Influences of Corporate Culture in a Merger

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Frame of Reference

This thesis is focused on the corporate culture effects due to a merger. In order for the reader to fully compre-hend our findings, the first part of the frame of reference will deal with the concept of mergers and the ration-ales behind them. Following this, an explanation of corporate culture is considered. Thirdly we introduce a model that explains how corporate culture is affected by a merger which will be our main tool for the analy-sis. Lastly, a short review of the concepts used will be presented to underline the connections between the theories.

Mergers

The purpose of this section is to inform the reader on fundamental theories concering mergers and the rationales behind them. However, as the merger itself is not the focus of this thesis, we have chosen not to elaborate extensively on this topic.
A merger takes place as two or more formerly independent business entities forms a single company (Encyclopaedia Britannica, 2006). This kind of strategic fusion is often done by a holding company buying one or more firms and combining them. It can also be the case of two companies of equal size and resources that choose to unite forces in a newly started company (Alarik, 1982). Furthermore, Alarik claims that a merger is also possible from a large company perspective, as they buy a smaller firm as a part of an offensive growth strategy. We would like to emphasize the fact that it is difficult to establish one single defi-nition of a merger as they all seem to vary depending on the context in which they are pur-sued. When we use the term merger, we refer to Alarik’s definition of a holding company buying two firms and combining their businesses into one.
There are four main types of mergers; vertical, horizontal, market-extensional and unre-lated (Encyclopaedia Britannica, 2006). The vertical one occurs when a firm merges with a supplier or a customer whereas the horizontal version entails a strategic combination of two companies that produces the same goods or service for the same market. If a company on the other hand merges with a company that produces the same goods and services for different markets it is seen as a market extensional merger (Encyclopaedia Britannica, 2006). Lastly, an unrelated merger takes place as two completely unrelated companies unite and thus form a conglomerate.
The numbers of mergers follows the business cycle, during the highs there are far more mergers pursued than in the recessions (Finch & Nixon, 2006). This can be traced back to the fact that companies lack the financial resources to undertake a merger during the down-turns (Finch & Nixon, 2006).
The underlying motives for merger activities are very wide-spread although the most com-mon reason is to achieve decreased unit costs due to increases in the amount of produc-tion, i. e. economies of scale (Finch & Nixon, 2006). Furthermore, the reasons can range from efforts to increase efficiency and competitive advantages, product diversification and product line extension to tax reduction and international expansion strategies (Finch & Nixon, 2006).

Corporate Culture

Corporate culture is a complex concept to understand and manage, especially in a merger situation. Below follows the definition of corporate culture that we will use throughout this thesis, and a model which will provide tools for measuring it. For simplification, we refer to corporate culture as culture

  Definition of Culture

The concept of culture is heavily influenced by several different factors such as the industry in which the company operates, its geographic location, events that have occurred during its history, the personalities of its employees, and their patterns of interaction (Sadir & Lees, 2001). It can be thought of as the personality of the organisation (Rashid, Sambasivan & Johari, 2003).
Culture refers to the underlying values which the organisation appreciates, expects and en-courages. Furthermore, it concerns the norms that enclose and strengthen the policies, practices and procedures of the organisation. Thirdly, the concept of culture contains the shared sense by employees of what the norms and values of the organisation are (Wilson, 2001). Culture also covers the emotional, behavioral and cognitive elements of total psy-chological of functioning of the members of the group. It is the added shared learning of a group of people (Schein, 2004).
The formal definition of culture we have chosen to work with is formulated as follows:
“A pattern of shared basic assumptions that the group learned as it solved its problems of external adapta-tion and internal integration, that has worked well enough to be considered valid and therefore to be taught to new members as the correct way to perceive, think and feel in relations to those problems.”
(Schein, 2004) p. 17

The Cultural Web

The cultural web is a tool used for analysis of a corporate culture; in order to create a broad and somewhat general view of the organizations customs (Johnson, Scholes & Wittington, 2005). It is hard to form an opinion about a corporate culture, as the underlying assump-tions and beliefs which is constituted in the paradigm, are hard to find in text. It is more likely to be evident in the day-to-day activities and conversations of employees. These eve-ryday manners not only give indications for the existence of the paradigm but also under-pin the taken-for-granted assumptions; it is based on (Johnson et al, 2005).
To gain an understanding of the paradigm, it is therefore essential to talk to people in the organization, as opposed to trying to read your way into a culture. Each of the units of the web needs to be investigated through interviews, to ensure that the variables of a corporate culture are fully covered and to be able to get a grip of the paradigm (Johnson et al, 2005). On the following page an illustration of the model is available.
As can be seen in figure 2, the cultural web is made up of the paradigm itself, and six con-nected cultural aspects. They are connected through a vital coherence in the culture, which makes the organization function effectively (Johnson et al, 2005). Each connected cultural aspect is discussed further below:
The routines makes up the way people behave towards each other and also to the people outside the organization. It can be seen as ‘the way things are done around here’ and is many times taken for granted. It can at its best act as a lubricant for the work in the organi-zation or may provide a characteristic corporate competence. On the other hand, it can also be very hard to impose changes on and thus slow down the development of a com-pany (Johnson et al, 2005).
The special events and happenings that reinforce the particularly important aspects of or-ganizational life are called rituals. They emphasize and strengthen ‘the way we do things here’. Training programs, interview panels, promotion and assessment procedures are all examples of rituals. However, the rituals do not have to be big events, but are also com-prised in having a drink after work or chatting by the coffee machine (Johnson et al, 2005).
The stories told by employees and management to each other, outsiders, new recruits all en-trench the contemporary and historical organizational culture as well as personalities and important events. Most often they include some form of success, disaster, heroes and vil-lains who in some way deviate from the norm. Stories are used to bring forward what is re-garded as important in a company, and legitimize certain behaviours (Johnson et al, 2005).
Symbols are logos, titles, offices, other perks and benefits that are visible, and also the lan-guage and terminology that make up a flash of organizational life and the nature of an or-ganization. For instance, strict lay outs of offices; deviating privileges between the levels in the organization and the use of titles are symbols which may represent hierarchy or respect-fulness in the organization. It should be noted that many aspects in the cultural web com-prise some form of symbol as they comprise messages beyond their functional rationale (Johnson et al, 2005).
The power structures of an organization are formed in the hierarchical layers of a company and takes time to build up. They are linked with the paradigm itself in form of being a key construct. It is likely that the most influential managerial groupings are closely related with this set of core assumptions and beliefs; however, power can steam from many sources (Johnson et al, 2005).
Control systems are the metrics and reward systems that put an emphasis on the important aspects of the organization and are used to monitor and draw attention to certain activities (Johnson et al, 2005). The features put under close attention become more valued in the organization than those it chooses not to look after as much.
Organizational structure is likely to reflect the power structures of an organization and define important relationships as well as bring forward what is important. This aspect of culture entails the formal and informal relationships among employees, but also involves some as-pects of control (Johnson et al, 2005).
This tool is used for analysis, by observing the way the organization actually operates through the cultural artifacts. From that clues about the paradigm will be revealed and an-swer the question of what corporate culture is (Johnson et al, 2005).

1 Introduction
1.1 Background
1.2 Problem Discussion
1.3 Purpose
1.4 Delimitations
1.5 Disposition
2 Methodology
2.1 Primary and Secondary Data
2.2 Qualitative and Quantitative Research Methods
2.3 Case Studies
2.4 Data Collection
3 Frame of Reference
3.1 Mergers
3.2 Corporate Culture
3.3 Influences of Corporate Culture in a Merger
4 Empirical Findings
4.1 Reflections on the Fläkt Woods Merger
4.2 Corporate Culture
4.3 Influences of Coporate Culture in the Fläkt Woods Merger
4.4 Empirical Findings – Review and Reflections
5 Analysis
5.1 Analysis of the Merger
5.2 Analysis of the Corporate Culture through the Cultural Web
5.3 Analysis of Influences of Corporate Culture in the Fläkt Woods Merger
5.4 Analysis – Review and Reflections.
6 Conclusion
6.1 Conclusions of Methodology and Frame of Reference
6.2 Conclusions of Analysis
7 End Discussion
8 References
9 Appendix
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