Cultural Conflict and Merger Failure: An Experimental Approach

TLDR

The study uses laboratory experiments to investigate how conflicting organizational cultures lead to merger failure. Researchers created laboratory firms that develop distinct cultures and then merged them, employing a paradigm that captures key aspects of cultural conflict. Merging the firms reduced performance, and participants overestimated the merged firm's performance while blaming the other firm's members for the decline rather than the cultural clash.

Abstract

We use laboratory experiments to explore merger failure due to conflicting organizational cultures. We introduce a laboratory paradigm for studying organizational culture that captures several key elements of the phenomenon. In our experiments, we allow subjects in “firms” to develop a culture, and then merge two firms. As expected, performance decreases following the merging of two laboratory firms. In addition, subjects overestimate the performance of the merged firm and attribute the decrease in performance to members of the other firm rather than to situational difficulties created by conflicting culture.