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Culture, Human Resources

Corporate Cultural Comparison

A single cultural compatibility index can be obtained by interviewing an equal-sized group of executives of the business operating sections (not the corporate executives, who know less about the rank and file) from each company, asking them to provide a value from 1-5 on how the company performs the following 23 behaviors/values (cited directly from Viaga et al, 2000):

1 Encourages creativity and innovation.

2 Cares about health and welfare of employees.

3 Is receptive to new ways of doing things.

4 People can identify with the organization and its mission.

5 Stresses team work among all departments.

6 Measures individual performance in a clear, understandable manner.

7 Bases promotion primarily on performance.

8 Gives high responsibilities to managers.

9 Acts in responsible manner towards environment, discrimination, etc.

10 Explains reasons for decisions to subordinates.

11 Has managers who give attention to individual’s personal problems.

12 Allows individuals to adopt their own approach to job.

13 Is always ready to take risks.

14 Tries to improve communication between departments.

15 Delegates decision-making to lowest possible level.

16 Encourages competition among members as a way to advance.

17 Gives recognition when deserved.

18 Encourages cooperation more than competition.

19 Takes a long-term view even at expense of short-term performance.

20 Challenges persons to give their best effort.

21 Communicates how each person’s work contributes to firm’s ‘big picture’.

22 Values effectiveness more than adherence to rules and procedures.

23 Provides life-time job security.

However, the key is that each manager is asked to rank each of the 23 questions above on a scale of 1-5 in each of the following 3 contexts:

1) Rank each of the 23 values 1-5 as to how you feel should be emphasized at a company, whether or not they appear at your present company? (what ought to be)

2) How were things at your firm before the merger? (what was)

3) How do things appear now at the acquiring firm? (what is)

The answers were then used in the following formula to obtain the Perceived Culture Compatibility (PCC) index (Veiga et al, 2000):

Each manager would have his own PCC index and they could be averaged or combined into whatever groupings are needed to identify the compatibility issues. For example, the results could be grouped by company to determine if the executives of one company think differently about the cultural compatibility than the other.

In addition to Killman et al (1985), BearingPoint Management & Technology Consultants also proposed using a culture compatibility analysis early in the pre-merger phases (Spilling & Hoien, 2007). However, they proposed a simpler focus on five key areas that are the most likely to be a challenge for smooth transitions: leadership, governance, communication, business processes, and the performance/rewards system. Although some might say that Viaga’s 23 issues can be grouped into these 5 categories of issues, Viaga touches more on important human/people issues than Spilling and Hoien. It is the specificity and concreteness given by Viaga’s 23 values that are the strength of the PCC index.

The bottom line is that cultural issues affect integration costs and risks. So, it is important to have an understanding of these issues for a potential merger before the valuation is finalized. The type of integration needed is potentially different for each project. So, the earlier the cultural compatibility analysis begins the better (Spilling & Hoien, 2007). This data should be factored into the valuation of the acquisition, should be weaved into the due diligence, and finally, becomes crucial to the pre-merger integration planning and post-merger integration, in increasing layers of detail.

Furthermore, in order to encourage earlier application of the cultural compatibility analysis, an acquiring company should not start shopping for a target until it has evaluated its own culture. The results of this analysis, and the identification of the “ought to be’s” (Viega et al, 2000) that are lacking in the acquiring company should be factored into the search and initial filtering of potential targets. In other words, if the company knows the real situation with its own culture and wants to change it in a particular way, acquiring a company that behaves as it ought to makes it easier to change the acquiring company’s culture for the better and more in line with what the management wants for the company. In this way, M&A can actually help a company achieve cultural improvements.

Prescience of cultural incompatibilities and costly problems is one way in which M&A valuation can be improved with a cultural analysis. However, cultural investigations of the target can also reveal cultural advantages that can produce quantifiable synergy when merged into the acquiring company. I will give two examples of culture that is economically beneficial to the merged organization.

One example of this is cultural diversity; not just numerical diversity, but even distribution of cultural diversity amongst management levels and functional areas of the company. Cox and Blake (1991) have linked real competitive advantage with this type of fully integrated diversity, pointing out these quantifiable advantages:

1) An increase in minority composition of the workforce gives companies with cultural diversity an advantage in hiring and retaining employees, because they are perceived as more accepting of those groups of people.

2) A diverse workforce contains better knowledge of more markets.

3) Work team heterogeneity promotes better problem solving, better decisions, and increased innovation and creativity.

4) Minority traits can be used to strategic advantage. For example, it has been proven that women have a higher tolerance for ambiguity; bilinguals exhibit more divergent thinking and cognitive flexibility, etc.

5) A greater tolerance of different cultural viewpoints should encourage openness of new ideas in general.

Another example of economically beneficial culture is the learning organization concept. In 1997, Marsick and Watkins developed a learning organization cultural measurement called the Dimensions of the Learning Organization Questionnaire (DLOQ). In 2003, a group of researchers showed a positive correlation between these dimensions and the financial performance of a corporation (Ellinger et al., 2003). So, if the target company has engrained these concepts (continuous learning, dialogue and inquiry, team learning, embedded system, system connection, empowerment, and provide leadership) and the acquiring company wishes to grow in this area, the target brings a quantifiable synergy that should affect the value of the target to the acquiring company.


Cox, T.H. and Blake, S. (1991). Managing cultural diversity: Implications for organizational competitiveness. Academy of management executive, 5:3, 1991, pp. 45-56.

Ellinger, A.D., Ellinger, A.E., Yang, B., and Howton, S.W. (2003). Making the business case for the learning organization concept. Advances in developing human resources, 5:2, May 2003, pp. 163-172.

Kilmann, R.H., Saxton, M.J., and Serpa, R. (1985). Gaining control of the corporate culture. San Francisco, CA: Jossey-Bass.

Spilling, A. and Hoien, J. (2007). Addressing the people issues in a strategic restructuring initiative: The M&A case. Inside: Perspective: Enterprise Solutions: Strategic Restructuring, 2007. BearingPoint Management & Technology Consultants.

Viaga, J., Lubatking, M., Calori, R., and Very, P.(2000). Research note measuring organizational culture clashes: A two-nation post-hoc analysis of a cultural compatibility index. Human relations, 53(4), pp.539-557.

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