S2E4: Culture, Learning, and Business Part 4: Belief Systems

Belief systems are an integral part of every culture. In today’s show, we focus on belief systems –what they are, why they are important, and how they affect business.

S2E4: Culture, Learning, and Business Part 4: Belief Systems
International Hub: Cultural Convers...

 
 
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S2E3: Culture, Learning, and Business Part 3: Leading and Trusting

This episode is all about managing relationships. Join us as we take on two more “Culture Map” scales: Leading and Trusting.

S2E3: Culture, Learning, and Business Part 3: Leading and Trusting

 
 
00:00 / 20:13
 
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Case Study of a Failed M&A—Concluding Thoughts on HP’s Acquisition of Autonomy

The Mergers and Acquisition Synergies Framework we developed includes measures from research on national culture by Geert Hofstede, Erin Meyer, and Sidney Gray. We used their data to show how cultural factors in cross-border mergers and acquisition can lead to success or failure. Our research is limited to national culture factors, yet as seen in a few instances above, corporate culture can be different from national culture. These differences can cause culture clashes of their own. Further research needs to be performed to explain the differences between national and corporate culture.

Even in the best of circumstances, M&A can be fraught with difficulties. Adding in the complexity of making deals across borders necessitates a greater level of diligence in every phase of the process. Whether the merger failed due to fraudulent accounting or incompetent management by HP,1 the HP Autonomy debacle shows how differences or even similarities in national culture can precipitate difficulties in the post-merger integration process. HP’s failure to properly integrate Autonomy exhibits how value can be destroyed when firms aren’t able to resolve cultural differences. Thus, we recommend that firms engaging in cross-border deal making include researching national culture’s potential impact on post-merger integration a part of the due diligence process.

Previous: Case Study of a Failed M&A-The Role of Accounting and Finance in HP’s Acquisition of Autonomy

Case Study of a Failed M&A—The Role of Behavior in HP’s Acquisition of Autonomy

Autonomy’s work culture was different from what HP anticipated. HP found Autonomy’s culture to be more task–based and confrontational than HP’s culture. These behavioral problems were never resolved and resulted in friction and distrust.

Characteristics

Task-based vs. Relationship-based. Erin Meyer, author of The Culture Map, suggests that in business settings, the U.S. is more highly task-based while the U.K. is more relationship-based. A task-based culture focuses prioritizes getting the job done; whereas, relationship-based cultures need to build trusting relationships before work can be performed. In the case of HP-Autonomy these values were flipped, which could be a result of the maturity of the companies.

Although HP is a large company, Whitman appeared to be more concerned with building relationships than the typical bureaucratic CEO. After being named CEO of HP, Whitman said, “Relationships really matter. Not only your husband and your children, but the relationships you build along the way. It’s a small world, and always treat other people the way you would like to be treated yourself.”1 Whitman attempted to bring this relationship-based attitude into HP soon after her entrance as CEO; “One of the first things I did was tear down the fence and move all of our executives into cubicles. We now walk in the same door as the rest of our employees. This was symbolic of the kind of culture that we wanted to build.”2

Whitman was focused on bringing a relationship-based environment to HP, but this was a big difference compared to how employees at Autonomy were used to working. At Autonomy, Lynch was a task-based leader: “Business partners and attorneys close to the case paint a picture of a hard-driving sales culture shaped by Mr. Lynch’s desire for rapid growth.”3 Lynch cared more about getting the job done than he cared about building strong employee relationships. “Mr. Lynch is known as an exacting task-master with a ruthless attention to detail. People who have worked for him joke about “needing a hard hat” when called into his office.”4 This theory is supported by an unnamed executive who said Lynch, “told his people, Meg, anyone who’d listen, that HP should not get involved with Autonomy.”5 Lynch obviously did not care about building relationships with those at HP. “Mr. Lynch has little affection for US-style networking. Instead he relishes the pose of nerdy outsider, making waspish observations about Silicon Valley schmoozing.”6 The clash between Whitman’s relationship-focused versus Lynch’s task-focused style of leadership caused another cultural divide between HP and Autonomy.

Confrontational vs. Avoids Confrontation. Distinct cultures handle confrontation differently; some cultures welcome debate in order to create harmony while others see confrontation as rude. Meyer’s framework portrays the U.S. business environment as, generally, more confrontational than the U.K. However, Autonomy and HP’s characteristics contradict Meyer’s position. Autonomy’s environment is considerably more confrontational—with management described as confrontational towards employees. An employee review on Glassdoor stated, “The previous leadership prior to the acquisition by HP was confrontational and rough on employees but great energy has been spent to turn away from that legacy.”7 During interviews with the Wall Street Journal, former Autonomy employees, “describe [Lynch] as a domineering figure, who on at least a few occasions berated employees he believed weren’t measuring up.”8 Lynch has also been described as “a brilliant man known for his brutish office manner….”9

In contrast, Meg Whitman is calm under pressure and agreeable to employees. For example, in a shareholder meeting, Whitman responded to confrontational questions by simply stating HP just needs to keep doing better in the future.10 In this case, Lynch’s more confrontational manner conflicted with Whitman, and—as a result—it was hard for them to work together.

Previous: Case Study of a Failed M&A—The Role of Communication in HP’s Acquisition of Autonomy

Next: Case Study of a Failed M&A—The Role of Management in HP’s Acquisition of Autonomy

Case Study of a Failed M&A—Introduction to HP’s Acquisition of Autonomy

Shortly after Hewlett-Packard appointed Leo Apotheker to lead the company, the board approved the acquisition of the UK-based software company, Autonomy. Hewlett-Packard, well known for its computer hardware, thought the synergies it could have with Autonomy coupled with its brand recognition would give it a strong presence in the software market. This series explores management’s cultural misstep using the Mergers and Acquisitions Synergies Framework to examine how this acquisition ultimately lead to a failed merger.

Introduction

On September 7, 2016 Hewlett Packard Enterprise Co. announced an $8.8 billion deal to sell the bulk of its software division to Micro Focus International PLC.  The deal represented the divestiture of Autonomy Corp—a software maker acquired in an $11.7 billion mega deal just five years prior. The marriage of the two firms was rocky from the onset, with HP’s shareholders decrying the 79 percent premium HP paid as abhorrently high.1 On November 20 of the following year, Hewlett-Packard announced an $8.8 billion write-down of its investment in Autonomy – citing “serious accounting improprieties… and outright misrepresentations.”2 The allegations of fraud were rebutted by Autonomy’s former CEO Michael Lynch and marked the beginning of a disastrously messy public relations battle fought by Autonomy’s ousted CEO and members of HP management.

In November 2010 Hewlett-Packard, a technology firm based in Palo Alto, California, brought in Leo Apotheker as its new CEO. Apotheker was expected to contribute to HP’s growth through completing value accretive acquisitions. Within a year of being hired, Apotheker spearheaded HP’s acquisition of Autonomy, a software company founded at the U.K.’s Cambridge University. The acquisition of Autonomy represented a marked shift in strategy for HP. While HP had demonstrated capability in the hardware market, they possessed very little prowess in software and computing. Thus, Apotheker attempted to catalyze HP’s entrance in the software market by buying an already well-established company.

Although HP claims that the write down was due to “accounting improprieties”3, there are other factors belying this failed merger. The remainder of this paper provides insight into the impact of cultural differences on the HP-Autonomy debacle, offers examples, and provides guidance about due diligence for cross-border mergers. This paper focuses on the cultural factors discussed in the M&A Synergies Framework: communication, behavior, management, environment, accounting and finance, optimism, and earnings management.

Next: Case Study of a Failed M&A—The Role of Communication in HP’s Acquisition of Autonomy

Case Study of a Failed M&A—Concluding Thoughts on Microsoft’s Acquisition of Nokia

The research conducted in this paper is based upon the Mergers & Acquisitions Synergies Framework, developed by combining outside findings by Geert Hofstede, Erin Meyer, and Sidney Gray.[1] It is limited to national culture factors, which play a different role in business than organizational culture. Further studies may need to be conducted to help distinguish differences between national and organizational cultures.

In reality, Microsoft’s acquisition of Nokia was doomed to fail. The deal was an exercise in futility, governed by the rationale that any attempt to compete with Apple and Google is better than none at all. Such rationale exhibits an astonishing lack of prudence, which is key in making any deal, let alone a cross-border deal. While Microsoft’s rationale for making the deal was poor, management’s lack of patience was worse. Cutting 25,000 employees only two and a half years after acquiring Nokia’s mobile unit effectively killed any chance Microsoft Mobile had of succeeding.

Microsoft Mobile is a study of how differences in national culture can add to already poor conditions. Though differences in national culture are not the primary reason Microsoft Mobile failed, they did add to the complexity inherent in the post-merger integration process. In fact, the differences were small and could have been easily reconciled. Had Microsoft exercised a greater level of patience, Microsoft could have realized many of the sought-after synergies which can arise when companies effectively execute cross-border deals. Microsoft Mobile could have prospered as employees from different cultures came together and cooperated.

Previous: Case Study of a Failed M&A—The Role of Accounting and Finance in Microsoft’s Acquisition of Nokia

Case Study of a Failed M&A—The Role of Behavior in Microsoft’s Acquisition of Nokia

Microsoft discovered than Finns’ views on work-life balance are different from those of Americans. Behavioral misunderstandings caused tension and friction between US and Finnish management teams and employees. Many problems could have been avoided had Microsoft embraced Nokia’s corporate and Finland’s national culture rather than expecting the Finns to adapt to their new owner’s native culture.

Core Values

Individualism vs. CollectivismWhile both the United States and Finland are considered individualist cultures, Americans display a higher level of individualism than the Finns.1 Individualism refers to the tendency for individuals within a society to display an individual-focused mentality rather than one focused on the collective society’s well-being. The degree of individuality expressed by Finnish employees generally leads to developments where the “employer/employee relationship is a contract based on mutual advantage….”2 Olli-Pekka Kallasvuo, a former CEO of Nokia, discusses the impact that individual gain seeking had on Nokia’s operations:

“The company did not pay sufficient attention to the emotional undercurrents caused by internal competition for resources…. As [Nokia] grew larger and richer, each department became its own kingdom, each executive a little emperor, and people were more concerned about their status and internal promotion than cooperating actively with other departments….”3

Nokia’s increasing competitiveness and Nokia’s culture of employees misleading management is an example of national culture influencing corporate culture. When Nokia’s employees mislead upper management, they preferred to further their own positions rather than the overall position of the team, or for the company as a whole.

The notion of individualism was not new to Microsoft. “Americans find their own frankness, self-reliance, and tenacity in the Finnish psyche.”4 The way Microsoft Mobile operated enabled both Nokia and Microsoft employees to remain in a siloed culture, which further impeded the success the newly formed entity. The siloes didn’t only exist between departments, they also existed between nationalities. One Nokia employee said, “You have to be a Finn or live in Finland to advance fast.”5 Another employee stated, “It’s hard to move up the ladder; too many foreigners with too few locals in higher middle management gives employees the impression that a glass ceiling exists.”6

The degree to which Microsoft Mobile catered to individualist tendencies led to many employees expressing dissatisfaction. Even individualists prefer the equal opportunities that come with higher degrees of collectivism. Microsoft Mobile retained the individual-focused corporate cultures of Microsoft and Nokia. While companies seek to hire ambitious, success-driven employees, they should seek to create a culture focused on the well-being and profitability of the company.

Masculinity vs. Femininity. Finland and the United States are on opposing sides of the masculine and feminine spectrum: The United States is viewed as a masculine society whereas Finland is deemed a feminine society. Competition and achievement drive Americans while general well-being, free time, and flexibility define success for Finns. Finns view Americans as being desperate for popularity, stardom, and money. This “single-minded pursuit of wealth conflicts with Finnish ideas about self-fulfillment, artistic goals, calm inventiveness, and concern with the environment.”7 [Finns are] “modest and not chauvinistic; they have an inner, deeply rooted conviction that Finnish norms are optimal.”8 Nokia provides an interesting study on how corporate culture can override national culture – evidenced by Nokia’s culture of intense competition. If one were to merely look at Finland on the Masculinity versus Femininity scale, one would assume that their employees would display a preference toward corporate unity. This contradiction shows that relying on mere research of national culture can fail to properly inform a due diligence researcher. In fact, this is one of many cases where taking the time to understand corporate culture can aid in the deal making process.

Belief Systems.The fundamental tenets within Finnish society come from two sources: nature and Christianity. From nature, Finns believe that life should move at a slower, more natural pace as compared to the rushed pace most Americans live. They make sure to take lots of holiday vacation time, even a month at a time, to create a sense of balanced life. Most of their vacation time is often spent in forests at family cabins enjoying the scenic nature of their country. The other source of Finnish beliefs is Christianity. Finns exhibit a deep sense of loyalty and trust in the way they interact with one another. Children are taught from infancy the importance of faith and respect towards others. The family is held in high esteem within Finnish culture.

Nokia emanated these values within its international operations. “Having strong Finnish culture, the company is extremely flexible on your work-life tradeoffs. You can practically agree any arrangement with your line manager.”9 Further, One American employee noted, “It is a family-oriented job, so you can take time off while your professional career can still progress.” With these ideals set in place, Finns at Nokia strive for a perfection of balance and oftentimes look down on those who don’t follow or keep the same values. Finnish views on family and personal time can conflict with American views. This conflict can lead to disagreements on how long one should take for vacation and paternity leave. These differing preferences about family and personal time can lead to difficulties in developing HR policies for the combined company.

Characteristics

Strong Uncertainty Avoidance vs. Weak Uncertainty Avoidance. Uncertainty avoidance is defined as “the extent to which the members of a culture feel threatened by ambiguous or unknown situations and have created beliefs and institutions to try to avoid these.”10 Finland is considered a society of strong uncertainty avoidance while the U.S. is deemed to be the opposite. Finnish disinclination towards ambiguity is manifested in strict security rules to guarantee the country’s future stability (e.g., every male is required to serve in the Finnish military to secure citizenship). Finns are risk avoiders; they do not accept change easily — especially when the change comes from outside of the country: Finns demonstrate a “lingering uneasiness in the presence of foreigners.”11 When Microsoft announced its intention to acquire Nokia’s mobile unit, many Finns expressed uneasiness with the notion that a prized Finnish company would be taken over by outsiders and, subsequently, ruined.

Task-Based vs. Relationship-Based. Both Finland and the United States are task-based cultures. In both countries, relationships are based on business skills and accomplishments rather than on friendships. In a typical meeting, both Finns and Americans are focused on completing the outlined agenda rather than on creating a lasting relationship. The effects of failing to take the time to develop business relationships can weaken morale and undermine company unity. Though Finns and Americans display similar inclinations toward task-based work, the similarities can lead to merged companies failing to effectively cooperate and share ideas.

Confrontational vs. Avoids Confrontation. Americans tend to be classified as “confrontational” and more emotional while Finns are described as stoic people who avoid confrontation. Where Americans welcome disagreement, Finns generally view debate as something to be avoided and instead remain silent. Usually, Finns choose silence out of “not wanting to upset others for fear of social retaliation and not wanting to show they had limitations or weaknesses.”12 Nokia employees also followed the Finnish ideal and avoided confrontation. As a company, management was “more intent on defending and preserving existing successes than on attacking competitors.”13 Microsoft Mobile’s unwillingness to attack competitors likely contributed to its inability to recapture lost market share.

Linear Time vs. Flexible Time. In both the U.S. and Finland, people operate on linear time. Both cultures follow outlined schedules and consider tardiness to be rude. However, the U.S. culture is generally seen as more flexible than Finnish culture; Americans are more lenient in scheduling and are more accepting of tardiness. Finland is more rigid in using time wisely, and if someone shows up late to a meeting, that person is generally frowned upon. Thus, differing views on what constitutes “late” can lead to distrust and resentment within MNE’s, such as Microsoft Mobile.

Previous: Case Study of a Failed M&A—The Role of Communication in Microsoft’s Acquisition of Nokia

Next: M&A Synergies Framework—The Role of Management in the Microsoft-Nokia Merger

Case Study of a Failed M&A— Introduction to Microsoft’s Acquisition of Nokia

On September 3, 2013, Microsoft announced that it would acquire Nokia’s mobile phone division for $7.2 billion. Through a series of missteps, many of them cultural mismanagement, Microsoft informed the public in May 2016, of its intention to write off most of the $7.2 billion it paid for Nokia and agreed to sell the mobile devices unit to HMD Global and Foxconn Technology for just $350 million. This series uses the Mergers and Acquisitions Synergies Framework to explore the cultural issues that lead to Microsoft’s failed merger with a highly regarded mobile phone company.

Introduction

During the 1990’s and early 2000’s, one company dominated the mobile industry: Nokia. Established in 1871, the Finnish-born company gained a worldwide reputation for producing reliable, standard mobile phones that were internet-enabled and programmed with an array of multimedia features. Eventually, competition in the mobile phone sector rose in 2007 when Apple introduced the iPhone, and Nokia soon found its market share rapidly decreasing.1 Initially, Nokia predicted the smart phone craze would die out and consumers would return to standard mobile phones, but smart phones proved to be more than a passing trend. Nokia’s management failed to understand the wave of radical innovation that revolutionized the mobile industry—as Samsung and Apple produced and sold touch-screen phones. Nokia’s failure to react to the changing competitive climate is reflected in the precipitous fall in its share price from the iPhone’s introduction to Nokia’s own smartphone introduction: its market share faltered, losing almost 10 percent.2

On 10 September 2010, Nokia parted ways with its CEO (Kallasvuo) and hired Microsoft executive Stephen Elop. Hiring Elop was a significant move for a few reasons: he was the first non-Finn CEO in company history, and analysts predicted that hiring Elop would lead to closer cooperation between Microsoft and Nokia3.  Elop pledged to “reverse the company’s market share losses by ‘regaining [Nokia’s] smartphone leadership, reinforcing [Nokia’s] mobile device platform and realizing [Nokia’s] investments in the future.’”4

True to analysts’ expectations, it did not take long for a partnership to arise between Microsoft and Nokia.  On 11 February 2011 Nokia announced a “broad strategic partnership” with Microsoft. The partnership made a lot of strategic sense considering Microsoft’s dominance in software and Nokia’s in hardware – namely the production of mobile phones. The partnership was heralded by the media: “The deal makes Microsoft a key contender and gets Nokia back to the forefront of the smartphone revolution.”5 Despite optimism from analysts, the announced partnership was met with met displeasure among Finns, and Nokia’s share price tumbled 10 percent.6

In 2012 Nokia released its new smartphone, the Lumia, which ran on Window’s newly released OS – Windows 8. Initially, the release of the Lumia led to increasing, albeit tepid, sales for Nokia. Two years after announcing the partnership, Nokia was still losing market share to Apple and Samsung.  Microsoft’s performance during the period didn’t fare much better than Nokia’s. Microsoft’s poor performance was primarily caused by vehement resistance of Windows 8 from PC users, who detested its optimization for mobile devices. With both companies struggling to keep up in the fast-paced smartphone market, they were left to search for a more drastic solution than mere partnership.

On 3 September 2013, Microsoft CEO Steve Ballmer announced that Microsoft would acquire Nokia’s mobile phone division for $7.2 billion.7 Microsoft had been looking for a way to enter the mobile phone industry to better compete with Apple and Google. In acquiring Nokia’s services and devices unit, Microsoft took control of Nokia’s mobile phones and smart devices, design team, licensing agreements, and approximately 32,000 new employees. Given Microsoft’s prowess in software and Nokia’s in devices, the acquisition was anticipated to be a smooth, successful transaction. Furthermore, both CEOs (Ballmer and Elop) acknowledged the acquisition as something that would build upon the existing Nokia-Microsoft partnership.8 In a press release in 2013, Elop told reporters,

“‘Building on our successful partnership, we can now bring together the best of Microsoft’s software engineering with the best of Nokia’s product engineering, award-winning design, and global sales, marketing, and manufacturing. With this combination of talented people, we have the opportunity to accelerate the current momentum and cutting-edge innovation of both our smart devices and mobile phone products.’”9

February 2014 marked the beginning of the newly formed Microsoft Mobile (a subsidiary of Microsoft). Later, in October 2014, Microsoft Mobile announced that Microsoft Lumia would replace the iconic Nokia on the smartphones.10

Despite Microsoft Mobile’s best efforts, the union proved to be tenuous at best, with job cuts of 12,500 and 7,800 occurring in July 201411 and July 201512 respectively.  Finally, on 18 May 2016, Microsoft informed the public of its intention to write off most of the $7.2 billion Nokia deal and an agreement to sell the mobile devices unit to HMD Global and Foxconn Technology for just $350 million.13 The company also announced that it would no longer produce new phones. What had seemed to be a promising venture had feebly wilted.

Differences in national culture severely affected Microsoft’s deal with Nokia. The M&A Synergies Framework identifies the relevant cultural aspects of the Nokia-Microsoft merger and offers insight into what caused the acquisition to fail. These insights point us to things to consider when preparing for cross-border deals between American and Finnish companies.

M&A Synergies Framework

The M&A Synergies Framework was created to analyze culture’s effect on cross-border deal making. Differences in national culture can lead to increased creativity within companies; however, they can also incite bitter conflict. The framework directs dealmakers to better understand how culture can affect their ability to realize synergies, which are the primary rationale for deal making. The framework elaborates on the following cultural elements: communication, behavior, management, environment, and accounting and finance. The M&A Synergies Framework is discussed fully in another series that can be found on InternationalHub.org. This case studies uses the Framework as the basis to understand the cultural reasons why Microsoft’s acquisition of Nokia was not successful.

Next: M&A Synergies Framework—The Role of Communication in the Microsoft-Nokia Merger

Case Study of a Successful M&A—Concluding Thoughts on Lenovo’s Acquisition of IBM PC

Lenovo

Lenovo has yet to resolve all its cultural issues. As one global director said, “Until now, I think… [cultural integration] has not been completed…there still remain many cultural problems…I think this part is the most difficult one for the whole acquisition.”1This is an important reminder that the cultural integration process is measured in years, not months.

Regardless, Lenovo truly is an example of a successful cross-border M&A and is regarded as such in academic literature. Through attentive care and cultural awareness, Lenovo has been able to achieve cultural synergy. The current appointed “Chief Diversity Officer,” Yolanda Lee Conyers, is quoted on the company website saying, “We succeed when each of us respects and appreciates the diversity of the individuals we work with. We transcend traditional geographic and cultural borders to better anticipate and serve the complex needs of our customers around the world.”2 This synergy between the companies has been reflected financially. In 2003, Lenovo had income of $129 million3 and a global market share of 2.0%.4 In the same year, IBM PC Division had losses of $258 million5 and a market share of 5.3%.6 By 2016, although Lenovo was struggling with a $128 million loss due to economic fluctuations and restructuring costs, it had captured the largest global market share of the PC industry at 20.7%7 and had earned net income of $829 million the previous year, remarkable growth for what was once considered an underdog company.8

The Lenovo case is very useful for understanding the cultural issues that are central in M&A transactions and what integration looks like in practice. The lessons learned in the Lenovo-IBM acquisition can—and should—be applied to companies pursuing similar endeavors. To successfully prepare for an M&A transaction, further detailed research would be necessary to understand applicable cultural nuances, gain an educated perspective, and prepare to successfully integrate.

Previous: M&A Synergies Framework—The Role of Accounting & Finance in Lenovo’s Acquisition of IBM PC

First in Series: M&A Synergies Framework—Introduction to Lenovo’s Acquisition of IBM PC

Case Study of a Successful M&A—The Role of Behavior in the Lenovo’s Acquisition of IBM PC

National culture plays a significant role in the way people behave. The Lenovo team had to adjust to differences in the way Chinese and Americans workers interact among themselves and with each other. American employees tend to be more concerned with themselves while Chinese employees try to put the collective good of the organization first. They also have dissimilar belief systems and approach confrontation differently. Additionally, the combined company had to learn to adjust to the way meetings are organized and conducted.

 

Core Values

Individualism vs. Collectivism. On the scales of individualism and collectivism, the U.S. and China are on direct opposite sides.  This is thought to be due at least in part to political influence: “The Chinese Communist Party has especially upheld collectivism for the last several decades and the advocacy of communist morality encourages people to devote themselves to the state and society.”1 Although this collectivistic mindset is still the dominant tone in the country, it should be noted that individualistic tendencies are becoming slightly more common as China has recently experienced political and social changes over the last few years.

Chinese Lenovo employees complained about Westerners’ “less human” approach with its process-based, individualistic focus, while Westerners viewed traditional Eastern leadership as too stiff and not allowing for individual empowerment. With the help of external advisors, Lenovo implemented a model called, “My Self—My People—My Business.” This model was used to develop understanding and collaboration between the opposing mindsets. Chinese leaders were encouraged to see the value of certain individualistic attributes in the way they could strengthen employees and enable leaders. On the other hand, U.S. leaders were taught to think beyond individual achievement to consider the greater company context, in this way acknowledging a beneficial collectivistic viewpoint.2

On a different note, collectivism impacts not only employee interactions, but also consumer behaviors. Research suggests that collectivistic cultures are more sensitive to social value of brands. Consumers from a developing country like China would likely be more positively drawn to products from economically developed countries like the U.S. because of admiration for the social status and lifestyle.3 This would be in Lenovo’s favor within the Chinese market since the acquisition of IBM added to Chinese products the appeal of the relatively higher U.S. social status.

Masculinity vs. Femininity. Both China and the U.S. are considered relatively masculine societies: “…Chinese business community is driven by profitability and productivity, the vocabularies which are consistent with a highly masculine culture. Security of employment which is highly valued by feminine cultures, is not [the] predominate situation in China now.”4 Feeding off the energy of both masculine, achievement-oriented cultures, Lenovo’s mindset is typically quite aggressive, as written by Yolanda Lee Conyers, the Chief Diversity Officer: “Being number one isn’t enough. [We] continue to seek new pillars of growth.”5 The company tends to be very focused on visible measures of success, a reflection of the masculinity of both national cultures.

Belief Systems. The theories of ancient Chinese philosopher Confucius still influence many East Asian societies today. Among other things, Confucianism defines the proper “ranks” within certain relationships. It is considered critical for one to know their relative rank and to behave accordingly. For instance, in the relationships Emperor to Subject, Father to Son, Husband to Wife, Older Brother to Younger Brother, and Senior Friends to Junior Friends, the first individual of each pair is expected to demonstrate protection, care, and obligation, and the second to offer loyalty, respect, and trust in return.6 Without a basic understanding of Confucian principles, a foreign businessperson could misunderstand—or even offend—a Chinese employee. These Confucian ideals were ingrained in the way that many Chinese Lenovo employees respected leadership, communicated with co-workers, and approached decision-making.

Rather than focusing on belief system differences, Lenovo took the approach of finding a unified identity that could be used to create a belief connection between the national cultures. Lenovo management analyzed the values and visions of the two firms and found a common ground of integrity and responsibility, which were eventually embodied in the firm’s statement, “We do what we say and we own what we do.”7 Compatible goals and a shared passion for intelligent growth helped unite workers from all cultural backgrounds. Former CEO Steve Ward spoke of this connection, saying, “How can you walk into a place that’s clearly in a different land, yet feel so much like you belong here? This may sound corny, but it feels like home.”8 Lenovo used these shared values to strengthen the company, capitalizing on a unified belief system.

Characteristics

Strong Uncertainty Avoidance vs. Weak Uncertainty Avoidance. The U.S. and China are both considered societies of weak uncertainty avoidance. Both tend to accept ambiguous situations and unknowable outcomes. This makes sense when considering the bold approach of both companies towards the M&A transaction. Chuan Zhi Liu, the original founder of Legend (Lenovo in its preliminary form), described the acquisition as “a snake swallowing an elephant,” which caught on with the media.9 This is a useful metaphor for what truly was a nearly insurmountable task that required quick adaptation and stretching. However, in this case, both sides accepted the risk.

Task-based vs. Relationship-based. The Chinese do business in the mindset of “friends now, business partners later,” while Americans tend to be exactly the opposite. “The Chinese generally value relationships that demonstrate mutual respect, an aversion to conflict, and the maintenance of proper demeanor, and these beliefs extend into the business world as well.”10 It is often impossible to break into the market without a proper introduction from a person of status.

Cultural trainings and activities were held to develop relationships among the employees and expose them to their counterpart culture. A middle manager indicated that leaders at the Chinese headquarters would, “…frequently invite foreign managers to China for training and team building… such as climbing the Great Wall… these activities are very useful… because culture exchanging is very hard to be improved in the conference room, but it is easier to get additional and deep understanding through team building and team work.”11 Such planned experiences can be helpful “…to broaden their outlooks as well as help nonnatives to familiarize themselves with unwritten as well as written rules — and to help establish connections across the two groups.”12 This met the social needs of the Chinese employees and encouraged the U.S. workers to take the time to build relationships with their counterparts.

Confrontational vs. Avoids Confrontation. The U.S. tends to be in the middle range between confrontational and confrontation avoidant, while the Chinese are much more likely to avoid conflicts. However, “avoids confrontation” is not to be understood as synonymous with weakly disciplined. As a middle manager pointed out, “…the discipline of Chinese firms is very strong, just like military administration. And there is no room for negotiation at all.”13 The Chinese workers tended to avoid conflict by remaining silent even if they disagreed with ideas of their U.S. counterparts, which resulted in dominance of Western decisions.14 It took Lenovo a while to address these differences in order to get more open, balanced feedback. However, as previously mentioned, once the Chinese began speaking up, there was once again a distortion of translation and their words came across “a little too direct.”15 This required more adjustment, including establishing rules that conflicts would remain between leadership members only in an effort to quell rumors of management discordance.16

Linear Time vs. Flexible Time. Global Road Warrior, a cultural research database, offers this insight into the Chinese culture: “Meetings will typically last all day, and you should expect interruptions and delays. Visitors who are accustomed to following agendas to the letter should be aware that in China, agendas are simply starting points for long discussions that include many speeches and presentations.”17

This value could be extrapolated to analyze the expected speed of the acquisition process itself. In contrast, Chinese companies tend to require a longer preparatory stage through the M&A auction process. According to J.P. Morgan, the majority of Asian businesses say they would need six months for the initial M&A processes, in contrast with the one or two months that is common for U.S. companies.18
However, it appears that Lenovo was stricter with time than the typical Chinese company, which may have made the transition easier. Before the M&A, Lenovo employees had been trained in the habit that “people who arrived late to meetings had to stand in front of the group to demonstrate the importance of being on time.”19 There is also no indication that the Chinese took any longer to prepare for the acquisition than their American counterparts.

 

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Next: M&A Synergies Framework—The Role of Management in the Lenovo-IBM Merger