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CULTURESHIFT

In the new world of globalised business, overcoming the challenge of integrating contrasting corporate cultures is an essential step en route to international success, say the experts. Peter Fulbright reports.

CULTURE

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G lobalisation could be the biggest economic and commercial development of the last 20 years. People,

money and merchandise f low across borders more readily than ever, enriching economies around the world and creating opportunities that few businesses could have hoped for a generation ago.

As companies make foreign acquisitions to try to take advantage of those opportunities, their bosses might be forgiven for wondering if they work in the executive suite of the Tower of Babel.

Every business has its own set of practices, habits, traditions, beliefs, attitudes and values that develop over the years, collectively known as a corporate culture. Each merger a company makes exposes it to a new culture that must be integrated with its own, just as the sales forces, computer networks and administrative systems must be integrated.

Forging a single culture from two or more distinct ones is among the trickiest tasks that companies face. For Cristal Global, the challenge was particularly complex. According to Sam Alexander, Executive Vice-President, Operations & Technology, it is “arguably the most diverse company in this industry. Moulding together our many roots, educational backgrounds, personal beliefs, and value systems makes for a unique family. We respect each other and gain great advantage from working together.”

Consultants who specialise in the field say that the elements of a culture are more conceptual than concrete, leaving little for the architects of a merger to grab onto. Cristal addressed this problem by focusing on the elements that united its diverse corporate family.

“Cristal is a true titanium company. Titanium is our core business, from mining the ore to production of unique titanium metal powder for the aerospace industry. The focused effort, along with hard work, has resulted in the formation of a unique enterprise that will be very successful for many years,” says Alexander.

In doing this, Cristal Global avoided one of the major mistakes made by some companies which, all too often, forget the importance of creating a unified culture – it is often the last thing on their minds as the merged company starts to operate despite the fact that it will be the embodiment of the new entity’s identity.

“Most CEOs are pretty adept at strategy and structure and less adept at culture,” observed Dustin Seale, managing director for Europe, the Middle East and Asia at the consultancy Senn-Delaney Leadership. Corporate culture “is a funny space in which to play”.

Although executives may vary greatly in their approach to management, they tend to have one thing in common – a sense that they know what they’re doing. This can cause a certain rigidity and hamper efforts to develop a single culture. “You’re dealing with successful people attached to their way of doing things,” Seale said. “You have to change the way they think. You’ve got to get them on the same page. It can sound simple, but it’s not.”

Integrating workforces from different countries is a bigger issue than ever, even if executives do not always recognise it as one. The value of cross-border mergers totalled $135 billion in 1987, according to data compiled by researchers at Thomson Reuters. That figure grew to $440 billion in 1997 and hit an all-time high last year of more than $2.3 trillion.

There are all manner of issues for merging companies to consider that fall under the heading of “corporate culture”,

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As it evolves from what was essentially a Saudi business into a multinational one, Cristal Global must nurture a broad mix of cultural, religious and social backgrounds among its workforce, while melding them into a single corporate family.

Jamal Nahas, president of Cristal Global, says that, after the acquisition of Millennium Inorganic, the company rapidly realised “the importance of having a single Cristal Global face to our stakeholders (including customers and suppliers) as soon as possible, and creating this was a top priority”.

Consequently the company began what Nahas calls “an integration journey over the last 12 months” following the acquisition of Millennium Inorganic. “Our objective was to create a truly fully-integrated global organisation, not one which would be partially integrated or bolted together. We knew this would take time to do successfully, so we have used a step-by-step approach,” he says.

Cristal’s advantage over many other companies implementing these changes lies in the depth of

Jamal Nahas, president of Cristal Global

experience of its management team, which meant that there were fewer issues of integration and those that it did face could be dealt with efficiently.

In part this has come from the cultural diversity of Cristal’s main plant in Yanbu, Saudi Arabia. “The experience of having a very successful multicultural workforce at Yanbu was a helpful starting point. Understanding cultural differences and respecting them was a key part of our initial programme,” says Nahas.

An early decision was taken to use efficient and successful communication which would increase the understanding between the many parts of the company and harness the rich knowledge spread around the company. “We use a full mix of communication tools such as email, personal briefings, phone meetings and video-conferencing,” says Stephen Ward, senior vice-president for strategy and development at Cristal Global.

That metaphorical journey began with several physical ones, as the top 50 leaders from throughout the company visited the Kingdom for a workshop last

year. The idea was to develop “the vision, mission, values and strategic intent for the combined organisation”, Ward explains.

Those attending the workshop returned to their home offices and plants to explain such nuts-and-bolts matters as sharing technology and purchasing practices across the expanded company, as well as the broader message about strategy and philosophy. But Ward stressed that “the rich diversity of cultures is a real strength for us”: the intention was to start a dialogue, not make speeches.

“The way people go about things in one culture is different from another,” Nahas says. “If you create a framework for people so they can understand the bigger picture, you can harness those differences in a positive, constructive way.”

Cristal Global expects to be fully integrated by the start of 2009 when it will have for the first time a truly global, functionally integrated budget. “We do believe that organisations, like people, continue to evolve. We expect Cristal Global to change continuously over time as it grows to achieve the core elements of its strategy and as the demands of the global market-place change,” says Nahas.

Sam Alexander

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some more corporate and others more cultural. For Alexander, the sense of a united family is a key corporate ingredient. “The entire Cristal family is united in its journey – and this is arguably the most important element in our success. Individuals at all of our sites personally support our vision and combine together to create a powerful united force,” he says.

And, he adds, it is important to be “looking to the future. Our foundation in the world titanium industry promises to guarantee our future success. Our faith in that future is a strong motivator toward success.”

Cristal Global, like other organisations which have integrated successfully, also puts great emphasis on the need to establish basic structural elements and implement them throughout the organisation:

Is a premium put on teamwork and consensus building or on individual accomplishment? Is management hierarchical, with decisions made at the top and passed down through a chain of command, or are rank-and-file employees encouraged to be self-starters and display initiative? Whatever the policy, it should be consistent throughout the organisation, management consultants say, as should criteria for promotion, for example, or procedures for pitching ideas or airing grievances.

Less elemental but also critical, uniform procedures must be put in place for such functions as sales and marketing and sourcing of supplies. Then there are the more ephemeral facets of workplace life such as dress codes, timing of meals and breaks, and the general ambience and atmosphere. The way these are handled often varies within a company from office to office and plant to plant, and tends to be

‘looking to the future. Our foundation in the world titanium industry promises to guarantee our future success. Our faith in that future is a strong motivator toward success.”

- Sam Alexander, Cristal Global’s Executive Vice-President, Operations & Technology.

Stephen Ward

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‘We use a full mix of communication tools such as email, personal briefings, phone meetings and video-conferencing,”

- Stephen Ward, senior vice-president for strategy and development at Cristal Global.

based on the history and customs of the wider community.

Whatever practices are established – and then spread when a new element of the business is acquired – the key to doing it properly is clear thinking and clear communication, experts maintain. When two companies of roughly equal size merge, one partner may try to impose its modus vivendi on the other or maintain parallel sets of policies and practices. A far better approach, said Peter Kilgour, UK managing director for the Towers Perrin consultancy, is to take the best parts of each company’s culture and form a new, unique one.

“This is a fundamental redefinition of the business,” he explained. “You have to take the position that you’re developing a new franchise, a new proposition. The leaders of the business have to define that proposition and show everyone what that is. They need a clear vision so that Company A and Company B can both move forward to that vision.”

It is important to let people know what is expected of them and to do it in a way in which they feel they have a stake in effectively implementing the regime, said Dustin Seale at Senn-Delaney. Better yet, it should be done in a way that allows all employees to feel as though it was their idea in the first place.

“You have to have a process where people make good choices for themselves,” Seale said. “If you feel coerced, you’re going to do the opposite of what you’re asked.”

One way to transmit cultural elements throughout an organisation is in person. Posting managers and other employees to different branches can help carry messages about values, traditions and policies, especially to recently acquired parts of a

business. A study by McKinsey of multinationals found that companies which emphasise international experience are better off for it, as are the affected employees.

“Companies should focus hard on rotating talent globally across divisions and geographies,” a report summarising the study’s findings recommended. “Not only will this rotation support the development of company talent, it will also promote greater cultural awareness and diversity.”

Foreign postings are a good way to relay a company’s message to all, but consultants stress that they should be used as opportunities to listen as well as talk. Executives of companies making acquisitions “need to

understand the culture of what they’ve bought”, urged Kilgour. “If they understand the rich heritage and history, then they’ll have respect for them. They can take the best of that and clone it into their organisations.”

Seale agreed. He pointed out that a failure to appreciate the existing culture of a new part of the business can exact a heavy toll. “The most serious mistake any organisation can make is arrogance,” he warned. “If you come in with a we-know-better attitude, you’re going to be making a big mistake.” When leaders express curiosity about and respect for the other company’s culture, he said, “they up the odds quite a bit that people are going to want to go with them”.

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Certain multinationals, through the effectiveness of their managements, strength of their policies and the experience accumulated through repeated deal-making around the world, have earned reputations for instilling a strong, cohesive culture throughout their organisations.

These companies operate in a wide range of industries, and the collections of practices and ideals that comprise their cultures are varied too. What they have in common, experts in the field say, is an ability to communicate effectively with their workforces and implement their policies in a clear, consistent manner.

General Electric is one of the largest and most diversified companies on earth, making everything from railway locomotives and jet engines to consumer loans and television programmes. Almost all its acquisitions are much smaller than GE itself, so there is an expectation at a new subsidiary that it will have to conform to the parent company’s policies, and also an understanding that GE has done this many times before and knows what it is doing.

“The process normally goes pretty well,” one human resources consultant observed. “When you’ve

Dustin Seale

been bought by GE, you know you’ve been bought.” (The consultant declined to be identified by name when discussing specific companies.)

Another authority on matters of corporate culture, Dustin Seale of Senn-Delaney Leadership, pointed out that while it is clear that GE is in charge when it makes an acquisition, the company does not throw its ample weight around and behave in an autocratic manner. Jack Welch, the retired chief executive credited with making GE the formidable force it is today, tended to keep many of his acquired companies at arm’s length.

Welch established “a simultaneous loose-tight culture”, Seale explained. There were certain core principles that had to be observed throughout the company, while officials at the different units were given wide latitude in deciding how best to interpret those principles and put them into practice.

Another industrial titan that Seale admires is BP. Through the mammoth mergers it has executed, the energy company “has created one very consistent organisation”, he said.

There can be such a thing as too much consistency, however. A trick in developing and managing a corporate culture is to forsake rigidity and tolerate, even nurture, the traditions and customs of local subsidiaries and individual employees.

Reckitt Benckiser, a British supplier of household goods with a global presence, is a paragon of eclecticism from the top down, in Seale’s estimation. “It is the best company I’ve run into in the world in terms of the diversity of its culture” with respect to race, religion and the geographic origins of its key people, said Seale. He also credited Reckitt with being “consistent around the globe, with a common culture that crosses borders and backgrounds”.

The multinational drugs firm GlaxoSmithKline is one of the companies most adept, in Seale’s view, at forming a culture that is uniquely the company’s while respecting the customs and mores of employees in different parts of the world.

The ways Glaxo’s workers dress and greet one another, for instance, vary across the company’s plants, and yet “there is a common DNA”, Seale remarked. Glaxo communicates the idea that “’wherever we go, this is the way we work with one another, this is what we mean by collaboration, accountability and integrity”.