Just Talk It Out Down The Line
n Recently, when a much-publicised three-year-old strategic alliance between a multinational and an Indian company was terminated, managers from both sides were visibly relieved. The cultural imbalance apparent from day one, led to sparks at the workplace, reveals a manager.
Business managers will tell you that culture clashes are inevitable when companies merge or come together in any other alliance. And while some companies bridge the differences through constant communication with the employees and by bringing about systemic changes, others just buckle under.
Says J Rajagopal, managing director of Coopers and Lybrand: Nearly 70 to 80 per cent of the problems arise from HRD. Problems crop up not only when the senior management does not get along but also due to the differences in compensation structures, systems and work practices. For instance, one management consultant recalls how two international accountancy firms backed out of an alliance at the last minute when those tying up the deal discovered that the companies worked with completely different information technology systems.
Usually, however, companies are content to sign on as long as there are broad synergies that a merger is likely to bring about. Cultural issues become quite important when you are talking about post-merger integration, and companies often grossly underestimate this aspect, says James P Andrew, managing director of The Boston Consulting Group. Adds Anita Ramachandran, head of the management consultancy firm Cerebrus: Cultural problems have a lot to do with performance expectations and accountability.
Clearly, human relations are the most difficult to manage. Even more so, when post merger, the companies engage in a battle of supremacy. Going strictly by the book, a merger means the coming together of equals, but, it is rarely so. Says Verghese Jacob, CEO of Godrej Telecom: A merger is never of equals because somebody is buying somebody. It is a big fish devouring the small fish. For instance, in the case of the Glaxo-Burroughs merger, it was well known that Glaxo would be the more aggressive of the two. And not just because of its dominance at the marketplace. Says an ex-Burroughs hand: I could feel the difference in cultures. Glaxo is a larger organisation and is not as personalised in its management styles as Burroughs was.
This may be true. But there were a number of other problems as well. For one, in Burroughs India, despite being a smaller company than market leader Glaxo, there were almost 11 people designated as vice-presidents against five in Glaxo. After the merger, it was inevitable that some senior members would be rendered surplus. Glaxo got around this problem through a voluntary retirement programme which saw over 900 people leave, and the sale of its foods division to Heinz. Today the company has 4,100 people.
According to the head of the human resource department in a multinational firm, after a merger, there are four main issues which come into play. These include the union, compensation, surplus staff and systems and structure. Consider, for instance, the recent Hindustan Ciba Geigy and Sandoz merger. At Sandoz, the functioning styles are decentralised while in Hindustan Ciba Geigy, it used to be the opposite. Also in India, Hindustan Ciba Geigy is perceived to be the stronger of the two at the marketplace while Sandoz is better known for its managerial skills. The newly formed Novartis is toeing the Sandoz line, managerially, and hence there is this perception that many of the old Ciba hands are being left out.
Managerial differences are most visible in ventures between Indian and European or American firms. Take the joint venture between Premier Automobiles and Peugeot. J Manlay, a Frenchman and deputy managing director of PAL-Peugeot says that the management style at Premier is very different from that of his company and most other European companies. Teams are an important part of any European organisation but here I found that people worked as individuals.
Cultural problems are often compounded by the basic systemic differences between the partners. Two years ago, when Colgate Palmolive bought over the consumer products division of Ciba Geigy, the companies found that the biggest difference between the two was in the way they managed their field forces. The Ciba unit had 131 people. Of these, 100 were part of the field force which was not unionised but bargainable under the Industrial Law. Moreover, they were heavily consumer focussed and not geared towards building volumes. Colgate, on the other hand was volume-driven. This meant, they had sales incentives based on deliveries, a concept non-existent in Ciba till then. Colgate looked at a large geographical territory with a single person responsible for a basket of products.
The two also used different distribution channels. While Ciba had its own distributors, Colgate had outsourced distribution. This meant a different way of functioning for the new Colgate incumbents. The Colgate managers had two options before them. Change the salary structure to factor in the incentives, or give people some time before they got used to the new way of working. It chose the latter. The terms and conditions were untouched and the Ciba unit was kept as a separate division. It is now in the process of integrating the two systems.
Such problems are not unique to Indian companies. But according to Mr Rajagopal, they are tougher to resolve here because very often the true benefits of a merger are not quantified by the top management. Woozy thinking often percolates down the line, he says.
The key to breaking out of post-merger blues, according to him, is speedy and constant communication. He points to the example of the merger between Hindustan Lever Limited and Tomco. Today it would be difficult to tell apart a Tomco factory from one of HLL. And this is possible only through constant interaction between the senior executives and employees. However, in the case of the two HLL group companies, Brooke Bond and Lipton, the post-merger transition was far from smooth. Lipton was known as a more aggressive player at the marketplace and Brooke Bond employees took a while to give up the old style of managing their company and its products. Again constant communication between senior executives and employees saw the companies through initial problems.
Most merger stalwarts accept this fact. Says Mr Andrew: The best way to deal with cultural imbalance is communication. Informal conversations are the lifeboat of a company. For instance, the joint venture between Godrej Appliances and US conglomerate General Electric. To begin with, the tieup was plagued not by cultural issues but different business goals