Case analysis

INTERNATIONAL

CULTURE

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Active Learning Case

Culture clash at Pharmacia and Upjohn

Despite being part of the same advanced, industrialized

world, Kalamazoo (Michigan, United States), Stockholm

(Sweden), and Milan (Italy) are worlds apart in many

important ways. Senior managers leading the merger

between two pharmaceutical firms, Upjohn Company of

the United States and Pharmacia AB of Sweden (with

operations in Italy), came to realize how significant these

differences were after the merger took place in 1995.

Swedes take off most of the month of July for their an-

nual vacation, Italians take off most of August. Not know-

ing this, US executives scheduled meetings in the summer

only to have to cancel many because their European coun-

terparts were at the beach. As the more dominant US firm

began to impose its way of doing things on the newly ac-

quired European organizations, international relationships

became increasingly strained.

Neither the Swedes nor the Italians were happy with

impositions such as the drug and alcohol testing policy

brought in by Upjohn, or the office smoking ban. These

clashed with local ways of doing things and the more infor-

mal work environment that these cultures prefer. Although

Upjohn later relaxed many of these work rules, allowing

some local practices and preferences to prevail, ill-feeling

and a degree of resistance had already developed among

European colleagues.

The additional bureaucracy and the command-and-

control style imposed by the Americans created more

significant problems for the 34,000 employees and

managers in Pharmacia and Upjohn Company. The Swedes

were used to an open, team-based style of management

where responsibilities are devolved; managers are trusted

and not strictly monitored or closely managed. Swedish ex-

ecutives also tend to build up a consensus behind big deci-

sions, “getting everyone in the same boat” (alla aer i baten)

rather than handing orders down the hierarchy. As a tradi-

tional US multinational, however, Upjohn was more used

to strong leadership and a centralized command-and-

control structure. Its CEO, Dr. John Zabriskie, quickly cre-

ated a strict reporting system, tight budget control, and

frequent staffing updates, which clashed with the Swedish

organization style. Swedish managers would leave meet-

ings disgruntled, having been overruled by US executives

keen to push their vision of the merged company.

The Swedes’ own ways of doing things had already

clashed with the Italian style of management, following the

takeover of Farmitalia (part of Montedison) by Pharmacia in

1993. Italians are used to a distinctive division between

workers (and their strong unions) and managers. Their

steeper hierarchies contrast the more egalitarian Swedes.

Italians also place a high value on families and will leave

work to tend to sick relatives or help with childcare, which

the Swedes frown upon. The addition of the Americans

from Upjohn to this mix created further cultural confusion.

Communication problems, beyond the obvious language

differences, became a real barrier to honest dialogue. “You

go there thinking you’re going to streamline the place,”

said American Mark H. Corrigan, Pharmacia and Upjohn

Vice President for Clinical Development, “and you leave just

having added five pounds from some wonderful meals.”

These differences, many of them small but important at

the local level, quickly began to have an impact on the

overall performance of the merged company. In the

months and years following the merger unforeseen ineffi-

ciencies and added costs began to undermine the potential

synergies of bringing together two such companies in the

first place. At one level the problems amounted to things

like canceled meetings, new organization demands (such

as monthly report writing), and a general decline in staff

morale. There were also unexpected difficulties integrat-

ing the IT systems across the various parts of the merged

organization. These and other changes added an

estimated $200 million to the predicted costs of the

restructuring, taking the total cost to $800 million. Even

more seriously, for a pharmaceutical company heavily

reliant on its new drugs pipeline to survive, delayed prod-

uct launches and the loss of key staff (including the head

of R&D at Pharmacia) had a longer-term impact. “There

was probably an under-appreciation ... of these cultural

differences,” says Art Atkinson, former Vice President for

Clinical Research and Development.

Particular problems resulted from the restructuring of

the firm’s global R&D structure. Prior to the merger

Upjohn owned well-known names such as Rogaine and

Motrin and had annual sales of around $3.5 billion, but had

a weak new product pipeline and slow sales growth com-

pared to its larger competitors. Similar-sized Pharmacia

had a more promising pipeline but weak distribution and

sales in the US market, the world’s largest. These

amounted to a strong rationale for the merger. Together

they could challenge the financial power and the larger

R&D programs of their competitors. However, integrating

and refocusing the various parts of the new R&D structure

became a major problem. Rather than place the R&D

headquarters in the United States, Sweden, or Milan, a

decision was made to establish a new and neutral London-

based center for the R&D function. This simply added a

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layer of management and a more complex matrix report-

ing structure, which further alienated key R&D personnel.

In 1997, after the stock price of the merged corporation

had fallen significantly, CEO John Zabriskie resigned.

Swede Jan Ekberg, the former head of Pharmacia, took

over temporarily and began to rebuild aspects of the

merged organization.

After acquiring a major part of Monsanto in 2000,

Pharmacia and Upjohn became Pharmacia, which was

then itself acquired by the US giant Pfizer in April 2003.

This made Pfizer, according to its own Annual Report, the

“number one pharmaceutical company in every region of

the World.”

All this proves is that going global is hard work. Not all

of these problems could have been foreseen, but a real

lack of awareness of cultural differences did lead to many

of the organization difficulties and people problems with a

real impact on the bottom line.

Websites: www.accenture.com/xdoc/en/ideas/outlook/1.2000/maa2.pdf;

www.pfizer.com; www.pfizer.com/are/investors_reports/annual_2003/

review/index.htm.

Sources: R. Frank and T. M. Burton, “Pharmacia & Upjohn Faces Culture

Clash; Europeans Chafe Under US Rules,” Wall Street Journal, February 4,

1997; R. J. Thomas, “Irreconcilable Differences,” Accenture Outlook, vol. 1,

2000; and Pfizer, Annual Report, 2003.

11 What kinds of cultural differences matter when organizations from different countries merge?

2 How well do the characteristics described in the case match the respective, stereotypical national cultures of these countries?

3 What could senior managers have done before and after the merger to alleviate some of the problems that resulted from culture clash?

4 Explain why one organization might want to impose some of its ways of doing things on another, such as an acquired firm or subsidiary.

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CHAPTER 5 INTERNATIONAL CULTURE

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