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Raising Your Cultural Intelligence: Prepare for Mergers and Acquisitions Using the Tight-Loose Lens, with Michele Gelfand, Cultural Psychologist and Author, Rule Makers, Rule Breakers
Tight cultures have strong rules and low tolerance for deviance. (They are the “rule makers”.) Loose cultures have weak rules and high tolerance for deviance. (They are the “rule breakers”.)
Having the tight-loose lens to analyze organizations helps to anticipate and to deal with eventual problems that can happen when we’re merging or even when we’re trying to bring in some looseness into a tight organization or tightness into a loose organization. They are very predictable problems that happen. We have to think about culture as something we need to negotiate ahead of time, whether it’s in organizations or in the household. We need to identify areas that maybe if you’re tight, you’re willing to loosen up a little bit: we call this kind of “flexible tightness”. Or if you’re coming from a loose organization, you might need to think about where might be benefit from tightening, having more structure: we call this “structured looseness”.
Because if we’re trying to merge the different people practicing leaders into an organization without really doing cultural due diligence we can have a lot of problems. And we actually analyzed 6,000 mergers and acquisitions over 25 plus years – all that were very high price tag, over $10 million. And we found that big discrepancies in tightness-looseness between the organizations was really problematic for financial performance – for return on investment, for stock price performance. And so what’s really important for senior leaders is to diagnose –especially when making those kinds of mergers and acquisition decisions – what kind of conflicts might arise post-marriage to avoid the Daimler Chrysler merger problem or avoid the big problems that we saw in our mergers.
The Amazon Whole Foods merger is another example of tight-loose conflict that could have been avoided. You have Amazon, a pretty tight mothership merging with a pretty loose culture where people are used to having so much discretion – from the managers to the shopkeepers and people at the shop floors. That was a very important part of that culture, and Amazon coming from its own context where deadlines and where efficiency and where control is important didn’t anticipate those kinds of differences.
I was doing a workshop at Harvard last year with chief learning officers who were really excited to have a tight-loose terminology, because they started thinking about “Wow, we’re a tight, let’s say, manufacturing firm. We really needed that for a long time, but now we want to be more innovative.” So they hired an R&D company to come on board, but they failed to realize that they were going to have so many problems because they had such differences in tightness and looseness. And I think had they negotiated this ahead of time they could have helped the loose group to be a little more structured, to have a little more accountability; the tight group, the tight mothership, could have really understood that they need to give up some control. Really it’s about underlying issues that they’re negotiating are control and autonomy. And once you think about that, you can come up with all kinds of interesting creative agreements of where can we give up control. Where can we have more structure without threatening our core competency.
Once we can really diagnose the people, practices, and leaders before we merge we’re better off to make trade-offs and to negotiate those cultural differences just like we would when we’re going abroad.