Integrating Talent Across Cultures
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Mergers and acquisitions are tough enough without adding a cultural component to the mix when companies from different parts of the world are involved. In fact, interviews with senior executives show ...

Mergers and acquisitions are tough enough without adding a cultural component to the mix when companies from different parts of the world are involved. In fact, interviews with senior executives show that an overwhelming cause for the failure of mergers and acquisitions “is the people and the cultural differences.” Read about the three critical steps to achieve people integration in multicultural acquisitions.

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Integrating Talent Across Cultures Document Transcript

  • 1. frontpage 2 | 10 ® The Magazine of WorldatWork © Best Practices for Integrating Talent AcrossCultures & Geographies A cquisitions are notoriously challenging, and we are all familiar with the very public failures of such transactions. Integration and obtaining synergistic value between two organizations is fraught with challenges. When you add cultural dissonance the entire process is at tremendous risk. But mergers and acquisitions also By Rajiv Burman, Jubilant Organosys present an opportunity for HR professionals to shine through the successful integration of cultures. QuICk look In recent years, companies in the BRIC — a term According to a KPMG study, “Eighty-three percent of all coined by Goldman Sachs labeling Brazil, Russia, India mergers and acquisitions failed to produce any benefit for and China — countries have used their newly acquired the shareholders and over half actually destroyed value.” wealth and confidence to acquire distressed or strategic A heavy-handed approach of imposing the norms of assets in the West. These acquisitions have been in the acquiring will lead to a covert or explicit backlash including unionization. commodities (oil, steel, gas and minerals), high tech- Focus on understanding which people strategy in the nology and pharmaceuticals. Acquisitions have provided acquired company made it a valuable asset to be companies with an easier entry into unknown markets acquired; assess practices in the industry, geography and overcome brand or legislative barriers. and legislative differences before making changes.Contents © WorldatWork 2010. WorldatWork members and educational institutions may print 1 to 24 copies of any WorldatWork-published article for personal, non-commercial,one-time use only. To order 25 or more print presentation-ready copies, or an electronic copy for distribution to colleagues, clients or customers, contact Gail Hallman, 877-951-9191ghallman@tsp.sheridan.com at Sheridan Press, 717-632-3535, ext. 8175. To order full copies of WorldatWork publications, contact WorldatWork Customer Relationship Services, www.worldatwork.orgcustomerrelations@worldatwork.org, 877-951-9191.
  • 2. have an opportunity to build solutions and create business success through successful integration. This can leadGlobal HR professionals have an to recognition at the board level for the value provided by the HR function.opportunity to build solutions and Managing Integration of Acquisitionscreate business success There are cultural differences among first-world countries, and betweenthrough successful integration. the old and new first worlds. At the extreme end are transactions between the G7 and third-world companies, some of whom are getting in the game for the first time. Since no two acquisi- tions can be the same, uniqueness due to the industry, local culture and Acquired G7 (a forum consisting of Of Fortune’s ranking of the top 500 expectations will require you to fine-the seven richest countries: France, global companies, 62 are from emerging tune this template.Germany, the United States, Canada, markets, up from 32 in 2003. Despite Successful integration in acquisitionsItaly, Japan and the United Kingdom) the global downturn, 41 percent of the is possible when all areas of thecompanies include the Anglo-Dutch privately held businesses plan to grow process, people and technology aresteel manufacturer Corus Group, which through acquisitions in the next three covered. This enables the acquiringwas purchased by India’s Tata for years to acquire established brands or company to ensure that it is able toUS$6.2 billion following a BRIC-led new technology, according to the 2009 realize the strategic plans behind thecompetitive bid between Tata and International Business Report by Grant acquisition. But without a well-plannedCompanhia Siderúrgica Nacional Thornton. In 2009, BRIC companies integration, the acquired company willof Brazil, and IBM’s PC business, account for 15 percent of the world falter, cause internal distraction andacquired by China’s Lenovo Group for economy and 40 percent of the world lead to value erosion. Given the largeUS$1.25 billion. Among other BRIC population, and hold 42 percent of number of acquisitions in the past fewnations, Russia’s Severstal recently global currency reserves. decades, companies and consultantsagreed to buy Esmark Inc.’s extensive There will, invariably, be specific areas have developed tools for achieving coststeel manufacturing operations in of friction between the company’s reductions through business processthe United States for US$775 million. new head office and the newly relegated improvements, consolidation andIndia’s Tata Chemicals acquired General G7 branch office. According to a technology integration. But the fieldChemical Industrial Products Inc. in the KPMG study, “Eighty-three percent of of people integration has receivedUnited States for just over US$1 billion all mergers and acquisitions [M&As] insufficient attention, and this hasin 2008, and Infosys signed an agree- failed to produce any benefit for the caused many acquisitions to falter.ment to acquire McCamish Systems for shareholders and over half actually Although most companies recognizeUS$38 million. destroyed value.” Interviews of more the value of people talent, it is the These acquisitions are not isolated than 100 senior executives involved financial processes and technologyexamples. Both the KPMG’s Emerging in these 700 deals during a two-year integration activities that receive mostMarkets International Acquisition period revealed that the overwhelming of the focus and funds. Subjective,Tracker and research carried out by cause for failure “is the people and difficult-to-measure metrics, as wellthe United Nations Conference on the cultural differences.” Difficulties as lack of financial metrics on culturalTrade and Development report that encountered in M&As are amplified integration complicate the picture.BRIC-nation companies are increas- in cross-cultural situations, when the Companies routinely underestimateingly willing to engage in mergers and companies involved are from more than the value of integrating cultures andacquisitions activity with G7 companies. one country. Global HR professionals its stickiness. Increasingly companies16 workspan 02/10
  • 3. have realized the folly of this approach. 1967 and 1973 covering more than lower at 51. The higher the countryLow morale, resignations, unionization, 70 countries. He identified five dimen- ranks in this dimension, the greaterexpensive retention Band-Aids, political sions to define culture. These are power the gap between values of men andinfighting and outright conflict lead to distance, long-term orientation, indi- women. India is a male-dominateda sapping of energy and an inward focus vidualism, masculinity and uncertainty society, and generally male managersrather than competing in the market. avoidance. These elements are critical are more easily accepted than female in understanding the large gaps among managers. Hence, assertiveness,Steps to Success countries. Using Hofstede’s cultural performance, success and competitionThere are three critical steps to achieve dimensions as a framework in a cross- are emphasized. India’s lowest-rankingpeople integration in multicultural border acquisition will prove very dimension is uncertainty avoidancepost-acquisitions. Successful integration helpful. Building on this framework, (UAI) at 40, compared to the worldrequires significant change on the part you can help create understanding and average of 65. On the lower end ofof both the acquired and the acquiring solutions like training, counseling, this ranking, the culture may be morecompany. A process of mutual adjust- identifying communication and open to unstructured ideas and situa-ment and acculturation must take place relationship pitfalls in advance. tions. The population may have fewerfor successful integration. The following provides an example of rules and regulations with which to differences between cultures of India attempt control of every unknownSTeP 1: Understand the gaps and the United States. (See Figure 1.) and unexpected event or situation,between the acquiring and acquired India has power distance index (PDI) as is the case in high-uncertainty-companies in culture; train employees as the highest Hofstede Dimension avoidance countries. This is reflectedfor sensitivity. for the culture, with a ranking of 77 in a strong entrepreneurial spiritCulture is the way things are done compared to a world average of 56.5. in India, creative solutions andin an organization. It is the glue that This power distance score for India an ability to think outside the rulebinds its employees and enables the indicates a high level of inequality of book. It also leads to poor processcompany to operate smoothly. Its power and wealth within the society. mapping and documentation.manifestations are diverse — from This condition is not necessarily On the other hand, the values align-decision-making to dress code — and subverted upon the population, but ment between Canada and the Unitedit is built from the country’s and orga- rather accepted by the population States (see Figure 2) confirms thenization’s values. A structured process as a cultural norm. PDI is the most reason why integrating organizationlike the Hofstede’s cultural assessment indicative dimension of managerial cultures between these two countriesis a great starting point to understand and corporate culture. India’s long term is so much easier.the country’s cultural values. orientation (LTO) dimension rank is 61, After understanding these differences, Professor Geert Hofstede conducted with the world average at 48. A higher it is important to establish a plan forperhaps the most comprehensive study LTO score can be indicative of a culture sensitizing employees. This can be doneof how values in the workplace are that is perseverant and parsimonious. through exchange visits of leadershipinfluenced by culture. Hofstede India has masculinity as the third- team members, and key employees,analyzed a large database of employee highest ranking Hofstede Dimension at organizing familiarization training forvalues scores collected by IBM between 56, with the world average just slightly employees to build an appreciation of Successful integration requires significant change on the part of both the acquired and the acquiring company.18 workspan 02/10
  • 4. the differences. Doosan, a South Korean are a key organization design element a particular purpose,” said Phyllis andcompany, successfully used this method that helps acquiring companies avoid Leonard Schlesinger in The Portablefor its acquisition of the BobCat unit surprises, as well as the risk of being MBA in Management. Organizationalfrom Ingersoll Rand Co. out of control and incurring future design allows the acquired company For the organization’s cultural gaps, financial liabilities. “It is helpful to continue to operate in fast-movingobserving, surveying, discussing and to think of organizational design markets without referring all decisionsidentifying different business practices elements as building blocks that can to the acquiring company. Mostis key to avoiding inefficiencies and be used to create a structure to fulfill importantly it provides the acquiredin worst-cases clashes. Successfulintegration plans also include explicit, FIGURE 1: THE 5D MODEl OF PROFESSOR GEERT HOFSTEDE — U.S. AND INDIAinteractive feedback systems throughwork groups, task forces, etc., so that 100members of the “new” organization canlearn what it means to be a part of thenew company. For example, when HP 80and Compaq merged, HP required eachoperational manager to conduct a half- 60day session, with the support of humanresources staff, on the differences 40between the two previous companycultures. The sessions revealed thatHP staff typically used voice mail 20while Compaq’s people typically usede-mail. People from either side did 0 PDI IDV MAS UAI LTOnot have the same ideas about how tocollaborate, which lead to confusion PDI | power distance index UAI | uncertainty ❚ United States avoidance indexand misunderstanding. IDV | individualism ❚ India lTO | long-term orientation MAS | masculinitySTeP 2: Build the new organizationand decision chart of authorityNew organization charts and the FIGURE 2: THE 5D MODEl OF PROFESSOR GEERT HOFSTEDE — U.S. AND CANADAaccompanying decision charts ofauthority provide much needed clarity 100in the early days of post-acquisitionintegration. They also clarify the 80degree of operational interdependenceor need for autonomy to retain the 60acquired companies’ competencies.There can be a complete preservation 40of existing structure, absorption orsymbiosis of the two organizations. Ideally, a detailed organizational 20chart will provide the business owneror manager with an accurate overview 0of the relationships of these units/ PDI IDV MAS UAI LTOresponsibilities to one another and a ❚ Canada PDI | power distance index UAI | uncertaintyreliable indication as to whether the avoidance index ❚ United States IDV | individualismfirm is positioned to meet the business’s lTO | long-term orientation MAS | masculinityfundamental goals. Decision charts workspan 02/10 19
  • 5. FIGURE 3 SAMPlE CHART OF AUTHORITY company’s managers a sense of control and empowerment — a much needed sentiment after having been Acquiring company Elements local office authority authority acquired. Acquisitions lead to a sense of uncertainty and confusion. Clarity Adding headcount Approves positions below direct Global HR and CEO head in decision making mitigates these approve all positions in within approved reports of CEO. Head of HR and leadership team at local feelings. HP and Compaq built a budgets CEO approve. company. careful partnership, starting at the top, between both companies to Oversees replacement hiring Global CFO and CEO Headcount due to voluntary and involuntary approve all headcount make critical executive selections and attrition. and budget variances. organization structures in advance of the deal, and then announced their Global CFO and/or CEO Negotiate contracts within estab- decisions shortly after the deal went Customer contacts approve exceptions to lished financial metrics financial metrics. through. This, among other integra- tion actions, helped make theirs a Approves distribution based on performance management Compensation committee successful acquisition. Compensation — program and bonus plans within approves merit and bonus merit and bonus overall pool. Leadership team pool. A complete organization chart jointly approves. will identify the new hierarchy and decision-making process flow. An Head of HR and finance jointly Vendor and insur- sign off on new contracts within Approves budget. accompanying chart of authority ance contracts approved budget. will cover elements of headcount, compensation, talent management, Board approves all Board delegates investment plan design changes capital, expenses and employee 401(k) plan committee authority for plan and appoints investment relations (see Figure 3). Having administration. committee. taken over from Tata Liebert, coping with the challenge of change was surely the dominating concern for Emerson Power Network. And this FIGURE 4: PEOPlE STRATEGY drove the company into rolling out a set of people practices. This included creating a cross-functional team, empowering these teams to deploy a new organization structure in the organization, and making customer- Rewards People centricity the focus of the complete HR action plan. STeP 3: Build the new people strategy This helps focus the acquired organi- Decision-Making Work Processes zation on the future and understand the acquiring company’s vision. It avoids the negative outcome that comes from employees getting bogged Information Managerial down in comparing policy differences and knowledge Structure between companies. Companies have to deal with the need to change policies and programs to align with the acquiring company philosophy and values. This is a tricky20 workspan 02/10
  • 6. EXAMPlE OF AN HR STRATEGY FIGURE 5: AT A NUClEAR REACTOR SUPPlIER This has been identified using the strengths of both organizations. The intent is to build[Aligning with the acquiring company] on the success of both companies. We will aim to hire, retain and train best-is a tricky process since ... losses to in-class nuclear engineers and develop the world’s most reliable and safest nuclear reactor design.past practices and benefits can quickly Employer of Choicelead to a drop in morale. • Achieve Gallup score of 70+ and be recognized as a “Best Place to Work.” • Achieve a zero-incident safety record at every plant. • Invest in training and development at 4+ man-days per employee. Acquire and Retain High-Performing Talent • Create a strong employer brand.process since employees are overly business strategy. Lincoln has grown • Target pay and benefits at 50Psensitive and losses to past practices through acquisitions and it has learned for “Meets Expectations;” 75Pand benefits can quickly lead to a to build an HR strategy that reflects for “Exceeds Expectations.”drop in morale. Hence a wholesale the cultural factors at societal and • Hire for cultural fit. • Have a compliant, equitable and fairsubstitution of the acquired companies’ organizational levels. professional environment.programs by the acquiring companies’ People strategy must encompassprograms could lead to employee six dimensions (see Figure 4). Long- Pay for Performancerelations problems, especially if the term vision coupled with clarity on the • Performance incentive programs to cover 100 percent of salaried employeesnew programs are lower in value to basics of their employment relation- • Employee growth based on performance.the employee. Instead, focus on under- ship helps employees move higher upstanding what people strategy in the the Maslow’s hierarchy. Abrahamacquired company made it a valuable Maslow proposed that human beingsasset to be acquired, and assess move up a hierarchy of five levels of resourCes Pluspractices in the industry, geography basic needs. In the levels of the five For more information related to this article:and legislative differences before basic needs, the person does not feel www.worldatwork.orgmaking changes. the second need until the demands Type in any or all of the following keywords Develop and paint the new people of the first have been satisfied, and or phrases on the search line:vision and strategy. Describing the path so on. These needs are physiological, • Mergers and acquisitions • Cultureand process to get there will create a safety, belongingness, esteem and • Acquisition integration.positive energy for employees. Involving self-actualization. For most business www.worldatwork.org/bookstoreemployees and overcommunicating professionals satisfying the need for • Mergers & Acquisitions: How-tothrough all possible means — town esteem and self-actualization are Series for the HR Professional • Mergers & Acquisitions: A Checklisthalls, departmental meetings, Web crucial to be able to operate at their for Total Rewards Professionalssite and e-mails — will be critical productive best. See Figure 5 for an • Culture at Work: Building a Robust Work Environment to Help Drive Yourin quashing rumors, clarifying example of an HR strategy. Total Rewards Strategy.questions and selling the rationale. www.worldatwork.org/educationThe acquisition is a major change ABout tHE AutHoR • Organizational Culture Change —for the employees, and you need to Rajiv Burman is the vice president of human A Work-Life Perspective, Work-Life Certification Course: W4help them move from the fear to resources, North America, for Jubilant Organosys, • Introduction to Work-Life Effectiveness —excitement phase. which acquired Hollister-Stier, Clinsys, Successful Work-Life Programs to Attract, Motivate and Retain Employees, The Lincoln Electric Co. based in Cadista and Draxis businesses in the United Work-Life Certification Course: W1Cleveland has a well-developed process States and Canada. He can be reached at • Strategic Communication in Total Rewards, Compensation Certificationto build an HR strategy linked to its rajiv_burman@jubl.com or 416-903-0493. Course: T4. workspan 02/10 21