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 Management in HP’s Acquisition of Autonomy

Leadership changes at HP soon after the merger resulted in friction affecting employees in both companies. HP’s decentralized management style conflicted with the hands on approach Autonomy’s CEO Michael Lynch used. Autonomy’s entrepreneurial management method clashed with the HP’s entrenched hierarchical structure.


Leadership Turnover. Leadership turnover, or the act of changing CEOs during the acquisition or integration phases, is quite common for HP: it has a history of replacing its own CEOs soon after it acquires another firm.1 At the time of the acquisition of Autonomy, Léo Apotheker was CEO of HP. Apotheker’s vision for HP included entering the software industry while trying to exit the PC business.2 He moved his vision forward by purchasing Autonomy, but his time at HP was cut short when the board at HP fired him shortly after announcing the acquisition.3 In hindsight, firing Apotheker was probably not the best course of action; Michael Lynch and Apotheker had a working relationship built on a mutual background in computer hardware and through cooperating on the Autonomy acquisition. Lynch responded to Apotheker’s dismissal saying, “Autonomy was left to try to integrate into HP without the very people who had conceived of the acquisition and who were uniquely positioned to execute that integration.”4 The problems with changing management became obvious: the new leaders were not as invested in integrating the purchased company, and there was no longer an established relationship between new and old CEOs.

In addition to changing its own CEO, HP struggled to retain Autonomy’s management. One commenter highlights HP’s inability to maintain the management of its acquired companies saying, “HP has had similar problems hanging on to the bosses of other hi-tech firms it has acquired.”5 The change in leadership from Apotheker to Whitman left many of the top executives at Autonomy frustrated and disenfranchised, and subsequently the President, CFO, CTO, CMO, COO, and the head of Aurasma (a division in Autonomy which created an augmented reality technology) left the company shortly after Meg Whitman became CEO of HP.6 Lynch didn’t last much longer, departing just eight months after Autonomy was acquired.7 HP failed to recognize and learn that maintaining top management at its target company will give employees an example of how to act in the process of merging cultures. This change in management negatively impacted the operations of the combined company.

While HP wanted Autonomy’s culture, technology, and people, it did not realize that “acquiring a firm with a valuable knowledge-based resource…does not ensure that the knowledge is successfully transferred to or combined with the resources of the acquirer during acquisition integration.”8 The failure to retain the talent and knowledge is exemplified by the “estimated 25 per cent of Autonomy’s staff” which left within seven months of the merger closing.  In failing in the early stages to effectively communicate and integrate, many of Autonomy’s employees felt alienated and left – dealing a severe blow to an already tenuous union.  Four years after the acquisition (in 2015) one employee said, “Management is in constant flux due to frequent organizational changes, and will generally only communicate with engineers to ensure critical issues are getting immediate attention.”9 Thus, HP and Autonomy illustrate the fact that the effects of management turnover can be pervasive, long-term, and debilitating.

Large Power Distance vs. Small Power Distance. One sign of an emerging problem in mergers stems from the difference in organizational structure of the merging companies. According to Meyer and Hofstede, the U.S. is typically more egalitarian while the U.K. is more hierarchical.10 Even though the U.S. is relatively more egalitarian than the U.K., HP and Autonomy exhibit the opposite cultural norm—yet again. HP is an established company with many layers of management, whereas Autonomy was small and run mainly by its founder and CEO, Mike Lynch. HP is formed in a hierarchical structure which is necessary because of the size of its operations. In contrast, Autonomy had an egalitarian structure which links back to the roots of the organization: Lynch was still in charge and highly involved in every operation of the company. An article in Business Insider notes, “He ran this company like a small private company, he was involved in all facets of the company, he was extremely hands on.”11 The level of involvement Lynch had at Autonomy is surely impossible in a corporation as large as HP, and this difference caused tension between the two companies; “It is a classic case of entrepreneurial spirit curdled by the culture of big business.”12

Though national cultures differ with regard to individual attitudes toward preferred organizational structure, neither country exhibits a strong inclination towards highly uneven power distributions.13 Moreover, the UK scores a 35 on the power distance index (PDI) which “sits in the lower rankings of PDI – i.e. a society that believes that inequalities amongst people should be minimized.”14 As aforementioned, Autonomy operated with a relatively low amount of power distance prior to combining with HP. Initial communication from HP suggests that “HP made promises to leave Autonomy’s culture alone. ‘The lioness not rolling over her cub’ was how it was expressed by some HP executives. But over several months HP began to exert more control, leaving employees increasingly disgruntled.” Had HP respected Autonomy employees’ discomfort with uneven distributions of power, many of the “culture clashes” could have been avoided. This isn’t to say that employees from all nations exhibit strong intolerance toward uneven distributions of power. For example, Chinese employees tend to exhibit little discomfort with large levels of uneven power distribution – as evidenced by their score of an 80 on the PDI.15 The culture clashes exhibit the importance of tailoring the integration style in cross-border M&A. In this case, Autonomy employees saw a relatively egalitarian structure become increasingly more hierarchical, which made them feel alienated in the new organizational environment.

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

Next: Case Study of a Failed M&A—The Role of Environment 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.


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 Management in Microsoft’s Acquisition of Nokia

Management turnover during the period surrounding an acquisition is challenging, particularly when new leaders don’t share the same passion for the merger.  Leadership change created uncertainty for Nokia employees. Announced layoffs coupled with differences in leadership style created more suspicion and distrust of those leading the merged companies. Had Microsoft been sensitive and aware of differences in the way Nokia employees view and interact with management, many problems could have been avoided.


Leadership Turnover. Many Microsoft managers moved to executive positions in Nokia right before the acquisition. Stephen Elop, a former employee of Microsoft, joined Nokia as the company’s CEO and President in December 2010. Elop joined the Finnish company with the mandate to reclaim lost market share and increase profitability. Not even three months later, in February 2011, Nokia announced a partnership with Microsoft; this entailed Microsoft’s software being used on all Nokia devices. After a few years, Microsoft decided to turn its partnership with Nokia into an acquisition. September 2013 marked the beginning of the new Microsoft Mobile (the merged Microsoft and Nokia venture). With the acquisition, many executives from Nokia moved over to the newly-created Microsoft Mobile. This included Elop, who moved companies to become the Executive Vice President of Microsoft’s devices division.

Soon after the acquisition was complete, Steven Ballmer (then CEO of Microsoft) announced his decision to step down as CEO. He was succeeded by Satya Nadella. One critic claimed, “Mr. Ballmer agreed to the deal as he was stepping down as chief. It was almost a fitting dud to end his tenure.”1

Management turning over from Ballmer to Nadella meant that the newly formed Microsoft Mobile division would begin operating without the executive that pioneered the acquisition of Nokia’s mobile division. Worse still, Nadella displayed little interest in the Microsoft Mobile division and even “announced a strategy shift away from a ‘devices and services’ focus” a few months after acquiring Nokia.2 The management turnover, as well as the commentary on moving away from devices, dealt a psychological blow to Finnish employees, impairing their ability to design innovative products.

Employee Turnover. In addition to acquiring Nokia’s ailing mobile phone division, Microsoft acquired 32,000 employees.3 The employees functioned as part of Microsoft Mobile, though they were headquartered in Finland. This move may have been destructive because the Nokia employees were “coming from a completely separate culture.”4 While it can be difficult for employees to adjust to a new corporate culture, they can eventually thrive. However, it does take time for employees to acclimate. It is apparent from the quantity of cuts that Microsoft had little patience for its Microsoft Mobile experiment. Microsoft’s lack of patience is displayed by the number of layoffs related to Microsoft Mobile: 12,500 (July 2014)5, 7,800 (July 2015)6, 1,850 (May 2016)7, and finally, 2,850 (July 2016).8 In just three short years, Microsoft cut 25,000 jobs from Microsoft Mobile.  The layoffs led to a severe brain drain, depleting the human capital that Microsoft paid so much to acquire.

 Large Power Distance vs. Small Power Distance. Both Finland and the U.S. fall on the small power distance side of the scale. This indicates that people within an organization are less likely to accept hierarchical authority. In the case of these two countries, Finland is even lower on the power distance scale than the U.S., indicating that power is more decentralized in Finland than in the U.S. Thus, employees in Finnish companies tend to prefer and operate with more autonomy than those working for American firms.

This small difference between cultures led to problems when Microsoft merged Nokia’s mobile phone unit into its operations. “The combination of the two companies has created more disconnects and mistrust than continuity or synergy. There is (sic) lots of politics and click-ish behavior throughout all levels.”9 With power more equally distributed between organizational levels, it was easier for Finns to become closer with upper management and create a siloed atmosphere for the Americans coming into the merged company. Management did not provide any help in this regard; in fact, management created a sense of fear that permeated the company creating more distrust and confusion among employees and executives. “A culture of status inside Nokia made everyone want to hold onto power for fear of resources being allocated elsewhere or being demoted.”10

 Decision Making

Consensual vs. Top-Down. Finns are very consensual in their decision making; decisions are made as a group. The process of making decisions can be time consuming because each person within the group is consulted, but when the decision is made, it is implemented quickly and is generally inflexible to change.11 In the case of Nokia, decisions were made collectively with the executives in Finland. One employee commented that Nokia is “focused on the Finnish way of doing business.”12 Another former employee in the U.S. described Nokia as a “ship that can be slow to turn — patience, persuasion, and often travel to Finland are required to initiate change.”

Since the U.S. is a top-down decision-making culture, Americans working with Nokia before the merger found it hard to work with the “Finnish way” of decision making. Employees in the U.S. are used to short discussions and more implementation while Finns are slower and more detailed in the decision-making process.  Even though Microsoft is a U.S.-based company, Microsoft Mobile was headquartered in Finland, allowing the Finnish mindset of consensus decision-making to persist.

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

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

S1E6: Saving Face: Doing Business in Southeast Asia

Meet Veasna Neang, a Cambodian educated in the United States, who developed his career in Cambodia, Vietnam, Laos, and Myanmar. He tells us why a student would rather unzip his own pants than tell a teacher his fly is open and why doing business efficiently in Asia always includes significant time socializing.

S1E6: Saving Face: Doing Business in Southeast Asia
International Hub: Cultural Convers...

00:00 / 30:40

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.


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 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 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 Management in Lenovo’s Acquisition of IBM PC

Determining who should lead the newly merged company is a critical decision. Management and employee turnover is disruptive and adds stress to the organization as it integrates people and processes. The new Lenovo team recognized that leadership and the way they make decisions would mean the difference between success and failure.


Leadership Turnover. Lenovo split top management positions almost exactly in half between Lenovo leaders and former IBM leaders. As part of this change, IBM’s Steve Ward was assigned to be the integrated company’s new CEO while former CEO Yang Yuanqing stepped into the position of chairman.1 Most popular news sources evaluated this as a wise decision. One source stated that, “as they enter foreign markets, Chinese execs realize they lack essential skills. ‘China needs brand names, reach, logos, marketing, distribution — and the management that attends to all of those.’”2 In fact, a search for management talent may have in part motivated the acquisition as a whole. As CFO Mary Ma said, “We were simply finding a boss for ourselves.”3

Lenovo has continued to choose leaders of various backgrounds and as of 2015, had seven nationalities represented on its top management board, an unusual accomplishment even among globalized companies. Upper management boasts upbringing and education from a variety of nations including France, Italy, U.K., Australia, and of course, the U.S. and China.4 Although study results are mixed with regards to the effectiveness of having diverse leadership, the findings of 53% higher ROE (Return on Equity) and 14% higher EBIT margins (Earnings Before Interest and Taxes) in the world’s most diverse companies as compared to the least diverse companies seems to support the idea that diversity can significantly add real financial value. Among other benefits, if nothing else, “employing nationals from the target countries may help forestall some of the ‘liabilities of foreignness.’”5

In addition, Lenovo introduced a unique company-created position of “Chief Diversity Officer” in 2007 with the purpose “to ensure that Lenovo employs a broad array of talents around the world” as well to aide with cultural integration and awareness.6 Although at the time a Chief Diversity Officer wasn’t unheard of in other companies, Lenovo was the first Chinese company in any industry to staff this position.7 This allowed for clear upper management focus on cultural integration and signaled to both employees and the public that it was a top issue for Lenovo.

Employee Turnover. In the initial stages, Lenovo adopted a “parallel management” model for the acquisition, essentially treating the companies as two independently run branches.8 The only departments that were quickly integrated were those with functional purposes, such as HR and Finance. These efforts created a sense of security and continuity in the firm, which encouraged employee retention. One Lenovo employee stated, “We wanted them [employees from IBM] to realize our company was not a low budget traditional Chinese company… we kept the former welfare and salaries and didn’t cut off anything…”9 In fact, in the first year after the acquisition, the employee turnover was less than 2% allowing the company to retain intellectual talent.10 Eventually, with further integration in the Raleigh, North Carolina office in 2006, the company did have to execute some lay offs, which impacted 1,000 of the 21,400 employees at the time. These cuts were spread equally across all of the company’s geographical operating regions.11

Large Power Distance vs. Small Power Distance. Chinese culture tends to prefer a “Large Power Distance” between high-level and low-level employees.12 This shows a strong preference for clear distinctions between classes or roles, and an expectation that higher management to be respected and knowledgeable. Confucian principles are in part responsible for this philosophy that is still in effect within the Chinese workplace:

“To this day, perhaps because of their Confucian heritage, East Asian societies, from China to South Korea to Japan, have a paternalistic view of leadership that is puzzling to Westerners. In this kind of “father knows best” society, the patriarch sitting at the top of the pyramid rarely has his views or ideas challenged. And though Asian countries have begun to move past these narrowly defined roles in politics, business, and daily life, due in part to the growing influence from the West, most Asians today are still used to thinking in terms of hierarchy. They tend to respect hierarchy and differences in status much more than Westerners.”13

Although this mindset might be accepted in China, it is not a part of Western culture. The U.S. instead tends to be a low power-distance culture, preferring an “even playing field” between superiors and employees. Work is best completed and respect fostered if the boss is considered by the employees to be “one of us.”

Within Lenovo, “Western leaders talked more about the empowerment of the individual and tended to see traditional Eastern leadership as hierarchical and less flexible.”14 It appears that Yang Yanquing, who had originally set up the IBM acquisition deal and was re-established as CEO in 2009, recognized the existing power distances in the company and wanted to change them. He is “probably best known for his efforts to break down Lenovo’s hierarchies and empower employees at every level” even to the point where he divided his own $3 million bonus among lower-level employees.15 Additionally, “YY,” as he is called, made efforts to “Westernize” Lenovo as preparations were made for the IBM acquisition. Changes included dressing in a more Western style, receiving training on specific phone etiquette, and requiring employees to address leaders by their given name, rather than by formal title. Employees struggled to change their ingrained habits, but persistence prevailed. YY has been praised for these efforts to transform “the company’s culture from ‘wait and see what the emperor wants’ to a much more egalitarian, welcoming environment for colleagues from the West.”16

Decision Making

Consensual vs. Top-down. The Chinese have a strong top-down decision-making preference. The U.S. tends to be mid-range on a world scale, which makes it seem consensual by comparison to the Chinese. Several U.S. Lenovo employees expressed frustration with the top-down directive approach of Chinese management. These employees described Lenovo as a “Chinese company fully directed by chinese execs [sic] that don’t understand the US or world market,”17 and stated, “It seems all the power has shifted back to Beijing”.18

In contrast, it is obvious that the U.S. employees relied on a more consensual decision-making process. On, one employee located in North Carolina mentioned the following: “…lots of e-mails to process; lots of meetings to attend; decisions were made by group consensus.”19 Consensual decision-making was consistently employed at U.S. Lenovo locations. An employee said, “Sometimes its [sic] difficult to get decisions and directions approved because of the diversity of cultures.”20 Dealing with the contrasting approaches proved to be laborious.

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

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

Case Study of a Successful M&A—Introduction to Lenovo’s Acquisition of IBM PC

Lenovo Laptop Keyboard

The relatively unknown Chinese computer manufacturer, Lenovo, set its sights high: acquire the legendary IBM PC division. Though there were many who thought this merger would fail, it became one of the most successful Chinese acquisitions in history. This series uses the Mergers and Acquisitions Synergies Framework to explore the careful way Lenovo managed cultural integration with IBM to become a world leader in computer sales.


Chinese merger and acquisition transactions with U.S. targets are now more common than ever before, peaking in 2016 with 163 unique announced deals totaling an expected value of $78.6 billion USD.1 Arguably, one of the most successful and well-known outbound Chinese M&A deals in recent history was that of China-based Lenovo’s 2005 acquisition of the PC division of U.S. technology giant IBM for a total price of $1.75 billion USD: $1.25 billion in cash, plus debt assumption of $500 million.

Fig. 1 Trends show a dramatic increase in both the number of transactions and the dollar value of out-bound Chinese M&A with U.S. targets.










Lenovo began in Beijing in 1984 as the “New Technology Development Center,” a start-up of the Chinese Academy of Sciences. The practice of government organizations arranging commercial businesses was quite common at the time and was called “guoyou minying,” meaning “state-owned, people-managed.” The Academy hoped it would be a source of income to make up for government budgeting shortfalls.2

In 1988, the start-up company expanded its operations into Hong Kong and adopted the name “Legend Computer Group Co.” Over the next decade, Legend adapted to a role distributing American- and Japanese-made computers and learning trade strategies by partnering with companies such as Intel and HP. Eventually, the company introduced its own self-branded PC, which, with the help of favorable market conditions and government benevolence, began to dominate the Chinese PC market. However, the company sought global expansion. The company name was changed to “Lenovo” since “Legend” was a name already claimed on the international market. In 2004, Lenovo seized the opportunity to purchase IBM’s PC division.3 This was a critical expansionary step allowing Lenovo to eventually obtain the largest share of the international PC market.

As one global business director at Lenovo reported, “We believed that through this acquisition, Lenovo can reach the designated position at one step…and we can benefit from this acquisition in three areas: global market, valuable brand and advanced technology.”4 However, the acquisition came with risks. Lenovo, a much smaller company, had only a fourth of the capital that IBM had at the time and the popularity of the Lenovo brand was limited to China.

Beyond the logistical challenges, the business anticipated difficult culture clashes. As one Chinese consultant stated, “The cultural challenges are going to be big. […] Lenovo hasn’t had a particularly successful track record of partnerships with foreign companies.”5

Culture clashes indeed proved difficult to manage as the two companies combined operations. However, with time and effort, Lenovo was able to achieve cultural synergy and is regarded today as an integration success story.6

This analysis follows the M&A Synergies Framework, developed from careful research of cross-border M&A cases and existing social psychology theories. 7 The framework, as utilized in this application capacity, outlines important considerations when approaching cross-border mergers and acquisitions, especially between U.S. and Chinese counterparts. This analysis addresses communication, behavior, management, environment, and accounting and finance in the context of the Lenovo-IBM integration and provides insights that can apply to future similar transactions.

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