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WHO'S SITTING ACROSS THE TABLE? Differences in age, race, and gender deepen divisions that plague mergers and joint ventures, new study finds

October 1, 2005

For more information, contact: Benjamin Haimowitz, HHaimowitz@aol.com

As part of a merger, a mature media company and young Internet company establish a joint management team. As the team members face each other across the table, striking demographic contrasts are evident: those from the mature media company are in their early 40s, are mixed in terms of race and gender, and were mostly educated in the humanities at elite private universities; those from the young Internet company are all in their late 20s or early 30s, are largely white males, and were educated in business and technical subjects at state universities.

How much do such differences matter? Plenty, according to a new study.

Multiply this hypothetical, but entirely plausible, example by the number of joint committees engendered by a corporate merger, and it is hardly surprising that so many mergers go awry, suggests the report in the current issue of the Academy of Management Journal. As the authors put it, "Interorganizational collaborations or combinations...are played out in conference rooms, hallway conversations, e-mail exchanges, and phone calls -- with small groups of people from the two sides trying to hammer out joint products. If enough of these small groups experience stereotyping, emotional conflict, and behavioral disintegration, then the overall collaborative enterprise is jeopardized."

And experience them they will, the study finds, "to the extent the two factions differ in their accompanying demographic characteristics -- say their ages, genders, and ethnicity."

Did demography prove to be destiny in such ill-fated mergers as AOL-Time Warner or Daimler-Chrysler? "Given our current state of knowledge, there is no way of telling how much demography mattered compared to financial and strategic factors," says Donald Hambrick of Pennsylvania State University, who co-authored the study with Jiatao Li of Hong Kong University of Science and Technology.

"Our research certainly suggests, though, that demography had a significant effect in those mergers and suggests, too, the nature of the challenge it will pose as business becomes more and more global."

"Although mergers are often associated with thinking big," Hambrick continues, "our findings highlight the virtue of thinking small -- of paying less attention than is usual nowadays to amorphous differences in company cultures and more attention to the demographic makeup of the small groups that are the nuts and bolts of a collaboration."

Hambrick adds: "If you look across the table and see people who are not only different from you but very similar to each other, you'll tend to see them as a collective adversary, a situation ripe for stereotyping and group conflict."

The new research represents the latest turn in the study of demographic diversity in organizations, a subject that has assumed immense importance during the past several decades, as business has become increasingly international and as large numbers of women and ethnic minorities have entered sectors of the workforce that formerly were the preserve of white males.

Recently, diversity research has gone beyond exploring how differences in one or another demographic factor, such as race, gender, age, or nationality, affects group functioning to the study of what management scholars call "faultlines."

Faultline research focuses not simply on overall demographic differences within teams but on the way those differences align, so that teams that are equally diverse can have radically different faultlines. For example, a team consisting of two 50-year-old female accountants and two 30-year-old male sales managers would have a very strong demographic faultline. But, if one of the accountants was a 30-year-old male, and one of the sales managers was a 50-year-old female, there would be no such faultline even though overall diversity would be the same as in the first team.

In the new Academy of Management Journal study, Li and Hambrick apply insights of faultline research to an analysis of factional teams -- that is, teams that have a built-in faultline by virtue of the fact that their members come from different companies or separate departments of a company.

Says Hambrick, "More than ever, success in the business world requires collaboration between companies and also between divisions of companies, the very units commonly disparaged nowadays as 'silos.' With all this collaborating across boundaries, more and more teams are made up of distinct factions that bring their organizational and divisional loyalties to the table. We undertook this study to see if demographic differences widen and deepen the faultlines of such factional groups."

To find out, Li and Hambrick analyzed the performance of 71 teams charged with managing joint corporate ventures between Chinese companies and firms from other nations. All the joint ventures were in China, and the bi-national management teams, averaging about eight members, were each drawn partly from the Chinese company involved and partly from its non-Chinese corporate partner. At the start of the study, in 2000, the teams had been functioning an average of somewhat over four years.

The research consisted of two phases. In phase one, in the year 2000, all management-team members were asked to fill out questionnaires about personal demographics and group processes. The questions probed the extent of trust and emotional conflict among team members; the amount of disagreement within groups about joint-venture operations and strategy; and the degree of coordination and communication within the teams.

A second questionnaire, sent to the two top managers of each joint venture, asked their overall assessment of the operation and of its current performance compared to that of its competitors in China. "Managerial ratings of business performance," the study notes, "are very highly correlated with relevant objective measures."

In phase two, which occurred in 2003, about two and a half years after the initial questionnaires, the two top managers of each joint venture were again asked to assess its current performance.

Li and Hambrick analyzed the effect of four demographic factors -- age, gender, tenure, and ethnicity (Chinese vs. non-Chinese) -- on team processes and joint-venture performance. They excluded such demographic factors as 1) job backgrounds, because "all the groups had a full complement of functional backgrounds"; 2) amount of education, because "Western managers had little awareness or appreciation for the amount of education of Chinese managers, and vice versa"; and 3) nationality, because for all teams it played out the same way -- local managers from the People's Republic of China vs. expatriates.

To gauge the size of faultlines, the researchers calculated averages in each faction for age, gender, ethnicity, and tenure and, in addition, calculated how tightly the measures for individual members of the faction clustered around the averages. They found that the greater the demographic faultlines between team factions, the more emotional conflict teams experienced and the weaker was coordination and communication among team members. Those effects led in turn to poorer performance of joint ventures, as assessed by team leaders.

They also discovered that the four demographic factors under consideration -- age, gender, tenure, and ethnicity -- produced these effects not only in combination but individually. In other words, "the results based upon the aggregate measure were not driven by just one or two demographic variables."

Further, the negative effects of demographic gaps on team functioning did not abate with time. As the authors put it, "The effects of factional faultlines on group processes did not diminish in proportion to the group's time together."

In sum, "we envision that classic social categorization and dissimilarity aversion were at work in the groups we studied. Members almost certainly attached some salience to their delegate status; they were aware of having fellow delegates from the same sponsor; and they saw that there were delegates 'on the other side' representing a different sponsor. All these conditions combined to create an a priori faultline, a distinct ingroup/outgroup situation. When there were large demographic differences between the two factions, we can envision that stereotyping, distrust, and discord all mounted -- resulting in high levels of emotional conflict, task conflict, and behavioral disintegration."

How, finally, can companies mitigate factional faultlines? Hambrick offers three suggestions:

"First, try to minimize demographic gaps. Second, provide training on cross-cultural relationships; training isn't uniformly effective, but in many instances it can help. Third, at least be mindful of demography's effects and incorporate that awareness into team leadership. Even where there are big faultlines, a good team leader can do a lot to bring out the best in people."

The study, entitled "Factional Groups: A New Vantage on Demographic Faultlines, Conflict, and Disintegration in Work Teams," is in the October/November issue of the Academy of Management Journal. This peer-reviewed publication now in its 48th year, is published every other month by the academy, which, with about 16,000 members in 90 countries, is the largest organization in the world devoted to management research and teaching. The academy's other publications are the Academy of Management Review, the Academy of Management Executive, and Academy of Management Learning and Education.

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