Lucent-Alcatel: Why Cross-Cultural Mergers Are So Tough

If you're ever tempted to undertake a cross-cultural merger or acquisition, think real hard about it. Very hard.

Lucent's merger with France's Alcatel is a case in point. Although much ballyhooed when Lucent CEO Pat Russo and Alcatel CEO Serge Tchuruk reached the deal 18 months ago, cultural factors are compounding the very tough business challenges that the combined entity faces.

One is that there is confusion about who's in charge. Russo became CEO of the combined entity and Tchuruk became chairman. In American cultural terms, that means Russo runs the company. After all, she's the CEO. But in a European context, and particularly a French setting, the chairman is the boss. Confusion at the top is deadly.

The other cultural dilemma has been that the Americans and French have very different ideas about what to do when a company is in crisis. The American inclination is to right-size the business, a euphemism for cutting jobs and lowering costs. The French instinct is to defend the jobs by looking for assistance from a friendly government or government-owned bank. So the company has been slow to shed jobs, partly because the two nationalities are trying to defend the jobs of their compatriots. "The problem is cultural," Johann Gunther, a former board member of Alcatel Austria told the New York Times today. (www.nytimes.com/2007/11/01/business/worldbusiness).

This is one of the best insights into what's gone wrong at Alcatel-Lucent. "The French and the Americans have hugely different ways of doing business," Gunther added. "Within Alcatel-Lucent, there is resistance to making the tough decisions to rationalize the business because each side is protecting its own turf."

The lesson is that cross-cultural mergers may work for a period of time and they may work reasonably well when the everyone's business is growing. But in the inevitable tough times, cultural strains become magnified and the business becomes unmanageable. Another case in point: DaimlerChrysler. If an investment banker comes knocking on your door with a cross-border merger, just say "no."