The Importance of Cultural Intelligence for Successful M&As

June 05, 2017 | Evelyn Chow

Importance of CQ in M&As

A staple of modern-day business, mergers and acquisitions (M&As) can make or break a business. When you choose to buy (or be bought by) a partner company, this can and should lead to an outcome where the whole is more than sum of the parts. Unfortunately, if the merger does not go well, the opposite can happen. Both sides can, and unfortunately sometimes do, drag each other down through infighting and miscommunication. Today, we are going to look at the important role of cultural intelligence in successful M&As.

How Can We Measure Cultural Intelligence?

Cultural Intelligence or CQ (Cultural Intelligence Quotient) is a relatively new term which seeks to provide a broader picture of human intelligence. Much like IQ provides a hard number for human intelligence, CQ provides a real, hard number for an individual's ability to relate to new and different cultures. As developed by researchers Christopher Earley and Soon Ang, CQ rates individuals based on 4 criteria:

  1. CQ Drive measures the individual's level of inner motivation and willingness to deal with new cultures.
  2. CQ Knowledge evaluates individual awareness of core differences common among different cultures.
  3. CQ Strategy measures each person's ability to use one's understanding of cultural differences to come up with appropriate responses in the moment.
  4. CQ Action assesses the ability of individuals to act in accordance with different cultures.

While individuals and corporations can self-assess on each of these criteria, the best way to get your hard number is via independent assessment by a professional.


Culture and M&A's

Very well, you may be thinking, it is good to be open to people of other cultures and countries, but most of your business is confined to your own geographic area most of the time. That may be true, but culture still matters. Culture can indeed refer to geographic and national groups, but it also applies to smaller groups and to companies. Anytime you belong to a group with shared interests, understandings, and beliefs, you are part of a unique culture.

One of the trickiest things about culture and about cultural biases, is how little we tend to be aware of them. After all, that's part of what makes culture so useful. We do not need to explain what X means, because everyone knows what it means. We may not even realize that some little quirk is specific to our business - until we run into another group that does not believe the same as we do.

For example, one side of a merger may have a very loose style of authority where managers are everyone's friends and helpers. You do what we suggest, unless you can come up with something better. On the other side, managers may be very hierarchical. You do what we say or else. When it comes time to a merger of departments and capabilities, these differences can be catastrophic unless recognized and dealt with. The two sides may wind up arguing without really knowing what they arguing about, fighting over non-issues which only seem important at the time.


Cultural Differences in the Office

An article by The Business Times on 3rd March discusses the issue of mergers between Japanese and American firms during the M&A surge from the late 1980s to early 1990s.. Case studies detailing the scrapping of a US$2 billion stake in  Rockefeller Center by Mitsubishi Estate and the winding up of MCA (owner of Universal Pictures), purchased by Matsushita Electric Industrial Co's for US$6.6 billion in the 1990s. suggest that these failures could be attributed to the lack of cultural intelligence by the corporations in the merger, that is, the capability to relate to and work effectively across cultures.

Japan has a high context culture and Japanese rely on non-verbal cues and are usually non-confrontational. America has a low-context culture, and Americans are generally seen as more vocal and assertive. The difference in communication styles may also lead to much misunderstanding, frustration and disagreements. Japanese firms are generally perceived as placing a high value on loyalty and personal relationships. As such, promotions are based on seniority or contribution towards group performance. While this may work well for Japanese firms operating locally, as all employees share the value of group achievement, this practice may cause a lot of unhappiness and dissatisfaction amongst employees in the west, where they value individual performance.

The authors conclude that before companies pursue M&As, they should look beyond the financials to the intangibles of cultural intelligence. To be successful, firms need to learn to trust employees from the other company, but at the same time instil in them the most important aspects of their own corporate culture. Companies need to tune into the business language of the multicultural globalised world to have effective communication and better business outcomes. Given the highly globalized economy we operate in today, this piece of advice applies to firms operating all over the world. Especially in Singapore, where we are highly dependent on foreign investments and international partnerships, cultural intelligence is an increasingly important life skill to cultivate.   

In essence, cultural intelligence means that you are aware of these subtle differences and can spot them in others, and - perhaps most importantly - can respond in a constructive manner.


Keys to a Successful M&A


Keys to a Successful M&A - as Learned from Cultural Intelligence

All of that said, here are a few crucial steps to take to make the most of your new business relationship during M&A's.

  1. Plan Ahead. A successful M&A will entail respectfully learning from the "other side," finding out what the ethos of a particular company is ahead of time. You may not agree and changes may need to be made, and the sooner you find that out that better.
  2. Be Honest. We all live in a culture, even if we not be aware of it. All too often, we can take these things for granted, even to the point where we become resistant the idea that they can any other way. Take honest assessment of your own culture. Make sure to bring this awareness of your own culture to the table. The way your company does things are different, maybe better, maybe not, and not necessarily a requirement.
  3. Be Patient. Finally, culture can change and can adapt - as all cultures must. However, these changes can take time. For an exercise in empathy, think back to some friendship or idea or entertainment program you once used to love, but which you don't have anymore. Think of the adjustment time necessary. Maybe you have never entirely been able to let go. That is only human. Empathize and give yourself and others time to change, if needed. Take time to understand the other, and you can be sure that you will both benefit.


With these simple steps and with this knowledge, we are confident you will be able to make the most of this M&A. Use cultural intelligence, cultivate it, and see how much your business relationships benefit.


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