Instructions:

Read the following case study for Tuesday’s class discussion. You are expected

to apply the concepts/ theories taught in the four sessions so far.

Active Learning Case: Culture clash

Despite being part of the same advanced, industrialized world, Kalamazoo

(Michigan, United States), Stockholm (Sweden), and Milan (Italy) are worlds apart

in many important ways. Senior managers leading the merger between two

pharmaceutical firms, Upjohn Company of the United States and Pharmacia AB of

Sweden (with operations in Italy), came to realize how significant these differences

were after the merger took place in 1995. Swedes take off most of the month of July

for their annual vacation, Italians take off most of August. Not knowing this, US

executives scheduled meetings in the summer only to have to cancel many because

their European counterparts were at the beach.

As the more dominant US firm began to impose its way of doing things on the newly

acquired European organizations, international relationships became increasingly

strained. Neither the Swedes nor the Italians were happy with impositions such as the

drug testing policy brought in by Upjohn, or the office smoking ban. These clashed

with local ways of doing things and the more informal work environment that these
cultures prefer. Although Upjohn later relaxed many of these work rules, allowing

some local practices and preferences to prevail, ill-feeling and a degree of resistance

had already developed among European colleagues. The additional bureaucracy and

the command-and control style imposed by the Americans created more significant

problems for the 34,000 employees and managers in Pharmacia and Upjohn

Company. The Swedes were used to an open, team-based style of management where

responsibilities are devolved; managers are trusted and not strictly monitored or

closely managed. Swedish executives also tend to build up a consensus behind big

decisions, “getting everyone in the same boat” (alla aer i baten) rather than handing

orders down the hierarchy. As a traditional US multinational, however, Upjohn was

more used to strong leadership and a centralized command-and-control structure. Its

CEO, Dr. John Zabriskie, quickly created a strict reporting system, tight budget

control, and frequent staffing updates, which clashed with the Swedish organization

style. Swedish managers would leave meetings disgruntled, having been overruled

by US executives keen to push their vision of the merged company. The Swedes’ own

ways of doing things had already clashed with the Italian style of management,

following the takeover of Farmitalia (part of Montedison) by Pharmacia in 1993.

Italians are used to a distinctive division between workers (and their strong unions)

and managers. Their steeper hierarchies contrast the more egalitarian Swedes.
Italians also place a high value on families and will leave work to tend to sick

relatives or help with childcare, which the Swedes frown upon. The addition of the

Americans from Upjohn to this mix created further cultural confusion.

Communication problems, beyond the obvious language differences, became a real

barrier to honest dialogue. “You go there thinking you’re going to streamline the

place,” said American Mark H. Corrigan, Pharmacia and Upjohn Vice President for

Clinical Development, “and you leave just having added five pounds from some

wonderful meals.” These differences, many of them small but important at the local

level, quickly began to have an impact on the overall performance of the merged

company. In the months and years following the merger unforeseen inefficiencies

and added costs began to undermine the potential synergies of bringing together two

such companies in the first place. At one level the problems amounted to things like

canceled meetings, new organization demands (such as monthly report writing), and

a general decline in staff morale. There were also unexpected difficulties integrating

the IT systems across the various parts of the merged organization. These and other

changes added an estimated $200 million to the predicted costs of the restructuring,

taking the total cost to $800 million. Even more seriously, for a pharmaceutical

company heavily reliant on its new drugs pipeline to survive, delayed product

launches and the loss of key staff (including the head of R&D at Pharmacia) had a
longer-term impact. “There was probably an under-appreciation ... of these cultural

differences,” says Art Atkinson, former Vice President for Clinical Research and

Development. Particular problems resulted from the restructuring of the firm’s global

R&D structure. Prior to the merger Upjohn owned well-known names such as

Rogaine and Motrin and had annual sales of around $ 3.5 billion but had a weak new

product pipeline and slow sales growth compared to its larger competitors. Similar-

sized Pharmacia had a more promising pipeline but weak distribution and sales in the

US market, the world’s largest. These amounted to a strong rationale for the merger.

Together they could challenge the financial power and the larger R&D programs of

their competitors. However, integrating and refocusing the various parts of the new

R&D structure became a major problem. Rather than place the R&D headquarters in

the United States, Sweden, or Milan, a decision was made to establish a new and

neutral Londonbased center for the R&D function. This simply added a layer of

management and a more complex matrix reporting structure, which further alienated

key R&D personnel. In 1997, after the stock price of the merged corporation had

fallen significantly, CEO John Zabriskie resigned. Swede Jan Ekberg, the former

head of Pharmacia, took over temporarily and began to rebuild aspects of the merged

organization. After acquiring a major part of Monsanto in 2000, Pharmacia and

Upjohn became Pharmacia, which was then itself acquired by the US giant Pfizer in
April 2003. This made Pfizer, according to its own Annual Report, the “number one

pharmaceutical company in every region of the World.”

1. What kinds of cultural differences matter when organizations from different

countries merge?

2. How well do the characteristics described in the case match the respective,

stereotypical national cultures of these countries?

3. 3 What could senior managers have done before and after the merger to alleviate

some of the problems that resulted from culture clash?

4. 4 Explain why one organization might want to impose some of its ways of doing

things on another, such as an acquired firm or subsidiary.