Vanessa Cowan

The Petroleum Oil and Gas Corporation Of South Africa: What happens to organisational culture when two or more companies merge? A Case Study Research Report presented to The Graduate School of Business University of Cape Town in partial fulfilment of the requirements for the Masters of Business Administration Degree by Vanessa Cowan and Marilise Swart November 2003 Supervisor: Helene Smit This report shall be kept confidential until 1 December 2006. It may thereafter be used freely by the Graduate School of Business. We wish to thank Helene Smit for her insight and guidance throughout the research period and for the confidence she has shown in us. We also wish to thank PetroSA for kindly affording us the opportunity to undertake this case study, for the generous time given and the valuable contribution made. We certify that the report is our own work and all references used are accurately reported in the text. Signed: _________________ _________________ Vanessa Cowan Marilise Swart i THE PETROLEUM OIL AND GAS CORPORATION OF SOUTH AFRICA: WHAT HAPPENS TO ORGANISATIONAL CULTURE WHEN TWO OR MORE COMPANIES MERGE? ABSTRACT South Africa’s national oil and gas company, PetroSA, was established in July 2000 out of the merger of three formerly separate, state-owned entities: Mossgas (Pty) Ltd (“Mossgas”), a maker of synthetic fuels, Soekor E & P (Pty) Ltd (“Soekor E&P”), an oil and gas exploration company, and sections of the Strategic Fuel Fund (“SFF”), a trading and fuel storage agency. The merger stemmed from a 1998 recommendation by the Department of Minerals and Energy to consolidate the government’s petroleum activities under a single entity. While the legal and financial integration of all three entities has been completed, the cultural integration process is today still underway. Research today is focused increasingly on organisational culture integration and how this impacts on the success of mergers. This case study takes current research a step further, exploring ‘cultural best fit’ in the context of a ‘forced’ merger between three companies. The study also considers how the effective implementation of change management practices may facilitate the process of transformational or high-impact change, which typically accompanies a merger. The nature and significance of such a merger, in the context of the South African oil industry, highlights the importance of assessing strategic, financial and cultural fit prior to any merger. The case further reviews success factors and obstacles to the process of culture integration and new culture creation. KEYWORDS: Organisational culture, mergers, transformational change, culture integration, change management ii TABLE OF CONTENTS Introduction ............................................................................................................................. vi 1. Rationale.................................................................................................................... vi 2. Context ...................................................................................................................... vi SECTION ONE: LITERATURE REVIEW 1 Transformational change ................................................................................................ 1 2 Organisational culture ..................................................................................................... 2 2.1. What is culture? .......................................................................................................... 3 2.2. Culture models ........................................................................................................... 4 2.2.1. Dimensional models ........................................................................................... 4 2.2.2. Type models ....................................................................................................... 8 3 Culture integration ........................................................................................................... 9 3.1 A strategic and cultural fit ........................................................................................ 10 3.2 Marriage ................................................................................................................... 11 4 Relationship between culture types .............................................................................. 15 5 Cultural dynamics of merger combinations ................................................................ 16 6 Change management approaches to cultural change ................................................. 18 6.1 Lewin: 1947.............................................................................................................. 18 6.2 Price: 1999................................................................................................................ 19 6.3 Bate: 1990 ................................................................................................................ 20 7 Key success factors of culture integration.................................................................... 22 8 Obstacles to successful culture integration .................................................................. 25 9 Concluding remarks....................................................................................................... 29 10 References ....................................................................................................................... 30 Tables and Figures Table 1: Dunphy and Stace's model of change iii Figure 1: The organisational iceberg Figure 2: Schein's model of organisational culture Figure 3: Hofstede's levels of culture Figure 4: Potentially successful merger - 'role' with 'task' culture Figure 5: Modes of organisational and individual acculturation in mergers and acquisitions and their potential outcomes SECTION TWO: CASE STUDY 1. Introduction .................................................................................................................... 33 2. Background to PetroSA ................................................................................................. 36 2.1 Why change? ............................................................................................................ 39 2.2.1. Apartheid years ................................................................................................ 39 2.2.2. Post-Apartheid – new era of democracy .......................................................... 40 3. Uncertain times ............................................................................................................... 41 4. Transformational change .............................................................................................. 46 5. Culture integration ......................................................................................................... 51 5.1. PetroSA today .......................................................................................................... 52 5.2. Next steps toward culture creation ........................................................................... 56 5.3. Future challenges...................................................................................................... 57 6. References ....................................................................................................................... 60 Figures Figure 1: Value chain iv Appendices Appendix 1: Permanent employees per PetroSA site as at 1 August 2003 Appendix 2: Chronological list of events Appendix 3: Organisational alignment Appendix 4: PetroSA values Appendix 5: Diversity targets Appendix 6: Process of institutionalising values SECTION THREE: INSTRUCTOR'S GUIDE 1 Case summary ................................................................................................................ 68 2 Organisational context and management issue ........................................................... 69 3 Target group ................................................................................................................... 70 4 Statement of learning objectives ................................................................................... 71 5 Discussion questions ....................................................................................................... 71 6 Assignment questions ..................................................................................................... 85 6.1. Culture types ............................................................................................................ 85 6.2. The way forward ...................................................................................................... 92 Tables and Figures Table 1: Answer Figure 1: Continuum - Question Figure 2: Continuum - Answer v Introduction 1 Rationale Research indicates that between 55 and 70 per cent of mergers and acquisitions fail to meet the anticipated purpose (Carleton, cited in Schraeder and Self, 2003) and up to 70 percent of change initiatives are unsuccessful (Palmer and Hardy, 2000: 192). Organisational culture integration is receiving increased attention today as an important factor in determining the success of mergers and acquisitions, as is the effective management of high-impact change, which typically results from a merger. Some authors go so far as to say “cultures can be a make or break factor in the merger equation” (Fralicx and Bolster, 1997, cited in Schraeder and Self, 2003: 2) and that the financial benefits expected from a merger or acquisition are “often unrealised because of incompatible cultures” (Cartwright and Cooper, 1993, cited in Schraeder and Self, 2003: 2). The purpose of this case study is to further explore ‘cultural best fit’ in the context of a ‘forced’ merger between two or more companies. The study also intends to assess how the effective implementation of change management practices may facilitate the process. 2 Context Merger and acquisition activity has been on the increase in recent years, with the scope and size of deals escalating. While this has led to further interest in large-scale change, the successful implementation of change management is still far from understood as “the practice of organisational change fails to live up to expectations” (Palmer and Hardy, 2000: 194). Yet, organisational change is increasingly the norm rather than the exception in today’s highly globalised and tumultuous world. Change never occurs in a vacuum but rather takes place within the context of an organisational system, the elements of which interact to form the ‘triggers’ for change (Senior, 1997: 3). Equally important as the context for change, is the content (the what) and the process (the how) of any action intended. A good understanding of all three components vi prior to any change intervention will help bring success (Pettigrew 1990, cited in Cartwright and Cooper, 1993: 69). The unique context of any situation means there invariably will be many different types of change. In order for organisations to best react to or anticipate the processes at play, it is important that the type of change be identified from the outset. A basic distinction can be made between convergent or incremental change and transformational change. Incremental change is gradual and small scale whereas transformational change is sudden and “characterised by radical shifts in strategy, mission and values as well as associated changes of structures and systems” (Senior, 1997: 35). In this case study, which relates to mergers and culture integration, we refer to change management implementation in the context of transformational change. The case further relates to the context of the petroleum industry. In this industry, efforts to keep costs down and increase efficiencies have lead to a drive for size. This has meant that in the upstream sector oil and gas companies are turning to mergers and acquisitions and in the downstream sector the move is toward the sale of assets, strategic alliances and joint ventures. All these strategies involve large-scale transformational change. “Petroleum companies are evolving, driven by merger and consolidation, diversification and refocusing, cultural changes and technological advances” (Williams, 2000: 9). vii SECTION ONE: LITERATURE REVIEW 1 Transformational change Mergers between two or more organisations have long been shown to bring about corporate transformation - large-scale, high impact corporate change, with revolutionary, far-reaching impact. This variety of change has been referred to variously as ‘discontinuous change’ where change “is marked by rapid shifts in either strategy, structure or culture, or in all three,” (Grundy, 1993, cited in Senior, 1997: 38-39); as periods of ‘frame-breaking’ change punctuating otherwise relatively tranquil periods of continuous, incremental change (Tushman, Newman and Romanelli, 1998, cited in Senior, 1997: 40); and further as ‘discontinuous change’ of two varieties: modular transformation - the major realignment of one or more divisions or departments - and corporate transformation or revolutionary changes throughout the entire organisation (Dunphy and Stace, 1993, cited in Senior, 1997). Frame-breaking changes are characterised by: - Reformed mission and core values - Altered power and status - Reorganisation – in structure, systems and procedures, organisation form - Revised interaction patterns - New executives, usually from outside the organisation (Senior, 1997: 41). Along with the varying scale of organisational change, comes the need also for different styles of change management (Dunphy and Stace, 1990, cited in Palmer and Hardy, 2000). Dunphy and Stace (1990, cited in Palmer and Hardy, 2000: 175) identify four types of change: participative evolution, charismatic transformation; forced evolution and dictatorial transformation. The former two, they say, require a collaborative and consultative style, whereas the latter two require a directive and coercive change management style. In forced evolution situations even incremental change is resisted within the organisation and dictatorial transformation is defined as: “top-down transformational change, usually in situations where the luxury of time for employee involvement in decision-making is deemed to be unavailable” (Dunphy and Stace, 1990: 175, cited in Palmer and Hardy, 2000). Refer to Table 1 below. -1- Table 1: Dunphy and Stace’s model of change Type 1 Participative evolution: involves fine tuning or incremental adjustment of the organisation Type 2 Charismatic transformational change: involves major change in a situation where people recognise the need for change and ‘buy into’ the charismatic vision of the CEO Type 3 Forced evolution: even incremental change is resisted within the organisation Type 4 Dictatorial transformation: top-down transformational change, usually in situations where the luxury of time for employee involvement in decisionmaking is deemed to be unavailable Source: Dunphy and Stace, 1990: 175, cited in Palmer and Hardy, 2000 It is evident that the success of any change management implementation will depend upon a multitude of factors, the most significant of which includes the type of change, the context in which change occurs and the level at which it takes place, the style adopted, as well as the degree of complexity involved (Senior, 1997). One of the components of complexity is organisational culture, which is often a hidden aspect of organisational functioning. 2 Organisational culture One can distinguish between two levels of organisational culture: that which is visible and that which is not (Kotter and Heskett, 1992). That which is visible is typically represented “in the behaviour patterns or style of an organisation that new employees are automatically encouraged to follow by their fellow employees”. For example, using the correct company jargon, conforming to the dress code and partaking in company ceremony or ritual. “At the deeper, less visible level, culture refers to values that are shared by the people in a group and that tend to persist over time even when group membership changes” (Kotter and Heskett, 1992: 4). According to Kotter and Heskett (1992) it is at the invisible level that culture is difficult to change, partly because group members are often unaware of the many values that bind them together. The organisational iceberg in Figure 1 below depicts the visible and invisible aspects of organisational functioning. -2- Figure 1: The organisational iceberg FORMAL ORGANISATION Goals Strategy Structure Systems & Procedure Products & Services Financial Resources Management _________________________________________________________________ INFORMAL ORGANISATION Values, Attitudes & Beliefs Leadership Style & Behaviour Organisational Culture & Norms of Behaviour Power, Politics & Conflict Informal Groupings Source: Adapted from Senior, 1997: 123 2.1. What is culture? The literature on organisational culture is vast and definitions are varied but culture is most often referred to as that which reflects a commonly held identity or personality, specific to an organisation or levels of an organisation. It is not easily visible as it has many layers and dimensions which also make it difficult to change. A simple but apt definition is offered by Drennan (1992, cited in Senior, 1997: 124): “Culture is ‘how things are done around here’. It is what is typical of the organisation, the habits, the prevailing attitudes, the grown-up pattern of accepted and expected behaviour.” Schein’s definition of culture points to the fact that culture remains difficult to identify, deeprooted and therefore likely resistant to change. He refers to culture as: -3- “The deeper level of basic assumptions and beliefs that are shared by members of an organisation, that operate unconsciously and define in a basic ‘taken for granted’ fashion an organisation’s view of its self and its environment” (1992, cited in Senior, 1997: 125). Cartwright and Cooper (1993, cited in Schraeder and Self, 2003: 2) say “culture is to an organisation what personality is to an individual.” It is often defined “as a ‘social glue’ which serves to bind individuals and create organisational cohesiveness” (Cartwright and Cooper, 1993: 60). According to Cartwright and Cooper (1992: 61) culture manifests itself in: • The way in which people interact, for example, language or jargon and the way they dress. • The norms that govern the way work is organised and conducted. For example, the types of communication that take place. • The organisation’s self-image and the dominant values espoused. • The way the organisation treats its employees and responds to its customers. • The rules of the game; its evaluative criteria. • The organisational climate as conveyed through its physical lay-out and general atmosphere. Subcultures Within any one organisation, one can also distinguish between multiple or subcultures. Kotter and Heskett (1992) further differentiate between subculture, relating to different functional or geographic groupings in firms, and corporate culture, which refers to the values and practices shared across all groups in a firm. Brown (1995:28) similarly identifies subcultures as distinct groupings, which evolve when “organisations are internally differentiated into smaller groups”. He says subcultures may be reflected, for example, across departmental groupings or according to functionality, age group, project team and hierarchical positions. 2.2. 2.2.1. Culture models Dimensional models Schein: 1992 The 1992 Schein model of organisational culture is based on three levels or layers, going from shallowest to deepest as depicted in Figure 2. At the shallowest level (layer I) is artefacts -4- (visible organisational structures and processes); followed by espoused values in layer II (strategies, goals and philosophies of the organisation) and at the deepest level or layer III are basic underlying assumptions, which includes those unconscious beliefs, thoughts and perceptions which are the source of values and actions (1992, cited in Senior, 1997: 127). Figure 2: Schein’s model of organisational culture Examples of cultural attributes • Documents • Physical layouts • Furnishings • Language • Jargon • Work ethic and practice • Fair day’s work for a fair day’s pay • Loyalty • Commitment • Helping others • Performance leads to rewards • Management equity • Competency counts I Artefacts and creations • • • Visible but not often decipherable Technology Art Visible and audible behavior patterns Greater level of awareness II Values • Testable in the physical environment • Testable only by social consensus III Basic assumptions • • Relationship to environment Nature of reality, time and space • Nature of human nature • Nature of human activity • Nature of human relations Taken for granted invisible preconscious Source: Adapted from Schein. In Gibson, Ivancevich and Donnelly (1997: 30) Artefacts At Layer I, artefacts and creations are visible in observable and/or audible manifestations or organisational behaviours. This category is understood to refer to the total physical and socially constructed environment of an organisation and is the most superficial manifestation of an organisation’s culture. Fundamental subcategories within this include material objects such as the annual report, newsletters and brochures, furnishings or wall dividers; the physical layout of the office space itself; technology; language (metaphors, jokes and jargon); -5- behaviour patterns such as rituals and ceremonies; symbols; rules, systems, procedures and programmes (Brown; 1995: 9). Values At Layer II, values refer to conscious, affective desires or wants. “Values and beliefs are part of the cognitive sub-structure of an organisational structure. Values are intimately connected with moral and ethical codes, and determine what people think ought to be done” (Brown, 1995: 21). Deal and Kennedy (1983, cited in Lessem 1990: 33) say “values are the bedrock of any corporate culture. As the essence of a company’s philosophy for achieving success, values provide a sense of common direction for all employees and guidelines for their day-to-day behaviour”. Although there is some level of awareness of values at layer II, Deal and Kennedy, (1983, cited in Lessem 1990: 43) make the point that shared values need artefacts or that which is visible, for example ceremony, ritual and the cultural network to support them. They maintain that culture will die without expressive events, since important values have no impact. Ceremonies are considered crucial in helping a company celebrate its heroes, myths and sacred symbols. Such ritual and ceremony essentially places the culture on display and provides experiences that employees will remember. Underlying assumptions At layer III, the basic assumptions people make guides their behaviour. These are often taken for granted and invisible as they operate at the pre-conscious level. Examples include assumptions that tell individuals how to perceive, think and feel about work, performance goals, human relationships and the performance of colleagues. Brown (1995: 22 –23) distinguishes between ordinary beliefs and basic assumptions in three important ways: 1 Beliefs are held consciously and are relatively easy to detect, whereas basic assumptions are held unconsciously and are very difficult to surface. 2 Beliefs are confrontable, debatable and therefore easier to modify than basic assumptions, which are by definition neither confrontable nor debatable. -6- 3 Beliefs are simple cognitions compared with basic assumptions, which involve not only beliefs but also interpretation of those beliefs plus values and emotions. Hofstede: 1991 Hofstede (1991: 7-8) shows that cultural manifestations are linked to one another through a hierarchy of levels, seen in the form of symbols, heroes, rituals and values, with values representing the deepest manifestations of culture, and symbols the most superficial. Heroes and rituals fit in between. Similar to Schein’s artefacts, symbols are described by Hofstede (1991: 7) as “words, gestures, pictures or objects that carry a particular meaning which is only recognised by those who share the culture,” and values as “broad tendencies to prefer certain states of affairs over others”. Hofstede (1991: 7) also points out that because values often remain unconscious to those who hold them, they “cannot be discussed, nor can they be directly observed by outsiders. They can only be inferred from the way people act under various circumstances”. Figure 3: Hofstede’s levels of culture Symbols Heroes Rituals Values Practices Source: Hofstede, G., Neuijen, B., Ohayv, D.D. and Sanders, G. (1990: 291) -7- 2.2.2. Type models Harrison: 1972 While the models presented above reflect a dimensional approach to culture, Harrison (1972) offers an approach that views culture according to distinctive types. According to Harrison (1972, cited in Cartwright and Cooper, 1992: 63) there are four main types of organisational culture. These include: power, role, task/achievement and person/support. Harrison’s typology is particularly useful in that it accommodates intra-industry differences and, in practice, the four types of culture have been easily recognised, therefore it has strong validity (cited in Cartwright and Cooper, 1992:63). We consequently refer to this ‘type’ approach in more detail below. It should be noted that the four culture types are broadly defined and organisations will rarely fit perfectly into any one of the four types in its pure form. Power cultures This culture is characterised by centralisation of power and imposes the highest degree of constraint on individuals. There is very little opportunity for employee consultation and participation as the culture is essentially autocratic and suppressive of challenge. The emphasis is on individual rather than group decision-making as power often rests with an individual, usually the founder, or small group of individuals. Individual members are motivated to act by a sense of personal loyalty to the ‘boss’ or by fear of punishment. Role Cultures A role culture is one that is characterised by bureaucracy, with the guiding principles of “logic, rationality and the achievement of maximum efficiency” (Cartwright and Cooper, 1992: 67). The organisation sees itself as a collection of roles to be undertaken rather than as a collection of people or personalities. Role cultures are frequently encountered in large organisations with highly specialised dimensions of labour, in both the private and public sector. In addition, formal procedures and regulations concerning the way in which work is to -8- be conducted are a central feature of this type of culture. Power is generally hierarchical and rests in a person’s role or position in the organization. Task/achievement cultures A task culture is a team culture where “what is achieved is more important than how it is achieved” (Cartwright and Cooper, 1992: 68). Individuals bond and are energised though the commitment to the specific task. In this type of culture relevant task expertise is highly valued and tends to be more powerful than personal or positional power (Cartwright and Cooper, 1992: 68). According to Brown (1995: 70) the important organising principles of the task culture are flexibility, adaptability, individual autonomy and mutual respect based on ability rather than age or status. Although task cultures often evoke strong commitment and passion, members nonetheless become ‘burnt out’ or disillusioned over time. When things go wrong, the blame is shifted from one person to the next (Cartwright and Cooper, 1992: 68). This type of culture tends to exist within an organisation, such as within a specific division, but it can be found in new start-up organisations. The person/support culture In the person/support culture there is very little structure and the entire function of culture is centred on nurturing the personal growth and development of its individual members. Information, influence and decision-making are shared collectively. The organisation remains subordinate to the individual for its existence (Cartwright and Cooper, 1992: 69). A person culture develops when a group of people realise the benefits of organising themselves on a collective rather than individual basis (Brown, 1995: 70). 3 Culture integration In this section, the importance of considering culture compatibility between merger partners in addition to legal, financial and strategic fit is reviewed. Mergers are compared with three different types of marriages to highlight the significance of partner compatibility and the authors of this research paper extend the marriage analogy to arranged marriages to provide for instances of ’forced’ mergers. Finally, the ingredients for a successful marriage are discussed briefly. -9- Along with the drive for mergers to meet the goals of, amongst others, strategic positioning, increased market share and industry-wide consolidation, is the increasing realisation, in recent years, that human assets are more crucial to the success of mergers and acquisitions than previously believed. An important component of ‘human assets’ is culture compatibility and the ability for each organisation in a merger to effectively integrate with the other(s) in the context of an organisational marriage. Concentrating on the marriage, or integration implementation, is today understood to be more crucial than the wedding itself (Tetenbaum, 1999: 12). Yet the difficulties of merging two cultures have been largely underestimated and can be seen to be a major contributory cause of merger and acquisition failure (Cartwright and Cooper, 1995: 2). Cartwright and Cooper (1995) say cultural compatibility is an important factor in determining organisational and individual merger outcomes and that a more holistic and multidisciplinary approach, that does not divide soft from hard issues, is called for. According to Cartwright and Cooper (1992: 35), mergers and acquisitions differ from “any other process of major organisational change in three important aspects: the speed of change, the scale of change and the critical mass of the unknown they present for both parties”. Marks (1988, cited in Cartwright and Cooper, 1992) says the merger process consists of three segments: pre-combination, legal combination and post-combination. Since merger partners often function as separate entities for a period, following the announcement of the legal combination, the pre-integration period may continue for many months, sometimes a year or more, before physical or cultural integration takes place. A merger process can consequently take between three to five years to be fully effected. This means that levels of uncertainty, ambiguity or confusion are often escalated as the ‘psychological ripple’ that accompanies a merger is felt throughout the organisation (Cartwright and Cooper, 1992: 36). 3.1 A strategic and cultural fit Cartwright and Cooper (1996, cited in Horwitz, 2002: 1), in using the common analogy of a merger as a marriage, maintain that “in practice a merger is rarely a marriage of equals”. Ghobodian, James, Liu and Viney, (1999, cited in Horwitz, 2002: 1) refer to a merger as “the joining or integration of two previously discrete entities. It occurs when two companies integrate to form a new company with shared resources and corporate objectives”. A - 10 - successful merger, they say, “relies on exploiting core competencies and intellectual capabilities common to the two organisations” (Ghobodian et al cited in Horwitz, 2002: 1). Kanter, Stein and Jick (1992: 212) contend that a merger does not involve a complete identity change, where there is transformation in every key stakeholder relationship, but is a “fundamental altering of the boundary between firm, erasing the line and creating a common identity in the eyes of investors, customers, suppliers, and regulators out of what was formerly separate”. Restructuring through mergers and acquisitions nonetheless represent the “sharpest and most dramatic identity change”. Whereas in the merger boom of the 1960s, most combinations were of the conglomerate type, in the 1980s and 1990s most mergers were of the horizontal or related type, and involved partnerships between organisations operating in the same field of business (Cartwright and Cooper, 1995). While conglomerate mergers and acquisitions do not tend to have “any large scale impact on the working lives of the vast majority of employees,” (Cartwright and Cooper, 1995: 2) related mergers or acquisitions tend to perform more successfully “primarily because they have the advantage of transfer of product knowledge and expertise, and offer more potential for achieving economies of scale”. Yet the successful outcome of such types of mergers or acquisitions is increasingly dependent on “the wide-scale integration of people; their systems, procedures, practices and organisational cultures” (Cartwright and Cooper, 1995: 2). Problems occur when, despite a change in the nature of mergers to related combinations, the old model is still applied, placing emphasis on financial, strategic and legal considerations with little attention paid to people or non-quantifiable issues. People remain crucial to the outcome of mergers and the costs are high when such factors are ignored. It is therefore today considered crucial to choose potential merger partners based on both good strategic and cultural fit (Horwitz, 2002). 3.2 Marriage Cartwright and Cooper (1992) compare mergers to three different types of marriages: open, traditional or modern/collaborative marriages. They say that partner compatibility is a crucial consideration prior to integration. - 11 - Open marriage In an open marriage the acquired organisation or less dominant merger entity is allowed to operate as an autonomous business unit, thereby maintaining its existing culture. In this type of marriage there is non-interference and change is likely to be minimal. The acquirer may introduce some controls, for example integrating reporting systems and procedures but, provided the merger partner fulfils the two conditions of a healthy prognosis for future growth and a competent management team, non-interference is generally adhered to and any cultural differences are tolerated. Open marriages tend to occur more often in unrelated acquisitions or mergers but can also work in related acquisitions or mergers. Such marriages start to turn bad if financial results decline or the existing management changes, leading to a “loss of trust and confidence in the union” (Cartwright and Cooper, 1992: 77-78). Traditional marriage In a traditional marriage, seen to take place in a large majority of mergers or acquisitions, there is typically radical and wide-scale change whereby one merger partner has to completely adopt the practices, procedures, philosophy and culture of the other, more dominant organisation. One of the partners is expected to conform to the culture of the other, in this arrangement. The success of this type of marriage depends on how willing the combining partner is to adopt and assimilate into the culture of the acquirer. Traditional marriages typically experience difficulties when there is resistance from the acquired or less dominant partner or when such a partner seeks to renegotiate the terms of marriage. The modern or collaborative marriage In the modern or collaborative marriage it is recognised that a combination of different but complementary forces will be of best benefit to both partners and that an integration of best practices will work to create a new, unified ‘best of both worlds’ culture through shared learning and values (Cartwright and Cooper, 1992: 79). Collaborative marriages are, however, particularly rare and bring their own problems. Since organisational members are often slow to recognise a collaborative marriage (a win/win game), they automatically respond as if it is a traditional type (or a win/lose game). Successful integration is then dependent on how quickly and effectively senior management can act to diffuse feelings of threat existing between the two merging entities, in order to facilitate meaningful cooperation (Cartwright and Cooper, 1992: 79). - 12 - In a collaborative marriage, success depends “on the degree to which the cultures can work together and integrate”; meaning that there must be compromise (Cartwright and Cooper, 1992: 81). While cultural similarity is not a precondition for cultural assimilation, and there are few pure or ideal culture combinations, in a collaborative marriage where partners have the potential to create a new ‘best of both worlds culture’ a reasonable degree of similarity is advantageous, particularly if the integration is to take place relatively quickly (Cartwright and Cooper, 1992: 91). It is equally important for both partners to “recognise or accept the marriage terms,” and to check that one or other of the partners does not hold different perceptions of the culture to the other. (Cartwright and Cooper, 1992: 83). This is crucial since the first thing people do in a merger situation is to evaluate and scrutinise the culture of ‘the other’ (Cartwright and Cooper, 1992: 83). Arranged marriage It is the view of the authors of this research paper, that Cartwright and Cooper’s marriage/merger analogy may logically be extended to include an ‘arranged’ or ‘forced’ marriage. Ashkenas, DeMonaco and Francis (1998) in fact compare acquisitions to the concept of an arranged marriage, a comparison that may be extended to mergers. In the arranged marriage scenario, ‘parents’ negotiate the deal, sign the contract and “expect the newlyweds to live together in harmony,” Ashkenas et al (1998: 9) say. It is maintained, however, that an arranged marriage has the greater chance of success since only one couple is involved whereas in a merger or acquisition many people - often thousands of employees - need to learn to live together “and the values and mindsets of the acquiring and acquired organisations almost always differ” (Ashkenas et al, 1998: 9). Heifetz (1993) similarly questions whether and when imposed change can work. There are various reasons, he says, why forced change can work, one of which is the fact that choosing to accede to an externally driven change may represent the lesser of two evils. As an example, the threat of losing one’s job may represent a worse scenario for someone than that associated - 13 - with compliance to imposed change. Eventually that which is imposed becomes routine, therefore the required change is accomplished through people imposing their will on others. Yet Heifetz (1993) says practical problems may arise when one tries to impose one’s will on others who do not share the same commitment. Without the commitment of those whose behaviours have shifted, it is questionable whether change can last. According to Heifetz (1993: 126), “commitment is a central factor in any change process as it implies desire focused on an objective”. For externally driven change to work Heifetz (1993: 132) maintains that there must be commitment, typically driven by leadership, to a continuous, persistent force for change. Leaders, or the external driver of the change effort, need to supply the “motivating force for the entire process, until the change becomes permanent”. Externally imposed change can nonetheless be permanently and successfully imposed in certain circumstances. First, if people eventually recognise the value of the imposed change, their internal commitment to change will shift, based on their experience and evidence of the benefits of change and second, if the external desire or will for change can sustain pressure for a long enough time change may become part of the routine of life. The latter occurs where “there is not enough benefit in resisting or reverting to the old pattern once the new way of doing things becomes the norm” (Heifetz, 1993: 127). Successful marriage According to Cartwright and Cooper (1992: 91) there are two ingredients for a successful marriage: Good culture match Provided “the intended direction of the culture change is perceived as increasing employee participation and autonomy,” (1992: 91) the traditional marriage will likely be successful. In a collaborative marriage, the possibility of meaningful cultural integration is only likely to occur in genuine exchange mergers, where both recognise the potential for creating a ‘best of both worlds’ culture. In such instances, a reasonable degree of cultural similarity is desirable for integration to occur in a relatively short time. Understanding of the terms of the marriage contract For a marriage to be successful, both partners must recognise and accept the terms of the marriage contract. Because the power dynamics in a marriage are likely to be ambiguous, - 14 - the terms of the marriage must often be negotiated, clearly communicated and accepted by all involved. 4 Relationship between culture types According to Harrison’s 1972 culture typology, as referenced earlier, there are four basic culture types: power, role, task and support. Should there be a merger between two companies the combination of possible resultant cultures could take any one of ten forms: 1) power with power, 2) power with role, 3) power with task, 4) power with support, 5) task with support, 6) role with role, 7) role with task, 8) role with support, 9) task with task, and 10) support with support. Of the ten possible combinations, only four relate to combinations between similar types, of which the support/support combination is extremely unlikely to occur in practice. Therefore, there is a far greater chance of a merger resulting in a combination of organisations with dissimilar cultures. Having identified the culture types of the organisations, it is necessary to then consider the degree of similarity or dissimilarity between them. Since there will very rarely be pure or ‘ideal’ types, it is more useful to consider the types as ranging on a continuum in terms of the degree of constraints placed on individuals. In plotting, from the outset, the relative position of both parties to any combination on the continuum, one can assess the degree of similarity or dissimilarity of the initial cultural relationship. Since the objectives of different types of marriages are different, acquirers or dominant parties will require different characteristics in partners, depending on the type of marriage being sought. In the instance of a genuine merger, where the relationship takes the form of a collaborative marriage, integration requires compromise. The degree of dissimilarity between two culture types is therefore important in determining how much change each partner would need to accommodate to move towards the creation of a new ‘best of both worlds’ culture. If merger partners are not matched exactly in culture type, as is often the case, it is important that they are of adjacent types and not at opposite ends of the continuum. - 15 - Figure 4: Potentially successful merger – ‘role’ with ‘task’ culture Cultural Integration Merger Partner Merger Partner X Power X Role Task/Achievement Person/Support Source: Cartwright and Cooper, 1992: 82 5 Cultural dynamics of merger combinations Cartwright and Cooper (1992) advocate that, when any two or more organisations join there is invariably some form of ‘cultural shock’, particularly if the marriage contract was not entered into voluntarily. ‘Cultural shock’ refers to that aspect of culture which is visible or ‘feel-able’ and of which one is typically more conscious when moving from one culture to another (Cartwright and Cooper, 1992: 61). It is believed that the “more dissimilar the cultures, the greater the resultant ‘cultural shock’” (Cartwright & Cooper, 1996; Cohen, 1999; Van Heerden, 1999, cited in Horwitz, 2002: 2). Following the legal merger, a process of acculturation typically takes place as each organisation evaluates the culture of the other. Acculturation is the term used to describe the “process of contact, conflict and adaptation” that takes place when two societal cultures come together (Cartwright and Cooper, 1993: 65). According to Nahavandi and Malekzadeh’s version of the acculturation model (1988, cited in Horwitz, 2002: 2) “individuals assess the culture of the other partner by two factors: 1) the value they attach to preserving their existing culture and 2) the extent to which they perceive the culture of ‘the other’ to be attractive”. Successful marriages are therefore “the outcome of the cultural dynamics and power relations in combinations.” - 16 - Figure 5: Modes of organisational and individual acculturation in mergers and acquisitions and their potential outcomes Willingness of employees to abandon their old culture Very willing Not at all willing Very attractive Assimilation Integration Potentially smooth transition Perceptions of the attractiveness of ‘the other’ culture Deculturation Not at all attractive Culture v Satisfactory collision integration/ fusion Separation Alienation Culture v Satisfactory tolerance of collision multi-culturalism Source: Adapted from Nahavandi and Malekzadeh (1988 in Cartwright and Cooper, 1992: 84) In the model above, there are four modes through which acculturation takes place (Berry, 1983, 1984, cited in Nahavandi and Malekzadeh, 1988: 82-83). These include 1) integration, where neither group loses its cultural identify; 2) assimilation, where “one group willingly adopts the identify and culture of the other”; 3) separation, where there is “minimal cultural exchange between the two groups and each will function independently” and finally 4) deculturation, where there is a loss of “cultural and psychological contact with both ones group and the other group,” becoming an outcast to both. Cartwright and Cooper (1995: 6) advocate that “if the mode of acculturation is cultural integration to create a new potentially ‘best of both worlds’ culture, then the more similar the cultures, the easier the transition, provided that the marriage is not between two power cultures”. In attempting to integrate two cultures to create a new culture, there is however “considerable potential for culture collisions and fragmentation” (Cartwright and Cooper, 1993: 66). - 17 - If two organisations are able to agree on the preferred mode of acculturation for merger implementation, the fact that there is less acculturative stress and organisational resistance will help make acculturation a smoother process (Nahavandi and Malekzadeh, 1988: 84). A successful merger therefore involves, in addition to financial and strategic analysis, careful planning with regards to congruence between each companies preferences for an implementation strategy for the merger (Nahavandi and Malekzadeh, 1988: 86). 6 Change management approaches to cultural change Whereas measuring and determining organisational culture is a necessary first step to bringing about change, more important is the need to determine how culture should be managed as part of the process of organisational change (Senior, 1997: 161). Beer, Eisenstat and Spector (1993: 159) propose that the best way to bring about organisational change is to change behaviour, which will then bring about desired changes in values and attitudes. This means first changing the organisational context (roles, relationship, systems, structures and responsibilities) or formal aspects of the organisation, in order to bring about cultural changes incorporating people’s attitudes and beliefs. According to Beer, et al. (1993: 159) this “creates a situation that, in a sense, ‘forces’ new attitudes and behaviours on people”. The change models to facilitate culture integration of Lewin, Price and Bate are discussed below. 6.1 Lewin: 1947 Lewin’s 1947 classic three-phase change model involves the ‘unfreezing’ of present behaviours or attitudes; changing or moving; and ‘refreezing’ to establish processes that reinforce and sustain the desired perceptions and behaviours (cited in Marks, 1997). The process of ‘unfreezing’ usually begins when senior managers develop a felt need to change, often in response to one or more catalytic event, such as declined profitability. In the change phase, if unfreezing has been successfully negotiated, employees will actively seek to change without much prompting. During the ‘refreezing’ phase individuals seek an end to the instability and uncertainty that characterises their work tasks and relationships with others, by - 18 - meeting their felt need for change. It involves individuals redefining their understanding of the functions required and learning how to implement new rules and procedures. This is essentially a consolidation phase (Brown, 1995: 107). A similar conceptual model to that of Lewin’s is one put forward by Tannenbaum and Hanna, (1985, cited in Marks, 1997) which includes the steps of: holding on, letting go and accepting the new. The basis of this is that people have to let go of the old or status quo before they can welcome and accept the new. According to Farquhar, Evans and Tawadey (cited in Evans, Doz, Laurent, 1989: 45), “the reconstruction process of building a new culture cannot be undertaken until a certain amount of ‘destruction’ has taken place”. In this sense the “old culture often needs to be discredited, if not destroyed” or ‘unfrozen’. 6.2 Price: 1999 Price (1999) identifies four distinct phases in the merger and acquisition process. The Start-up Phase This phase covers the period from the announcement to the closure of the deal and commonly lasts between three to nine months. It is a period of intense pressure for both management and employees as there is uncertainty and a loss of direction. Careful short term operational plans, transparency and communication are crucial in this phase. The Transitional Phase The length of this phase may vary depending on the size and type of organisation but it typically covers the first three to six months following the actual transition. It is characterised by anxiety over job security and internal political activity in response to severe pressure. Employees, as a defence mechanism, attempt to protect their personal positions. This often leads to inappropriate behaviour, which may have disastrous impact on staff morale. It is important during this phase that there are well formulated personnel structures and processes to ensure fair treatment. - 19 - The Integration Phase During this phase it is vital to work through the differences between organisations and to consciously create, through a shared sense of purpose, a widely accepted new culture. To effectively align the cultures of the merged entities it is important to identify common goals and performance objectives and to clearly map the way forward (Horwitz, 2000). Middle management is often burdened with the pressure during this phase as they are responsible for implementing change and must deal with the practical issues arising from culture clashes and power struggles. Managing the merging culture effectively is considered crucial and the process should be moved along as quickly as possible, through the establishment of new systems and procedures, to avoid ‘post-merger drift’ (Horwitz, 2000). To cope with the intensity of the culture integration stage, strong leadership, communication and conflict management skills are considered crucial. Integration during this phase can take from seven months to two years to achieve. The Closure Phase Once the integration has been effected and a new entity is created, it is necessary to reach a state of closure. During this phase employees feel relieved and a sense of excitement. A failure to reach closure has the adverse effect of leaving employees “clinging to old ways of behaving or working, with a simmering sense of resentment that the merger issues have not been adequately resolved” (Price, 1999: 42). Success in this phase is achieved through teamwork that, through meeting set objectives, enables employees to feel that the merger has been worthwhile. 6.3 Bate: 1990 Bate proposes four broad approaches to cultural change: The aggressive approach This approach is described as ‘leadership with a gun’ as the acquirer uses militarist tactics and aims to wipe out or tear down the old cultural regime overnight. The aggressive approach attempts “to change the culture by whatever means necessary to accomplish that objective, no matter how unpopular” (Cartwright and Cooper, 1992: 132). It is characterised by time urgency and a lack of respect for an organisation’s past. It seeks to achieve cultural change through creating disruption and fear in the workforce, therefore it triggers the process of culture change through delivering some kind of shock to the system. However, the - 20 - insensitivity of this approach frequently has an alienating effect (Cartwright and Cooper, 1992: 132). The conciliative approach The conciliative approach attempts to respond to people as rational beings, and therefore does not resort to external coercion. It is effective in avoiding conflict and gradually introducing the rationale of the new culture which, if sensible, it is assumed employees will eventually accept. The ‘soft sell’ of this approach may, however, have the adverse effect of employees not responding at all, since they do not recognise that their old culture and its practices have become obsolescent. The corrosive approach This is a political approach which employs a sophisticated ‘intelligence’ strategy. It operates at an invisible, covert level through the establishment of an informal power network. This approach may be effective as, in directing the process of cultural change at specific powerful individuals or groups, change in the rest of the organisation may automatically follow. But there is also the danger that individuals or groups will turn against the process and instead sabotage or resist cultural change. The indoctrinative or educative approach This approach aims to teach the new culture to organisational members through planned learning and training programmes. It is effective in clearly conveying the ‘contents’ of the new culture to members, at a deep structural level. However, there is likewise the danger in this approach that employees may respond to cultural conditioning as ‘propaganda’, leading to resentment and cultural resistance. Cartwright and Cooper (1992: 133) caution that there is no one best approach to cultural change; rather any single approach is likely ineffective and should be complemented by at least one other. - 21 - 7 Key success factors of culture integration Bijlsma-Frankema (2001: 12), based on findings from her research, says several factors in the process of cultural change can be seen to distinguish successful change processes from failing ones. The first factor is legitimisation of the changes and the ability to communicate the positive outcomes expected of the new structure. Second, is the need for “clarification of goals and changes in what is expected of organisational members”. Third, it is important to monitor the process, fourth to establish conditions of psychological safety and finally, it is imperative to secure that there is feedback on success and failure outcomes and that this is then built upon. Bijlsma-Frankema (2001) further emphasises that each factor acts as a necessary condition for the next one and therefore cannot exist alone. The first factor, legitimisation, is arguably the most important factor of all since it is crucial that a vision for the future and clear and specific expectations are articulated from the outset. Bijlsma-Frankema (2001: 13) says this phase is about specifying “what will be better, how progress will be measured and who will benefit from the success.” It is also a “powerful means of ‘defreezing’ the culture” and acts as “a basic trigger of cultural change”. It is therefore proposed that, critical to the success of the change process is a well-designed plan for the management of cultural change. This should accompany any changes in structure (Bijlsma-Frankema, 2001: 3). In research conducted by Mercer Management Consulting (cited in Tetenbaum, 1999: 3), it was found that companies with strong integration plans created above-average value in their industries and effective post-merger management policies were seen to improve the odds of success by as much as 50 percent. Just as critical as planning for the management of cultural change is the need for effective communication, in every phase of the merger process (Cartwright and Cooper, 1996; Price, 1999, Tetenbaum, 1999, cited in Horwitz, 2002: 7). - 22 - Klein (1996: 4) says “a communications strategy should coincide with the general stage of the planned change and the relevant associated information requirements,” since differentiated communication tactics may have an important impact on the level of acceptance of the change by organisational members. Bijlsma-Frankema (2001: 13) further point to trust as a key factor during the process of culture integration, as this may further co-operation between groups with different cultures. Further factors for the success of culture integration, according to Kets de Vries (1995: 41) are commitment and patience. Just as a marriage “demands a lot of attention and commitment of resources” so does the merger of two often divergent cultures. Kets de Vries says mergers are intense relationships that often lead to high turnover as people are “psychologically unprepared for the aftermath of a merger or acquisition” (Kets de Vries, 1995: 42). He further makes the point that, as in most relationships, mergers and acquisitions are more successful where friendly approaches are used and where they take place between consenting adults. Leadership Good leadership is considered crucial to the process of cultural integration. Farquhar, Evans and Tawadey (cited in Evans, Doz, Laurent, 1989) talk of turnaround change as being associated with transformational or charismatic leadership. But what constitutes transformational leadership, they point out, is difficult to define and each unique context may warrant a different approach. They further contend that leadership can be distinguished as “doing the right things,” and good leadership should “define clear objectives and communicate them through simple messages to enable management to move corporate energy in the right direction” (Farquhar et al, cited in Evans, Doz, Laurent, 1989: 43). The authors explain that for employees to embrace a new philosophy, a leader has to create that philosophy through a vision which everyone can understand and support. In this way and through visibility, the transformational leader also becomes a role model for people in the company. According to Farquhar et al (cited in Evans, Doz, Laurent, 1989: 51), the first stage of building a new culture is carried by transformational leadership, but during the second wave of rebuilding a new culture there is “a vital need for a continuity of message and reinforcement”. Reinforcement of the new culture should be done through few clear - 23 - messages, that may be both verbal and symbolic. This second wave is directed toward middle management, who most often perceive change as a very real threat. It is therefore through a slow process of management development that a new culture may gradually become rooted” (Farquhar, Evans and Tawadey, cited in Evans, Doz, Laurent, 1989: 52). Heifetz (1993: xvi) says in order for change to work “someone must supply the initial activating force, the vision of what the change should look like, the wisdom and the skills to guide the ongoing effort, and the perseverance to see the job through in the face of a continuing stream of problems”. He proposes three leadership roles or functions considered to be fundamental for activating and driving the change process. These include: visionary role where the leader must use persuasive communication to spread the vision and purpose to all; role of catalyst where the ability to stimulate people to want to change is crucial, and finally sustaining force where the driving force must be sustained until change is an ongoing part of people’s lives. Kotter and Heskett (1992) also contend that leaders contributing an outsider perspective (openness to new ideas) and insider’s resources (power base) are most effective in bringing about change in companies. While leaders are in a position of power to initiate changes of huge scope, it is the actions of lower and middle-level managers that ultimately produce changes. Therefore a strong leadership process is needed most to supplement the management process in major culture change processes. Laurent (cited in Evans, Doz, Laurent, 1989: 87) further says for organisations to change, people need to first change their minds about the organisation, “requiring a collective change of mind in the social fabric of the enterprise”. For this to occur, leadership is essential, as “minds cannot be managed. They can only be inspired” (Laurent, cited in Evans et al 1989: 88). Therefore leadership of change can be seen as the process of imparting visions that are powerful in promoting new lines of thinking and action. - 24 - 8 Obstacles to successful culture integration Kotter (1995) classifies as one of the eight errors leading to a failure of transformation efforts, the lack of anchoring change to a corporation’s culture. It is only through consciously showing the effects of change that it can be institutionalised in corporate culture and through taking the time to ensure the next generation of top managers ‘walk the talk’. Research has also pointed to the fact that many mergers fail to lead to improved performance, as the human side of the process is often neglected. In particular, Kets de Vries (1995: 42-43) says “an insensitivity to the companies’ varying corporate cultures can have disastrous results”. If due attention is not paid to compatibility issues before merger or marriage takes place, the subsequent clash of cultures and procedures can lead to what Kets de Vries calls a ‘post merger drifting process’. He says one way in which this is indicated is through the display of the defensive psychological process of splitting, where people typically “categorise others as superior or inferior to themselves”, and a win-lose mentality may be seen. Kets de Vries says other symptoms of drifting include: job dissatisfaction, absenteeism, a high turnover of talented personnel and decreased performance. Another area that may be problematic, says Kets de Vries, is “the incompatibility of objectives between the parties”. He maintains that courtship should allow parties to assess these elements and in turn give them the option, if dissatisfied, to turn down the offer to merge/marry (Kets de Vries, 1995: 44). Further, when change is forced on employees, they should be given the chance to mourn old attachments and habits that will be broken by a new alliance, Kets de Vries states. He says that in “the post merger phase, this mourning process has to be managed in a psychologically effective and humane way to avoid depressive reactions and other symptomology” (Kets de Vries, 1995: 45). Communication and dialogue Ineffective communication is a serious obstacle to culture integration. Keeping communication channels open will prevent anxiety from getting out of hand and providing clarity about expectations will reduce distrust or conflict. Kets de Vries (1995: 46) says - 25 - frequent reviews should be conducted during the transition process, during which people can talk about the reasons for the merger and open the dialogue around future changes, and during which management can attend to the psychological dimensions of the change process. According to Jungian psychology, the ultimate gift to any relationship is willingness to dialogue with the ‘Other’ which may lead to individual enlargement (Hollis, 1998: 140). As in a merger, in the sacred marriage, or hierosgamos, there is a grand conversation where each partner “properly honours the other as ‘Other’ and at the same time protects the absolute uniqueness of the individual partners (Hollis, 1998: 57). Yet problems occur as each partner to an organisational merger brings with it their personal histories. What damages relationships is any partner’s attempts to impose elements or precepts from these personal histories upon the ‘Other’. While not all elements of one history are bad it is the bad elements that invariably contaminate relationships (Hollis, 1998: 77). Jung says that for organisations to become whole, they need to move from operating as a society - which is nothing more than a group of persons organised to serve a set of purposes to a community, which is formed “when the members of a society have had a common transcendent experience, one that lifts each person out of his or her isolation to participate in the transformation” (Hollis, 1998: 101). In a community “each person remains an individual but each is also now identified psychologically with the transcendent experience, each is more than he or she was previously” (Hollis, 1998: 102). Transformation following a merger must therefore come with some suffering but is believed to be essential in achieving wholeness. Jung says wholeness, which is the goal of all life, is “contingent upon the dialogue of opposites” (Hollis, 1998:141). Collaboration Without collaboration, the process of culture integration may be significantly hampered. In the initial phase of a merger, teaming up to create cross-company task forces and project teams and articulating the new rules of the game will help problem solving and ensure future collaboration (Kets de Vries, 1995: 47). The role of the integration team leader is also considered vital to the success of the implementation phase of culture integration and integration management should be recognised as a distinct business function rather than an “add-on” job for integration team leaders (Tetenbaum, 1999: 6). - 26 - Culture audit Despite the importance of culture fit for the success of mergers and acquisitions, there is little evidence of organisations undertaking comprehensive culture fit audits as a component of their due diligence (Carleton, 1997, cited in Schraeder and Self, 2003). Schraeder and Self (2003: 4) suggest, based on an examination of research, that the success rate of mergers and acquisitions “could be enhanced through incorporating cultural compatibility into the identification, evaluation, assessment and selection of potential partners”. In addition, the head HR person or integration team leader/s should be involved in any discussion around a potential merger from the outset of the process so that they can provide valuable input into any ‘Go-No-Go Decisions’ taken. The earlier such people are able to participate in the process, the more effective they will be in working through any issues that could negatively impact on future business outcomes, if ignored (Tetenbaum, 1999: 7). Organisational defences Organisational defences are often seen in transformational change processes, when people seek generally acceptable solutions to problems as a means of coping with uncertainty or trauma (Brown, 1995). Organisational defence routines are defined as “actions or policies that prevent individuals or segments of the organisation from experiencing embarrassment or threat”. (Argyris, 1990: 25). Since the actions are used so frequently they become organisational norms, and are habitual. A common example of an organisational defensive routine is the mixed message, which, Argyris says, can lead to “a range of unintended and counterproductive consequences” (1990: 27). Mixed messages are often rewarded by organisational culture, which reinforces the routine tendency of employees to avoid the ‘undiscussables’. But, if not discussed, defensive routines will continue to proliferate. Peter Senge, in The Dance of Change (1999: 241), similarly explains the process through which organisations develop a facade of harmony. He says conventional organisations all too often hold a ‘don’t rock the boat’ philosophy, which translates as a superficial, ‘on the surface’ perception of everything being well, when in fact what is really happening is that people are shying away from making their feelings heard in front of management, for fear of appearing disruptive or standing out from the crowd. - 27 - Argyris (1990) says it is therefore crucial to take active steps to deal with the ‘undiscussables’. During a transformation process, the focus should be on engaging people and making issues discussable. One way of doing this is to develop people with a higher tolerance for embarrassment and threat and to encourage ‘double-loop’ learning, where feedback provides crucial links (Argyris, 1993). According to Bovey and Hede (2001: 2) the “failure of many large-scale corporate change programs can be traced directly to employee resistance”. But resistance is a natural part of the change process as change involves going from the known to unknown. When individuals go through any major organisational change there are typically four phases: initial denial, resistance, gradual exploration and eventual commitment. Internal resistance experienced by individuals is often caused by the surfacing of past experiences, fears, or worries. It exists when habitual thoughts, feelings or behaviours in the subconscious conflict with new thoughts, feelings and intentions to act, in the conscious mind. The unconscious forces often have more power over an individual’s behaviour than consciousness does and tend to direct and divert energy elsewhere and away from the task of change. Such maladaptive defence mechanisms, for example denial, projection and dissociation, influence an individual’s resistance to change and are considered to be the main cause of inefficiency. As an example, the internal anxiety experienced by individuals will manifest itself as an external threat, through projection, the process whereby individuals unconsciously and falsely attribute their own unacceptable feelings, impulses and thoughts onto another person. Bovey and Hede (2002: 7) therefore say that in any major change implementation, management need to be very aware of how defence mechanisms are associated with an individual’s behavioural intentions and use appropriate strategies to assist them in working with individual resistance. Mindell (1995: 42-43) further explains the process of resistance in distinguishing between primary and secondary group processes. Primary processes of a group refer to the methods, self-description and culture with which individuals in a group, as well as the group itself, identifies. The group is aware of this identify yet it may change over time. Those secondary group processes are, however, less easily identifiable since they refer to aspects of ourselves, - 28 - as individuals or groups, that we prefer not to identify with. Such aspects are therefore often projected onto people viewed as ‘the enemy’. Since secondary processes are hidden beneath the surface of consciousness, when aroused they may lead to discomfort or intense emotional reactions from individuals and groups. 9 Concluding remarks It is evident from the literature review that the success of a merger between two or more companies depends as much on culture fit as it does on strategic and financial fit. The case below illustrates the complexities involved in culture integration in the context of a ‘forced’ merger between three companies. It also illustrates the importance of managing the transformational change that typically results from a merger. - 29 - 10 References 1. Argyris, C. 1990. Overcoming Organizational Defenses: Facilitating Organizational learning. United States: Prentice-Hall. 2. Argyris, C. 1993. Knowledge for Action: A Guide to Overcoming Barriers to Organisational Change. San Francisco: Jossey-Bass. 3. Ashkenas, R.N., DeMonaco, L.J. & Francis, S.C. 1998. “Making the Deal Real: How GE Capital Integrates Acquisitions”. Harvard Business Review, January-February,-. Bate, P. 1990. Strategies for Cultural Change. Oxford: Butterworth Heinemann. 5. Beer, M., Eisenstat, R. & Spector, B. 1990. “Why Change Management Programmes Don’t Produce Change.” Harvard Business Review, Nov/Dec. 6. Bijlsma-Frankema, K. 2001. “On managing cultural integration and cultural change processes in mergers and acquisitions”. Journal of European Industrial Training, vol. 25, no. 2/3/4, 192 – 207. 7. Bovey, W. H. & Hede, A. 2001. “Resistance to organisational change: the role of defence mechanisms”. Journal of Managerial Psychology, vol. 16, no. 7, 534 – 548, URL: http://leporello.emeraldinsight.com accessed on 16 September 2003. 8. Brown, A. 1995. Organisational Culture. London: Pitman Publishing. 9. Cartwright, S. & Cooper, C.L. 1992 Managing Mergers & Strategic Alliances: Integrating People and Cultures. Oxford: Butterworth Heinemann. 10. Cartwright, S. & Cooper, C.L. 1993. “The role of culture compatibility in successful organisational marriage”. Academy of Management Executive, vol. 7, no. 2, 57-70. 11. Cartwright, S. & Cooper, C.L. 1995. “Organisational Marriage: ‘hard’ versus ‘soft’ issues?” Personnel Review, vol. 24, no. 3, 32-42. 12. Farquhar, A., Evans, P. & Tawadey, K. 1989. “Lessons from Practice in Managing Organizational Change”. In Evans, P., Doz, Y. & Laurent, A. (eds.), Human Resource Management in International Firms: Change Globalisation, Innovation. London: McMillan. 13. Gibson, J.L., Ivancevich, J.M. & Donnelly, Jr. J.H. 1997. Organizations: Behavior, Structure, Processes. USA: Irwin. 14. Ghobodian, A., James, P., Liu, J. & Viney, H. 1999. “The US Takeover of the UK Electricity Supply Industry”. Journal of General Management, vol. 24, no. 3, 53-75. 15. Harrison, R. 1972. “Understanding your organisation’s character”. Harvard Business Review, May-June,-. Heifetz, M. 1993. Leading Change, Overcoming Chaos. USA: Ten Speed Press. - 30 - 17. Hofstede, G. 1991. Cultures and Organisations: Software of the Mind. London: McGrawHill Book Company. 18. Hofstede, G., Neuijen, B., Ohayv, D.D. & Sanders, G. 1990. “Measuring organizational cultures: a qualitative and quantitative study across twenty cases”. Administrative Science Quarterly, vol. 35, 291. 19. Hollis, J. 1998. The Eden Project – In search of the magical other. Canada: Inner City Books. 20. Horwitz, F. 2000 “Can a Hostile Takeover Succeed”. Breakwater Business, vol. 1, no. 1, 20-21. 21. Horwitz, F. 2002 “Due diligence neglected: managing human resources and organisational culture in mergers and acquisitions”. S.Afr.J.Bus.Manage, vol. 33, no.1. 22. Kanter R.M., Jick, T.D. & Stein, B. 1992. The Challenge of Organisational Change: how companies experience it and leaders guide it. New York: Free Press. 23. Kets de Vries, M.F.R. 1995. Life and Death in the Executive Fast Lane. San Francisco, USA: Jossey-Bass Inc, Publishers. 24. Klein, M. 1996. “A management communication strategy for change”. Journal of Organisational Change Management, vol. 9, no. 2, 32-46. 25. Kotter, J. 1995. “Leading Change: Why Transformation Efforts Fail”. Harvard Business Review, March-April. 26. Kotter, J. P & Heskett, J.L. 1992. Corporate Culture and Performance. New York: The Free Press. 27. Laurent, A. 1989. “A Cultural View of Change”. In Evans, P., Doz, Y. & Laurent, A. (eds.), Human Resource Management in International Firms: Change Globalisation, Innovation. London: McMillan. 28. Lessem, R. 1990. Managing Corporate Culture. England: Glower Publishing Company Ltd. 29. Marks, M.L. 1997. “Consulting in mergers and acquisitions: interventions spawned by recent trends”. Journal of Organisational Change, vol. 10, no. 3,-. Mindell, A. 1995. Sitting in the Fire. Portland, Oregon, USA: Lao Tse Press. 31. Nahavandi, A. & Malekzadeh, A.R. 1988. “Accultural in Mergers & Acquisitions”. Academy of Management Review, vol. 13, no.1. 32. Palmer, I. & Hardy, C. 2000. “Managing Change: Is the soft stuff really the hard stuff?” In Thinking about Management, Chapter 7, 169-196. - 31 - 33. Price, L. 1999. “Helping People Stay on their Feet during Mergers and Acquisitions”. People Dynamics, vol. 17, no. 10, 36-42. 34. Schein, E.H. 1990. Organizational Culture and Leadership. San Francisco: Jossey-Bass. 35. Schraeder, M. & Self, D. R. 2003. “Enhancing the success of mergers and acquisitions: an organizational culture perspective”. Management Decision, vol. 41, no. 5, 511 – 522. 36. Senge, P., Kleiner, A., Roberts, C., Roth G. & Smith, B. 1999. The Dance of Change. New York: Doubleday. 37. Senior, B. 1997. Organisational Change. 2nd edition, UK: Pitman Publishing. 38. Tetenbaum, T.T. 1999. “Beating the Odds of Merger & Acquisition Failure: Seven Key Practices that Improve the Chance for Expected Integration and Synergies”. Organisational Dynamics, Autumn, 22-36. 39. Williams, B. 2000. “Radical changes loom for work place, work flows for energy industry”. International Petroleum Encyclopaedia. Tulsa, Okla.: PennWell Corp. - 32 - SECTION TWO: CASE STUDY 1. Introduction ”PetroSA’s CE’s quit move surprises” “PetroSA’s Mpumelelo Tshume steps down” “PetroSA’s Tshume is off to form his own fuel company” These were some of the press headlines following the unexpected resignation, on September 19 2003, of Mpumelelo Tshume, managing director and chief executive officer of PetroSA. At PetroSA today there is a mood of uncertainty, “mixed emotions”, despondency and a deep sense of sadness. Mpumelelo’s short yet influential two-year period of leadership as CEO of the newly formed state oil company, PetroSA, would be fondly remembered by many. Employees of PetroSA, from across a wide diversity and geographic spread, speak of him with great respect: “Mr Tshume guided the difficult process of culture creation at PetroSA, instilling in people a sense of drive and motivation. He was ‘energetic, positive and friendly’ … an ‘excellent, powerful motivator who spoke to you as if you were one of his friends’. He believed strongly in people development and was often seen spending ‘time with his people at the workplace’. He spoke eloquently and with a sense of authority, yet he was ‘always a gentleman’. Mr Tshume was firm but charismatic, a ‘cheerleader’. Although some thought he was not always a good manager, he was successful in getting people behind him”. Yet the media speculated that “someone had to take the blame” for the problems facing PetroSA since the delayed re-opening of the refinery, following its shutdown in June this year. Mr Tshume told staff that he wished to take a three-month break to “pursue other interests”. He later explained that he wanted to start his own company and become a BEE service supplier to PetroSA. Some employees felt that Mr Tshume was driven by a government directive to effectively diversify the new state entity. Now that his “mission was accomplished,” he was free to move on. - 33 - Minerals and Energy Minister, Phumzile Mlambo-Ngcuka, was reported as saying that Mr Tshume had fulfilled the tasks set out for him on his appointment. Mr Tshume had been tasked with the implementation of the merger of Mossgas, Soekor and parts of the Strategic Fuel Fund, into a new commercially run state oil company; he was to launch and give the new entity an identity in line with the new dispensation; to create a brand that would promote PetroSA internationally; and to transform the organisation to reflect the demographics of South Africa and “populate it with people with requisite skills” (Business Day, 22 September 2003). Employees were told that the current chairman, Sipho Mkhize, would take Mr Tshume’s place until a suitable replacement was found. Coupled with the sense of loss, is an undertone of negativity at PetroSA, certain management level employees observe. Many feel that things would have been better had Mr Tshume stayed at least another year or so. “The negative impact of politicking may hurt the company if not properly managed,” cautioned Michael, a senior PetroSA manager, previously from Mossgas. A similar sentiment was expressed with regards to new leadership. Just as Mossgas and SFF had been hurt in the past through leadership changes, Mr Tshume’s sudden departure “has brought a stir to the calm waters” and a “here we go again” feeling, two employees commented. Mr Tshume’s resignation is not the only concern weighing heavily on the minds of PetroSA employees and stakeholders alike. People are worried about the operational profitability of the company, particularly in light of the recent negative incidents affecting the company. The most salient of these was the shutdown of the refinery, which had been delayed and was over budget. Delays were caused by labour unrest and human error, both of which had hurt the company financially. Just as the crisis was resolved and things were getting started up again, there was a further operational failure at the plant as the boilers blew up, causing the plant to close for a total of seven months, until December 2003. People at the refinery felt disappointed and depressed as further delays created greater pressure. It is also unlikely that people will be paid bonuses next year, an event unheard of at the former Mossgas and Soekor E&P. - 34 - From a strategic perspective, everyone knows of the urgency to find more gas as feedstock, since reserves will be depleted by 2008. They are also acutely aware of the stresses further change at PetroSA may bring. Since the merger of Mossgas, Soekor and parts of SFF to form PetroSA in 2001, people have gone through over 18 months of uncertainty, which has brought enormous emotional strain, upheaval, insecurity and stress. Some are weary of change, others a little despondent with the recent turn of events, and many still negative about the future of the new entity. On top of this, people are under enormous pressure from the increased workload, as a result of the recent rationalisation process and loss of critically skilled workers. Mr Tshume himself says “right now there is a sense of sadness that my departure is untimely in that things are only now gelling”. But, although he acknowledges that “there may be a blip” at PetroSA following his resignation, he says he believes that the PetroSA “vision is solid”. He concurs that a new leader would come in at a time when “values are just starting to be institutionalised and implemented”, but says he does not believe the focus of any new CEO will depart from that which he had tried to instil at PetroSA, although leadership style may differ. “Leaders come and go and people overcome that,” he observes. Mr Tshume nonetheless admits that one of the greatest challenges facing PetroSA is the creation of a new culture – “this is doubly difficult because it is about hearts and minds,” he says. “With the right culture, you can drive performance. Strategies and systems change but ‘how things are done’ can be sustained. Culture tends to be the glue that remains”. He says the current culture of PetroSA is ‘schizophrenic’. “The behaviour the core divisions are displaying shows some remnants of pre-merger companies”. Despite strong leadership from Mr Tshume, the process of creating a new culture for PetroSA has been no easy task and, according to Mr Tshume and Lukanyo, the HR manager, it is still far from completion. Mr Tshume had just started to gain the trust of people, laying the foundation for culture creation but, with his imminent departure, people are again left questioning what the future holds: Where does this leave me, and what will become of the company now? What will I need to do to protect myself? and how much more change can we expect? These are just some of the burning questions circulating within PetroSA today. - 35 - 2. Background to PetroSA The Petroleum, Oil and Gas Corporation of South Africa (Pty) Ltd, also known as PetroSA, is South Africa’s national oil and gas company. The company’s core businesses include: • Exploration and production of crude oil and natural gas off the south-eastern and western coast of South Africa and participation in and acquisition of international upstream petroleum ventures, focussing on crude oil. • The production and marketing of synthetic fuels produced from the offshore gas at the gas-to-liquids plant at Mossel Bay to the local market, and high value chemicals internationally. • Testing the commerciality of the low temperature Fischer Tropsch technology. • Management of strategic crude oil stock and crude oil storage facilities on behalf of the government. (PetroSA Corporate Plan, 2003: 5 – 6) PetroSA was established from the merger of three companies owned by the South African government: Mossgas (Pty) Ltd (“Mossgas”), a maker of synthetic fuels, Soekor E & P (Pty) Ltd (“Soekor E&P”), an oil and gas exploration company, and sections of the Strategic Fuel Fund Association (“SFF”), a trading and fuel storage agency. The exact effective date of the merger is debatable. The outgoing CEO, Mpumelelo Tshume, argues that from a legal point of view there are different dates. Mossgas bought the business of Soekor E&P with effect from 1 July 2000 but the agreement in terms of which the business was transferred was entered into in October 2001. Mossgas changed its name to “The Petroleum Oil and Gas Corporation of South Africa (Pty) Ltd” in April 2002. With effect from 1 October 2002, PetroSA was appointed SFF’s sub-agent to manage, control, sell, buy, swop and store the strategic oil supply of South Africa and to manage and control the tank terminals at Milnerton and Saldanha, used for the storage of the oil stock. SFF employees were transferred to PetroSA in October 2002. No other assets were transferred from SFF to PetroSA. Mr. Tshume said one could argue that PetroSA came into existence when President Mbeki officially launched the organisation on 15 October 2002. - 36 - The merger was the result of a 1998 recommendation by the Department of Minerals and Energy to consolidate the government’s petroleum activities under a single entity. PetroSA was formed to achieve three objectives, namely to: • operate as a commercially profitable entity; • reduce South Africa's dependence on crude oil supply from the Middle East and • facilitate the objectives of industry transformation. The value chain for the oil industry in South Africa consists of four elements: • Exploration and production (E&P) • Refining • Supply and distribution • Marketing (retail service stations, resellers and commercial markets) In South Africa most of the oil companies are involved in refining, supply and distribution, and marketing. Very few are involved in E&P activities, as “geologically, oil and gas prospects are more favourable in other countries” (Final Report, 2001: 31). Mossgas was involved in the E&P and refining segments of the value chain. Its E&P activities were secondary to the synfuel refining activities, as it was limited to finding gas for supply to the refinery. Soekor E&P was positioned in the E&P segment only. SFF activities fell into the storage and supply segments of the value chain and it was involved in providing crude oil and storage facilities for strategic purposes (Final Report, 2001). Today PetroSA is structured mostly along the value chain depicted in Figure 1 below. Its future plans are to become involved in the distribution, wholesale and retail side of the value chain. - 37 - Figure 1: Value chain Source: PetroSA Formation Slides The core revenue-earning divisions of the new company are Exploration and Production (previously Soekor E&P), Trading, Supply and Logistics (incorporating the relevant parts of SFF) and Manufacturing (previously Mossgas). The other divisions are: the CEO’s Office, Corporate Planning and New Ventures, Corporate Services, Finance, Human Resources, Corporate Image and Communication and Internal Audit. As at 1 August 2003 PetroSA had 1186 employees. See Appendix 1 for a breakdown. Its head office is located at the Cape Town V&A Waterfront, the refinery is in Mossel Bay, logistical facilities at Voorbaai and storage facilities are located in Saldanha and Milnerton. See Appendix 2 for a chronological list of events in PetroSA’s history. - 38 - 2.1 2.2.1. Why change? Apartheid years From the 1960s to early 1990s, South Africa was in the grips of an Apartheid government, led by the National Party. As a result, the people of South Africa suffered not only from racial discrimination but were increasingly isolated from the rest of the world through sanctions. This impacted on the country’s economic and social welfare and meant government had to take various measures to protect and grow its existing resources and assets, if the country were to be self-sufficient. One industry particularly hard hit was the oil industry. The United Nations’ voluntary international oil embargo against South Africa since the 1970s effectively cut short most UN member countries’ supply of oil to South Africa. It was in this context that the state-owned Soekor (Pty) Ltd (“Soekor”) and Mossgas were established in 1965 and 1987 respectively, for purely strategic and non-commercial reasons, that is primarily to overcome the UN oil sanctions. Both Soekor and Mossgas were ultimately owned by The Central Energy Fund (Pty) Ltd (“CEF”), which was and still is wholly owned by the South African government. Soekor was established in 1965 as a vehicle for the coordination and promotion of the search and development of commercial oil and gas deposits. Soekor E&P was established in 1994 and was the primary operating subsidiary of Soekor responsible for all oil and gas exploration and production activities. Gas discoveries off the Southern coast of South Africa between 1969 and 1984 gave rise to the South African government’s Mossgas project, intended for the production of synthetic motor fuels from gas to reduce the country's dependence on imported oil. Mossgas was therefore formed to produce and market liquid fuels and related petrochemicals from combustible gas extracted from the earth’s crust. In 1964 SFF, another subsidiary of the government-owned CEF, was established to build strategic crude oil stocks in anticipation of international sanctions being imposed on South Africa. SFF procured, stored and managed the strategic crude oil stocks for South Africa. All of SFF’s activities were mainly driven by strategic considerations (Final Report, 2001: 43). - 39 - 2.2.2. Post-Apartheid – new era of democracy When UN oil sanctions were finally lifted in October 1993, the strategic need for Mossgas and Soekor E&P fell away. Long-term economic sustainability of these assets became an important government concern, and the following options were considered: privatisation, closure and restructuring. In 1999 the Minister of Minerals and Energy, Phumzile Mlambo-Ngcuka, outlined her plans for the CEF group of companies in line with the 1998 Energy White paper. Since restructuring was the preferred choice government approved, during 1999, the merging of these assets to create an integrated commercially viable State oil company, today referred to as PetroSA. The Energy White paper stated that: “The CEF group of companies will be restructured to effect a separation of the three kinds of activities it is engaged in, namely: strategic, regulatory and commercial. Government will consider restructuring existing commercial state assets in the oil industry into a domestic commercial company in which the government would be a significant shareholder. This consideration will include retaining a wholly owned oil company for, at least, the purposes of taking up the state’s participation rights in oil and gas field development. Restructuring (of the CEF group of companies) will take place in terms of the Government policy on rationalisation of State-owned assets and may be used to promote the participation of historically disadvantaged interests in the liquid fuels industry”. At a meeting on 30 November 1999 the Minister tasked the Boards of CEF, SFF, Soekor and Mossgas to implement the merger. Arthur Anderson Consulting was appointed to guide and assist the merger process but the report produced by it was found to be “unconvincing in its justification for a merger, and was very weak in providing guiding steps towards effecting the merger” (Final Report, 2001: 17). In the interim, the boards of Mossgas and Soekor E&P were merged on 1 July 2000. During the latter part of 2000, the merger exercise was overshadowed by irregularities uncovered in the SFF operations. The attention of the CEF and SFF boards was not focused on the merger. Further delay in the merger exercise may have been caused by the subsequent replacement of some board members (Final Report, 2001: 17). The Ministerial Task Team (MTT), created by government, was appointed by the Mossgas/Soekor Board in July 2001 to assist with the implementation of the merger. The MTT, according to an employee tasked with providing it with strategic information, brought a - 40 - focused approach to the process of unravelling the pre-merger companies and putting together the new company. When President Thabo Mbeki officially launched PetroSA on 15 October 2002 he stated that it was “important that we have created this National Petroleum, Gas and Oil Corporation of South Africa, our national petroleum company, so as to strengthen the position of our country in this important and strategic industry” (Address by President Mbeki, 2002). In the company’s annual report for the year ended 31 March 2002, Chairman of the PetroSA Board, Mr S Mkhize, reported that the merger of the three companies, as well as the reorganisation of PetroSA, designed to allow the company to become commercially operational, had been successfully completed, with minimal impact on necessary staff reduction. 3. Uncertain times Prior to the directive from government for Mossgas, Soekor and parts of SFF to merge, to form PetroSA, there had been no clear mandate as to the long term future of Mossgas and Soekor particularly, and all three entities had operated independently of one another. The one common factor was that government was the shareholder of all three companies. Whereas in the past there had been little show of government support for any of the three companies, this was clearly forthcoming during the process of the merger. “Government made a commendable effort to give a vision and mandate to the board and management. There was clear direction, underpinned by the strong need to commercialise,” remarked Neil, a middle manager at PetroSA, previously from Soekor E&P and a senior member of the MTT. Government also set up the MTT to oversee the integration process. Integration was nonetheless a complex task, given the history of the pre-merger entities, the differing nature of their operations and culture. Since Mossgas and Soekor were originally created as a government alternative to sanctions, neither was a commercial entity. However SFF, by virtue of its trading activities, had to be commercial. - 41 - Mossgas “Mossgas was going for death row prior to the merger,” commented Michael, a senior PetroSA manager, previously from Mossgas. He explained that Mossgas is close to running out of gas. “There are just seven to nine years left before gas supplies are due to run out and, while costs were constantly increasing, revenues were staying the same, ” he related. The MTT Final Report of 2001 also stated that there were serious diversity management challenges in Mossgas and that “racism was alive and doing well” (Final Report, 2001: 128). “In addition, female staff in general are accorded less recognition and personal dignity than is provided for in the Constitution” (Final Report, 2001: 128). “It is acknowledged that change in culture and attitudes is a slow process that requires to be worked upon patiently and persistently” (Final Report, 2001: 129). The culture at Mossgas had been influenced by the leadership styles of different leaders. Prior to 1996 Mossgas leadership had encouraged a culture of teamwork, communality and flexibility but this had changed in the six years prior to the merger, as the result of a change in leadership. The new leader created a more formal, less open culture. Although he was popular and commanded respect, some believe he worked in an “underhanded way, operating with spies on the ground”. It was not before 1994 that Mossgas was unionised and union activity became commonplace. According to Michael “at the time of the merger, Mossgas had transformed itself into functional silos, where each division jealously guarded its turf and the culture was one of mistrust”. Yet other employees said leadership at Mossgas came mostly from middle management, so there was not a lot of leadership down the ranks. The CEO, it was believed, tended to focus on higher-level, new business initiatives. “This meant the focus at Mossgas was very much on the day-to-day running of operations and, although there was in-fighting, the culture was driven by energy and enthusiasm. It was like an extended family at Mossgas; people stood together, ‘went the extra mile’ and were highly loyal, particularly if any external force tried to interfere,” commented one production manager. “Although there was a hierarchy at Mossgas, there was respect within the hierarchy. Morale was good despite a lack of individualism and a stringent, narrow control of the workforce,” observed another former Mossgas employee. - 42 - There were, however, reports of personal rivalry between Mossgas and Soekor E&P leadership. This was seen to rub off on employees of the two companies, who showed signs of being antagonistic towards one another post-merger. One Mossgas employee felt “Mossgas was a gift to PetroSA as the day-to-day operations were profitable, whereas there was “no more work for Soekor”. SFF was also perceived to be less profitable than Mossgas. “This caused barriers but not resentment,” it was commented. Mr Tshume said he believed that of the three pre-merger entities Mossgas was the more dominant, simply by virtue of the fact that it had the larger revenue stream, more employees, new technology and critical skills and had been the buyer of Soekor E&P. A Soekor E&P senior manager, Hendrik, concurred that Mossgas was the “biggest in terms of personnel, assets and expenditure,” but said that “in terms of revenue, Mossgas and Soekor E&P were probably equals”. “The Mossgas CEO also had a ‘dominant’ personality which had already led to the Soekor managed F-A platform being taken over by Mossgas, following a protracted ‘tug of war’ between the leaders of each company,” Mr Tshume related. Mossgas executives, driven by the CEO, were reportedly also against the merger and in fact hired consultants to prove that the merger could not work, Mr Tshume observed. He said that had Mossgas had a choice with regards to the merger, it would have chosen not to merge. Mossgas employees were particularly concerned that a merger would see shared services consolidated into Cape Town. This issue stirred up a lot of emotions since the Mossgas family of employees had grown over the years to include both husbands and wives. Men worked on the plant while their wives worked in a support services capacity. Everyone knew that a move to Cape Town would mean breaking up more than the Mossgas family. Mr Tshume said “Soekor was probably indifferent to the merger”. Some ex-Soekor E&P employees believe, however, that Soekor did not need the merger and that it would have done well without the merger. Soekor E&P Soekor E&P had originally discovered and developed the F-A gas field but later, on government’s instruction, had to transfer the gas field and platform to Mossgas. Since 1994 - 43 - Soekor had lost its government funding, meaning it had to start generating its own revenue. The company had to commercialise, and started focusing on generating cash to fund its operations. This resulted in downsizing by more than 500 people, undertaking projects which yielded production in the short term and not focusing on building petroleum reserves for the future (Final Report, 2001: 37). In addition, in 1998 Soekor E&P started to focus on the exploration and production of oil instead of gas and was granted permission by the South African cabinet to look for international E&P opportunities. The Oribi oil field was very successful and gave Soekor enough funds to pursue international opportunities, observed Hendrik, a Soekor E&P senior manager. He explained that, as a result of this, people understood that Soekor E&P did not need to merge and that this “initially caused resistance against the merger”. He said people at Soekor were very positive just before the merger as the company was commercially viable, enjoying a good source of revenue and had many international opportunities. “The employees saw a challenging and interesting future”. The culture at Soekor E&P’s Parow offices was considered to be very different to that in Mossel Bay. “Mossgas was more militaristic whereas at Parow there was a much more informal relationship between management and staff,” said Hendrik. He explained that at Mossgas there was more active union activity and many more grievances, as a result of mistrust. “At Mossgas the unions were very active. SFF was fairly unionised too,” added Tertius, also a former Soekor E&P manager. The observation was made, however, that at both Soekor E&P and Mossgas the culture had been one of paternalism, as cost was never an issue. “It was overly paternalistic at Mossgas, to the degree that people were ‘highly spoilt,’ which had created a culture of ‘moaning,’” Neil, a middle manager at PetroSA, previously from Soekor E&P, remarked. “The problem was people had, over the years, become like a close family at Mossel Bay; they were friends and looked after themselves. The merger process meant lots of friendships were inevitably ruined”. Tertius explained that Soekor E&P had been built around an exploration environment where the profile of people consisted more of graduates than labourers, the latter of which were found in the manufacturing environment of Mossgas. “Although Soekor E&P did not see the - 44 - need to merge they were less fearful of the merger because of the scarcity of exploration and production skills. The biggest concern for Soekor E&P employees was that financial people would become redundant as a result of a switch to the SAP platform in the new company. There was also a fear that shared services would be taken over by Mossgas,” explained Neil. SFF SFF officially became part of PetroSA on 1 October 2002, according to Albert, an SFF manager and member of the MTT. Currently the merger is about “95% complete with only the implementation of a few HR policies and management systems outstanding”. The MTT Final Report (2001) also stated that SFF had less diversity challenges compared to some other companies in the CEF group. Hendrik, a senior manager, previously from Soekor E&P, who was also involved in the merger process, observed that SFF was “an afterthought, as government later decided to add trading activity. The merger was really about Mossgas and Soekor E&P”. Pieter, another SFF manager, explained that SFF employees were only advised of the merger plans in June or July 2002. Before the merger, SFF’s role had been to act “as referee with respect to the determination of oil prices yet it was also a player as it competed in the oil industry,” said Albert, a former SFF manager. He explained that it was the ‘player’ component of SFF that was eventually transferred to PetroSA. Although he conceded that this ‘was a good thing,’ as in the past, SFF’s non-viability had been a burden to government, he expressed some reservations about the manner in which Saldanha SFF was restructured during the merger process. “The restructuring was very aggressive,” he noted. Despite this, he said SFF employees saw the merger “as ‘a make or break’ and as an opportunity since “there were many skills at the Mossel Bay site that they could benefit from”. Since SFF had always been small, the culture at the Saldanha terminal was very much family oriented, and “for the last 18 years everyone had worked together. Everyone knew each other’s wives and children. They were very close,” commented Albert. He said the management style had always been participative and “although it took a long time to formulate policies, implementation happened quickly”. According to Pieter, an SFF manager, the culture at the Milnerton terminal was also family orientated with all employees having - 45 - worked there for 10 years or more. Albert explained that while SFF had undergone a lot of change itself in the past, as a result of bad leadership and corruption, and people were wary of further change, the relationships and culture were nonetheless good prior to the merger. The MTT Final Report (2001: 117) however stated that, although the secrecy regulations over the oil industry were lifted in 1993, the culture of secrecy continued at SFF “as though South Africa’s oil procurement was still under ‘siege’”. The report acknowledged that it might not be easy for those coming from a culture of secrecy “to now function in an open and transparent culture”. Pieter commented that from the time that SFF became part of PetroSA in October 2002, the Milnerton employees were under the impression that the Milnerton terminal would be closed by December 2003. Before the merger, the Milnerton terminal had undergone retrenchments, which had reduced the number of employees from 87 to 25 and they believed that “their days were numbered”. They were only recently advised that the terminal would continue for as long as the Oribi/Oryx field continued to produce oil, which was estimated to be until 2006/2007. Negative feelings are now making place for optimism and a feeling of belonging. Most management representatives from all three pre-merger entities concurred that the merger was similar to a ‘forced’ marriage, which they said would not have happened had government not given the directive and deployed a Ministerial Task Team to facilitate the process. 4. Transformational change In April 2001 it was reported that staff morale was very low. It was also found that anxiety was high, as staff had been “under a cloud of uncertainty for almost two years” (Final Report, 2001: 133). The delayed appointment of the CEO also had a negative impact on staff. Neil, a middle manager previously from Soekor E&P, commented that “the early appointment of a CEO would have brought on the process of change management that much earlier. There was a period of uncertainty where the acting CEO’s - all white males at the time - had no clear mandate as to what to do until the CEO was appointed. There were no positive change management actions at a stage where it was so necessary, and so few knew if they had jobs”. - 46 - Since the merger of Mossgas, Soekor and SFF was expected to bring large-scale, high-impact organisational change, it was however recognised that an effective change management process would be a necessary prerequisite. Recognising that PetroSA was not well equipped to meet the integration challenge from in-house resources, PetroSA initially contracted the services of outside change consultants, who advised on and facilitated the first workshop held to develop PetroSA’s vision and mission statements. This took place on 21 and 22 August 2001 and included formal and informal leaders of Mossgas and Soekor E&P as well as the Ministerial Task Team (Final Report, 2002: 302). The consultants reported, in August 2001, on the strategies identified as a priority during the merger process. These included, amongst others, the need to finalise the overall design of PetroSA (top to bottom structure), to fill the top most position, to have personal face-to-face communication by the CEO and the need to eradicate “racism and other forms of discrimination taking place” (Final Report, 2002: 305). The consultants also found that in both Mossgas and Soekor E&P the business effectiveness area was the most developed area of competence and there was strong evidence of a learning and innovation culture. The premerged company, however, was seen to lack strength in the area of skilled leadership and management, particularly inspirational leadership and strong practical management skills Towards the creation of a new culture Post-merger teething problems In the Final MTT Report (2002: 75) it was stated that “the greatest challenges for PetroSA would arise when dealing with the people aspects of the exercise. The challenges became more complex when considering the common history of the merged entities even though subtle differences in corporate culture existed amongst them”. It further stated that “different corporate cultures always act as an impediment towards smooth integration, this happens even where the entities are owned by the same parent company” (Final MTT Report, 2002: 125). Mossgas and Soekor E&P are owned by CEF but “in certain respects pursue somewhat different cultures”. For the process of integration to succeed, “the board must lead the company towards a clearly articulated VISION and MISSION for the new company”. The process of the creation of a new culture was led from the top, by Mr Tshume and the executive committee, who were to act out the values distilled and ‘walk the talk’. Mr Tshume - 47 - said the culture envisioned for PetroSA was one where “everybody thinks commercially, embraces continuous improvement and diversity and are people-centred. Harmonious relationships must start with how employees are managed by their supervisors”. “At the time of the merger the mood was a mixture of fear and excitement. For previously disadvantaged South Africans it was seen as a massive opportunity, as an exercise in empowerment, which many black employees were looking forward to. For the majority of males, especially whites, however, it was a very threatening experience,” commented Neil, a middle manager at PetroSA, previously from Soekor E&P. But at the Mossel Bay plant, long-standing employees were disappointed to find that “they were sidelined and isolated when it came to new appointments, particularly at the general management level. A lot of people, both blacks and whites, had suitable qualifications but preference was nonetheless given to new people, from outside the company,” noted a previous Mossgas employee. In the early post-merger days it was felt that new employees were not supportive of the Mossgas culture and ‘implied that it had no value’. “New employees thought they had all the answers, which created some problems,” commented a former Mossgas superintendent. There was also a clear drop in motivation levels, as the company had lost many critical skills, commented Hendrik, a senior manager, previously from Soekor E&P. A number of people at the plant still feel that general management at Mossel Bay do not have a strong enough practical technical background for the positions they were appointed to. “Many of the people now leading the company are unable to put the vision into reality; they lack the know-how to get there,” said a former Mossgas employee. There is further some resentment of PetroSA from people in the Mossel Bay area as it is felt that the company thwarted the process of black economic empowerment in the region, where Mossgas had previously been making great strides in bringing empowerment to the whole Mossel Bay area. It was also observed that communication around the change management process had been too ‘high-profile and complex’. The communication between trade unions and management at the time of the merger became so complex that your average Joe Public could not understand all the technical jargon going on,” said a previous Mossgas employee. - 48 - Internal change management By 2002, the need for a dedicated internal change management professional became apparent. Khanyisa was appointed to the job in September 2002. On joining PetroSA she was tasked with facilitating the integration of the three merged entities. This was to be done in line in with the strategic objectives of the company. Creating values: the starting point The approach taken by Khanyisa was to ensure optimum organisational performance through cultural fit to the job and organisation and through empowerment and alignment. The latter referred to the need to align employees to the vision and strategic direction of the company as well as to its values and code of conduct. To communicate this strategy she presented change management initiatives to managers at alignment workshops and started a series of values workshops to filter the process down to all employees. The MTT Final Report (2002: 52) stated that, through a workshop process (with particular regard to the shared services division of PetroSA) it was agreed that there had to be a “fundamental shift in mindset and culture from the tradition of working in isolated silos to an open and cooperative culture based on teamwork”. Khanyisa, together with the Corporate Planning and New Ventures division, facilitated the first alignment workshop in October 2002. During this workshop the change management goal of defining and creating values and culture at PetroSA was highlighted. Khanyisa referred to core values as characterised by “a collective, organisation-wide belief; set norms or standards of acceptable behaviour in executing work in order to achieve strategic objectives; and concretised and driven by leadership as well as enduring and consistent over time” (Alignment workshop slides, 2002). The outcomes of the first alignment workshop were a draft vision, corporate strategic objectives and organisational capabilities. PetroSA’s vision 2017, also based on the mandate from government, was stated as follows: - 49 - To be the leading African energy company, competing globally in an environmentally responsible manner, to benefit the nation and stakeholders In June 2003, the second alignment workshop for managers was held. It focused on progress made and identified the threats and opportunities for the business. The employee values workshops were held in April 2003 and focused on the generation of values as a starting point in the creation of a PetroSA culture. Referring to the purpose of the values workshops, Khanyisa observed that they were “intended to give all people input into what they want to see in terms of a culture at PetroSA. The idea is to get a shared understanding of values by creating common values out of the values generated”. Mr Tshume explained that the values identified through the values workshops form “the platform for a new culture”. He made the point that although people “may have been forced to live together,” by virtue of the merger, “since they were now living together it was important to define a new way of life”. He said the values creation process was about involving all people in this. Although the extent to which people were involved in the integration process may have taken longer than it should have, “it has been beneficial and worked so far,” he further observed. Khanyisa believes that the workshops were extremely successful as more than 90% of employees from the Cape Town, Milnerton and Saldanha offices took part in the values generation process, as well as 80% of the offshore employees and 50-60% of the Mossel Bay employees. At these workshops it was emphasised that it was necessary to generate values before PetroSA could hope to create an alignment between its employees and its vision, strategic direction, values and code of conduct. See Appendix 3 for a depiction of the alignment required. The second values workshops took place in August 2003 and focused on creating a shared understanding of those values generated at the first workshops. “Once there is a shared understanding of common values, these will be written up, in order to ensure full understanding by all stakeholders,” Khanyisa related. She also explained that at this stage the common values would be “incorporated into job profiles and other corporate policies”. - 50 - Values, it was said, should also be inculcated through leadership at PetroSA, so that they are lived out as part of the culture of PetroSA. Appendix 4 contains a detailed description of the values generated and shared. Employees who attended the values workshops described them as “necessary and effective,” “positive,” and “fairly open”. They explained that the workshops created the “feeling that they were working towards something yet it was noted that “we must live this out too”. Many people also felt that the nurturing of a new culture required that they “get together” more often, and establish pride in PetroSA. Another employee felt that the workshops “broke the ice” and allowed people to experience that they were not all that different from each other. At Mossel Bay, employees appreciated the fact that they had been included in the values workshops and said they could see the company was making an effort to create the most inclusive culture possible, yet there was still ‘a lot of mistrust’. It was felt that, although the values workshops helped meet some of the communication and alignment objectives, they had not been successful in fully meeting the stated objectives at Mossgas, probably because “they created a lot of noise in the system and touched on the real ‘nitty gritty’ stuff,” according to one manager. 5. Culture integration Ensuring a cultural fit between three former separate companies was no easy task but Khanyisa said “she always knew the cultures of the three companies could be integrated”. Identifying the critical success factors was an important part of the change process. These would include leadership buy-in, awareness programmes for all change initiatives, clear communication, involvement of all stakeholder groups, a fit leadership style, effective stakeholder management, secured change agents and applying relevant or customised change interventions to unique stakeholders (Alignment workshop slides, 2002). - 51 - Khanyisa expressed corporate culture as: “the way an organisation demonstrates consistently the identified core values that are critical to achieving the organisation’s strategic objectives and vision. Culture supports the corporate strategy and organisational capabilities in achieving the vision”. She said that, at the time she took over as change manager, the values reflected at PetroSA were indicative of a government run entity. “People worked from exactly 8am to 4.30pm and were very territorial in the way they worked”. “Despite the diversity of people from Soekor, Mossgas and SFF, the values of each company were nonetheless the same,” observed Khanyisa. This, she said, became clear during the values generating process. 5.1. PetroSA today “Building a culture always starts with HR,” is the observation of PetroSA HR manager, Lukanyo who joined the company in March 2002. “There was no culture at PetroSA when I arrived at the company. Three separate cultures from three different companies were still operating, as a new culture had not yet emerged,” he said. “A culture needed to be crafted together and created from scratch”. He said there is today still no “definitive culture at PetroSA as the pillars on which to base the culture have not yet been fully delivered. Culture is a mish mash at the moment with people simply behaving the way they know best”. He believed it unlikely that the company would see anything that can be described as culture two to three years down the line but said the need to agree on, distil and publish ‘agreed upon’ values was an important starting point. Mr Tshume expressed a similar belief saying that the culture creation process could take as long as five years but that within the first three years, “one will start to see some communality”. “As far as the alignment of different cultures goes, there is still a lot of work to be done as people are ‘still doing things the way they did previously’. In terms of HR practices, there is conflict on a daily basis, as the difficulties of aligning three sets of employment conditions into one, are substantial. A major problem is the lack of proper communication,” observed Tertius, a former Soekor E&P manager. “A unified corporate culture, where the way things - 52 - are done is the same for everyone, forms the basis for all other strategies,” stated a PetroSA communications manager. Although the formulation of policies and procedures for PetroSA are still being finalised, it is generally believed that they are fair and applied consistently to all employees. One Mossel Bay employee commented, however, that the Cape Town employees have flexitime, whereas this was not the policy at Mossel Bay. PetroSA is today led by CEO, Mr Tshume, however his term of service will come to an end in December 2003. Although some employees, particularly those at head office, identify Mr Tshume as the one ‘hero’ who stands out at PetroSA, others feel that the company is too new to draw such conclusions. “People still have to prove themselves,” commented Tertius. “During the first six months after the merger, there was still a lot of looking over shoulders as the leaders were not known or trusted yet but it later became clear that they were open and transparent,” commented Michael, a senior PetroSA manager, previously from Mossgas. “There were some overt strains of racism initially, and a lot of people suffered greatly but as it became clear that the leaders were sincere, things started to settle down,” he explained. Many employees today speak warmly of the efforts taken by Mr Tshume to help spread the new culture to Mossel Bay and Saldanha. The monthly roadshows to Mossel Bay and other PetroSA sites were well received and indicative that PetroSA “was on the right track with regards to creating a shared culture”. People at Mossel Bay also came to respect Mr Tshume and say that, “although he has shown himself to be firm, he never took a steamroller approach nor did he ever employ ‘bulling tactics’”. One employee at Mossel Bay even commented that people at the plant tried to dress like Mr Tshume, because he set an example for them. Many people at PetroSA say they were shocked to hear of rumours, through the media first, that Mr Tshume was being fired. People at Mossel Bay said they were later disappointed and betrayed to hear of his resignation. Mr Tshume himself had denied all media rumours at a roadshow in Mossel Bay, just weeks before the resignation announcement came, employees say. “He had set the Cape to Cairo vision, yet it felt like the captain was now jumping ship,” said one employee. - 53 - With regards to the new culture most employees today say there is still evidence of subcultures within PetroSA, although these appear to take many different forms, ranging from geographic to functional, departmental, unionised versus non-unionised, diversity as well as pre-merger and historical distinctions. A senior technology manager at Mossgas, Johan, observed that there are subcultures within all divisions but that the distinctions were mainly drawn in the form of ‘attitudes’ and ‘the way people work’. Many believe the culture at Mossel Bay is still distinct from that at the PetroSA head office. “Those at the refinery see themselves as a ‘company within a company’ and even have their own newsletter,” commented Hendrik, a senior manager, previously from Soekor E&P. “Although this is advantageous as it encourages team spirit, it does create a division between them and the rest of the company”. This sentiment is echoed by Mossel Bay employees who contend that there is a definite sense of ‘them versus us’, since they “often feel excluded from a lot of what is going on at head office”. It is felt that head office often forgets to include Mossel Bay in important events and celebrations and Mossel Bay is not always treated equally when it comes to budgets for celebrations and other activities. A similar complaint came from an SFF manager who explained that the Saldanha employees do not receive the PetroSA magazine or any other PetroSA brand symbols. Since the culture of PetroSA is still young, there are few examples of distinguishing ceremonies or rituals. The official launch of PetroSA in October 2002 is well remembered and was considered to be a very successful event, although only management level employees were invited. Employees at the refinery also felt a little left out since the event held in Mossel Bay was small scale by comparison and lacked attendance by VIP’s. Events that are expected to be celebrated regularly at PetroSA are the Golf Day, National Women’s Day and the year-end party. The celebration of the Sable field’s first flow of oil was also considered to be a big event at Mossel Bay, where the entire plant was included in celebrating the event. In addition, PetroSA employees at both Cape Town and Mossel Bay have established soccer teams that compete against each other and other local teams. - 54 - There is no formal dress code at PetroSA, although people understand what is considered appropriate dress for their particular work function. Moving office In December 2002 all Soekor E&P employees and all Mossgas support services moved from their Parow and Mossel Bay offices respectively to new PetroSA head offices at the Cape Town Waterfront. Reasons provided for the move was that PetroSA needed more space to accommodate the support service personnel from Mossel Bay and that they wished to create a new image for the company. There are today mixed feelings with regards to the location of the new PetroSA head office. Some employees, particularly those new to the company, feel that the open plan offices are professional, conducive to good communication and teamwork, and are healthy, particularly in a post-merger situation. Others, however, feel that the move to new, corporate offices in the heart of the Waterfront was simply a “waste of money,” unnecessary and onerous on many employees who now have to travel great distances to get to work. Many people also feel the open plan environment is not suitable because of the confidential nature of work they must undertake. One employee commented that it “was too much change too soon,” and observed that it was more important to focus on production problems at the plant and platform first. A Mossgas employee remarked that PetroSA’s biggest assets were at the plant and not in Cape Town. “Everything happens in Mossel Bay; it is where the bulk of the employees are. People now have to travel to Cape Town a lot and many families were broken up as a result of the head office move to Cape Town,” it was stated. One Mossel Bay employee commented that “head office does not exist to me. I was greeted as if an alien on one visit to the Cape Town office”. It is also considered extremely difficult to build strong communication links between Mossel Bay and Cape Town as many important functions are now situated at head office, making it difficult for Mossel Bay employees to have access to crucial decision-making personnel in functions such as procurement, HR and finances. “Whereas in the past there was a culture of procurement at Mossel Bay, and this interfaced with everyone on site, the fact that this has now been moved to head office has created many problems,” related one employee. Limited - 55 - face to face communication is also a major area of concern for Mossel Bay managers who say they were used to operating in a close-knit family environment prior to the merger. “It takes time to get information that is urgently needed as all decisions need to be sanctioned from Cape Town,” commented a Mossel Bay employee. Diversity In terms of diversity transformation, Mr Tshume believes that progress has been made at PetroSA, particularly so in meeting the employment equity targets of 60/40 (refer to Appendix 5, for further information on targets reached). He says transformation took place through the filling of vacant positions and skills were transferred through training. “At Mossgas, transformation was not driven as aggressively as we would have liked but critical skills had to be retained,” he reflected. Yet there was a cost to pay. “Employment equity targets caused a lot of unhappiness and uncertainty at SFF and dragged on for a long period,” said Albert, a former SFF manager. Some people believed the government directive to merge was a way of “forcing employment equity targets on all three pre-merger companies, thereby creating a lot of resistance and distrust”. Further, employees at Mossel Bay said that, whereas prior to the merger there had been a lot of diversity at Mossgas and people got on well, there are now racial groupings at the plant and there “is a sense that everyone is looking after their own interests only”. Mr Tshume explained that PetroSA diversity targets have nonetheless more recently been increased by a directive for the different PetroSA locations to reflect the demographics of the area. 5.2. Next steps toward culture creation Shared values at PetroSA still need to be practically integrated into the organisation’s systems and become part of its daily activities and decision-making. They are to be incorporated into the company profile and attributes of the values will be incorporated into job profiles and performance agreements. The values will also form the basis of PetroSA’s corporate image and Code of Ethics. The process of implementation of the values is depicted in Appendix 6. - 56 - A cultural assessment survey is also currently underway at PetroSA. This survey assesses the effectiveness of PetroSA as an organisation, its leadership, its divisions, the policies and procedures, employees in general, communication, systems and knowledge capital. Although the creation of a new culture has not yet been achieved, it is accepted that this takes time. Some employees feel that a new, shared culture cannot necessarily be created according to a strict schedule. “Culture needs to evolve. It is difficult to say what kind of culture we want to have right now, but we will likely work this out over time”. “We are currently trying to define a culture and telling people to adapt to it but a culture is something that normally develops itself and is based on earning respect first. It is also very difficult to define a culture when you are in it,” commented a Mossgas employee. The change management process followed with regards to culture integration has, in general, been favourably commented on by employees as a step in the right direction. Many consider the process to have been collaborative and undertaken in a democratic manner. Some felt, however, that “change management in such a big merger was underestimated”, and that the process of culture integration had taken far longer than anticipated. John observed that the legal and financial integration of all three entities was completed within 6 to 8 months, while the cultural integration process is today still underway. 5.3. Future challenges “The main challenge still facing PetroSA today with regards to culture integration lies in the difficulty of changing people’s mindsets,” Khanyisa observes. An example of this, she says, is people’s attitudes to bonuses. “They are accustomed to receiving bonuses, without reward being linked to individual performance,” she explains. “A further major challenge on the horizon lies in now ‘living and demonstrating’ the values agreed upon”. Some of the most pressing post-merger integration problems are HR related. “There is a distinct need for HR policies and procedures to be completely aligned around the new organisational culture,” commented Neil, a middle manager at PetroSA, previously from Soekor E&P. - 57 - One such HR issue concerns the terms and conditions of employment contracts and salaries at Saldanha. “Employees at Saldanha still do not trust PetroSA to look after them the way SFF had done and the scrapping of bursaries and school fees for children has been a contentious issue,” explained Albert, a former SFF manager. “There is further still a perception that remuneration policies are unfair, as pay policies had to change completely,” comments Neil. In addition, he says business processes across all business divisions are not currently standardised, for example performance contracts are done differently in different departments within the various divisions. “High expectations created at the time of the merger have not yet been realised; there are still ineffective business and support services processes and the organisation lacks discipline in general,” observes Neil. “New leadership is needed to provide the necessary stability and direction”. The creation of a shared culture for PetroSA is not yet complete. At Mossel Bay people feel that it will take some time for the culture to develop, particularly so as the “golden thread pulling the change management process together,” has come undone, following Mr Tshume’s resignation. People feel ‘hurt and betrayed’ at Mr Tshume’s sudden departure and the fact that he “never came through to the plant to say good-bye”. Managers say there is a general feeling of ‘everyone to himself’, as a result of a loss of direction and a lack of teamwork. Motivation levels are very low and people still feel ‘unsafe’ at the plant, at the mercy of what they perceive to be ‘incompetent people’, following a dramatic loss of critical skills at the plant. People say there is a distinct lack of discipline, low morale, disloyalty and a generally ‘careless attitude’. One employee describes people’s attitude as: “what’s in it for me and how can I get away with doing as little as possible?” People are also concerned about what their role should be and say that the split between the refinery and head office causes a lot of noncommunication. Michael, a senior PetroSA manager, previously from Mossgas believes however that Mossgas’ male dominated culture has been broken in many areas of the Mossel Bay facility, except for the production and offshore sections. Many employees feel that an important part of the culture creation process will be for people to come together and to get to know one another, through more informal networking events. It is believed that the different sites and large numbers of employees make it difficult for people - 58 - to mix. It is further felt that social gatherings could go a long way towards building a more open culture, where people feel comfortable enough to approach their supervisors or management and to question things they are unhappy with. PetroSA employees agree that they want “a performance driven culture that is focused on achievement, fostering team-work and inter-divisional co-operation; a culture that is based on trust and where people are rewarded according to performance”. “Employees should be proud to work for PetroSA and there must be adequate acceptance for accountability and responsibility,” comments Neil, a middle manager at PetroSA, previously from Soekor E&P. “Managers at lower levels should be approachable and proposals from the people need to be taken seriously,” says a former Mossel Bay employee. “The culture should be one where there are no abstract barriers or hidden agendas; it should be transparent and free of racism,” commented another. Although the CEO’s departure, at such a critical juncture in the history of the new company has been sorely felt there are those who are more optimistic, commenting that “the PetroSA vision extends beyond the lifetime of a leader”. - 59 - 6. References 1. Address by President Mbeki, at the launch of PetroSA, 15 October 2003. URL: http://www.polity.org.sa/html/govdocs/speeches/2002 accessed on 26 September 2003. 2. Alignment Workshop powerpoint slides, 29 – 31 October 2002. 3. Annual Report 2002 of The Petroleum Oil and Gas Corporation of South Africa (Pty) Ltd, URL: http://www.petrosa.com accessed on 28 April 2003. 4. Final Report: Business Plan and Corporate Governance Review for the Merger of Mossgas, Soekor and SFF, 30 April 2001. 5. Final Report on the Implementation of the Merger of Mossgas, Soekor and SFF to form PetroSA. 28 February 2002. 6. PetroSA Corporate Plan, March 2003. 7. PetroSA Magazine, Issue 2, 2003 8. White Paper on the Energy Policy of the Republic of South Africa, December 1998, Department of Minerals and Energy, URL: http://www.polity.org.za/html/govdocs/white_papers/energy98/energywp9801.html#m%20foreword accessed on 28 April 2003 - 60 - APPENDIX 1 Permanent Employees per PetroSA site as at 1 August 2003 Global Assignments 1 Offshore FA Platform 112 Onshore Cape Town 242 Onshore Milnerton 25 Onshore Mossel Bay 726 Onshore Saldanha 35 Onshore Voorbaai 45 Total 1186 - 61 - APPENDIX 2 CHRONOLOGICAL LIST OF EVENTS DATE 1964 EVENT Strategic Fuel Fund established 1965 Soekor (Pty) Ltd established 1987 Mossgas established 1994 Soekor E&P (Pty) Ltd established 2 December 1998 White Paper on the Energy Policy of the Republic of South Africa. 30 November 1999 Minister tasks CEF, SFF, Soekor and Mossgas Boards with implementing the merger 1 July 2000 Business of Soekor E&P (Pty) Ltd sold and control transferred to Mossgas and Soekor E&P and Mossgas Boards are merged. 30 April 2001 Phase One Report: Final Report, Business Plan and Corporate Governance Review for the Merger of Mossgas, Soekor and SFF. July 2001 Mossgas/Soekor Board appoints Ministerial Task Team to assist with implementation of the merger. 12 October 2001 Date sale of business agreement between Mossgas and Soekor E&P was entered into. 1 November 2001 CEO appointed. 22 January 2002 Mossgas changed its name to The Petroleum Oil and Gas Corporation of SA (Pty) Ltd. 22 February 2002 Phase Two Report of the Task Team: Execution and implementation of the recommendations made to the Shareholder in the Phase One Report. 1 March 2002 HR manager appointed. 30 April 2002 Another change of name: The Petroleum Oil and Gas Corporation of South Africa (Pty) Ltd. 1 September 2002 Change Manager appointed. 1 October 2002 SFF employees joined PetroSA and PetroSA appointed as SFF’s sub-agent. - 62 - DATE 15 October 2002 EVENT President Thabo Mbeki officially launches PetroSA. 29 – 30 October 2002 First Alignment Workshop. April 2003 First Values Workshops. June 2003 Second Alignment Workshop August 2003 Second Values Workshops 19 September 2003 CEO resigns. October 2003 PetroSA culture audit - 63 - APPENDIX 3 SOURCE: Values workshop slides, August 2003 Organisational Alignment Vision • • • • • • Effective Employees Effective Communication Appropriate Policies and Procedures World Class Systems Effective Leadership Benchmarks and Best Practices Organisational Capabilities 2017 Strategy Creating Sustainability • • • • • Profit Enhancement New Business Development Oil/Gas Reserve and Production Growth Continuous Improvement Sustain and enhance growth of current businesses - 64 - APPENDIX 4 PetroSA VALUES Value Description Professional integrity In all our actions, we demonstrate professional integrity, reflected in our positive image which creates a lasting impact/impression. Corporate citizenship We are committed to being a good corporate citizen in all countries we operate in by abiding to legislation and our own policies. Our commitment is further reflected in our efforts of contributing to societal growth of communities we operate in and by being environmentally responsible. Harmonious relationships In building and maintaining our internal and external relationships we ensure there is harmony by embracing and leveraging diversity to achieve excellent delivery of services and products. Competitiveness We remain competitive in all of our actions to achieve profitability which benefits our corporation, shareholder and general nation. In so doing, we constantly focus on continuous improvement and acknowledge great efforts. These values were approved by the PetroSA executive committee in September 2003 and by the board of directors in October 2003. - 65 - APPENDIX 5 DIVERSITY TARGETS TARGET STATUS 60/40 (60% from designated group) 64.7 % designated employees 35% women by 2005 17.9 % 3% people with disabilities by 2005 0 PetroSA has set a target of 60% employees from the designated group as defined by the Employment Equity Act. “Designated group” includes black people, women and people with disabilities. The company has also set certain targets in regard to the number of female and disabled employees. The table below indicates the company’s targets and the position as at 1 August 2003. - 66 - APPENDIX 6 Business Context Values Generation Shared Understanding Adopt Implement Review PROCESS OF INSTITUTIONALISING VALUES SOURCE: Values workshop slides, August 2003 - 67 - SECTION THREE: INSTRUCTOR’S GUIDE 1 Case summary The case tells the story of culture integration at PetroSA, following the merger of three formerly separate but state-owned companies. It specifically refers to the creation of new culture in the context of transformational change. The issues highlighted demonstrate the importance of considering culture compatibility, both prior to and during a merger process. The case also points to the importance of effective and appropriate change management processes. The Petroleum Oil and Gas Corporation of South Africa (Pty) Ltd, also known as PetroSA, is South Africa’s national oil and gas company. It was established from a merger of three companies owned by the South African government: Mossgas (Pty) Ltd (“Mossgas”), a maker of synthetic fuels, Soekor E & P (Pty) Ltd (“Soekor E&P”), an oil and gas exploration company, and sections of the Strategic Fuel Fund (“SFF”), a trading and fuel storage agency. The merger stems from a 1998 recommendation by the Department of Minerals and Energy to consolidate the government’s petroleum activities under a single entity. In view of the unusual event of a ‘forced’ merger, this case study is also aimed at providing fresh insights into organisational culture and the management of change in circumstances where three companies are directed by government to merge. The key players in the case include: • the CEO, Mpumelelo Tshume • the change manager, Khanyisa • the HR manager, Lukanyo • senior PetroSA managers, previously from Mossgas, Michael and Johan • middle manager at PetroSA, previously from Soekor E&P, Neil • a former Soekor E&P senior manager, Hendrik • a former Soekor E&P manager, Tertius • former SFF managers, Albert and Pieter - 68 - Although there is no clarity on the effective date of the merger, PetroSA could be argued to have formally come into existence when President Mbeki officially launched the organisation on 15 October 2002. The merger process however began as early as 1 July 2000, when Mossgas bought the business of Soekor E&P. The legal and financial integration of all three entities has been completed while the cultural integration process is today still underway, as the new company is going through a process of integrating identified corporate values. 2 Organisational context and management issue The recent formation of PetroSA, which was directed by government in its capacity as shareholder of all three pre-merger companies, provided an ideal opportunity to consider the impact of a ‘forced merger’ on culture integration. Further, the nature and significance of such a merger, in the context of the South African oil industry, offered a useful backdrop against which to assess the impact of transformational change management during the process of culture integration and new culture creation. From the 1960s to early 1990s, South Africa was in the grips of an Apartheid government, led by the National Party. The oil industry was particularly hard hit by the imposition of UN sanctions from the 1970s. This impacted on the country’s economic and social welfare and meant government had to take various measures to protect and grow its existing resources and assets, if the country was to be self-sufficient. In 1964 SFF was established to procure, store and manage the strategic crude oil stocks for South Africa. The state-owned Soekor (Pty) Ltd (“Soekor”) and Mossgas were subsequently established in 1965 and 1987 respectively, for purely strategic and non-commercial reasons, primarily to overcome the UN oil sanctions. Soekor E&P was established in 1994 as the main operating subsidiary of Soekor responsible for all oil and gas exploration and production activities. But with UN oil sanctions lifted in October 1993, the strategic need for Mossgas and Soekor E&P fell away. Long-term economic sustainability of these assets became an important government concern, and three options were considered: privatisation, closure and restructuring. Since restructuring was the preferred choice, government approved, in 1999, the merging of its assets to create an integrated commercially viable State oil company, or PetroSA. At the official - 69 - launch of PetroSA on 15 October 2002, President Thabo Mbeki himself emphasised the importance of the creation of PetroSA, in terms of strengthening the position of the country in such an important and strategic industry. PetroSA was therefore created to perform three crucial objectives, namely to: • operate as a commercially profitable entity; • reduce South Africa's dependence on crude oil supply from the Middle East; and • facilitate the objectives of industry transformation. Although all three pre-merger entities were state-owned, each had operated completely independently and were structured and run differently, prior to the merger. Change was inevitable due to the nature of the industry and the environmental context. Each of the three entities was also beset by their own unique problems. The 1998 Government Energy White Paper had envisioned the merging of the three companies but they were nonetheless given the opportunity to come up with a plan for the future. The companies did not come up with a preferred plan to merge and government thereafter gave the directive to merge. It is within this context that a new culture for PetroSA needed to be created. This case is written more than 3 years after the legal merger of Mossgas and Soekor E&P in July 2000. 3 Target group This case study is targeted at both business students and management executives who are struggling to understand the obstacles to cultural integration as well as the issues relating to implementation and management of large scale transformational change processes. It may also be used as training material by change managers, culture integration team leaders or CEO’s involved in transformational change processes. - 70 - 4 Statement of learning objectives The learning objectives of this case study and the subsequent discussion questions are to engender an understanding of:  Culture • What culture is and how it manifests in the organisation. • Different models to describe organisational culture. • The importance of considering culture prior to a merger, in addition to strategic and financial fit. • The impact of a ‘forced merger’ on culture and how to integrate culture in such a merger situation. • The key success factors of and obstacles to culture integration.  Change • The type of change that results from a merger of two or more companies. • The different phases of change that an organisation can go through in a merger process. • How to manage resistance to change on an individual and group level.  Change management approaches to cultural change • How to go about changing culture and/or creating a new culture. • How effective change management programmes can benefit the process of culture integration following a merger. • 5 The important role of leadership during a merger process. Discussion questions The table below sets out the suggested discussion questions ordered according to the area of focus used to categorise the learning objectives. Five of these questions highlighted in bold are considered key to the case study and example answers of these appear below. At least one question is answered from each of the focus areas used to categorise the learning objectives. - 71 - ISSUES  Culture QUESTIONS • Use the Harrison model to identify the type of culture present at PetroSA today. • In the context of a forced merger, what is required for the externally driven change to work and last? Do you think the PetroSA merger was forced and, if so, were the factors needed to drive change considered in this merger? • How did the fact that more than two companies merged affect the integration process? • What are or were the biggest obstacles to culture integration at PetroSA? (25 minutes) • How could the CEO’s departure at this stage in the company’s history impact on the creation of a new culture for PetroSA? • Did the PetroSA leadership comply with Heifetz’ three leadership functions fundamental for activating and driving change processes at PetroSA? • What mode of acculturation is being followed at PetroSA? • Discuss to what extent PetroSA has fulfilled the key success factors for cultural change discussed by Bijlsma-Frankema.  Change • How long did the pre-combination, legal combination and postcombination periods at PetroSA last? Provide estimates where no exact time-frame is mentioned. • Would you describe the PetroSA merger as a horizontal or related type as opposed to a conglomerate type merger and, if so, why? • In which phase of change is PetroSA? Use the Lewin model to explain the phase PetroSA is in. • How was resistance to change manifested by individuals at PetroSA and on a company level? • What is the role of communication in a change process? To what - 72 - ISSUES QUESTIONS extent was the communication of change at PetroSA effective? (25 minutes)  Change • Discuss the nature of the change process at PetroSA as well as management the style of change management adopted. How effective was such approaches to a change style in the process of culture integration? (40 minutes) cultural change • Discuss whether change management intervention can increase the effectiveness of a forced merger? To what extent was the change intervention at PetroSA successful in meetings its objectives and what were the obstacles faced? • Leadership is considered crucial to successful culture integration. What impact has leadership had on the formation of a new culture for PetroSA? What is the role of leaders during a process of large-scale culture integration? (40 minutes) • How do you think the timeframe in which change occurred at PetroSA might impact on the success of the change process? (25 minutes) Answers Q: What are or were the biggest obstacles to culture integration at PetroSA? (25 minutes) There are numerous obstacles to culture integration, the most significant of which include a lack of compatibility of culture and failure to undertake a culture audit; insufficient or ineffective communication; individual and group resistance to change; insufficient or a lack of attention to change management and people issues from the initial stages of any merger process and commitment to the change process, driven from the top. If due attention is not paid to compatibility issues before a merger takes place, the subsequent clash of cultures and procedures can lead to what Kets de Vries calls a ‘post merger drifting process’. He says one way in which this is indicated is through the display of the defensive psychological process of splitting, where people typically “categorise others as superior or inferior to themselves,” and a win-lose mentality may be seen. Kets de Vries says other - 73 - symptoms of drifting include: job dissatisfaction, absenteeism, a high turnover of talented personnel and decreased performance. There is no evidence to suggest that a comprehensive culture audit had been done at PetroSA nor any reference to the compatibility of the three cultures being checked before the legal merger took place. The Ministerial Task Team reports, however, drew attention to the human factor in the merger. The 2002 report indicated that “the greatest challenges for PetroSA would arise when dealing with the people aspects of the exercise”. It further stated that “different corporate cultures always act as an impediment towards smooth integration, this happens even where the entities are owned by the same parent company”. A possible obstacle to culture integration could be the fact that the PetroSA HR manager was only appointed half-way through the merger process and the change manager even later. This means they were not there from the outset of the process to provide valuable input into any ‘GoNo-Go Decisions’ taken or to highlight issues relating to the different cultures of the pre-merger companies. There is some evidence of the defensive psychological process of splitting. Mossel Bay employees referred to the fact that there was a sense of “them versus us” and the feeling that those at the Cape Town head office were better off. An SFF manager echoed this feeling and explained that the Saldanha employees did not receive the PetroSA magazine or any other PetroSA brand symbols. In the early post-merger days it was felt that new employees were not supportive of the Mossgas culture and “implied that it had no value”. This again substantiates a “them versus us” perception at PetroSA. The case provides no proof of problems of absenteeism or job dissatisfaction. The delayed planned shutdown and the unplanned shutdown are indications of decreased performance. There are also a few references to the loss of skilled workers although these losses might have occurred through the merger process. - 74 - Ineffective communication is a serious obstacle to culture integration. PetroSA attempted to keep communication channels open through the roadshows, the values workshops and the culture assessment survey that was conducted in October 2003. There were, however, employees who felt that communication around the change management process had been too high-profile and complex. Others felt communication in regard to policies and procedures had not been sufficient. Transformation, which Jung speaks about, comes “with some suffering but is believed to be essential in achieving wholeness”. Jung says wholeness, which is the goal of all life, is “contingent upon the dialogue of opposites”. It appears that employees at PetroSA are still going through the transformation phase and that they might have to “suffer a bit more” before they can truly know each other. If not enough informal social events are arranged to allow employees to get to know each other, the culture integration process could be seriously hampered. Collaboration is also important in order to bring about culture integration. It does appear as if certain employees were appointed to the Ministerial Task Team and that efforts were made to design the organisational structure with input from employees and unions. Collaboration also took place in the form of the values workshops. There might be a ‘don’t rock the boat’ philosophy at PetroSA, which translates as a superficial, ‘on the surface’ perception of everything being well, when in fact what is really happening is that people are shying away from making their feelings heard in front of management, for fear of appearing disruptive or standing out from the crowd. Although not directly stated in the case, one can interpret that employees at PetroSA are not comfortable enough to speak out or ask questions. There is no tangible evidence of undiscussables as referred to by Agryris. Yet it is clear that employees experienced fear, anxiety and uncertainty. While there is also no strong evidence of maladaptive defence mechanisms, such as denial, projection and dissociation, there have been, throughout various stages of the merger process, signals of resistance from employees, for example, Mossgas’ initial opposition to the merger and currently, PetroSA employees’ strong feelings with regard to the new PetroSA offices. - 75 - In the context of an arranged or forced merger, the PetroSA merger requires commitment to the change process for change to last. Heifetz (1993) maintains that leadership drives commitment and that leaders supply the “motivating force for the entire process until the change becomes permanent”. It could therefore be argued that another possible obstacle to culture integration is the early departure of the CEO, before the process of integration had been finalised. Q: What is the role of communication in a change process? To what extent was the communication of change at PetroSA effective? (25 minutes) Several authors (Cartwright and Cooper, 1996; Price, 1999, Tetenbaum, 1999, cited in Horwitz, 2002: 7) recognise the importance of effective communication in every phase of the merger process. During times of change, uncertainty amongst employees is high. The longer uncertainty is prolonged, the greater the anxiety that results. Anxiety, in turn, leads to maladaptive defence mechanisms, which may result in high levels of individual resistance to change. This resistance is considered to be the main cause of employee inefficiency. According to Kets De Vries, the ability to maintain open communication channels during any change process is important in preventing anxiety from getting out of hand. Similarly, through providing clarity with regards to expectations, communication can reduce distrust and conflict. Kets De Vries further makes the point that frequent reviews are required during a change process, particularly that which accompanies a merger. In such reviews, people are given the opportunity to talk freely and openly about reasons for the merger and future changes. This also allows management to attend adequately to the psychological dimensions of the change process, Kets De Vries says. In Jungian psychology, “the willingness to dialogue with the ‘Other’” is considered the ultimate gift to any relationship. This dialogue, it is believed, helps move people towards a common transcendent experience where wholeness is achieved and communities may be formed. As in a - 76 - marriage, this is considered a crucial component of successful culture integration during a merger process. Good communication and feedback processes may also ensure that there are no ‘undiscussables’ since issues are openly discussed. Through encouraging people to speak out, without any fear for the consequences, one can prevent a ‘facade of harmony’ from developing. Argyris (1990) says it is crucial to take active steps to deal with any ‘undiscussables’. During a transformation process, he says the focus should be on engaging people and making issues discussable. Double-loop learning, where there are crucial feedback links, is one way of aiding the process. At PetroSA, communication around the change process took place in the form of values and alignment workshops and regular roadshows at the various PetroSA sites to make sure the company-wide change was introduced to all employees. Employees were given the opportunity to create a new culture centred around values generated and shared by all. However, there is no other evidence, following the completion of the Ministerial Task Team’s work, of regular change forums. As mentioned previously, some employees felt the communication around policies and procedures had not been adequate. In addition many employees referred to the need for continuous communication, which should include proper feedback from the company and not merely information sharing sessions. Effective communication has also been made difficult by virtue of the fact that shared services are now all located in the Cape Town office. Mossgas employees feel that face-to-face communication is no longer taking place on a regular basis. Communication is linked, in some form or other, to all Bijlsma-Frankema’s (2001) five key success factors for change processes. While it is clear from the case that much time was spent on communicating to people the goals and expectations of the process of culture creation, including some of the positive outcomes, there is no hard evidence in the case to suggest that the effectiveness of communication was closely monitored or that extra care was taken to establish conditions of psychological safety for all employees, at this particularly uncertain time. - 77 - It is clear that employees from all three pre-merger entities valued open communication, since many expressed the need for close teamwork and interaction, as had been experienced in the past at Mossgas, Soekor E&P and SFF. There is some indication in the case that not enough attention was paid to employees’ needs with regards to communication. It was, for example, observed that communication around the change management process had been too “high-profile and complex”, and that feedback processes were not forthcoming. Many also felt that a truly unified culture would not be possible unless the communication barriers were broken down and people really got to know one another, through social and face-to-face interaction at company celebrations and events. At present, people at PetroSA appear afraid or still uncomfortable about talking openly and honestly about how they are feeling. Although people felt the values workshops were fairly positive, it was acknowledged that there was still ‘a lot of mistrust’, and that not all the objectives of the workshops were met, perhaps because they touched on ‘the nitty gritty stuff’. The reference to ‘nitty gritty’ may suggest that people are still very sensitive to change at PetroSA and perhaps not yet ready to let go of old habits or ways of doing things. This may be an indication of a secondary group process taking place, where resistance to change occurs as a result of people’s discomfort. Q: Discuss the nature of the change process at PetroSA as well as the style of change management adopted. How effective was such a change style in the process of culture integration? (40 minutes) Nature of change Mergers are commonly associated with transformational change processes as they bring large scale, high impact change, with far-reaching, revolutionary impact. This type of change has been referred to as discontinuous change or frame-breaking change, and is characterised by: reformed mission and core values; altered power and status; reorganisation – in structure, systems and procedures, organisation form; revised interaction patterns and new executives, usually from outside the organisation. The change at PetroSA can be described as frame-breaking for, inter alia, the following reasons: - 78 - • The company created a new vision at its alignment workshop in October 2002; • The employees have identified and created shared values through the values workshops; • The CEO and the management team positions were filled by people from outside the organisation; • There appears to be a strong focus on transformation from an employment equity point of view, which impacted on the structure of the organisation and selection procedures. • A new organisational structure had to be created to include all pre-merger entities; • The company switched to a SAP platform and policies and procedures are being rewritten; • The CEO introduced regular roadshows to interact and communicate with employees. This method seemed to impress employees and it is assumed that it did not take place in the premerger companies. The merger that led to the formation of PetroSA can also be described as ‘discontinuous change’ as it was characterised by major changes in the strategy, structure and culture. It also led to the realignment of many divisions and departments (such as the combination of the shared services departments of Mossgas and Soekor E&P). Change management style Dunphy and Stace Change management authors identify four types of change: participative evolution, charismatic transformation, forced evolution and dictatorial transformation. The former two, it is said, require a collaborative and consultative style, whereas the latter two require a directive and coercive change management style. While the nature of the ‘forced’ merger to create PetroSA would seemingly indicate that the style of change management was directive, in line with a change of forced evolution, the case showed some indication that the change process was highly consultative, particularly so during the Ministerial Task Team’s term. In addition, the creation of a new culture was effected through a collaborative process that involved input from all employees through the values workshops hosted. At these workshops, employees were invited to help generate the values they wanted to identify PetroSA with, whereafter common values were identified and tabled as reflective of the new culture for PetroSA. - 79 - Further evidence of a possibly collaborative style was the CEO leadership style and manner. Employees described the CEO as a great motivator and excellent speaker, who won the respect and even trust of many. Although the intention might have been to conduct a collaborative or consultative change management process, there were employees who nonetheless felt that communication around the change management process had been too high-profile and complex. Others felt communication in regard to policies and procedures had not been sufficient. Bates’s approaches to culture change There is very little evidence that an aggressive approach to culture change was followed at PetroSA. There is only one reference to such an approach when Albert explained in regard to SFF that the “restructuring was very aggressive”. Bate explains that the conciliative approach attempts to respond to people as rational beings, and therefore does not resort to external coercion. As mentioned above, the change process at PetroSA can be described as highly consultative and collaborative. It could be argued that the intention was to avoid conflict and gradually to introduce the rationale of the new culture by allowing employees to discover this culture through the culture workshops and possibly the culture assessment survey. There is also no clear evidence of a corrosive or political approach to culture change. It may be argued that the CEO was a visionary and a powerful motivator who had the clout to encourage others to follow him in bringing about the culture change required. He is, however, leaving before the establishment of a new culture at PetroSA. According to Bate the educative approach aims to teach the new culture through planned learning and training programmes, thereby communicating the ‘contents’ of such new culture to its members at a deep structural level. Such cultural conditioning programmes do not appear to have taken place at PetroSA. - 80 - Effectiveness of change management style in culture integration The change management process followed with regards to culture integration has, in general, been favourably commented on by employees as a step in the right direction. Some felt, however that “change management in such a big merger was underestimated”. It is likely too early to give a verdict on how effective the change management style followed has been in bringing about culture integration. Q: Leadership is considered crucial to successful culture integration. What impact has leadership had on the formation of a new culture for PetroSA? (40 minutes) Leadership played a highly significant role at PetroSA, particularly at a CEO level. Mr Tshume’s two-year term of leadership, although short, was critical to the process of creating a new culture at PetroSA. Although culture creation is today far from complete, strong leadership was needed to initiate the process of changing people’s ‘hearts and minds’. Many people felt that Mr Tshume “guided the difficult process of culture creation,” and was a strong motivator and visionary. Although he was initially mistrusted he was soon able to win people’s trust through spending time with his people, at the workplace. He emphasised people development, communicated well, and ‘walked the talk’. He was also friendly, charismatic, approachable and able to earn people’s respect. Leadership at the newly merged PetroSA had, however, been late in coming. This impacted on the process of culture integration, particularly with respect to the timeframe for new culture creation. The Final Report of the Ministerial Task Team (2001) reported that “the delayed appointment of the CEO had a negative impact on staff”. This view was substantiated by Neil who noted that the change management would have begun earlier, had the CEO been appointed earlier in the process. One of the main obstacles to culture integration is uncertainty, since high anxiety can lead to resistance. At PetroSA the period of uncertainty was drawn out for over 18 months, as acting CEO’s had no direction on what to do. This escalated down to employees, who felt very vulnerable to change and how it would impact them, particularly with respect to their jobs. - 81 - What is the role of leaders during a process of large-scale culture integration? Academic research substantiates that good leadership is crucial to the process of cultural integration, particularly in a situation of transformational change following a merger. Farquhar, Evans and Tawadey (cited in Evans, Doz, Laurent, 1989) associate turnaround change with transformational or charismatic leadership and say good leaders need to enable management to “move corporate energy in the right direction”. It is further maintained that through visibility a transformational leader is able to become a role model for people in the company. Since largescale change involves a collective change of mind, and minds must be inspired rather than managed, leadership is likewise held to be crucial. At PetroSA, Mr Tshume was already seen as a role model by some but, for others, his leadership term had not been long enough for him to reach the level of role model. Mr Tshume can possibly also be described as someone who played the visionary role well, but had not stayed on long enough to play the role of the catalyst or to be the driving force that sustains the change, as explained by Heifetz. It is nonetheless evident that Mr Tshume’s term of leadership had been highly influential and most spoke of him with enormous regard. According to Farquhar et al (cited in Evans, Doz, Laurent, 1989: 51), the first stage of building a new culture is carried by transformational leadership, but the second wave, which depends on continuity of message and reinforcement, is directed at middle management. Mr Tshume appears to have filled the role of a leader during the first wave, despite his late arrival, but it is questionable whether PetroSA has fulfilled the requirements for leadership during its second wave of transformation. It is felt today that PetroSA still lacks effective middle management. This was evidenced by the remark of an employee of the former Mossgas, who said: “Many of the people now leading the company are unable to put the vision into reality; they lack the knowhow to get there”. Kotter and Heskett (1992) contend that “while leaders are in a position of power to initiate changes of huge scope, it is the actions of lower and middle-level managers that ultimately produce changes”. - 82 - Q: How do you think the timeframe in which change occurred at PetroSA might impact on the success of the change process? (25 minutes) At PetroSA ‘merger talk’ would have started in November 1999 when the Minister tasked the boards of the 3 companies to implement the merger. Although the legal and financial merger is now complete, culture integration has still not been completed more than 3 years after Soekor E&P was sold to Mossgas in July 2000. According to academic literature, transformational change, which is sudden and “characterised by radical shifts in strategy, mission and values as well as associated changes of structures and systems”, requires that the change process be moved along as quickly as possible, to avoid ‘postmerger’ drift. The length of the change process at PetroSA can be considered using Price’s (1999) four phases in the merger process. The table below identifies the four phases, the suggested time period of these phases and the length of the change process at PetroSA. PHASE TIME PERIOD PetroSA Start-up phase 3 – 9 months Neil mentioned that the legal and financial side of the merger process was completed within 6 to 8 months. From announcement to closure of deal The chronological list of events (Appendix 2) tells a story different to that told by Neil. It might be that Neil got involved in the merger process at a late stage and that from the time he was involved the process was quickly completed. Although the effective date of the sale of the Soekor E&P business to Mossgas was 1 July 2000, the contract effecting this sale was only signed in October 2001, more than 22 months after the Minister tasked the Boards with implementing the merger in November 1999. Furthermore, the transfer of SFF assets only took place in October 2002; 34 months after the Boards were tasked with implementing the merger. This phase took a lot longer than the recommended 3 to 9 months and overlapped with other phases. Transitional phase Anxiety over job security and internal political activity are the 3 – 6 months This phase might have started as early as 30 November 1999, when the Minister tasked the Boards with implementation of the merger. - 83 - PHASE TIME PERIOD PetroSA responses to severe pressure. Wellformulated personnel structures and processes ensure fair treatment. Many employees at PetroSA felt that HR policies and procedures were not clearly communicated and it appears that HR policies and procedures still require final alignment. Many employees are still unhappy about the changed employment terms and conditions. This phase, although not completed, is close to finalisation. Integration phase Creation of a widely accepted new culture requires strong leadership, communication and conflict management skills. 7 months – 2 years This phase is ongoing and may be argued to have started on 1 November 2001 with the appointment of the CEO. The CEO played an important role in creating and communicating the new PetroSA vision. This phase is characterised by the alignment and values workshops as well as the culture assessment survey conducted in October 2003. As in the transitional phase, communication around HR issues was felt to be insufficient. As at 1 November 2003, this phase has therefore been running for 2 years and may continue for some time. Closure phase This state has not been reached. State of closure is necessary to enable employees to feel that the merger has been worthwhile. No more “clinging to old ways of behaving or working” and no more “simmering sense of resentment that the merger issues have not been adequately resolved”. The CEO explained that “the behaviour the core divisions are displaying shows some remnants of pre-merger companies”. The HR manager also commented that “culture is a mish mash at the moment with people simply behaving the way they know best”. Tertius observed that people are ‘still doing things the way they did previously’. Impact of the timeframe on the success of the change process The fact that the start-up phase may, arguably, have taken 22-34 months, where the recommended period for such a phase is 3-9 months, would indicate that there was likely a high degree of uncertainty and anxiety at PetroSA during this period. This was noted in the case where mention was made of the fact that PetroSA had no real leadership or clear direction until Mr Tshume’s appointment in 2001. Uncertainty and anxiety could lead to higher levels of individual resistance to change, which is a main cause of employee efficiencies. The transitional phase at PetroSA is today still not complete, and may have started approximately 4 years ago, in November 1999. The transitional phase is marked by high anxiety and internal political activity, in response to enormous pressure. It should therefore be completed as quickly - 84 - as possible, in a timeframe of 3-6 months. The fact that the HR policies and procedures, which are necessary for containment at this stage of the change process, have not been fully aligned and clearly communicated to all at PetroSA may indicate an area of concern. The integration phase has been running for two years and is still not complete. Integration should typically take not more than two years in such a change process. Various people at PetroSA commented that culture integration was nowhere near completion. This may be problematic since a new culture cannot be created and lived out until integration is clearly completed. The loss of Mr Tshume, PetroSA’s CEO, at this critical juncture in the change process may further impact on the timeframe for integration completion, causing additional delays. The closure phase has not yet been reached at PetroSA as integration must first be completed. This means employees will not be able to reach closure for some time, which may affect levels of performance as uncertainty lingers. There may still be signs of individual or group resistance to change until such a time as the closure phase has been reached. 6 6.1. Assignment questions Culture types Using the continuum below, plot where you think Mossgas, Soekor E&P and SFF would have each fallen before the merger. For example, which of Harrison’s culture types is the closest representation of each company prior to the merger. Note that organisations will rarely fit into any one of the four types in its pure form. Explain how you arrived at this answer and how each company’s position on the continuum and in relation to each other may contribute to the success of the PetroSA merger. - 85 - Figure 1: Continuum - Question Cultural Integration Power Role Task/Achievement Person/Support Source: Adapted from Cartwright and Cooper, 1992: 82 Answer It is acknowledged that a detailed answer to this question is likely not possible without further research into the cultures of the pre-merger companies. The question is nevertheless set as an illustration of the difficulty of classifying cultures. In providing evidence of where each pre-merger entity lies on the continuum, we have referred to Harrison’s culture types as discussed in the literature review. Based on the evidence set out in Table 1 below, we infer that Mossgas lies just before Role as indicated on Figure 2. However, on an operational level, Mossgas appears to lie closer to Task. Soekor E&P lies just after Task while SFF lies much closer to Person on the continuum. Figure 2: Continuum - Answer Cultural Integration Mossgas X Power Mossgas operational O Role Soekor E&P X Task/Achievement - 86 - SFF X Person/Support The purpose of plotting where each entity sits on the continuum is to assess the degree of similarity or dissimilarity of the initial culture relationship. This is important in determining how much change each partner needs to accommodate in order to move towards culture integration, a critical success factor of any merger. The closer the entities are to each other on the continuum, the more closely they will be culturally integrated. The further the distance that lies between them, the greater the degree of dissimilarity between the culture types. Therefore, if merger partners are not matched exactly in culture type as is often the case, it is important that they are adjacent types and not at opposite ends of the continuum. Soekor E&P and SFF lie closest to each other on the continuum and as such have a far greater chance of a successful merger since the cultures between them are fairly similar. The same can be said of Mossgas and Soekor E&P although they are slightly further apart on the continuum. Although none of the pre-merger entities are matched exactly in culture type, they are also not at direct opposites of the continuum. The widest gap lies between Mossgas and SFF and this indicates that culture integration between these two entities would be more problematic. The PetroSA merger is complicated further by the fact that the integration is between three entities. Care should be taken not to marginalise SFF in the culture integration process considering that it lies furthest away from Mossgas, the larger and dominant pre-merger entity, on the continuum. In general the assessment above indicates that the culture fit between the three pre-merger entities is achievable. - 87 - Table 1: Answer 6.1 Mossgas POWER ROLE TASK PERSON There is some evidence to suggest that management level employees may have been motivated to act by a sense of personal loyalty to the boss or by fear of punishment. It is contended that Mossgas was bureaucratic and hierarchical. • There was a comment that Mossgas had transformed itself into functional silos and the culture was one of mistrust. On an operational level, there is evidence that leadership came from middlemanagement. Research conducted by the change consultants appointed in 2001 found that there was strong evidence of a learning and innovation culture. Other than that there is no further evidence of the Person culture. Richard commented that although the CEO of Mossgas was popular and commanded respect, he worked in an “underhanded way, operating with spies on the ground”. Many expressed that the Mossgas CEO had a dominant personality. There was “a lack of individualism and a stringent, narrow control of the workforce”. Certain employees commented that the culture at Mossgas was highly paternalistic. The nature of work undertaken at Mossgas was highly specialised. Evidence of formal procedures or regulations concerning the way work is conducted: • The new leadership of Mossgas created a more formal, less open culture. • Union activity became common place at Mossgas in the last few years and may have led to the comment that Mossgas was more militaristic than Soekor E&P. - 88 - It was commented that although there was infighting, the culture was driven by energy and enthusiasm in the day-to-day operations. People were committed and loyal and like a family. The desire for a return to team-work postmerger is indicative of its existence before the merger. Many commented on the loss of skills following the merger indicating that task expertise was highly valued and respected. POWER Soekor E&P ROLE Certain employees commented that the culture at Soekor E&P was highly paternalistic. TASK PERSON There was possibly less bureaucracy at Soekor E&P as it had been downsized from 500 to about 80 employees in 1993. We therefore surmise that this culture was flexible and adaptable. In addition, the restructuring and the new focus on being commercially profitable were like a new start for the organisation. Research conducted by the change consultants appointed in 2001 found that there was strong evidence of a learning and innovation culture. Other than that there is no further evidence of the Person culture. Since Soekor E&P was commercial and profitable at the time of the merger there is an indication of high commitment to specific tasks and task expertise was highly valued. In practice this meant that Soekor E&P employees were less threatened by the risk of job loss resulting from the merger process. - 89 - There was possibly less bureaucracy at Soekor E&P as it had been downsized from 500 to about 80 employees in 1993. POWER ROLE TASK At the time of the merger Soekor E&P was successful and employees saw a challenging and interesting future. Soekor E&P There was less union activity and mistrust than at Mossgas. There was also an informal relationship between management and staff. Team-work was evidenced by the loyalty to the company and co-operation between employees towards the task at hand. A Soekor E&P manager expressed the desire for the return to greater accountability at PetroSA as we assume to have been present at Soekor E&P. - 90 - PERSON POWER SFF ROLE Although it was not explicitly stated, there were indications of a paternalistic culture by virtue of the fact that employees were well looked after. - 91 - TASK PERSON As employees at SFF worked together for many years they were like a family and relationships were good. The participative management style at SFF indicates that influence and decision-making were shared collectively. There is little evidence of bureaucracy since it was noted that while policies took a long time to formulate, implementation happened quickly. SFF was a small organisation; therefore there was probably less bureaucracy. 6.2. The way forward What steps do you recommend PetroSA takes now to complete its culture integration process? Answer The most important steps in completing the process of culture integration include more effective communication, new leadership and moving more quickly towards the closure phase of culture integration. Communication While, as mentioned earlier, it is clear from the case that much time was spent on communicating to people the goals and expectations of the process of culture creation, including some of the positive outcomes, PetroSA could consider monitoring the effectiveness of communication as many employees have complained about the adequacy and the lack of open and continuous communication. More effort should also be made to improve communication and collaboration at all levels between the different PetroSA sites. Connected to the issue of communication is that of dialogue. Many employees feel that an important part of the culture creation process will be for people to come together and to get to know one another, through more informal networking events. It is believed that the different sites and large numbers of employees make it difficult for people to mix. It is further felt that social gatherings could go a long way towards building a more open culture, where people feel comfortable enough to approach their supervisors or management and to question things they are unhappy with. On a more formal level, PetroSA could hold regular review forums for discussion where employees from different divisions and sites can openly discuss concerns and voice suggestions, which should be noted and actioned by management. PetroSA could consider appointing change management team leaders, representative of different levels to work with the change manager in implementing change. PetroSA is likely at a point in its development where it should move from being a society to a community, which is formed “when the members of a society have had a - 92 - common transcendent experience, one that lifts each person out of his or her isolation to participate in the transformation” (Hollis, 1998: 101). One way of creating such a community is by having informal networking events across divisions and different PetroSA sites on a regular basis. The creation of a community also implies greater teamwork and a move away from the “everyone for himself” syndrome. Trust is another key factor in the process of culture integration, according to BijlsmaFrankema (2001), as this may improve co-operation between groups with different cultures. Transparent and regular communication is again important to create such trust and to address the ‘them versus us’ perception that exists within the different PetroSA divisions. Institutionalisation of shared values Kets de Vries (1995) mentions that a merger “demands a lot of attention and commitment of resources”. It is important that PetroSA keeps its ‘eye on the culture integration ball’ and ensures that all the work that has been put into identifying shared values are not lost as a result of these values not being institutionalised at PetroSA. As was mentioned in the case, institutionalisation of the shared values involves the values being practically integrated into the organisation’s systems and becoming part of its daily activities and decision-making. These values must also be incorporated into the company profile and attributes of the values must be incorporated into job profiles and performance agreements. The values will also form the basis of PetroSA’s corporate image and Code of Ethics. These steps should be actioned as soon as possible to prevent post-merger drifting. The results of the culture assessment survey recently conducted should be communicated to employees without delay and this could be used to stimulate interest in the implementation of the shared values of PetroSA. It appears that PetroSA is not moving quickly enough towards aligning policies and procedures and standardising business processes; a step which would help the company move towards the closure phase of the change process. - 93 - Leadership As mentioned earlier, academic research substantiates that good leadership is crucial to the process of cultural integration, particularly in a situation of transformational change following a merger. It is important that a new leader be appointed at PetroSA as soon as possible to play the role of the catalyst and to be the driving force that sustains the change, which are roles Mr Tshume will not be able to fulfil as a result of his early departure. It is equally important that the new leader picks up where Mr. Tshume left off and completes the creation of a new culture. Not only should the new leader be knowledgeable about the petroleum industry in order to allay fears that he or she will not be able to implement the PetroSA vision, but he or she should also have the ability to inspire. Communication in regard to the appointment of a new leader should ensure that employees are the first to know who the new CEO is, without first reading about it in the newspapers. - 94 -