Article | Management Science | October 2010

Culture Clash: The Costs and Benefits of Homogeneity

by Eric Van den Steen

Abstract

This paper develops an economic theory of the costs and benefits of corporate culture-in the sense of shared beliefs and values in order to study the effects of "culture clash" in mergers and acquisitions. I first use a simple analytical framework to show that shared beliefs lead to more delegation, less monitoring, higher utility (or satisfaction), higher execution effort (or motivation), faster coordination, less influence activities, and more communication, but also to less experimentation and less information collection. When two firms that are each internally homogenous but different from each other merge, the results translate to specific predictions on how the change in homogeneity will affect firm behavior. This paper's predictions can also serve more generally as a test for the theory of culture as shared beliefs.

Keywords: Cost vs Benefits; Organizational Culture; Economics; Information Management; Forecasting and Prediction; Values and Beliefs; Mergers and Acquisitions; Framework; Satisfaction; Motivation and Incentives; Power and Influence; Communication;

Citation:

Van den Steen, Eric. "Culture Clash: The Costs and Benefits of Homogeneity." Management Science 56, no. 10 (October 2010): 1718–1738.