Cultural Intelligence in Mergers: A Kraft/Cadbury Case Study

CQ is an individual's ability to comprehend cultural and organizational differences, and connect successfully with individuals in any environment. The idea of CQ, developed by Earley & & Ang in 2003 as a theory within service and organizational psychology, has progressively gained significance in the management world. With the growing globalization, corporations are broadening across national borders and experiencing brand-new custom-mades and cultures however are frequently not able to adjust to the brand-new cultural context. The case of Kraft/Cadbury that will be analyzed throughout this report is an example of organizational (as opposed to specific) culture clash.

Culture dispute is a significant cause when mergers and acquisitions (M&A) stop working. CQ and Psychological Intelligence complement each other. While the previous determines the human traits and the distinct characteristics of people, the latter isolates these qualities and adapts to them.

Elements of Cultural Intelligence

Earley & & Mosakowski determine three elements for CQ: the cognitive, physical and emotional/motivational. The sources of these 3 elements are the mind, body and heart respectively.

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(Early & & Mosakowski, 2004) The cognitive component is what the authors describe as 'finding out methods'. Embracing a process, particularly considered to observe clues about a culture's shared understanding, will determine the most essential aspects of the culture in question. Picture a small town British man who just recently accepted a job in a large foreign business. He chooses to observe his coworker's habits to gain insight in the company's way of operating. Since all his coworkers dress officially, keep their private life different and address each other in a respectful manner, he draws the conclusion that the business has an official culture.

However, comprehending the principles of a culture is insufficient. The physical element of CQ is the element through which an individual shows to understand the culture by utilizing body movement and embracing the manners typical to that culture.

This category comprises gestures, greetings and physical space. Mirroring habits and body language will allow a person to blend in the new culture. When the British man realizes that at his new job people are accustomed to exude confidence through body language (hand movements, stance, etc.) he quickly begins to adopt the same mannerisms. The motivational/emotional element requires a person to be motivated to overcome cultural obstacles. Only by believing in one’s abilities can a person succeed in adapting to another culture. The English man at his new job feels a sense of personal reward when others recognize his efforts and accept him, which gives him confidence to persevere in an alien environment.

The higher an individual’s CQ, the more likely that person will understand the impact of individuals’ cultural backgrounds and adapt one’s behavior to suit the environment. With growing globalization, CQ is essential in business. Ideally, managers should have high scores in all three components of CQ. Earley & Mosakowski identify 6 CQ profiles that managers fit into and for any of these profiles; they developed a best practice approach that can guide managers to cope with different organizational and national cultures. (Early & Mosakowski, 2004)

Cultural Intelligence in Mergers and Acquisitions

“A return to a conglomerate ownership was always going to be challenging from the perspective of morale, motivation and momentum” Oftentimes, M&As look like an easy way to improve a company’s portfolio and market position. Disney’s acquisition of Pixar is a compelling example of successful M&As. However, the dangers of such M&A agreements tend to be underestimated (Rein, 2009). The merger of AOL & Time Warner was disaster because of the lack in harmony and collaboration (DiMaggio, 2009). One of the biggest mistakes acquiring companies can fall into is taking the cultural differences of the acquired company for granted (Rein, 2009).

Kraft Takes Over Cadbury

In January 2010, Kraft Foods acquired the British confectionary company Cadbury, citing portfolio enrichment and faster long-term growth opportunities as the main reasons for the takeover (Thompson, 2010). Outside observers argued that the size difference and cultural mismatch would require an elaborate integration strategy for the merger to succeed. Cadbury chairman Roger Carr also expressed his concern, “a return to a conglomerate ownership was always going to be challenging from the perspective of morale, motivation and momentum” (Lucas, 2011). Cadbury employees on all levels felt unable to adapt to the new culture. One Cadbury employee pointed out that, “to be told ‘we love you and want to keep you but you are going down a level’, it’s a bit of an ego hit as well as everything else, and it’s not as if Cadbury was a small business” (Rappeport & Lucas, 2011).

Cadbury

Cadbury, a pure-play confectionary company, has long become part of British heritage. The small size and the cohesiveness of the workplace allowed staff to have regular chats with top executives. It was more relaxed and tranquil at Cadbury, the dress code was never formal and colleagues had closer relationships. This has helped the company come up with innovative campaigns such as the groundbreaking TV commercial of a Gorilla playing the drums (Exhibit 1). Cadbury’s ethos depended heavily on understanding the consumers’ habits and needs and achieving maximum customer satisfaction (Rappeport & Lucas, 2011). “Cadbury had a cutting edge understanding of the shopper and its retail customers”, one of the employees acknowledges, “we spent years building that at Cadbury, and that’s been lost” (Lucas, 2011).

Kraft Foods

Kraft Foods is a strictly hierarchical American food conglomerate where lower level employees had little contact with the upper management. Unlike her Cadbury counterpart, Kraft CEO Ms. Rosenfeld would rarely be seen talking to employees. Staff feedback was welcome but comments were usually prudently crafted since anonymity was not an option (Lucas, 2011). Meetings at Kraft were usually long and involved managers from different levels of the organization (Lucas, 2011). The food giant has a conservative marketing strategy but competes aggressively for market share.

Pitfalls of Poor Cultural Intelligence

Mergers usually do not fail because of their cultural differences but because the leaders responsible for their integration lack CQ. When organizations that are high on CQ come together, the differences in cultures can be overcome regardless of their culture, because culturally intelligent leaders can realize and adapt to the foreign culture. In the case of Kraft/Cadbury, both companies lacked CQ. This resulted in the clashes that many observers had been expecting. Highlighting the lack in cognitive CQ, Cadbury executives could not understand the need for lengthy meeting at the Kraft offices. Similarly, Kraft executives considered Cadbury’s style in taking quick decision during short, informal meetings as inaccurate and risky. Managers in both firms had good reasons to hold the meetings their way, but both companies did not take the time to understand the reason behind these differences. The companies did not come up with a ‘learning strategy’ to understand each other’s culture, illustrating how low cognitive CQ affected their cooperation. The companies also lacked emotional CQ.

Cadbury staff was unmotivated after the acquisition, especially once redundancies and factory closures were announced, and did not believe it was possible to come to an agreement. Conversely, Kraft showed more excitement about the acquisition, but they could not transmit their enthusiasm to the former Cadbury employees. There was not enough motivation to overcome the culture clash between the two companies. Although both companies come from Anglo-Saxon countries, the straight forward and confident American way of presenting ideas versus the subtle British approach could be a source of cultural misunderstanding. Ideally, employees from both companies should pick up on the subtle differences in body language/mannerisms and adopt them to blend in the new culture. Not doing so, displays low levels of the physical component of CQ.

Evaluation

The fundamental steps to avoid cultural clashes among mergers would be; aligning the goals of the two companies (Cognitive & Emotional), identifying the roles of former employees and how they overlap (Emotional), agreeing on processes for satisfactory decision making (Cognitive) and finally understanding the interpersonal relationships among employees prior to merger and setting a way forward (Cognitive & Physical). These steps should be taken into account on different levels; primarily, at the level of the two organizations as a whole, secondly, at the level of executives and department heads, thirdly, at managers-employees level and finally at the peer to peer levels among employees. Thus a successful merger requires high levels of CQ for all key players involved in the merger; leaders, followers and the organization itself.

Difficulties can be overcome through cultural leadership; leaders of all types, from top management to team leaders across all departments should possess high levels of CQ. This facilitates the change and transforms two distinct cultures into one coherent culture. Catherine Connelly argues that the Human Resources Department play an integral role in leading the employees post merger by considering the communication styles of the two organizations when crafting announcements (Crush, 2010). Moreover, the psychological guidance is important to integrate the new employees.

They have to be shown the underlying ideology of the merger, and help them identify with its core components, goals and the new roles they will hold post merger. Similarly followers should apply the principles of cultural intelligence to foster cooperation within the newly formed organization. A higher CQ level means a greater ability to accept the new culture, which will ease the culture clash. Earley & Mosakowski suggest that by identifying a person’s strengths and weaknesses, it is possible through six steps, to increase their CQ. In the case of Kraft/Cadbury, an intensive post-merger integration program following the six steps outlined by the two authors would have helped to facilitate the process of familiarization and integration.

Summary

CQ can be divided into three components: cognitive, physical emotional/motivational CQ. An individual that combines these parts of CQ will be able to recognize and adapt to cultural differences in companies as well as countries. In today’s globalized economy, this skill is more important than ever. Cultural Intelligence plays an important role for both leaders and followers of an organization. As we have highlighted through the case of Kraft’s acquisition of Cadbury, high levels of CQ will facilitate the process of post merger integration, creating a new culture that combines the strengths of both companies and in which everyone is working towards one common goal.

Bibliography
Crush, P. (2010, June 07). Is Cadbury heading for a meltdown following the Kraft takeover? Retrieved 2012, from HR Magazine: http://www.hrmagazine.co.uk/hro/features/1017947/is-cadbury-heading-meltdown-following-kraft-takeover DiMaggio, M. (2009, September 15). Top 10 Best (and Worst) Mergers of All Time. Retrieved 2012, from CNBC: http://www.cnbc.com/id/34467713/Top_10_Best_and_Worst_Mergers_of_All_Time?slide=3 Early, P., & Mosakowski, E. (2004). Cultural Intelligence. Harvard Business Review. Lucas, L. (2011, January 14). Cadbury people still chewing on Kraft culture. Retrieved 2012, from Financial Times: http://www.ft.com/intl/cms/s/0/71a34530-2019-11e0-a6fb-00144feab49a.html#axzz2AE38mkd8 Rappeport, A., & Lucas, L. (2011, May 23). Mergers and acquisitions: A bitter taste. Retrieved 2012, from Financial Times: http://www.ft.com/intl/cms/s/0/03559624-8571-11e0-ae32-00144feabdc0.html#axzz2AcXR8y2q Rein, S. (2009, June 16). Why Most M&A Deals End Up Badly. Retrieved 2012, from Forbes: http://www.forbes.com/2009/06/16/mergers-acquisitions-advice-leadership-ceonetwork-recession.html Swanekamp, K. (2010, January 19). Kraft Swallows Cadbury. Retrieved 2012, from Forbes: http://www.forbes.com/2010/01/19/kraft-cadbury-takeover-markets-equities-candy.html Thompson, J. (2010, February 3). Kraft finally acquires Cadbury after vote in favour of £11.4bn deal. Retrieved 2012, from The Independent: http://www.independent.co.uk/news/business/news/kraft-finally-acquires-cadbury-after-vote-in-favour-of-163114bn-deal-1887595.html?origin=internalSearch