Discussion Assignment Part 1

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CREATING ONE CULTURE

OUT OF MANY

One Shell. One EMC. One Metso. One Merck. One Deloitte.

One IBM. Nearly all of the companies that we work with today

are trying hard to integrate the disparate parts of their far-flung

global empires into one coherent whole. ‘‘Enterprise thinking’’

refers to the mindset that allows people to act on behalf of the

organization as a whole, rather than representing just one part

of it. Even when companies grow organically, it is often harder

than it looks. Consider this story: after a round of golf, legendary

GE CEO Jack Welch allegedly asked equally legendary Canon

CEO Fujio Mitarai if it was possible to get one global price and

service agreement for Canon copiers for GE worldwide. Mitarai-

san confirmed that they could do it. But when Mitarai went back

to his organization, he heard a different story. Because of the

structure of Canon’s highly successful regional sales companies

in the United States and Europe, it took a lot of extra work to

negotiate one global price and one service agreement. Global

integration is a big challenge.1

But when companies grow through acquisition, the challenge

is even greater. When Hewlett-Packard acquired IT solutions

provider EDS, the combination was irresistible. H-P sold

products. EDS sold services. The merger offered them both a

way to compete more directly with the giant in their industry,

IBM Global Services. But achieving the high-quality integration

Denison, Daniel, et al. Leading Culture Change in Global Organizations : Aligning Culture and Strategy, John Wiley & Sons, Incorporated, 2012. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/capella/detail.action?docID=861640. Created from capella on 2017-10-23 11:39:09.

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72 LEADING CULTURE CHANGE IN GLOBAL ORGANIZATIONS

necessary to fulfill the promise takes a lot of time and effort.

When Canon acquired the Dutch printing and solutions

company Océ in 2009, the stakes were even higher. Not only

did they need to integrate products and solutions such as HP and

EDS, but they also needed to do so across national boundaries.

Canon was Japanese, Océ was Dutch, and the Americas were

a big competitive market, where the integration needed to go

smoothly in order to make the acquisition a success.

E Pluribus Unum

Mergers pose the greatest integration challenges when multi-

ple aspects of the corporate identities involved are stacked up

against one another. Cross-border mergers, when integration

spans national borders, can be very difficult.2 But mergers that

span business sectors, like HP-EDS, and require the integration

of products and services also present a lot of complications.

What about the customers? Daimler-Chrysler failed for many

reasons, but the differences between the automotive industry’s

premium segment and the mass-market segment certainly added

to the challenge. When mergers throw in a new combination

of technologies, new ownership and governance structures, and

a different leadership style and history, then the Holy Grail of

synergy becomes harder and harder to attain. In the words of one

M&A veteran: ‘‘Buying is fun; merging is hell.’’3

Difficulty in aligning these deep-rooted cultural differences

is one of the main reasons that many mergers are unable to

deliver on their promise.4 Corporate cultures are built up of

all of the interlocking habits and routines that make up an

organization’s formula for success. But evolving beyond their

past success requires an organization to rethink the past and

unlearn those practices and principles that need to stay in the

past and to reinvent the new organization that will lead them

into the future. Their future success depends on the quality of

this process.

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CREATING ONE CULTURE OUT OF MANY 73

This chapter examines these issues by focusing on the efforts

of the Scandinavian financial services firm Polar Bank as they

struggled to integrate three strong cultures into one company.5

For several years after the initial acquisition there was little

progress. But then a new CEO, Katarina Hansen, started to focus

on the whole company — rather than the individual banks — and

tried to move the organization from the point of talking about

integration to the point of doing something about it.

History Has Its Own Logic

Polar Bank grew out of the 1996 merger between the Norwegian

retail bank Fylkesbanken and Sweden’s Ländesbanken, a leader

in pubic financing. Fylkesbanken also held a controlling interest

in Denmark’s oldest private bank, the International Bank of

Denmark (IBD), with Ländesbanken as a minority partner.

IBD was focused on asset management. So, three different

corporate entities, three different countries, three different

traditions, and three different sectors of the financial services

industry. The vision for this combination was compelling:

They wanted to create the leading Scandinavian full-service

bank with strengths in retail, public financing, and asset

management.

But for several years after the merger, these three different

banks continued to operate quite independently; each bank

focused on its home country. The companies had very different

organizational cultures. Fylkesbanken’s strength was in their local

retail presence throughout Norway. Basically they operated as a

national federation of small-town retail bankers. Ländesbanken

also had a strong local presence throughout their home country

of Sweden, but their strength was in serving the public financing

needs of Swedish municipalities, a very different segment of

financial services. In addition, several smaller organizations that

were acquired since the 1996 merger — such as the Norwegian

insurance company that they bought in 2002 or the Finnish

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74 LEADING CULTURE CHANGE IN GLOBAL ORGANIZATIONS

retail bank that they had acquired in 2004 — had also remained

independent. Each bank’s executives were totally focused on

their own local performance and were not very concerned about

Polar Bank as a whole. After all, why should asset managers in

one country be concerned about how retail bankers in another

country did their jobs?

Tracking the Transformation

When Katarina Hansen was promoted to CEO of Polar Bank

in January 2005, she quickly concluded that the future of Polar

Bank was limited as long as the bank remained a collection of

unintegrated acquisitions. She felt that they would be vulnerable

to acquisition and would never achieve a dominant position in

the Scandinavian market if they weren’t well integrated. Hansen

had been associated with the bank since the 1996 merger, first

as their outside counsel, then as a board member, and for the

prior four years as the head of their office of general counsel.

Her affiliation with the corporate center rather than one of the

individual banks was viewed as an important strength for her new

role as CEO. But the results from our Culture Survey showed that

she had her work cut out for her.

The survey results showed that Polar Bank’s strategy and

vision were not clear (see Figure 4.1). These also showed that

they lacked coordination and integration across business lines

and borders. They had not built one team and hadn’t created

a consensus to move toward one overarching culture. Nor were

they very focused on customer satisfaction. But despite this lack

of attention to the creation of a single culture, Polar Bank

still showed many signs of being a good employer, with notable

strengths in capability development and in the empowerment

of their people in the corporate center as well as in each of

the banks. The survey results from the three banks had a lot

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Figure 4.1. 2004 Culture Survey Results: Polar Bank

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33 13

of similarities, although the results for Ländesbanken in Sweden

were stronger than for the other two banks.

Figure 4.2 shows the highs and lows from the sixty-item

survey. This figure presents the five highest items in the survey

and contrasts them with the five lowest. This contrast shows

that the main strengths of Polar Bank are mostly in the area of

involvement. The main challenges, in contrast, are in the areas

of innovation, risk taking, coordination, and vision.

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Figure 4.2. Polar Bank 2004 Culture Survey:

High and Low Scores

Highest Scores

91 The knowledge and skills of our employees are constantly improving.

83 Important details are often overlooked or forgotten when making decisions.*

78 Leaders set goals that are ambitious, but realistic.

75 Business planning is ongoing and involves everyone in the process to some degree.

74 The capabilities of people are viewed as an important source of competitive advantage.

Lowest Scores

2 There is a “strong” culture.

4 Innovation and risk taking are encouraged and rewarded.

4 It is easy to coordinate projects across different parts of the organization.

4 We have a shared vision of what the organization will be like in the future.

7 There is a clear strategy for the future.

* The raw score has been reversed for this negatively worded item. In all cases, a higher score indicates a more favorable condition.

Our Role at Polar Bank

In 2004, the Polar Bank CEO contacted us at IMD to create

a leadership program for the top thirty-five leaders of the

organization. We did an analysis of their corporate culture

that served as the foundation for the leadership program.

Later we facilitated a leadership conference that was focused

on the survey results and the culture change process, and

about six months later we conducted follow-up interviews.

We trained several other consultants who were helping with

the change process to interpret the results and facilitate the

action planning process. We met several times with the CEO

to discuss their progress and conducted a second culture

diagnostic process about eighteen months after the first one.

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CREATING ONE CULTURE OUT OF MANY 77

To Hansen, these survey results signaled that it was time to

start addressing the problems and recognizing that Polar Bank

was still made up of three different cultures. She totally agreed

with the previous CEO’s vision that the bank should operate as

one company. But even though the previous CEO had talked

a lot about operating as one company since the 1996 merger,

few changes had actually occurred. Polar Bank’s structures and

processes remained mostly unchanged, and the top team was

not truly engaged in the integration process. They met every

two weeks, but usually just went back home and ran the banks

the same way that they always had. Hansen knew she had to

transform the bank quickly if her vision was to become a reality.

Based on the survey results, she decided to focus on the strategy

process, the governance structure, and the development of their

top leaders.

Developing One Strategy

Trying to lead one organization with three separate strategies

hadn’t worked very well. But developing one strategy would

require the executives and managers to build a much greater

understanding of each other’s businesses and strategies. To start

this process, Hansen organized a series of strategy workshops with

managers from all levels of the three banks to join in an open

discussion on the strategy of each business unit. Integrating three

banks with three different strategies required a big investment of

time and effort. Only if they understood the other banks’ current

strategies could they understand what they could accomplish if

they worked together.

The managers generally agreed with the basic approach of

building the bank around business lines that spanned national

boundaries. But there was no consensus on how to do this. To

succeed, Hansen realized, she would need deep involvement

from many levels of the organization and therefore created a

combined cross-business and bottom-up approach to strategy

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78 LEADING CULTURE CHANGE IN GLOBAL ORGANIZATIONS

development. This meant that the senior managers from the

retail bank in Norway needed to understand and buy into the

strategy for the public finance bank in Sweden and vice versa.

These multidepartmental strategy discussions sent a strong signal

to all of the groups that Hansen was serious about developing

one overarching strategy and culture for Polar Bank. In addition

to senior managers, she also involved a large group of high

potentials in the strategy process. By June 2005, this process had

helped to clarify and communicate the strategic vision: Polar

Bank clearly aspired to be the major player in retail banking in

Scandinavia and to be a European leader in public finance and

asset management.

Communicating One Message

Communicating her message about the strategic vision to all

stakeholders was also important. Hansen’s message was that better

integration was essential to Polar Bank remaining independent.

Without better cross-border and cross-business integration, Polar

Bank was likely to be acquired by a competitor as part of the

ongoing industry consolidation in Europe. Hansen’s message was

that the banks that were the best at integrating their acquisi-

tions would be the most likely to survive the consolidation of

the industry.

She started with her top team. She argued that they needed

to get passionate about the integration, even though passion was

not always a top priority among her bankers. She walked a fine

line, stressing that Polar Bank was ‘‘not desperate to find a partner

before it is too late,’’ but that they had to be stronger if they were

going to be able to continue operating as a stand-alone company.

This message had to be communicated both internally and

externally. Hansen organized meetings in the three different enti-

ties at the same time as a June 2005 meeting with financial analysts

to discuss Polar Bank’s new strategy. While she was in Norway

with the analysts, members of the group management board

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CREATING ONE CULTURE OUT OF MANY 79

were present at the Swedish and Danish locations and delivered

the same presentation. This new approach to communication

was a clear break with the past, when all communication was

focused on the issues facing the individual banks. Shortly after the

announcement of the strategy, Polar Bank also acquired a Finnish

retail bank. This showed both the employees and other stake-

holders that Polar Bank was serious about its strategy and that it

would allocate its resources in ways to support their ambitions.

Creating One Corporate Center

Since the 1996 merger, the corporate headquarters of Polar Bank

had acted more like a holding company than a strong corporate

center — only corporate finance had any real influence. The cor-

porate center did not have an overall strategic plan or a set of staff

departments such as human resources, information technology,

or back-office operations. As in a holding company, each bank

was focused on maximizing its own profits rather than creating

synergies and maximizing the profits of the Polar Bank group as

a whole. In order to move forward, they created stronger human

resources, finance, marketing, and branding in the corporate cen-

ter. They also made an effort to spread best practices across the

different banks. Finally, Polar Bank ensured that the best people

had opportunities throughout the organization rather than in the

bank in which they were based.

Creating One Board

Hansen took another step forward by restructuring the

management boards of each of the three entities. Each bank’s

board now included the CEO of all three banks, Hansen, and

three other members of the group management board. This new

arrangement reinforced the idea that each bank’s CEO had to

operate with a group mindset. More than any other single step,

this move gave a strong and decisive signal that Hansen was

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serious about creating a bank that operated as a single entity and

not as three separate ones.

Creating One Team

Hansen also realized that she must have people who believed pas-

sionately in the vision. She worked to ensure that the right peo-

ple were in the right positions. One key human resource execu-

tive, for example, did not openly reject Hansen’s approaches, but

did give a lot of passive resistance. Some key strategies — such as

360-degree feedback and coaching for top management, and using

the corporate university to develop executives from all three banks

and the corporate center — received only lukewarm support from

this executive. People quickly noticed, and it made them wonder

how serious Hansen was about the making the changes. So she

asked him and several other capable but slow-moving executives

to leave.

Creating One Leadership Development Process

Hansen knew that she had to align all of Polar Bank’s systems

and structures to support her efforts to change the culture. The

Polar Bank corporate university developed a leadership program

in which senior executives from all of the banks worked on

their leadership skills. Teams of managers focused on five key

leadership dimensions: customer orientation, vision, innovation,

people management, and cross-boundary collaboration. Each

team had a board member sponsor, and six weeks after the

program, they presented the management board with their ideas,

some of which they adopted on the spot.

Hansen and the management board also led the way in the

widespread use of 360-degree feedback and coaching. Actions

speak louder than words. Since then, over four hundred top

leaders have taken part in this feedback and coaching process.

The corporate university created a program to rotate young,

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CREATING ONE CULTURE OUT OF MANY 81

high-potential managers around the three banks for six-month

assignments. This was another instrumental step in breaking

down Polar Bank’s silo mentality, promoting managers’ under-

standing of its different subcultures, and creating a pool of mobile

international managers. Polar Bank also implemented talent

reviews to help identify and manage talent across boundaries.

Tracking the Transformation

The changes that Hansen and her team had put into place slowly

started to have an effect. In September 2006, about eighteen

months after she took over as CEO, she decided to repeat

Polar Bank’s Culture Survey to assess the progress that they

had made. As is the case for many organizations, she saw major

improvements in the areas where they had put the most attention.

All elements of mission improved dramatically: Strategy and

vision increased by over fifty points each, and the clarity of goals

and objectives also grew dramatically. All of the work that they

had done to clarify the direction of the bank for the future was

starting to sink in. These results are presented in Figure 4.3.

Polar Bank’s second survey also showed substantial progress

in two other areas. The level of teamwork had improved by more

than thirty points. Their progress in organizational learning,

where they had improved by fifty points, was mostly in the area

of risk and innovation, again showing that the areas they had

given the most attention showed the biggest improvement.

The Polar Bank scores also showed that they remained strong

in empowerment and capability development, confirming that

they had never strayed far from their strengths as a good employer

even while they were carrying out all of these changes.

Perhaps the most frustrating part of these results, however,

was what had not improved. Customer focus remained at a low

level, showing little or no improvement. In addition, nearly all

of the measures of consistency had stayed right where they were

in the first survey. Perhaps the groundwork had been laid for a

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Figure 4.3. Comparing 2004 to 2006 Culture Survey: Polar Bank

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Polar Bank 2006

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CREATING ONE CULTURE OUT OF MANY 83

common infrastructure and set of values, but they were still a

long way from creating one common operating system.

Lessons for Leaders

Leaders must recognize the strong subcultures in their orga-

nizations. They arise from influences both from within the

organization and from the outside. In some organizations — like a

holding company, a conglomerate, or another highly decentral-

ized organization — this level of fragmentation can be desirable.

Nonetheless, most organizations try hard to create a common cul-

ture and integrate the pieces into a compelling whole. Polar Bank

made a clear strategic choice to forgo the option of continuing

to operate as three separate banks and to become a full-service

bank with cross-border business units.

But changing culture is hard work, and it needs to take place

at a very practical level. Hansen could never have made the

progress that she did by simply stating: ‘‘Polar Bank will have

one overarching culture’’ and then hoping that it would happen.

She learned that you need to take strong, concrete actions if you

want culturally distinct businesses to behave in the best interests

of the overall company.

Create a Common Governance Structure

One of the best lessons from Polar Bank comes from their decision

to create one common board of directors to govern all three banks.

Having the same identical board for all three banks created

a common governance structure and significantly reduced the

internal power struggles. Concern about the power differences

among the banks became secondary to their shared interest in

having each of the three banks operating successfully and all

moving toward a future in which they could work together to

exploit their complementarity and achieve the new dynamic

capabilities required to fulfill their strategic mission.

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Few companies that we know of have used this approach to

resolving governance issues in the same way that Polar Bank has.

A more common practice is for some exchange of board members

and roles between companies. For example, in the pharmaceutical

industry, when DSM acquired Roche Vitamins in 2002, a member

of the DSM executive board became the chairman of the newly

acquired company, and DSM also appointed one of their own

executives as the new CEO of the vitamin business.

Engage the Leaders in Building a Common Strategy

When striving to achieve one overall company culture, different

business units have to understand each other’s strategies. Another

good lesson from Polar Bank’s experience was the impact of their

efforts to involve senior executives and high-potential managers

of each of the three banks in the strategy development for all of

the banks. The time that the leaders spent together understand-

ing each other’s strategies also helped them understand each

other’s operations, markets, products, people, and culture, as well

as their strengths and weaknesses. It served as a general mech-

anism by which the three banks could learn about each other’s

businesses as well as the primary purpose of crafting a common

strategy.

Although we have not seen cross-business strategy devel-

opment to this same extent in other companies, we have seen

some other interesting examples. In one European pharmaceuti-

cal company, for example, they required very broad involvement

in the continued development of the corporate strategy. Every

five years they go through a process known as the corporate

strategy dialogue (CSD). Hundreds of managers, from all levels,

are involved in the process. In addition, when the business units

translate the corporate strategy into a strategy for their own busi-

ness unit, they typically ask executives from some of the other

business units to conduct a critical review of their plans.

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CREATING ONE CULTURE OUT OF MANY 85

Build Cross-Business Capability

Polar Bank also built cross-business capability by establishing a

system of job rotation. The career paths of the high-potential

leaders in all three banks now would require spending several

years in at least one of the other banks. This was often quite

unpopular, because it required successful people to move outside

of their home country and to take some new risks. But it was also

extremely helpful in identifying those individuals who were truly

committed to the cross-border mission and strategy.

However, talking about job rotation and actually doing it are

two different things. One other company that we worked with

also instituted a system of ‘‘job rotation.’’ It all sounded good in

principle; in practice, though, all of the rotation went one way.

Senior managers from the acquiring company were ‘‘rotated’’ to

important positions in the acquired company. But the people

whose jobs they were rotated into soon found out that they were

being ‘‘rotated’’ out of the company. It did not take people long

to see that this was all about the victors claiming the spoils, and

the acquiring company imposing its culture on the acquisition,

rather than working on the creation of a best-of-both culture by

moving people both ways.

Make Quick Decisions About Managers

Who Aren’t Aligned

Katarina Hansen was also quite deliberate in her decisions about

those executives who weren’t aligned with the transformation

she was trying to achieve at Polar Bank. She was patient, and she

gave managers ample opportunity to show their energy and

alignment. She definitely didn’t ‘‘shoot from the hip.’’ But when

it was clear to her that some of her team members were not

supportive of the strategy and the culture changes that were

required, she took quick action. Getting the team right from the

beginning is always the first step in the integration process.6

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Creating One Culture Out of Many:

Beyond Polar Bank

We once worked with a UK-based beer company that had grown

significantly through a decade of acquisitions. Repeated attempts

to integrate the acquisitions into one organization proved difficult

and never created nearly as much excitement and energy among

the top leaders as the next acquisition target. They saw the dis-

cussion of ‘‘creating one culture’’ as a fluffy discourse about values

and purpose, but at the same time they were constantly frustrated

with their repeated failure to establish a common framework so

that they could implement basic business decisions — like ratio-

nalizing production and establishing a common branding and

distribution system across their far-flung empire.

Still, some of their people kept talking about their values and

their culture. One evening the EVP for HR took me aside

and talked for a few minutes about those who were suggesting

that the leadership team should spend more time talking about

their own core values and paying more attention to the creation

of a common culture. He asked me if I would be able to meet

with their management team sometime soon to discuss this

issue with them and help them decide their next steps.

‘‘What do you want to achieve?’’ I asked him.

He looked at me, raised one eyebrow, and said, ‘‘We need to

make sure nothing happens!’’

I took a long walk back to the hotel that evening.

A few years later, they received a good offer from one of their

competitors to buy this whole collection of unintegrated acquisi-

tions. It was a great opportunity to sell both the problems and the

possibilities on down the line. They took the offer. Live by the

sword, die by the sword. Integrating acquisitions is a lot of work!

Creating an Integration Plan

The classic way to frame this discussion, after many years, is still

the Mirvis and Marks model, presented in Figure 4.4. In their

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CREATING ONE CULTURE OUT OF MANY 87

Figure 4.4. Different Types of Mergers

Low

Stand Alone

Low

High

Absorption

Reverse

Acquisition

High

Best of Both

D e g re

e o

f C

h a n g e i n

A c q u ir

e d C

o m

p a n y

Degree of Change in Acquiring Company

Transformation

Source: Mirvis and Marks, 1991.

2010 book, Joining Forces: Making One Plus One Equal Three in

Mergers, Acquisitions, and Alliances,7 they compare the degree

of change required in the acquired company with the degree of

change in the acquiring company. From this they describe five

different types of mergers.

• ‘‘Stand-alone’’ mergers, which require little change in either

company

• ‘‘Absorption’’ mergers, in which the acquired company must

change dramatically so that it can be absorbed by the acquir-

ing company

• ‘‘Reverse acquisition’’ mergers, in which the acquiring firm

must change dramatically to take on many of the characteris-

tics of the acquired firm

• ‘‘Transformational’’ mergers, which require dramatic changes

from both organizations

• ‘‘Best of both’’ mergers is a middle ground requiring a moder-

ate level of change in both organizations

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88 LEADING CULTURE CHANGE IN GLOBAL ORGANIZATIONS

Understanding these categories always serves to clarify the

power dynamics and complexities that are associated with any

merger. But confusion over which category best fits the situation

is always a sign of trouble.

The second step in the Mirvis and Marks framework addresses

the question of how much integration is needed. Where?

When? Why? In what order? Should the components of the new

organization just be separate parts of a common holding company?

Or should they be fully merged and consolidated? There are many

attractive midpoints along the way. Different business units and

functions may also require different strategies, and some of these

targets of integration may evolve from one category to the other

over a period of several years. A detailed integration plan is the

best resource to create to guide the integration process (see

Figure 4.5).

Figure 4.5. How Much Integration?

Structure

Areas of Integration

98 107654321

Separate

Holding

Merged and

Consolidated Managed

Subsidiary

Strategic

Control

Operational

Control

ModerateNone Full

Corporate

Functions

Production or

Marketing

Companywide

Integration

Management Implications

Decentralized

Planning and

Monitoring

Centralized

Planning and

Monitoring

Integrated

Operations and

Controls

Autonomy

of Line

Management

Coordination

of Line

Management

Cooperation

of Line

Management

Source: Mirvis and Marks, 1991.

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CREATING ONE CULTURE OUT OF MANY 89

It is also important to recognize that the similarities and

differences between two corporate cultures can be a source of

both strength and challenge. Organizations usually look for sim-

ilarities first and tend to see those as strengths. Our favorite

example of this comes from IBM Consulting’s acquisition of

PricewaterhouseCoopers Consulting.8 As the integration team

completed their due diligence on the two companies, they noted

some remarkable similarities in the organization structures, mar-

ket strategies, and company values. Then, when the combined

executive leadership team was able to rapidly agree on their new

operating principles, it seemed to some of the leaders that the

two organizations were really like ‘‘twins separated at birth!’’

In the beginning of the ‘‘hunt’’ it is easy to underestimate the

complexities of the integration process.

But it is also important to see that the complementarities

between very different cultures, if managed well, can be a tremen-

dous source of strength. Large, stable technology companies often

acquire small, dynamic start-ups to drive their innovation and

growth. When the process is managed correctly, the combined

organization is able to achieve leverage on their innovative ideas

in a way that the start-up alone never could. When pharmaceu-

tical companies make R&D acquisitions, they may pay a high

price, but they may be able to achieve greater return on that

investment than they can from the same investment in their own

R&D labs.

Cultural incompatibility is, on occasion, a good reason for

avoiding an acquisition target altogether. But more often, if an

organization pays careful attention to the cultural complexities

of the integration process, and combines that with a thought-

ful integration plan that maintains the right balance between

patience and urgency, it can beat the odds and manage its way to

a successful outcome.

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