Case Incident 1

MERGERS DON’T ALWAYS LEAD TO CULTURE CLASHES

A lot of mergers lead to culture clashes and, ultimately, failure. So in 2005 when banking giant Bank of
America (BOA) announced its $35 billion acquisition of credit card giant MBNA, many thought that in a
few years, this merger would join for heap of those done in by cultural differences.
MBNA’s culture was characterized by a free-wheeling, entrepreneurial spirit that was also quite
secretive. MBNA employees also were accustomed to the high life. Their corporate headquarters in
Wilmington, Delaware, could be described as lavish, and employees throughout the company enjoyed
high salaries and generous perks—from the private golf course at its headquarters, to its fleet of
corporate jets and private yachts.
Bank of America, in contrast, grew by thrift. It was a low-cost, no-nonsense operation. Unlike MBNA,
it believed that size and smarts were more important than speed. It was an acquisition machine that some
likened to Star Trek’s relentless Borg collective.
In short, the cultures in the two companies were very, very different.
Although these cultural differences seemed a recipe for disaster, it appears, judging from the
reactions of BOA and MBNA employees, that the merger has worked. How can this be?
BOA had the foresight to know which MBNA practices to attempt to change, and which to keep in
place. Especially critical was BOA’s appreciation and respect for MBNA’s culture. “On Day 1, I was
directed that this was not like the ones you are used to,” said Clifford Skelton, who had helped manage
BOA’s acquisition of FleetBoston Financial before moving on to MBNA.
To try to manage the cultural transition, executives of both companies began by comparing
thousands of practices covering everything from hiring to call-center operations . In many cases, BOA
chose to keep MBNA’s cultural practices in place. In other cases, BOA did impose its will on MBNA. For
example, because MBNA’s pay rates were well above market, many MBNA managers were forced to
swallow a steep pay cut. Some MBNA employees have left, but most have remained.
In other cases, the cultures co-adapted. For example, MBNA’s dress code was much more formal
than BOA’s business casual approach. In the end, a hybrid code was adopted, where business suits were
expected in the credit-card division’s corporate offices and in front of clients, but business causal was the
norm otherwise.
While most believe the merger has been successful, there are tensions. Some BOA managers see
MBNA managers as arrogant and autocratic. Some MBNA managers see their BOA counterparts as
bureaucratic.
What about those famous MBNA perks? As you might have guessed, most of those have gone away.
All but one of the corporate jets is gone. The golf course was donated to the state of Delaware. Gone too,
are most of the works of art that hung in MBNA’s corporate offices.

Questions

1. In what ways were the cultures of Bank of America and MBNA incompatible?

Answer: Dress code, freewheeling vs. conservative, lavish versus frugal. Large bank on the west
coast versus an east coast bank makes a difference in the way business is conducted too.

2. Why do you think their cultures appeared to mesh rather than clash?

Answer: The cultural difference seemed to be evaluated before the deal was consummated. Often,
the culture is not considered and these mergers are usually disastrous. In addition, when the
companies have complementary services the mergers are more effective. There were also some
compromises made when the new combined culture was being formed. First at all, the above-the-
chart wages to MBNA’s employees were cut against all odds. A hybrid dress code was adapted and
executives of both companies began by comparing thousands of practices covering everything from
hiring to call-center operations. (Dash, 2007). It is clear that both organizations wanted this merge to
work. By adopting some of each others’ policies and cultural practices, they managed to create a
successful merger.
3. Do you think culture is important to the success of a merger/acquisition? Why or why not?

Answer: Culture is critical to the success or failure of a merger. Careful deliberation and communication
of the organization’s culture will preclude many problems later. Culture is a boundary-defining role; it
creates distinctions between one organization and others. Also, it conveys a sense of identity for
organization members.Culture is probably the most important aspect to consider when looking to
merge/acquire an entire different organization

4. How much of the smooth transition, if any, do you think comes from both companies glossing over
real differences in an effort to make the merger work?

Answer: There has to be some negotiation and give and take in a merger so both sides can work
efficiently as a new team. Both companies have to keep the overarching goals of the newly formed
organization in place for the merger to happen quickly and efficiently. To try to manage the cultural
transition, executives of both companies began by comparing thousand of practices covering
everything from hiring to call-center operations. In many cases, BOA chose to keep MBNA's cultural
practices in place. In other cases BOA did impose its will on MBNA.

Source: Based on E. Dash, “A Clash of Cultures, Averted,” New York Times, February 20, 2007, pp. B1,
B3.

Case Incident 2
WEGMAN’S
Amid corporate giants such as Microsoft, GM, and General Electric stands a relatively small grocery store
that was named by Fortune magazine in 2005 as the best company to work for, primarily because of how
well its employees are treated.
Typically, grocery stores are not thought of as great places to work. Hours are anything but 9 to 5,
and the pay is low compared to other occupations. The result is an industry that sees high annual
turnover rates. Employees at Wegman’s, however, view working for a grocer a bit differently. Instead of
viewing their job as a temporary setback on the way to a more illustrious career, many employees at
Wegman’s view working for the grocer as their career. And given Wegman’s high profitability (it had sales
in 2004 of $3.4 billion from 67 stores, giving it one of the highest profit-per-store ratios in the industry), it
looks like the grocer will be around long enough to make such careers a reality for those who pursue
them.
Why is Wegman’s so effective? One reason is its culture. The chain began in 1930 when brothers
John and Walter Wegman opened their first grocery store in Rochester, New York. One of its
distinguishing features was a café that seated 300 customers. The store’s immediate focus on fine foods
quickly separated it from other grocers—a focus which is maintained by the company’s employees, many
of whom are hired based on their interest in food.
In 1950, Walter’s son, Robert, became president and immediately added a generous amount of
employee benefits such as profit sharing and medical coverage, completely paid for by the company.
What was Robert’s reason for offering such great benefits? “I was no different from them,” he said,
referring to the company’s employees. Though the benefits are still generous at Wegman’s, the rising
cost of health care has forced it to have all employees contribute for coverage.
Now, Robert’s son, Danny, is president of the company, and he has continued the Wegman’s
tradition of taking care of its employees. To date, Wegman’s has paid more than $54 million in college
scholarships for its employees, both full time and part time. In addition to benefits, employees receive pay
that is well above the market average. As a result, annual turnover at Wegman’s for full-time employees is
a mere 6 percent, according to the Food Marketing Institute, whereas it is 24 percent in the industry
overall.
The culture that has developed at Wegman’s is an important part of the company’s success.
Employees are proud to say they work at Wegman’s. For example, Sara Goggins, a 19-year-old college
student who works part time at Wegman’s, recalls when Danny Wegman personally complimented her on
a store display that she helped set up. “I love this place,” she says. “If teaching doesn’t work out, I would
so totally work at Wegman’s.” And Kelly Schoeneck, a store manager, recounts that a few years ago, her
supervisor asked her to analyze a frequent-shopper program that a competitor had recently adopted.
Though she assumed that her supervisor would take credit for her findings, Schoeneck’s supervisor had
her present her findings directly to Robert Wegman.
Maintaining a culture of driven, happy, and loyal employees who are eager to help one another is
not easy. Wegman’s carefully selects each employee, and growth is often slow and meticulous, with only
two new stores opened each year. When a new store is opened, employees from existing stores are
brought in to the new store to maintain the culture. The existing employees are then able to transmit their
knowledge and the store’s values to new employees.
Managers especially are ingrained in the Wegman’s culture. More than half started working at
Wegman’s when they were teenagers. Says Edward McLaughlin, director of Cornell’s Food Industry
Management Program, “When you’re a 16-year-old kid, the last thing you want to do is wear a geeky shirt
and work for a supermarket. But at Wegman’s, it’s a badge of honor. You are not a geeky cashier. You
are part of the social fabric.”
Employees at Wegman’s are not selected based on intellectual ability or experience alone. “Just
about everybody in the store has some genuine interest in food,” states Jeff Burris, a supervisor at the
Dulles, Virginia store. Those employees who do not express this interest may not fit in and are sometimes
not hired. The result is a culture that “is bigger than Danny in the same way that Wal-Mart’s became
bigger than Sam [Walton],” says Darrell Rigby, a consultant at Bain & Co.

Questions

1. Would you characterize Wegman’s culture as strong or weak? Why? How is the strength of the
culture at Wegman’s likely to affect its employees, particularly new hires?

Answer: It is a very strong culture. It is widely shared, understood and valued by its employees.
New hires are thoroughly oriented to the norms, values, and expectations.

2. Wegman’s attempts to maintain its core cultural values by hiring individuals who are passionate
about the food industry and by staffing new stores partly with existing employees. What are some
advantages and disadvantages of trying to impose a similar culture throughout different areas of
a company?

Answer: Advantages are a widely shared culture, sharing of goals, and high levels of
commitment, low turnover and high motivation. Disadvantages would include difficulty in
recruiting, hiring, and the relatively high costs of training.

3. What is the primary source of Wegman’s culture, and what are some ways that it has been able
to sustain itself?

Answer: Principal source is the founder and leadership.

4. How might stories and rituals play a role in maintaining Wegman’s corporate culture?

Answer: Given that the core practices at Wegman’s harken back to the founder, the stories and
rituals that reinforce those origins will be effective. For example, stories about the level of funding
for college scholarships, for health care, for local and community activities, etc. all provide a
compelling storyline for the corporate culture. Rituals that reinforce the core values will also
provide reinforcement to the culture and help to achieve sustainability.
If Toyota is not the cause of unintended acceleration, why was it blamed for it?

In auto industry vehicle recall is a common phenomenon. But, the Toyota massive recalls show a very different
situation and involves more serious consequences. We have seen that almost 9 million of Toyota vehicles around the
world had to be recalled within a few months, which is a rare event. And the recall issue was mainly focused on
unintended acceleration problems, which were closely related to the most important thing for drivers – safety
driving. It’s thus hard to believe that there was nothing wrong with Toyota’s “quality” cars.
Toyota was blamed for its unintended acceleration mainly because of its failure in public relations. Toyota’s public
relations response to the recall problem was very slow, and many Americans started to believe that the company was
trying to hide something and cover its flaws. According to The Guardian, The CEO of the company, Akio Toyoda,
did not make a statement about the crisis until February 5. The American media criticized the company for a lack of
transparency and action while the situation was happening. The prime problem was that the company had been
practicing Japanese style of public relations.
Another problem was the cultural differences between the Americans and Japanese. They vary greatly in the way of
communication. When a company face problem in Japan, the management tries to solve the problem silently and
after done, they inform the media about the whole situation. But Americans consider the silent-actions as an act of
ignorance and unprofessionalism. They prefer answers first and actions second.
Americans expect the company’s CEO or President to address the people and apologize for the faulty actions of the
company. The Guardian reported that the Akio Toyoda, CEO of Toyota bowed down in the news conference on
February 5 and apologized for the safety recalls. In the USA however, apologies are not enough. Americans often
expect rational explanations for the problem that has occurred. But the CEO failed to provide explanations until
February 24, 2010 where he appeared before the US congressional committee, but it was too late. In the meantime,
the American consumers, politicians and other affected parties have already started to blame company executives for
the issue. The recall headlines were spread everywhere and raised extensive attentions from mass audiences in
America.
Question no. 2 & its Answer

Investigations have shown that after stories of unintended acceleration are publicized, report of incidents
increase for all automobiles. Why is this the case?

The problem isn’t just with Toyota. It was in November of that year that the CBS show 60 Minutes aired its
infamous report on a similar problem in Audi vehicles, featuring footage of the accelerator on an Audi 5000. The
unintended acceleration of Audi was caused by “pedal misapplication,” drivers pressing the gas when they meant to
push the brake. But not before the Audi brand was so thoroughly trashed that sales didn’t recover for a full decade
and a half.

Over the past few decades, cars have become more and more like very sophisticated appliances whose operation is
beyond our comprehension. As a result, we’ve become passive and reactive drivers, insulated by technology from
any sense of control or responsibility for our own well-being. As that responsibility has shifted from the driver to the
manufacturer, there has been a growing pressure to make cars not only safe and reliable, but completely idiot-proof.
Perhaps it is due to driver error and the sophisticated car models of today that such incidents have become so regular
for all the automakers.

Question No. 3 and its answer

Is it possible to have a strong – even arrogant – culture and still produce safe and high-quality vehicles?

Seeing this case, we realize that a company is most likely to suffer from its arrogant culture. A company with an
arrogant culture may create negative publicity for itself and people may start to lose their trust for the company.
As with the Toyota case, the management team might have reacted in a swagger way. At first the management never
took the blame for the unintended acceleration although there were several incidents concerning this ‘unintended
acceleration’. As the Toyota management team was stand still with their method and never spoken to public about
this ‘unintended acceleration’. The people thought Toyota was trying to cover its faulty actions and there was a
negative publicity all over which caused a tumultuous situation for the company.
Strong culture sometimes delays the overall process and the same thing happened to Toyota. Despite their strong
culture Toyota finally realize the problem and they tried to apologize but there was already a huge negative
publicity. So without good public communication it is almost impossible for an arrogant firm to produce safe and
high-quality vehicles.

Question no. 4 & its Answer

If you were the CEO of Toyota when the story was first publicized, how would you have reacted?

As we can see in this case the CEO of Toyota was totally inactive when the story was first published. There was no
statement from CEO, Akio Toyoda regarding this incident. As a result there was a huge negative publicity in the
media. The general public and media started to believe that Toyota was guilty for the overall situations regarding the
“unintended acceleration”. The situation was starting to go out of hand. So Akio Toyoda tried to calm the situation
but it was already too late. And Toyota had to pay a huge price for this.
According to the researchers the late reaction of Akio Toyoda was due to cultural differences. As in America when a
problem occurs, individuals or firms relating to the problem first try to describe the overall situation and causes of
the problem to the public and then they try to solve the problem. But in Japan it is exactly the opposite, firms and
individuals first try to solve the problem and then they try to describe the overall situation to the public. So this
nature of Toyota was totally unacceptable to the Americans.
So, if I were the CEO of Toyota I would first try to establish a good public relation and communication system in
accordance to the region. The moment the story was published, I would take this news seriously and ask my
management team to provide me more details of this incident. Then I would try to understand the overall situation
and call a press conference to clarify the situation to the mass media and the stakeholders of my company. Then
after addressing the problem I would try to take necessary technical and mechanical measures to solve the problem.
I might suggest my management team to create an advertisement that shows how Toyota Corporation takes the
safety issues of the vehicles seriously, to minimize the misunderstanding and create a positive value about Toyota in
the heart of the people.