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No121-130)
HR INTERVENTIONS

We focus on the following cultural and people issues that

will have a major impact on the success or failure of cross
border M&A deals.

• Composition of new board

• Who will occupy which job?

• Assessing culture

• Undertaking a human capital audit and selecting the

management team

• Effective communication Retaining talent

• Creating the new culture

• Aligning performance evaluation and reward systems

• Managing the transition

• Integration (see Fig 5.2)

Figure Page No. 124

New Board composition

The post-merger business needs a board for decision

making and the board shall comprise members representing
both the organizations. Members of the new board should
be change agents so that they can carry out the change
process dictated by the merger. Often such top-level
change is both symbolic and a signal of the changes to be
made at lower levels. Board-level changes could also be
inspirational for the rest of the organization. This is
particularly true where the merging partners had
experienced performance problems, which triggered the
merger.

Who will Occupy which job?

In any merger, there will be rival claims for senior executive

positions such as CEO, VP, CFO, COO, heads of divisions and
heads of departments. The choice of the right person for
the right job is crucial as otherwise, the success of the
merger will be jeopardized. Besides, the choice shall be a
signal abut the style, culture and intent of the new
management. Choices based on predilections of the
acquirer or on non-transparent processes will lead to
perceptions of biases and lack of good faith. The
disappointed managers may linger, nurturing resentment
and grievance and slackening their commitment to the
merged organizations or may even leave. Accent on merit
is as important as the integrity of the process of managerial
appointments.

Assessing Culture

The purpose of cultural assessment is to evaluate the

factors that may influence the organizational Compatibility,
to understand the future cultural dynamics as the deal takes
place, and to prepare plans of how the cultural issues should
be addressed if the merger or acquisition goes through.
Before a valid cultural integration strategy can be
developed on the part of the acquiring company or the
amalgamating organizations, a clear understanding of the
prevailing cultures of both the units is necessary. But this
requisite is often neglected in reality.

Human Capital Audit and Management Team

The human capital audit needs be focused on two

dimensions. One dimension is preventive, focused on
liabilities such as obligations, employee litigations and
outstanding grievances. It also includes comparing the
compensation policies, benefits and labour contracts of both
the organizations. The second dimension refers to the
talent audit which, in the long-run, would be critical for the
success of a merger or acquisition deal.

Effective Communication

Any amount of writing on the role of communication does

not amount an overkill. Specifically, in cross border M or A,
communication plays a critical role in several ways. First, it
seeks to alleviate tensions among employees, particularly of
the acquired company. ‘Merger syndromes’ do occur
among employees. Fears such as layoffs-relocations, big
fish-attitudes, superiority-inferiority feelings and victory-
vanquished perceptions do cause stress to the employees.
Communication should help acquire coping skills to deal
with the stress arising out of the extraordinary
organizational changes. Second, communication feeds the
top management about the integration that should take
place between the two partnering organizations. Finally,
seniors management must communicate a vision
throughout the company, one that is positive and guides the
employees from both the previous organizations towards a
new and better future.

Retaining Talent

Retention of talent assumes relevance, particularly for the

target company, as the competent employees tend to leave
before or after the deal. It is also crucial if the deal is struck
with a view to acquire a unique knowledge of the acquired
employees-as is the case with many such deals in the high
technology sector where companies use acquisitions to plug
holes in their R&D portfolio or to quickly build new
capabilities.

Creating the New culture

Culture creation is significant in two ways: first, culture

affects the performance of a business. Employees who
share a culture are more likely to be united in their thoughts
and actions, and such unity impacts performance. It helps a
business to focus its resources, penetrate its markets, meet
customer requirements, and to accomplish strategic goals.
In general, the more thoroughly a culture is shared, the
more likely that the business will be successful. Such a
shared culture is all the more important for an organization
that has undergone massive change.

The second assumption for culture creation is that the

old ways are not new ways. Old habits and practices which
were in place before the deal, may not be acceptable to the
business after the merger or acquisition has taken place.
Cultures that matched old business needs must give way to
cultures that reflect the changing needs.

Aligning Performance appraisal and Reward Systems

Aligning performance measurement and reward systems is

a challenging task particularly when the two organizations
have different systems and the staff of one of the parties is
adversely affected by the change. Where Us organizations
are involved, disparities in remuneration system are bound
to exist in cross border acquisitions, as they rely on stock
options and performance linked incentive schemes. When
Daimler-Benz merged with Chrysler in 1998, there were
glaring differences in the compensation arrangements
between the American managers and their German
counterparts.

Challenges notwithstanding, a parity between

compensation systems needs to be brought about as that
would help create a unified culture.

Managing the Transition

Transition occurs immediately after the deal and before a

new team of managers is in place. Integration managers
are expected to manage the transition. They are supported
by transition teams. Certain tasks are cut out for the
integration managers.

First, the integration manager is expected to guide

the integration process, making sure that critical decisions
are made and activities are put in place according to an
agreed schedule. He or she should also champion norms
and behaviours consistent with new standards,
communicate key messages across the new organization
and identify new value adding opportunities.

Second, the integration manager needs to educate

the bought-out company about how the new manager
operates and what it can offer in terms of capabilities. He
or she can help forge social connections among the people
of both the partners, enable acquired company’s employees
to understand the language of the parent and its ways of
doing things. The integration manager can also help the
parent understand the acquired business and what it can
contribute.

Third, the integration manager needs to act as an

arbiter between the two companies and thwart the
tendency of the parent to act big and enact the “big-fish-
eat-small fish” syndrome. Often, alliances fail because the
acquirer has a tendency to act as a winner and treat the
acquired as vanquished.

Fourth, the integration manager and the transition

team need to serve as a role model for how the new
organization should act. They should disseminate the
shared vision and make sure that practices are
appropriately aligned with the vision. In reality, too many
task forces and teams slow things down, creating
coordination problems, conflict and criticism. Care should
be exercised to avoid such possibilities.

Need for Integration

The final discussion on HR interventions in M & A ‘s is to

bring in integration. Integration is the critical requirement
for the success of merger or acquisition. Alternatively called
fusion, integration involves capturing the hidden synergies
by swapping and leveraging capabilities between he
partners. This is achieved by dissolving both the partners
and creating a new company, as with Novartis, which was
found through the merger of Ciba-Geigy and Sandoz in
1996, to create a global life sciences giant.

The desired end-state of culture should decide on the

choice between assimilation and fusion. Figure 5.1 should
provide a useful guideline in this context. Where absorption
is the end state, assimilation can be contemplated. It is
fusion where both the parties aim at transformation.

NATURE OF CULTURE
Culture is understood as the customers, beliefs, norms and
values that guide the behaviour of the people in a society
and that are passed on from one generation to the next.
This simple meaning connotes the following core elements
of culture:

• Culture has normative value. It prescribes do’s dont’s

which binding on the members of a society.

• Culture is a group phenomenon. Culture applies to

the members of a society. Society’s normative values
are binding on each member and not vice versa.

• Cultural practices are passed on from generation to

generation. Women in Indian society wear kumkum
on their foreheads because their parents have told
them to do so. The parents did the same because
their parents had done so.

There are dominant cultures, sub-cultures,

organizational cultures and occupational cultures
dominant culture is pervasive and extends to the
whole of a country. For example, certain things are
auspicious and some others are not so and this belief
is shared by all Indians.

Subcultures exist within the dominant

culture. The cultureal practices of Punjabis are
different from those obtaining in Karnataka.
Interestingly, subcultures subsume into the dominant
culture to present a unified culture, typifying “unity in
diversity”.

Within the dominant culture is the

organizational culture. Every organization will
have its own distinct culture. The culture of the
Tatas, for example is different from that of Infosys
while that of Infosys is not the same as that of WIPRO.

Each profession carries its own culture and it

cuts across dominant cultures. An accountant, for
example, speaks the same language whether he or
 she is an Indian or an American. So is the case with a
medical practioner or an attorney.

Figure Page. No. 25

MULTICULTURALISM

Multiculturalism means that people from many

cultures (and frequently many countries) interact
regularly. Global firms are repositories of
multiculturalism. Not that domestic firms have only
monocultures. Domestic firms too may have
employees with different nationalities. Infosys, for
example, has foreigners representing nine per cent of
the total employee strength. Similarly, four per cent
of WIPRO’s employees are foreigners. Domestic firms
having multiculturalism may be by choice, but it is by
design with multinational enterprises.

CULTURAL PREDISPOSITIONS

Most MNCs tend to have cultural predisposition

towards managing things in a particular way. This
orientation helps an MNC determine the specific steps
it takes. Four predispositions are identified:
ethnocentric, polycentric, regiocentric and geocentric.

Figure Page. No. 26

Ethnocentricism

In ethnocentric orientation, the home country’s culture is

sought to be imposed on subsidiaries. The MNC simply
exports its HR policies and practices from home office to
foreign locations. Expatriates from the MNC’s home country
manage the affairs of the subsidiaries. Local employees
occupy low-level and supporting jobs. Past performance at
home and technical competence govern selection criteria
for overseas assignments from home office.

Ethnocentric policy is justified on the following reasons:

• Perceived lack of competent host country nationals.

 • Need to maintain a unified corporate culture among
all subsidiaries.

• Greater control and loyalty of home country nationals

• Key decisions are centralized.

An ethnocentric policy, however, has a number of

disadvantages:

• Host country nationals are denied promotional

opportunities.

• Expatriate managers may not be able to adapt to

local conditions easily and early.

• Expatriate managers are often poorly trained for

international assignments and tend to commit
mistakes.

Polycentricism

Polycentricism implies that the multinational corporation

seeks to adapt to the local cultural needs of subsidiaries. If
a management policy is oriented to suit local needs, or if a
product is customized to meet customer tastes, it is
polycentricism in practice.

Polycentricism is more pronounced in the context of

human resource practices. In polycentric staffing,
operations outside the home country are managed by
individuals from the host country. Firms can implement a
polycentric approach for top and middle level managers, for
lower-level staff or for non-managerial workers. In other HR
policies relating to appraisals and promotions too, local
needs outweigh other considerations.

Polycentric approach does not bestow absolute

freedom to subsidiary heads to run their business as stand
alone units. MNCs usually conduct extensive training
programmes in which host-country managers visit home
offices for extended periods. They are trained in the
company’s culture and are taught how to protect
thenuances of corporate culture, respecting, of course, the
host country’s beliefs and values.

Regiocentricism

Regiocentric approach operates in the same way as

polycentricism. But they differ in that a polycentric
company adapts IHRM practices to countries and the
regeocentric to regions. Regiocentricism has similar
features, advantages and limitations as the polycentric
orientation.

Geocentricism

In geocentric orientation, subsidiary operations are

managed by the best qualified individuals, regardless of
their nationality. Subsidiaries may chose managers from
the host country, from the home country or from a third
country. The only criterion for selection is the merit of the
applicant. The capable managers adapt esily and well to
different cultures and usually are bilingual or multilingual.

Among the advantages of geocentricism is that the

company becomes truly cosmopolitan. Second, global
managers are able to adjust to any business environment-
particularly to cultural differences. The major drawback of
geocentricism is the additional costs incurred on training
and relocation of expat managers. Compensation of
expatriates is higher than for host country employees.

CULTURAL DIMENSIONS.

We propose to discuss three cultural models: Globe Project

Team, Hofstede’s model and Trompenaar’s 7d cultural
model. An understanding of these models equips
international managers with the basic tools necessary to
analyse the cultures in which they do business. The three
approaches also provide useful theoretical concepts to help
understand the nuances of different cultures better.

Globe Project
The GLOBE (Global Leadership and Organisational
Effectiveness) project team comprises 170 researchers who
have collected data over seven years on cultural values and
practices and leadership attributes from 17,000 managers
in 62 countries, covering as many as 825 organisations
spread across the globe. The research team identified nine
cultural dimensions that distinguish one society from
another and have important managerial implications;
assertiveness, future orientation, performance orientation,
human orientation, gender differentiation, uncertainty
avoidance, power distance, collectivism/societal, and in-
group collectivism.

Assertiveness