IT’S A LONG WAY from Stockholm to

Kalamazoo. When Pharmacia, based in

Sweden, merged with Michigan-based
Upjohn in 1995, architects of the deal
were excited about the new synergies
they were sure to achieve through the
international marriage of the two pharmaceutical
companies. But in addition
to substantial cost savings and other
efficiencies, they realized some unanticipated
headaches. The Swedes bristled
at the aggressive management style
of the American executives; the Americans
were frustrated by the Swedish tradition
of taking off July for vacation.
Pharmacia and Upjohn had a classic
case of culture clash, with serious
consequences for the success of the
merger.
In fact, only 20% to 25% of mergers and
acquisitions turn out to be clear winners,
according to a 1997 study by El
Segundo, Calif.–based Computer Sciences
Corporation. Another 30%
to 40% clearly fail, and the rest fall
somewhere in between. Other research
confirms that the majority of business
combinations never produce the anticipated
value, with increasing numbers
ending up in the business equivalent of
divorce—a break-up or spinoff.
Why are there so many well-intentioned
flops? The answer lies in a
failure to consider the cultural consequences
first by performing a cultural
due diligence.
“When it comes to putting two companies
together, it’s relative child’s play to
snap together the Lego pieces,” says
Eliot Daley, director of the strategy
practice at Arthur D. Little Inc. in
Cambridge, Mass. “But mergers and
acquisitions have to create two kinds
of value. They have to create a more
efficient machine and, second, they
have to create greater growth potential.
You can get the first result, the cost efficiency,
with a slide rule. But you can’t
get the growth without people working
together.”
Lila Booth, a Philadelphia-area consultant