, personal interests:

companies presents an important

"The concern when we heard it's a German

challenge. While the completion of the

company was that the culture was totally

M&A activity often leads to a new mission

different."

statement on the part of top management,

"Nationalism comes into play, it's just

its comprehensive establishment in the

human nature. Here you had your

organization as a whole is usually lacking.

company being sold by a US corporation

It is only when mergers fail, or when they

. to a foreign corporation and there was an

Corporate culture types and strategic

dependency in international M&A
Polycentric
corporate culture

Synergetic
corporate culture

New geocentric
corporate culture

to
I
Ethnocentric
corporate culture

vS

1
o

Low

Strategic interdependence

High

Source: modified from Haspeslagh, Jcmison (1992) and Iteincke (I9H9)

r-

unknown factor."

"Germans always say: Don't worry about

the salary - dedicate yourself to bur

Prof.Dr.R.-D.Reineke

includes the questions of what degree of

- If a short-term integration of corporate

integration is strategically necessary, and

cultures is necessary, are all involved

what exactly is being integrated.

aware that within, say, a year it will only

company and it'll pay. In the United States

people, if you talk about promotion, they

be possible to make a start with regard

The First Hundred Days

wanna know what the salary is."

and that progress can at most be

Decisions affecting the success or failure

Organizing the Integration

Process

to the values and identity of employees

of the project are often made in the first

hundred days after the merger. There are

expected on the levels of outward

: behavior and formal cultural
appearances?

some important and very basic questions

Change management should already

which need to be asked in this phase:

take place during the preparatory phase of

- Is an integrated corporate culture

the merger so as to analyze opportunities

actually necessary for corporate strategy

and risks on all levels of integration and to

and for the goals of the integration? Or

structure the process of change. During

is it perhaps more meaningful to

this phase, officially involved investment

preserve both corporate cultures in a

bankers and lawyers lack the means to do

so called 'polycentric corporate culture'?

this in that their options are aligned

- If a unified corporate culture is

Connecting Differing
Processes of Strategy
Development:'Soft Factors'
and'Hard Factors'
A fundamental misunderstanding is
clearly visible in the way in which
post-merger integration projects are often

towards deal closure rather than the

necessary, to what extent is this an

treated. Because corporate culture is

organization of the integration process. It

opportunity to learn from one another

conceived as related to 'soft' factors, the

is important, however, even at the stage of

by searching for a synergistic corporate

issues are frequently dealt with separately

establishing the aims of the integration, to

culture or even by aspiring together

from 'hard' factors such as the integration

take into account the implications for the

towards an entirely new cultural

of business processes. For example, quite

international corporate culture. This

orientation?

separate teams are formed for the

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Bus INESS
1/01 Integration
Processes

Critical success factors in integration management

can be summarized in seven categories
1. Active change and
speed management .

2. Clear strategy based

integration approach

6. Stringent measuring/
control systems with
appropriate incentives

7. Firm
project
management

3. Early stabilization
of organization

5. Multi-level
cultural change

.4. Focus on
customer
- Prof. Dr. R.-D. Reineke

focus very concretely on cultural

The word "integration" alone is enough in

In practice, it is neither meaningful or

integration. Work on corporate culture has

the meantime to cause anxiety among the

possible to disconnect corporate culture

in this sense the function of a cross-section

many employees who have not always

from other integrationSssues. The attempt

which is relevanfto allintegration projects.

experienced it positively. Important here is

integration of corporate culture.

a clearly communicable strategy which will

to limit corporate culture to styles of

behavior and communication overlooks
the fact that the fundamental values of the
corporate culture affect the design and

Critical Success Factors in

International Integration
Processes

clear in international M&A. For example,

which may possibly stay in place).

Intercultural misunderstanding is often
related to different understandings of

implementation of all management

functions. This circumstance is particularly

itself need to be precisely integrated (and

These can be summarized in seven

categories:

strategy and differing ideas of the aims of

,

the integration.

in German-American M&A, problems

arise because of differing processes of
strategy development. Whereas in the USA

1. Active Change and Speed

Management

3. Early Stabilization of Organization

An important contribution to this is the

a quick decision tends to be made from

Important here are: the mobilization of

immediate and definite filling of leading

relatively few strategic options, but with

employees, an appropriate communication

positions. In international mergers it is not

great openness to early changes of plan, in

strategy, a tailor-made training concept

infrequently the case that uneasy

Germany - after lengthy consideration of

and employee participation. The speed of

compromises are made, in personnel -

numerous well-developed alternatives - the

the integration process will need to be

politics as much as in the integration of

option eventually selected tends to be

controlled. Phases in which complexities

business processes, so as not to jeopardize

pursued with long-term consistency.

are allowed to develop and in which the

the new cooperation. The exaggerated need

The integration of hard and soft factors

process can be thought about are just as

for harmony at the start of the integration

are two sides of the same coin. Separating

necessary as phases of consistent and rapid

process, which often results from

them along thematic or project-

implementation of the integration concept.

insecurity in dealing with foreign

2. Clear Strategy Based on Integration

problems later, whose original cause was

organizational lines is generally not

meaningful. On the contrary, working on
'hard1 integration issues allows one to

Global Player I 12

(corporate) cultures, can then lead to

Approach

the failure to take the opportunity which

Integration project controlling

based on the Balance Scorecard

Client
perspective
- Benefit of merger
for client

Financial
perspective
Synergy and cost
reduction potential
Shareholder value

- Developement of
client base

Integration costs

Client satisfaction

rpora&fulture B
Learning and
development
perspective
Value added through
process integration

- Perceived sincerity
of communication

Pace of process
integrati'on

- Employee
commitment

Relative speed of
R&D processes

- Fluctuation rate
- Knowledge increase
- Prof. Dr. R.-D. Reineke -

Source: Reineke (1989)-

the beginning of such a process offers of .

point for the creation of a new, superior

Measurement of the financial goals of the

making sweeping changes. A further

corporate culture. The active involvement

integration is not sufficient. For continuing

stabilizing factor is a Credible formulation

of customers - for example, in stakeholder

success, all critical Actors should be the

of the central principles and aims of the

boards - can be a first step.

object of an integration control system

merger. 'Buzzwords' such as "Merger of

such as an 'Integrations Balanced

Equals" are likely to do more harm than

5. Multi-level Cultural Change

good: employees will notice that one party

In the case of complete integration,

is always 'more equal' than the other.

behavioral and procedural integration will

7. Firm Project Management

not suffice. Rather, a new common identity

A professionally managed integration will

will have to be created. In international

need considerable (personnel) resources.

Amid hectic efforts to integrate, the needs

mergers, because of the influence of

The necessary expenditure for integration

of customers often come last. This can

different national cultures, this process will

projects is frequently underestimated. This

sometimes result in high integration costs

require particularly careful attention.

is particularly true of the phase before the

4. Focus on Customers

because of customers going elsewhere,

whereas paying attention to one's present
customers' needs can actually be a focal

Scorecard.'

integration actually starts.

6. Stringent Measuring/Control Systems

to

"

'

with Appropriate Incentives

Selected reading:
Hapeslagh Philippe C, Jemison, Davis B. Akquisitionsmanagement.
Frankfurt: Campus, 1992.
Kaplan, Robert S., Norton, David P. Balanced Scorecard. Strategien
erfolgreich umsetzen. Stuttgart: Schaeffer-Poeschel, 1997.
Reineke, Rolf-Dieter. Akkuluturation von Auslandsakquisitionen. Eine
Untersuchung zur unternehmenskulturellen Anpassung. Wiesbaden:
Gabler, 1989.

Reineke, Rolf-Dieter. "Post Merger Integration mit Balanced

Scorecard." Unternehmensberater, Nr. 4/1999: S. 34-37.
Reineke, Rolf-Dieter."Business Driven Intel-cultural Development." R.D. Reineke, C. Fussinger, eds. Interkulturelles Management Konzeption, Beratung, Training. Wiesbaden: Gabler, 2001 (in print).

Prof. Dr. Rolf-Dieter Reineke is Head of the Post Graduate MBAProgram "International Management Consulting" at the
Ludwigshafen School of Business

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