In the last decade, to accomplish changes in clients’ demands, IBM’s strategy was to strengthen its position through strategic investments and acquisitions in higher-value segments. In fact it acquired more than 100 companies to complement and scale its portfolio of products, moving towards higher-value and more profitable segments of the industry.

The aim of this project is to analyse the cultural integration issues consequent to the adopted strategy and to develop a general analytical framework that allows for the examination of those issues in post-acquisition integrations using the IBM ISS case. The selected case represents an IBM acquisition strategy and the related issues: the ISS acquisition was announced, at a worldwide level, during the summer of 2006 and completed in October 2006.

The work will focus on the post-acquisition integration phase of ISS in IBM in Italy. The research will focus on the Italian local reality for two main reasons:

The importance of local issues arising at a country level after a cross-border Merger and Acquisition (M&A);

The accessibility of data.

The project main objectives are to:

Identify appropriate theoretical support to understand and manage future post-acquisition cultural integrations;

Develop an analytical framework applicable to future acquisition cases;

Develop recommendations and the analytical framework to assist managers to develop a more structured approach in future integrations.

Background to the Project

IBM Main Strategy

IBM’s stated strategy is to divest in commoditizing businesses like personal computers and hard disk drives, and strengthen its position through strategic investments and acquisitions in higher-value segments like business intelligence and analytics, security, next-generation data centres, cloud computing and green solutions.

Up to 2009, IBM acquired 108 strategic companies to integrate and broaden its portfolio of products and offerings, consequently changing IBM’s business mix toward higher-value, more profitable segments of the industry. Moreover, the IBM 2010 budget allocated to strategic acquisitions is twice the 2009 budget and since the beginning of 2010, IBM has already completed some of them (the last one Blade Network Technologies in September 2010) .

This strategy is confirmed for the next 5 years. In fact, IBM, in its 2015 roadmap, plans to invest $20B in acquisitions as a contribution to its 5% revenue growth target, further adjusting its business and segment profit mix (Fig.1).

Fig.1 2000-2015 IBM business remix

source: IBM Business Perspective 2010

The consequence of this strategy is IBM’s continuous engagement in integration activities among companies: from financial, to processes and cultural and human resource aspects. Focusing on cultural integration, there are difficulties in managing motivations, behaviours and communication with the acquired companies’ employees (Buono and Bowditch, 1989; Haspeslagh and Jemison, 1991). These issues can affect the acquisition’s value and command attention and a continuous strive for improvement.

ISS: Generalities

Internet Security Systems (ISS) was a publicly held company based in Atlanta. ISS provided security solutions to thousands of the world’s leading companies and governments, helping to proactively protect against internet threats across networks, desktops and servers. ISS software, appliances and services were specialized in monitoring and managing network vulnerabilities, in exploiting and rapidly responding in advance of potential threats.

ISS, with its X-Force security intelligence service, was able to proactively protect networks with detailed analyses of global online vulnerabilities and threat conditions. ISS had also a global network of Security Operations Centers (SOCs), which include sites in Tokyo, Brussels, Brisbane, Detroit and Atlanta.

Before the acquisition ISS had more than 11,000 customers worldwide (i.e. 17 of the world’s largest banks, 15 of the largest governments, 11 of the top public insurance companies and 13 of the world’s top IT organizations) and a consolidated network of business partners (BP) skilled in selling the ISS product line.

ISS, acquired at a worldwide level in October 2006, was later integrated into the Security unit of the IBM Global Technology Services (GTS) division, enhanced IBM strategy to use IT services, software and consulting expertise to automate labour-based processes into standardized, software-based services that can help clients optimize and transform their businesses.

Relevance of the Project

The success or failure of M&As depends upon many different aspects from financial, economic, process, to cultural, behavioural and human resource factors (Cartwright, 1990). Among the above mentioned aspects, the cultural perspective, focusing upon the human costs in post-acquisition integration, plays an important role.

The present project will focus on ISS acquisition and integration in Italy with an in-depth analysis of the different cultural issues faced in the post-acquisition integration phase and the impacts these had on the unit.

Given IBM’s strategy to invest and acquire higher-value segments, this analysis will be useful to define an analytical framework that allows senior managers and Human Resources (HR) Department for examining cultural integration issues in the ISS post-acquisition integration and possibly apply the framework to future acquisitions.

Project Structure

The methodology applied in the project is based on a literature research followed by a mix of the deductive and inductive approaches. Firstly, the most important literature relevant to the topic was identified and secondly defined a set of issues to be addressed with semi-structured interviews to selected people with different roles in the company. The interviews were designed to understand the cultural issues encountered in the ISS case.

The research questions addressed are:

What were the main cultural issues faced during the ISS post-acquisition integration?

What impact have the indentified cultural issues had on the unit?

How did IBM manage the issues raised during ISS post-acquisition integration and how could management of future integrations be improved?

The project is organized in a way that firstly reviews, in a specific chapter, the most important theories to the topic of interest and secondly it presents the methodology chapter showing the rationale underlying the choice of research design, sample and the development of an interview structure. After the results are presented and discussed, a closing chapter concludes and makes recommendations.

Literature Review

Literature Review Search Strategy

The aim of the literature review was to look for material on all the different topics related to the project area: M&A, corporate culture and cultural integration.

The research was based on keywords related to the topics of interest and the sources are reported below.

The main sources used to find articles and books were:

Business Source Premier

Emerald Insight

ABI/Inform Global

Science Direct

Web of Knowledge

Google Scholar

Book24x7 (http://www.books24x7.com by SkillSoft: http://www.skillsoft.com )

Library of Università Cattolica del Sacro Cuore di Milano

The literature review was based on the following keywords:

Merger and Acquisition – M&A

Human Resources Management (HRM)

Corporate Culture

Cultural Issues

Cultural Integration

Cultural Clash

Acculturation

Cultural Fit

Cultural Leadership

Communication

Except for the first, all the other keywords were searched also in conjunction with the ‘Mergers and Acquisition – M&A’ keyword to find material more appropriate and relevant to the project.

Introduction to M&A

During the past two decades, due to fierce competition, the emergence of new financing opportunities and decreased entry barriers throughout the globe, M&As have become increasingly popular among companies as a means for strengthening and maintaining their position in the market place achieving various objectives such as growth, higher returns, a competitive advantage and a dominant market position in the global market (Nahavandi and Malekzedah, 1988 and Napier, 1989).

In many cases, M&As are seen as a relatively fast and efficient way to expand into new markets and incorporate new technologies and capabilities (Seo and Hill, 2005), even if it is a really complex strategic choice due to its multifaceted characteristics.

According to Cartwright and Cooper (1990), the main factors facilitating this growing trend are the following:

Market Conditions bringing the need to consolidate or capture new markets;

Increasing Availability of Capital within organizations and financial institutions;

More Family Companies for Sale either because they have grown so large that the entrepreneurs can no longer continue as family business, or there is no natural successor within the family;

The Easing of Regulations although an anti-merger movement is developing within some countries (i.e. USA)

The Need to Share Risk particularly in capital intensive industries;

The Existence of Complex Problems contributing to the increase of joint ventures (JV), strategic alliances are often a prelude to a M&A;

Unrecognized Psychological Motives such as fear of obsolesce (Levinson, 1970) or a CEO’s desire to find a new game to play (McManus and Hergert, 1988).

M&As are commonly classified according to four types (Walter, 1985; Hovers, 1973; Kitching, 1967).

Vertical includes organizations with a client-supplier relationship within the same industry.

Horizontal is the combination of two companies competing in the same industry.

Conglomerate takes place between companies operating in an unrelated business.

Concentric comprehends companies unfamiliar but operating in a related field, into which the acquiring company wishes to expand.

The following literature review firstly gives an overview of the M&A phenomenon, trying to understand the motives that lead companies to merge or acquire another company, the different approaches to this phenomenon, the process (phases) to follow and the relation between M&As and company performance. Secondly, it will move to the core of the work: the definition of culture and the crucial role it plays in M&As and the cultural issues that may arise in the post-acquisition integration process that can have important impacts on the success or failure of M&As.

M&A Motives

Given M&As have become a global phenomenon and a strategic choice for companies’ growth and expansion (Lodorfos, 2006), and according to the literature, the failure rate of M&As ranges from 55 to 70 percent (Carleton, 1997), academics have been attracted to study the motives behind M&As and the causes of their success or failures.

In M&As it generally happens that ‘single motives for deals are rare’ while ‘multiple motives are more the norm and these motives are not necessarily in alignment’ (Angwin, 2009, Lesson 2, p.20). In fact, for example, according to Napier (1989), it is possible to make a distinction between financial or value maximizing motives, when the main objective is to increase shareholders’ wealth (Salter & Weinhold, 1979) and financial synergy, and managerial or non value maximizing motives where mergers main drivers are other strategic reasons such as increasing market share (Halpern, 1983), management prestige (Rhoades, 1983), personal gains for managers or reducing uncertainty and restoring market confidence (Pffeffer, 1972).

All the M&As strategic motives are based upon the assumption that the deal will make the firm ‘better off’ (Porter, 1987) in a demonstrable way, using conventional performance indicators such as reported earnings, share price or market share. A synthetic and clear presentation of the motives behind M&As and the related relevant payoffs is shown in the following table.

Table 1 Motivation Types and Payoffs

Source: Angwin, 2009

The motives behind a merger may influence the extent to which the two firms, and their HR practices, are integrated after the merger (Shrivastava, 1986).

Approaches to M&As

As previously mentioned, M&As decisions are motivated, evaluated and justified by strategic and economic considerations and the primary concerns are related to the legal, financial and strategic aspects of the deal (Mirvis and Marks, 1992). Consequently, literature on M&As has initially focused on the following fields:

Strategic management: studying M&As as a method of diversification, focusing on both the motives for different types of combinations (Ansoff et al., 1971; Salter and Weinhold, 1981; Walter and Barney, 1990) and the performance effects of those types (Lubatkin, 1987);

Economics: emphasizing economies of scale and market power as the main motives for mergers and examining acquisition performance with primarily accounting-based measures (Goldberg 1983);

Finance: studying acquisition performance, relying on stock-market-based measures (Jarrell et al., 1988; Jensen and Ruback, 1983; Weston and Chung, 1983).

However, because of the high rate of failure, recent research (Seo and Hill, 2005; Haspeslagh and Jemison, 1991; Buono et al. 1985; Nahavandi and Malekzadeh, 1988; Mirvis, 1985) has shifted to the organizational and human side of M&As to try to understand the organizational, psychological and behavioural effects of M&As on companies and employees. M&As necessarily have organizational implications, and the degree of organizational change can vary substantially as the motives and types of M&As differ widely (Seo and Hill, 2005). While organizational research has focused mainly on the post-acquisition integration process (Haspeslagh and Jemison, 1991), highlighting the concepts of culture clash (Buono et al. 1985; Nahavandi and Malekzadeh, 1988) and conflict resolution (Mirvis, 1985), HRM literature, on the other hand, has emphasized psychological issues (Levinson, 1970; Marks, 1982), the importance of effective communication (Schweiger and DeNisi, 1991) and the impacts on careers (Hambrick and Cannella, 1993). Moreover, Fralicx and Bolster (1997, p.50) pointed out that ‘culture can be a make or break factor in the me