'Pharmacia and Upjohn merger in rough cultural waters'

A US company who had difficulties of co-ordination at their Swedish subsidiary through cultural differences in the form of different work attitudes and perception towards time.

Case 1

American executives, once part of Michigan's Upjohn Corporation, are becoming intensely familiar with London. They arrive with overnight bags and jet-lagged expressions to meet Swedish colleagues from the former Pharmacia S.A. flying from Stockholm to work in the new world headquarters of Pharmacia & Upjohn Inc. The $7 billion company was the result of a merger between the two giant Swedish and American companies in late 1995 and the office is located in the London area because an unobtrusive building near Windsor Castle was the only location that satisfied all of the executives involved in the decision.

Selecting a headquarters took months of negotiation, foreshadowing the problems now plaguing the newly merged company. After the merger was completed, the Americans wanted their Swedish counterparts to move to Kalamazoo, Michigan - a proposal which was unilaterally rejected. A second suggestion called for relocating the central office to Mississippi, where Upjohn had extensive R&D facilities. Managers from both Michigan and Stockholm rejected this option. Italy was considered because Pharmacia had substantial subsidiaries in southern Europe. Few managers in either group felt comfortable with the language and cultural requirements of an Italian location. France was unsuitable due to complex legal requirements, language barriers, and gut-level resistance. London presented a relatively bland compromise. Neither partner had facilities in London, no one had particular connections in or biases about the United Kingdom, and all executives could at least communicate in English. Hiring support staff would be easy, and travel would be a reasonable burden.

With the city chosen, managers had to agree on a style of building. Americans rejected a proposal for upscale and modern facilities with wide conference facilities and "open style" offices, since they were accustomed to well-insulated offices appointed according to rank and status. The Swedes, labelled as "too groupy" for American tastes, felt equally put off by the prospect of working like boxed rats in cubicles and locked offices. The solution was a nondescript, aging red-brick building which was remodelled to provide private space for the Americans and open space for the Swedes. But it also needed access to gardens and public transport, as well as a southern exposure to provide "acceptable light and air" to please Italians, who became part of the executive core, and Parisians, who felt "forced into a stifling Anglo environment."

The company has been buffeted by hundreds of relatively minor business culture problems since it was born but major conflicts have also surfaced. Soon after the headquarters problem was resolved, the new American chief executive, John Zabriskie, brought a style of management described as "brisk, fast-lane, driven and a full charge to take no prisoners." Within three months of relocation, Zabriskie left in what was called "a mutual agreement over un-reconcilable management differences." Current CEO Jan Ekberg, who replaced Zabriskie, said that difficulties had little to do with Zabriskie himself, other than his obviously entrenched American approach to business. Still, associated problems rankled throughout the company.

"We have half a merger," Ekberg said in an interview. "The companies were ideally suited, with compatible product lines and extensive research and manufacturing in their respective regions. Neither had markets in one another's areas. Upjohn needed Europe and a world presence after being anchored in the U.S. and Pharmacia could not compete in North America without the strength of Upjohn. What we missed was that a merger has less to do with accounting than with human beings."

At the outset, American executives tried to graft their U.S. management style onto an established European business. In Ekberg's view, this hard-driving, mission-oriented American approach shocked the more gradualist, consensus-oriented Swedish managers. American managers wanted plans, actions, immediate results and a reporting system or committee process tailored to inflexible power relationships. Americans regularly made proposals that encountered no obvious contention, so they assumed that the proposals had become decisions. They then moved directly toward implementing the perceived decisions, while Swedish colleagues, assuming that the Americans had merely put forward ideas, proceeded to contemplate the implications. They retreated to their offices to do some research or just think about the issues while the Americans charged ahead. In contrast, if a Swede put forward a proposal, he or she essentially invited input and consideration from colleagues, perhaps leading to consensus to move forward. This casual pace prompted impatient responses from Americans, who sometimes bypassed the Swedes and simply went ahead with their own agendas. At least the Swedes and Americans always arrived promptly and attended carefully to business; Italian managers might not even show up for a meeting. They found that Americans and Swedes were far too preoccupied with time and procedures to appreciate the finer points of life. French managers stayed at home when they had the choice and sometimes insisted on bilingual interpretations or translations of documents. One American executive, who decided to take early retirement rather than try to adapt to the situation, said, "these People just rubbed each other the wrong way. . . . we couldn't even agree on a new name for the company and ‘Pharmacia Upjohn’ was the default. . . . in fact, many of us are too set in our ways to even try to understand a new culture."

Organizational differences presented a set of problems that compounded human relations issues. Americans were accustomed to bonus payments in the form of stock options, deferred income and supplemental retirement benefits. Throughout the Upjohn company, prior to the merger, management compensation included a strong component of non-cash (or tax-advantaged) benefits. A Swedish company has no use for these methods, coming from a social system that offers universal medical care, state-mandated retirement annuities and employment protection, a social welfare approach to taxation and pervasive benefits for all employees which limit differentials between lower-level employees and managers or high-level executives. European accounting systems simply do not accommodate stock-option bonuses or selective, non-monetary rewards.

At the same time, Americans came to work early, stayed late, took few vacations, and coupled holidays with business trips. Not so for Europeans. Ekberg explained that the American managers from Kalamazoo could not begin to comprehend how their European counterparts could take off the entire month of August for vacation. "They were astonished at European vacation habits," said Ekberg. "I must admit there are different traditions and I think Europeans are much more international. We are used to working across borders, in different languages. We are used to treating people in a different way. The Americans are really not very international because they have this huge home base. American companies sell their products abroad but this does not necessarily make them international." Ekberg identified his most pressing task during the next few years as melding together an organization that could tolerate differences in expectations.

Goran Ando, the executive vice-president for research at Pharmacia & Upjohn, offered some insight into the culture clash. "I am a Swede who has lived in both Britain and the United States for a number of years and I see in Americans a more can-do approach to things," Ando said. "They try to overcome problems as they arise. A Swede may be slower on the start-up. He sits down and thinks over all the problems and, once he is reasonably convinced he can tackle them, only then will he start running. But I don't know which style is the best." Ando said he had found that one solution was to move American and European managers back and forth across the Atlantic, even for brief visits. This, he said, "may help to speed up the development of contacts and it will enhance understanding because you develop respect for each other."

The Pharmacia & Upjohn situation, its top executives insist, is being rectified, but not without pain. The organization is becoming flatter, moving toward Swedish methods of team management and away from systems based on hierarchical ranks. Global communication systems are under development in London and international accounting and information systems will benchmark American practices. However, the French maintain a dual accounting process that will be difficult to change. Major cross-border training has been introduced to raise levels of understanding among several continental European groups and regional U.S. interests. Unfortunately, the company has also launched a major downsizing program to cut excess facilities and staff, at the same time beginning to rebuild with new talent strong in a global perspective for doing business.