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The Cultural Matchmaker Index (CMI) – A new index for intercultural business?

01 Aug

Imagine that you and your management team take an acquisition (or merger or other international alliance) into consideration. When analyzing the target enterprise, you might not only look at their KPIs, strategy and value it will add to your own enterprise. You also might want to have a closer look on other facts – let’s say cultural characteristics. In the past, plenty of managers have underestimated the cultural aspect which even lead to a fail of the whole merger in some cases.

Of course, you are aware of the significance, cultural differences have when it comes to international mergers. That is why you might want to find out if there is a match between two cultures a and b and how well the correlation is…But how?

Since the dutch anthropoligist Geert Hofstede already spent a huge effort on developing measurable cultural dimensions, we are now able to compare culture from different countries with each other. Hofstede developed five different cultural dimensions:

  • Power Distance Index (PDI)
  • Individualism vs. Collectivism (IDV)
  • Masculinity Index (MAS)
  • Uncertainty Avoidance Index (UAI)
  • Long Term Orientation Index (LTO)

 

The Formula

The index range goes from 0 (less pronounced) to 120 (strong pronounced) for each of these cultural dimensions and the values are available for most countries in the world* on Hofstede’s research page on the internet. Now that we have the values, we can put them together in a useful formula to calculate our Cultural Matchmaker Index (CMI):

Formula for calculation of the CM-Index

Interpretation

Ultimately, we need an interpretation for the results. Since each of the cultural dimensions is equally important, we do not need to weight them individually. So we get an index that reflects the intensity of difference between two given cultures. Thus, the index should not be too high – in fact, oneself has to determine how much significance he or she is willing to assign to the factor of cultural differences. A merger with a CM-Index of 10 will surely work out much better than a merger with a CM-Index of 15 – at least from a cultural standpoint. The indicator also reflects the amount of effort, management will have to spend on cultural aspects. Of course, you can push through a merger with a CM-Index of 20. But in the end, you and your management team will have to spend much more effort on everything culture-related within your post-merger integration program.

The CMI range starts from 0 (perfect match) and ends at 60 (very hard to match). Here are some exemplatory values for international relationships:

  • Argentina & Brazil: 11.25
  • United States & Japan: 37.8
  • Germany & Switzerland: 3.25
  • Norway & Sweden: 7.8
  • Turkey & Brazil: 4.25
  • United States & Germany: 10.8
  • Germany & Japan: 29
  • Denmark & Slovakia: 57.5

 

Obviously, cultures which are close to each other from a geographical angle are also very easy to match. But this is not always true (see Turkey and Brazil). Big challenges however, for the management team can be expected at alliances between high CMI combinations (eg. Denmark and Slovakia or Sweden and Brazil).

 

*LTO – the cultural dimension for longterm/shortterm orientation has been added as a last resort by Hofstede. That is why there is not a value for each and every country for this particular dimension. However, you can still measure the CM-Index with four dimensions by setting the denominator of each term to 4 (or the actual number of dimensions you want to take into consideration). If you change the denominator, do not forget about the impacts on the result of the final index. This is one of the reasons why there is no general approach for interpretation.