One Out of Many? Boundary Negotiation and - Yale University

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One Out of Many? Boundary Negotiation and IdentityFormation in Postmerger IntegrationIsrael Drori, Amy Wrzesniewski, Shmuel Ellis

To cite this article:Israel Drori, Amy Wrzesniewski, Shmuel Ellis (2013) One Out of Many? Boundary Negotiation and Identity Formation inPostmerger Integration. Organization Science 24(6):1717-1741. http://dx.doi.org/10.1287/orsc.1120.0814

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OrganizationScienceVol. 24, No. 6, November–December 2013, pp. 1717–1741ISSN 1047-7039 (print) � ISSN 1526-5455 (online) http://dx.doi.org/10.1287/orsc.1120.0814

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One Out of Many? Boundary Negotiation andIdentity Formation in Postmerger Integration

Israel DroriSchool of Business, College of Management Academic Studies, 75190 Rishon LeZion, Israel, [email protected]

Amy WrzesniewskiYale School of Management, Yale University, New Haven, Connecticut 06520, [email protected]

Shmuel EllisRecanati Graduate School of Business Administration, Tel Aviv University, 69978 Tel Aviv, Israel, [email protected]

This research investigates how boundaries are utilized during the postmerger integration process to influence the post-merger identity of the firm. We suggest that the boundaries that define the structures, practices, and values of firms

prior to a merger become reinforced, contested, or revised in the integration process, thus shaping the firm identity thatemerges. In a field study of a series of four sequential mergers, we find that the boundary negotiation process acts as anengine for identity creation in postmerger integration. Our analysis of the process through which postmerger identity iscreated reveals two stages of identity creation. In the first stage, boundaries are negotiated to leverage and import certainpractices and values of the premerger firms; in the second stage, these boundaries are blurred as managers build on the setof imported practices and values to impose further systems that define the postintegration firm. Our research contributesto the identity literature by drawing attention to the important role of boundaries and practices that define the identitiesof the merging firms. We show how these boundaries get repurposed to create an organization whose identity ultimatelyrepresents a departure from the premerger firms while it preserves the aspects of identity that allow members to uphold keyvalues. We also contribute to the literature on postmerger integration by demonstrating the steps through which identityevolves by the staged demarcation and negotiation of boundaries, thus complementing previous treatments of merging firmsas a set of fixed organizational attributes in merger contexts.

Key words : identity; boundaries; integration; mergers and acquisitionsHistory : Published online in Articles in Advance February 28, 2013.

IntroductionThere are few events in organizational life more dra-matic than mergers and acquisitions (M&As) in theirimpact on a wide range of individual, group, and orga-nizational processes. At their core, M&As represent thejoining of groups, practices, and identities to create anintegrated firm. Research assessing the impact of the dif-ferences between merging firms has shed helpful lighton the central role of culture in the success or failureof M&As and tends to focus on the clash of identitiesthat accompanies mergers, treating firms as more or lessstable entities (e.g., Buono et al. 1985, Cartwright andCooper 1996, Stahl and Voigt 2008).

A critical aspect of the M&A process is the effectiveintegration of merging firms into a viable firm. This pro-cess occurs against the backdrop of pressures from mem-bers to resist or acquiesce to integration. Social identitytheorists note that members of premerger firms attemptto maintain a positive social identity that fits their sub-jective belief structures (Hogg and Terry 2000). Thiswork suggests that members who believe that their firmis the lower-status player in a merger and that this posi-tion is legitimate are more likely to support the merger

and identify with the merged firm. In contrast, memberswho believe that their firm is the higher-status playercould fear their position is in jeopardy and respondless favorably to the merger. In either case, membersof merging firms must negotiate changes in their under-standing of the identity of their legacy firms, or theshared and collective sense of “who we are” as an orga-nization, and the new entity of which they are a part.The integration process thus provides a mix of iden-tity threats and opportunities for members of premergerfirms (e.g., Ashforth and Mael 1989, Corley and Gioia2004, Hornsey 2008).

At the same time, scholars have noted the contex-tual forces that shape how identities evolve in post-merger integration through accommodation, negotiation,and contestation between members of the premergerfirms. This perspective treats merged firms as the his-torical context for the emergence of postmerger identity.More than perspectives based on the dominance and sta-tus of merging firms, this approach is sensitive to contextand temporality and assumes that the processes that giverise to the new identity of the merged firm are a functionof the contextual forces in play as the merger unfolds

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(e.g., Clark et al. 2010, Langley et al. 2012, Riad 2005,Ullrich et al. 2005, Vaara et al. 2012, Vaara and Tienari2011, van Knippenberg et al. 2002).

A social identity perspective on mergers offers a help-ful window into the individual dynamics that give riseto the acceptance of or resistance to the merger pro-cess, whereas a contextual perspective attends to theimpact of the factors that shape the merger over a seriesof stages. The current study attempts to bridge theseperspectives by theoretically and empirically integrat-ing them to examine how the boundaries that define thefeatures of integration evolve in postmerger integration.We define boundaries, following Hernes (2004), as thephysical, social, and cognitive distinctions made betweenand within firms to define their identities. These bound-aries can be reconstructed by members to reshape firmidentity (Ashforth et al. 2000). Our definition refers toa variety of organizational features and processes suchas practices, values, structures, events, and actions thatevolve during postmerger integration and shape the newidentity. We assume that any merger process is shapedby the motives and actions of the parties to the merger,as well as by the contextual forces that gave rise to themerger in the first place.

Realigning or adapting firm identity in postmergerintegration is crucial for merger success. Scholarssuggest that identity integration across firm bound-aries follows intentional integration strategies (Larssonand Finkelstein 1999; Haspeslagh and Jemison 1991;Nahavandi and Malekzadeh 1988, 1993) and is harmedby clashes between firm cultures (e.g., Buono andBowditch 1989). Thus, effective postmerger integrationimplies consensus on the postmerger firm identity, yetthis identity can be highly contested during integration.Considering both perspectives provides an opportunity toanalyze postmerger integration processes while focusingon how boundaries are negotiated in the emergence ofa new postmerger identity. Our focus allows us to iden-tify two key stages in postmerger integration. In the firststage, we observe the use of legacy firm boundaries ininforming the new boundaries that define firm practicesand values following the merger. In the second stage, thestreamlined practices, values, and structures that resultfrom the bottom-up negotiation of boundaries becomethe building blocks that managers work with as they con-tinue to forge the identity of the new firm, informing thevision and strategy that define the future of the firm.

Building on the idea that during postmerger integra-tion the creation of a unified identity facilitates sharedvalues and meaning, thus boosting identification with thenew firm, this paper explores the existence and dynamicsof boundaries as one mechanism through which the iden-tity of the merged firm emerges. Prior research on socialidentity processes in mergers suggests that both higher-and lower-status parties may resist or embrace the merg-ing of their firms (e.g., Hogg and Terry 2001), indicat-ing that the identity dynamics are more complex than

prior theory suggests. This, combined with the commonpractice of retaining various identity elements of legacyfirms following mergers, suggests a complicated processthrough which the emerging identity of the new firmis negotiated. Our paper shifts the focus from whethermembers embrace or resist a unified identity and insteaduses a process approach to investigate how and whyaspects of premerger identities maintain their hold withinmerged firms. Specifically, we employ a field study ofserial acquisitions in which the boundaries of severalfirms play a crucial role in shaping the new firm identityto investigate how the negotiation of boundaries enablesmembers to apply and modify premerger firm identitiesto create a new identity (Zaheer et al. 2003). The study isbased on over two years of field research at Miracle,1 aleading Israeli information technology (IT) firm createdout of sequential acquisitions.

Boundaries and Identity in M&AsScholars have advanced various perspectives on the waysfirms employ and manage their boundaries, providingdifferent understandings of how boundaries affect orga-nizational change (Heracleous 2004, Marchington et al.2004). Contingency theory, for example, views bound-aries as buffers that guard the firm’s technical core fromexternal environmental forces (Thompson 1967/2003).In his analysis of organizations as open systems, Scott(1995) contends that boundary-spanning mechanisms(mergers, monopolies, and outsourcing) allow organiza-tions to change and regulate internal and external bound-aries. Scott (2004, p. 10) also outlines other boundary-shaping factors, including “actors (distinctive roles,membership criteria, identity), relations (interaction fre-quency, communication patterns, networks), activities(tasks, routines, talk), and normative and legal crite-ria (ownership, contracts, legitimate authority).” Othersstress the dynamic processes that inform the nature ofintra- and interorganizational boundaries (Aldrich andRuef 2006).

Past research treats boundaries as social formations,negotiated to allow firm members to construct var-ious features such as domains, activities (Thompson1967/2003), and symbols (Lamont and Molnar 2002),which together “protect a system from environmen-tal disruptions, and (reflect) frontiers where the systemacquires resources critical for its survival” (Yan andLouis 1999, p. 25). Hernes (2004) examines boundariesfrom several dimensions and offered a framework forunderstanding boundaries based on their mental, social,and physical dimensions, which have three characteris-tics: ordering (how boundaries regulate internal inter-action), distinction (between “us” and “others”), andthreshold (the initial social and symbolic characteris-tics of individuals or groups). Kellogg et al. (2006)demonstrate how different communities in organizations

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perform boundary-spanning coordination practices thattranscend confrontation in favor of adaptation.

Although past research has emphasized the functionalaspect of boundaries in establishing “coherence betweenthe identity of the organization and its activities” (Santosand Eisenhardt 2005, p. 500), in ambiguous situationssuch as postmerger integration, the enactment of bound-aries may serve to threaten this coherence. Researchon symbolic boundaries as enactment processes hasemphasized divisions between “us” and “them” (Lamont2000, Vallas 2001). Accordingly, boundaries in M&Asmay limit the very essence of integration, which aimsto create inclusive boundaries (Haspeslagh and Jemison1991). The enactment of boundaries during postmergerintegration may well force managers to confront situa-tions in which members cling to the familiarity of pre-merger identities and cultures.

We define an organization’s identity as members’understanding of the shared values and norms that arecentral and distinctive to the organization (Albert andWhetten 1985, Dutton and Dukerich 1991). Values,in this context, refer to the beliefs of members aboutwhat is important to the organization (Schein 1985),constituting an internal guide for behavior and a set ofprescriptions for the organization. Organizational bound-aries are thus relevant to both organizational identityand values because they demarcate the physical, social,and cognitive features of organizations that are inputsto the essence of an organization’s identity. Boundariesembody identity and shape the way managers under-stand their organizations to be distinct and unique inrelation to others (O’Byrne 2008, Santos and Eisenhardt2005). Such an assertion implies both positive and neg-ative effects. The positive implication is that a coherentidentity, associated with shared beliefs, norms, and val-ues, can enhance strategic consistency and consequentlyincrease performance (Ashforth and Mael 1989). Thenegative implication is that this coherence and consis-tency can feed managerial inertia (Sørensen 2002, Walsh1995). In particular, during integration, conflicts maycontribute to the creation of an identity that is markedby divisions between “us” and “them” (Vaara et al.2012) or the loss of identity of one party to the merger(van Knippenberg and van Leeuwen 2001).

A Social Identity Lens on IntegrationThe potential clash of firms working to protect theiridentities, and by extension, their boundaries, poses amajor challenge that could harm the integration process.In this vein, Hogg and Terry (2001) contend that socialidentity theory predicts that successful mergers dependon members’ beliefs about the nature of the relationshipbetween the merging firms. These beliefs mainly con-cern the stability and legitimacy of intergroup relations.For example, Hogg and Terry (2000, p. 134) hypothesize

that “lower-status merger partners will respond favor-ably to a merger, if they believe their status is legitimateand that the boundary between the premerger partnersis permeable, and unfavorably, if they believe their sta-tus is illegitimate and boundaries are impermeable.” Incontrast, they assert that members of higher-status firmsrespond negatively to permeable boundaries, which posea threat to their premerger status as the dominant player.Merging firms are highly sensitive to their ability to gainstatus and footing, and they will protect their identitieswhen threatened with a loss of status.

Viewed through a social identity lens, the incorpora-tion of premerger identity attributes into the new firm ishelpful for facilitating the categorization of “ingroups”and “outgroups” (Tajfel 1981). Focusing on boundariesenables us to examine how members reconfigure multi-ple boundaries for the purpose of negotiating and incor-porating legacy identity attributes, processes that maytranscend competition and encompass conflict, ambigu-ity, or shock stemming from the merger (Buono andBowditch 1989, Cartwright and Cooper 1996; see Gioiaet al. 2000, 2010). Furthermore, successfully incorporat-ing premerger identities that embody members’ sense ofmeaning supports a sense of continuity (Bartels et al.2006, van Leeuwen et al. 2003). Members who identifywith their premerger firm may accept integration if theyperceive premerger identity continuity in the new firm.

A Contextual Lens on IntegrationRecent studies (Clark et al. 2010; Langley et al. 2012;Maguire and Phillips 2008; Puranam et al. 2006; Ranft2006; Ranft and Lord 2002; Riad 2005, 2007; Ullrichet al. 2005; Vaara 2001, 2003; Vaara and Tienari 2011)reveal a great deal about the context in which identityis created and institutionalized in mergers. For exam-ple, in their study of top management teams in health-care firms pursuing mergers, Clark et al. (2010) contendthat forming an integrated firm involves the creation oftransitional identity, which allows for multiple interpre-tations of the nature of the merged firm. Vaara and Tien-ari (2011) use the merger of financial services firms tohighlight the intentional storytelling by different actorsin the merger, each constructing their own firm iden-tity through dialogical narrative that provided contextfor both legitimacy and resistance to the merger. Vaara(2003), using a sensemaking perspective to study themerger of furniture firms, notes four factors that stemfrom the process of decision making to shape identity:ambiguity concerning the roles of the different units,cultural confusion and misunderstandings that plaguepostmerger integration, hypocrisy in decision making,and politicization of integration issues. He attributes thepropensity for integration issues to get “lost” in mergerprocesses to hypocrisy and political conflicts over var-ious integration issues. Viewing postmerger integration

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failures through a sociopolitical lens, Vaara (2001) fur-ther claims that the identities of different actors insti-gate political tensions and conflicts. In the same vein,the examination by Ullrich et al. (2005) of an industrialmerger highlights the costs of failing to achieve a senseof continuity during integration, thus creating tensionand eroding a clear firm identity.

Beyond the dynamics of creation and continuity,researchers subscribing to a contextual lens on identitynote that identity content itself is crucial to merger out-comes. For example, the creation of an ambiguous iden-tity fed a decline in trust among employees in Maguireand Phillips’ (2008) study of the merger of two finan-cial services firms. Focusing on mergers in the health-care sector, Langley et al. (2012) identify patterns ofidentity work managers used to achieve convergenceacross groups of employees to neutralize identity dif-ferences that could derail the integration. Riad (2005,2007) notes that processes of negotiation and contesta-tion allow members of merged firms to weight differenttruths about the merger and its implications. The varietyof practices used during integration provides memberswith a diverse repertoire from which to create a broadcommon denominator to form a new identity. How-ever, such “strategies of action” (Swidler 1986, p. 273)may not create an identity that supports integration. Forexample, mergers pursued to obtain firm practices andexplicit and tacit knowledge (Ranft 2006) may requirea high degree of integration (Puranam et al. 2006). Butsuch integration may result in the loss of valued knowl-edge and capabilities through employee turnover anddisruption of firm routines (Ranft and Lord 2002). Toovercome identity threats, premerger firms may needto reinforce characteristics that support integration andabandon those that do not.

Bridging Lenses on IdentityWhereas a social identity lens on postmerger integrationfocuses on members’ motivations to resist or embracethe merger, a contextual lens focuses on the actions,practices, and strategies that shape firm identity. Bridg-ing both lenses allows us to explore how strategies ofaction that respond to members’ desires to retain aspectsof their legacy firm identities while building on theselegacies to create a viable postmerger identity unfoldin a merger. Our perspective is consistent with that ofGioia et al. (2000), who challenge the notion that orga-nizational identity is stable and enduring. They suggestthat though it may appear stable, in reality the meaningof identity is constantly changing. Vaara (2003) advo-cates for embracing the pluralism and ambiguity embed-ded in the postmerger integration process. Even duringearly stages of integration, identity is not a monolithicconstruct that defines the firm and its members, legit-imizing its existence and making it distinct from other

firms (Albert and Whetten 1985). On the contrary, iden-tity reflects preferences of the premerger firms and theircore values. We claim that the new identity created dur-ing the integration process is both contested and negoti-ated. The formative period of postmerger integration isan unsettled period (Swidler 1986), a theatre for iden-tity claims that are manifested in firm values, practices,and strategy. Thus, organizational identity in M&As isclosely associated with the work of merged firms to con-struct coherent meanings and a connection to the new,integrated entity (Elsbach 1999).

To understand identity creation at Miracle, we draw ona cultural theory of action (Swidler 1986, 2001) and takean “action” approach to the conceptualization of identitycreation. We consider social actors to be knowledgeableagents who pursue a strategy of forming a new identitywithin a changing and dynamic context. In the processof identity formation, members strive to protect the firmidentity by referring to their premerger identities (Droriet al. 2011). But this identity is likely to be altered andmade more complex by politics and internal power strug-gles during the integration process (Vaara 2001). Thus,following Swidler’s (2001, p. 23) claim that “[t]here arenot simply different cultures: there are different ways ofmobilizing and using culture, different ways of linkingculture to action,” we contend that identity work has dif-ferent meanings and consequences for different actorsand firm contexts. Identity creation involves the selec-tion and application of strategies that reflect actors’ useof a cultural-symbolic repertoire to demarcate premergeridentities according to their perceptions of the objectivesof the merged firm (Drori et al. 2011).

Analyzing boundaries can help highlight how mem-bers of premerger firms restructure these boundaries toimpose, resist, endorse, and alter aspects of identityand manipulate their content and values through reshap-ing their self-categorization. For example, using bureau-cratic practices that reflect one premerger firm whilealso encouraging improvisation can allow operationalflexibility in the merged firm, but it can also damageattempts to create shared beliefs, resulting in a contestedidentity. Research suggests that forced abandonment ofa target group’s premerger identity may lead to feel-ings of threat, resistance, hostility, or apathy toward theacquirer (van Leeuwen et al. 2003). Conversely, scholarshave described mechanisms that can smooth outcomes,including preserving premerger identities (Larsson andLubatkin 2001) while seeking fit between (Cartwrightand Cooper 1996, Larsson and Finkelstein 1999) anddrawing attention to the compatibility of the mergedfirms (Larsson and Finkelstein 1999; Nahavandi andMalekzadeh 1988, 1993).

In the case of sequential mergers, inertial tendenciesof identity and motives to protect the identities of themerged firms may result in a demarcation between thefirms as they work to preserve their own values and

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practices, resulting in competition among firm identi-ties during integration (Gioia et al. 2010, Ullrich et al.2005, Vaara et al. 2012). However, researchers have sug-gested that even disparate premerger identities may workwell together during the integration process, with mem-bers ultimately accepting the dominant paradigms of themerged firm (Larsson and Finkelstein 1999, Morosiniet al. 1998). In the initial postmerger period, a transi-tional identity is instrumental in implementing furtherintegration because it is flexible enough to allow for mul-tiple interpretations, enabling members to cling to legacyidentities and the new firm identity (Clark et al. 2010).

To date, research has not examined how the definitionof boundaries by premerger firms during the integrationperiod influences the new firm’s identity. Mergers andacquisitions reflect a unique situation in which membersof different firms strive to give meaning to a new orga-nizational reality. We address the process of forming apostmerger identity by analyzing the manifestation, con-tent, and use of boundaries as they are contested andaccepted by members, managers, and the firm itself. Thisanalysis yields a two-stage model of identity creation.In the first stage, boundaries are negotiated to leveragecertain practices and values of premerger firms; in thesecond stage, these boundaries are blurred as managersbuild on imported practices and values to impose fur-ther systems that define postintegration firm identity. Weexamine how members use boundaries to maintain andconstruct identities during the first stage of integration,and we show how managers use these boundaries to cre-ate new ones that define the future of the firm. To doso, we conducted an in-depth field study of Miracle,an IT firm created from a sequence of four domesticacquisitions.

The Research SettingOur study is based on ethnographic field research(Meglio and Risberg 2010) conducted at Miracle, aprominent NASDAQ-listed, Israel-based global infor-mation technology firm specializing in outsourced sys-tems integration and application development, software

Table 1 Basic Characteristics of the Acquired Firms

No. ofYear of Year of Areas of IT employees

founding acquisition Origin of firm specialization Market at acquisition

Mars 1972 1999 Spin-off of business group ERP, real-time systems, Mainly public sector 320outsourcing

Jupiter 1969 1999 Spin-off of business group Software development, Mainly defense 700SAP and ERP projects

Venus 1992 1998 Merger of five IT firms Integration and outsourcing Private and public sectors 420services

Pluto 1993 1998 International group that had Implementation of large Mainly institutional 330merged six IT firms IT projects

Note. SAP, Systems, Applications, and Products in data processing.

and consulting, quality assurance, and training. With7,500 employees, Miracle operates in 16 countries acrossNorth America, Europe, and Asia Pacific, and it main-tains over 100 global alliances and partnerships. Mir-acle’s market consists of several industries, notablygovernment and defense, financial services, life sci-ences and healthcare, telecommunications, utilities, andindependent software vendors.

Miracle came into being in several stages. In1998–1999, a group of U.S. institutional investors, ledby an American businessperson with family and businessties to Israel, acquired four Israeli IT software firms: firstVenus, then, consecutively, Pluto, Mars, and Jupiter (seeTable 1). At first, the acquired firms continued to operateindependently. In mid-1999, when Jupiter was acquired,the owner decided to merge all four firms. The mergerwas announced in 2000.

The integration was planned by a task force consistingof the top management teams of the acquired firms andan external consulting firm. Our analysis of postmergerdocuments and interviews with task-force members indi-cated that management planned to allow the acquiredfirms to remain autonomous until all of the acquisitionswere made, at which time they would be fully merged.“We decided that we won’t waste our resources andeffort on integration in stages,” the head of the task forceexplained in 2004. “We have a work plan, and withthe acquisition of [Mars] and [Jupiter] [the final acqui-sitions], we realized that we have enough firepower tobecome a meaningful actor. So we merged them all, withan idea that the whole is stronger than the parts.” Thetask force recommended appointing Jupiter’s chief exec-utive officer (CEO) as CEO of Miracle, because he wasthe most experienced manager of the largest acquiredfirm. However, the board of directors chose an externalcandidate experienced with initial public offerings; theboard viewed the appointment as a signal to the mar-ket that Miracle was serious in its aim to become aglobal firm (interview with board member). The CEOsof Jupiter and Mars left, as did scores of senior managersat each of the acquired firms.

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The process of postmerger integration took the follow-ing form. First, the task force decided on a new structureconsisting of a headquarters and four divisions organizedby IT specialty: a Managed Services division that pro-vided outsourcing and consulting services for intranetand Internet systems, including information security, ahelp desk, messaging, systems integration, training, andconsulting; an Information Technology division that spe-cialized in customer relationship management and enter-prise resource planning (ERP) applications; a Telecomdivision that provided turnkey services for telecommuni-cation systems, geographic information systems, and airtraffic control systems as well as control and monitor-ing systems for call centers and transportation fleets; andan International division that was responsible for sup-porting and developing international activities. Adoptionof a divisional structure was followed by a consolida-tion of the support functions (such as finance, humanresources (HR), procurement, and IT) at headquartersand alignment of the information systems of each firm.Next, standard operating procedures were adopted bythe divisions. For example, each sale or project involvedboth a salesperson and a support specialist. Accordingto a member of the task force, the guiding principlewas that “each functional unit or business activity whichjoined a certain business group had to struggle with thenew rules, practices, and routines imposed by the [head-quarters] group.” Integration also involved changing thefirms’ names, aligning employee stock options, creatinga single bank account, implementing common qualitycontrol standards (e.g., ISO), and producing new mar-keting materials.

For six months, until Miracle moved to a new loca-tion that could accommodate the entire firm, the shiftto a divisional structure was achieved through an ERPsystem. Thus the new structure was mostly virtual, andthe firms continued their activities separately. The offi-cial end of the postmerger integration period was theso-called “Clinton Event” in April 2001, when formerU.S. president Bill Clinton gave a speech to employ-ees to mark the occasion of Miracle becoming a fullymerged firm. Afterward, Miracle continued integratingits logistical, financial, and business activities by con-ducting employee workshops to further articulate Mira-cle’s values and mission.

Data and MethodsData were collected through participant observation,interviews, and analysis of archival documents. Mostfieldwork was conducted between November 2003 andJuly 2004, but some data collection continued until2006. At the time of our fieldwork, the premerger iden-tities were still in evidence, and participant accountsassociated with these identities were vivid. The orga-nizational memories of the acquired firms were cap-tured via members’ retrospective accounts of the ways

things were done during the premerger period. We wereacutely aware that retrospective accounts of this periodmight take the form of selective reminiscence about anideal (“the good old days”) or less-than-ideal past. Suchaccounts reflect the recall bias (Baron et al. 1996) inher-ent in conveying past events and may superimpose thepresent on the past. Although we cannot guarantee anabsence of retrospective bias in our data, others haveestablished the validity of using retrospective data tostudy organizational identity, both generally and specif-ically in M&As (Weber et al. 1996; see also Baronand Hannan 2005, Hannan et al. 2006). Thus, we areaware that such accounts may be influenced by an infor-mant’s current position and perceived organizational sta-tus, which is rooted in past affiliation and subsequentexperiences. During data collection, however, we notedstriking consistencies between informants’ descriptionsof the cultural values and practices of their respectivepremerger firms. Our examination of Miracle’s post-merger integration and interpretation of the dimensionsand functioning of boundaries in the integration processdraw on careful data categorization and analysis.

Data Collection

Participant Observation. We gathered participantobservation data by taking part in Miracle’s ordinaryactivities and routines as well as in professional andsocial events (Meglio and Risberg 2010). This strat-egy enabled us to learn about Miracle from the inside.We pursued an emic research strategy (Headland et al.1990) focusing on how Miracle’s employees defined,interpreted, and enacted their boundaries (Lamont andMolnar 2002). Participant observation was conductedmainly by a member of the research team, a graduatestudent who at the time was an HR manager of the Mir-acle business unit responsible for training. The managerjoined Miracle following the merger. Having an organi-zational insider on our research team (Adler and Adler1987) allowed us access to knowledgeable actors andsensitive documents, and it enhanced our understandingof Miracle by providing us with nuanced descriptions ofevents at Miracle.

Generating data through ethnographic methodsimplies a process of stringent self-criticism and constantreexamination of the interrelationships with and betweeninformants, especially because informants would want toknow in which capacity—researcher or insider—a ques-tion was being asked. We utilized a method by whichthe second researcher took a more detached and criti-cal view of the data, looking for biases stemming fromthe first researcher’s dual roles and deep involvementwith Miracle (e.g., Gioia and Chittipeddi 1991). How-ever, these extra efforts allowed us to conduct long-term,in-depth fieldwork that yielded a wealth of data, andthrough the researcher’s full immersion in the firm, we

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gained intimate knowledge of Miracle’s postintegrationprocesses.

Recognizing the potential bias in data collectionresulting from our arrangement, we solicited our inter-viewees’ opinions about an employee participating in astudy of the firm. Of our 41 key informants, 37 per-ceived no problem, whereas the other 4 stated that theircolleague’s participation was an advantage because aninternal person on the research team could act as a kindof steward of the firm’s interests. The dominant senti-ment was summarized by a manager: “First, we havenothing to hide; second, we trust her; third, we feel thatit is important also to us to understand ourselves.” Ourkey informants’ answers to our questions “Do you thinkthat [name]’s research is appropriate?” and “What areyour feelings about it?” may have reflected social desir-ability pressures. But given the frankness we encoun-tered during our field research and interviews, we feelrelatively confident that participants did not experiencepressure to endorse the participant observation strategy.

We were well aware of the potential biases that couldstem from an employee’s participation in a study of herown firm. To reduce the risk of such biases, a secondmember of the research team met with the participant-observer weekly to discuss the process of the fieldwork.Time was regularly devoted to discussing methodologi-cal dilemmas associated with drafting a memo on eachinterview or event. We established a procedure wherebythe second researcher interpreted the text of the inter-view while the participant observer provided her sep-arate interpretation, drawing on her knowledge of thefirm. In this way we could refer to two different memoson each data point in our analysis.

Both content and methodological issues were dis-cussed at weekly meetings. Early in the fieldwork, forexample, we selected key informants from the seniorand middle manager ranks of each of the merged firms4n= 125 to help verify facts and check interpretationsas we coded our data. We consulted these informantswhen we needed to shed additional light on conflict-ing versions of an issue or event. Strong consisten-cies between the participant observation data and theinterview data indicate that the former were unlikelyto have been tainted by the involvement of the HRmanager/researcher.

We continuously reviewed and analyzed our data andprocedures during the fieldwork. We paid close atten-tion to events that bore evidence of a biased insider’spoint of view. For example, the research team discussedan area manager’s admission of problems with gener-ating recurrent sales of project management tools. Theparticipant-observer noted that the area manager’s engi-neering background made her insufficiently attentive toclient needs. Further discussion with key informantsrevealed that it was more likely the slow response of thesupport team (not under the area manager’s authority)

that soured clients on the product. We regularly checkedour participant-observer’s interpretations with key infor-mants. In nearly every case, their interpretation of eventsmatched.

Interviews. We conducted a total of 41 semistruc-tured interviews with Miracle managers, 9 of whom hadbeen hired during the postmerger integration period (seeTable 2). The other interviewees held managerial posi-tions at both their prior firms and Miracle.

We selected interviewees on the basis of their func-tional and managerial roles, their firm of origin, and theyear they joined. As Table 2 shows, 8 of our 41 intervie-wees were from top management, and the rest were mid-dle managers. We chose the sample using three criteria.First, we selected managers known to be knowledgeable

Table 2 List of Interviewees

Premerger Year joinedJob title at Miracle affiliation premerger firm

COO Mars 1969Division manager, IT and logistics Mars 1978Division manager Mars 1980Division manager Mars 1981Area manager Mars 1981Area manager Mars 1993Area manager Mars 1980Area manager, headquarters Mars 1981Presale manager Mars 1990Presale manager Mars 1993Administrative manager Mars 1983Logistic manager Mars 1995Division manager Jupiter 1986Area manager Jupiter 1991Area manager Jupiter 1993Quality assurance manager Jupiter 1993Senior programmer Jupiter 1992Area manager Jupiter 1995HR manager Venus 1994Division manager Venus 1995Division manager Venus 1993Project manager Venus 1997Area manager Venus 1994Area manager, finance Venus 1997Area manager Venus 1997Director Venus 1993Division manager Pluto 1994Area manager Pluto 1993MARCOM manager Pluto 1997Area manager, marketing Pluto 1996Senior project manager Pluto 1995Area manager Pluto 1997Programmer None 2000Support manager None 2000Sales manager None 2000Project manager None 2001HR personnel manager None 2001Area manager None 2002Marketing team leader None 2002Project manager None 2002HR personnel manager None 2003

Note. MARCOM, marketing communications.

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about the history of each of the firms, according to theformer CEOs of the acquired firms.2 Second, we chosemanagers who were responsible for assigning roles andtasks during the implementation of the postmerger inte-gration plan in 2000–2001. Third, we selected managersrecommended by key informants as especially knowl-edgeable and who were directly involved in building newpractices at Miracle, such as sales and support managers.

Interviews averaged 90 minutes in length and weretaped and transcribed. The interviews were conductedin Hebrew and translated to English by a professionaltranslator. The first author reviewed and verified theaccuracy of the translations. We conducted additionalinterviews with nine interviewees in 2005 to acquiremissing information and resolve ambiguities. Our inter-view protocol consisted of open-ended questions withrequests for clarification of specific events, processes,and decisions. We focused on themes related to ourresearch question—specifically, how employees of pre-merger firms experienced the reshaping of identityduring postmerger integration.

We focused the interview on basic issues, such asrespondents’ work practices and roles at their premergerfirms; their activities and roles during the merger itselfand the postmerger integration; their interpretation ofmanagement’s actions; their perceptions of the mergerand integration, such as premerger core firm values com-pared to the values stressed by management after themerger; and the state of work relations and practicesbefore and after the merger. We also asked for intervie-wees’ stories about their work and how their firm dif-fered from the others; their views on key issues, includ-ing practices, priorities, technology, project work, andauthority; and their assessments of their premerger firms’cultures and identities. Our interviews with the nine par-ticipants who had joined Miracle after the merger con-centrated on their experience at Miracle.

Documentation. We collected archival data from theyears 2000–2005, including documents and minutes ofmeetings about the merger, as well as various pamphlets,public relations memos, and firm profiles. We created afile of all newspaper coverage of Miracle in the period2000–2005. We had access to internal reports describingfirm vision and M&A strategy. We did not have accessto comparable documents from the acquired firms, butwe gathered information about them from Internet andnewspaper coverage. Thus, the firms have been chroni-cled mainly via interviewee narratives.

Data AnalysisOur data analysis followed the inductive methodol-ogy recommended for case studies (Eisenhardt 1989,Eisenhardt and Graebner 2007, Yin 1984). Data con-sisted of participant observation, interviews, and docu-ments and included interview transcripts and fieldwork

notes. Our objective was to create a conceptual frame-work to understand how and why members of a mergedfirm might be motivated to draw boundaries. Althoughthe current case has unique characteristics, it illuminatesthe general importance of boundaries and identity inM&As. In this vein, grounding the research in its contextenables theory elaboration (Suddaby 2006). Thus, ourstudy is not intended to generalize to every case. Instead,the data enable us to develop and articulate our boundaryapproach, which contributes to understanding how pre-merger identity informs the reshaping of identity duringintegration. Our treatment of identity in M&As drawson the notion of boundaries as a differentiating mecha-nism between groups in which each views the merger interms of its own (ingroup) attributes vis-à-vis those ofthe others (outgroups) (Hogg and Terry 2001, Stahl andVoigt 2008).

Our data categorization process followed practicesrecommended by the grounded-theory method (Locke2001, Strauss and Corbin 1990). In forming code cate-gories, we focused on accounts of events and actions thatgenerated conceptual distinctions “made by social actorsto categorize objects, people, practices and even timeand space” (Lamont and Molnar 2002, p. 168; see alsoLamont 2000; Vallas 2001). We triangulated the differ-ent sources of data (participant observation, interviews,archival documents), working through each data sourcewith the code categories that were emerging. This helpedus to relate categories to one another and to developthe core categories of each premerger firm (Locke 2001,Miles and Huberman 1994). During this phase of cod-ing, we used the memos written during data collectionto extract conceptual meaning from interview excerpts.All coding was performed independently by the firstauthor; the other authors then coded all excerpts inde-pendently. Disagreements on the coding of a passageor code definitions were resolved through consultation.The process of categorization benefited from ongoingdiscussion and deliberation (Denzin and Lincoln 2000,Miles and Huberman 1994). As a diverse and multi-disciplinary research group, we concluded that the bestway to achieve reliability in our categorization wouldbe to conduct independent categorization and subsequentcomparisons and to seek feedback from our key infor-mants. These processes render external verification ofthe categorization system redundant. Nevertheless, weconsulted knowledgeable colleagues on our integrativeconceptual framework.

The next stage of data analysis involved clustering theprimary coding categories into a final scheme reflect-ing more general constructs associated with the enact-ment of boundaries, including narratives and practices.First, we identified additional themes that were relatedto categories that reflected the values and practices ofeach premerger firm. These themes helped further clar-ify the nature of the firms’ boundaries and served as a

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kind of typology, helping us to make inferences abouthow each firm invoked its identity of “us” versus “them”(Vaara 2003).

Finally, we repeated this process for Miracle by goingback and forth between the preliminary data and cate-gories, reviewing memos, and engaging in the iterationsof data coding described above. We generated code cat-egories for Miracle using the categories extracted fromthe premerger firm data as a benchmark. We then devel-oped a conceptual framework to interpret the relation-ship between representations of boundaries that wereendorsed or resented within the new identity at Miracle.We shared our framework with colleagues and keyinformants at Miracle, whose comments and criticismsrefined our interpretations and contributed to our con-ceptual framework (Locke 2001).

FindingsWe present our findings in two sections, beginning withour analysis of the attributes of the four firms thatmerged to create Miracle. We present key attributes ofthe practices, structure, and operation of each firm. Wedescribe the distinctive cultural attributes that reflect theidentity of each firm, paying close attention to eachfirm’s approach to commitment and participation, whichemerged as important themes. In the second section, wepresent findings related to how boundaries were rein-forced, challenged, or changed during the postmergerintegration period as members worked to establish theidentity of Miracle. We describe patterns in whetherand how boundaries were contested and accepted bymembers during postmerger integration. This processrevealed two stages of identity creation: in the first stage,boundaries were negotiated to leverage and import prac-tices and values of the premerger firms, and in the sec-ond stage, these boundaries were blurred as managersbuilt on the set of imported practices and values to createa new firm identity during the postintegration period.

Historical Reconstruction of the Premerger Firms

Mars and Jupiter. As sister firms, Mars and Jupiter(M&J) were parts of a leading Israeli electronic concernowned by a business group. The two firms competedin the IT software development industry while cooper-ating on several joint projects. Consequently, employeesof both firms were exposed to and influenced by eachother’s managerial and operational practices. Exchangewas furthered by a regular flow of managers backand forth, facilitating the spread of firm characteristics.Despite this cooperation, Mars and Jupiter competed formarket share. Their main difference was the scope andtype of projects in which each specialized: Mars focusedon large-scale holistic IT solutions, whereas Jupiter wasa more specialized research and development (R&D)-oriented firm.

Having adopted a new business strategy in the faceof financial difficulty, the business group that ownedM&J decided to sell firms incongruent with the newstrategy. According to M&J informants, the two firmsshared many features, including work systems, struc-ture, and culture. The informants differed, however,in their accounts of what it meant to belong to spe-cialized professional groups in the two firms. FormerMars employees reported homogeneous characteristicsbetween units, regardless of function, whereas Jupiteremployees described sharp differences between R&D-oriented units and the IT unit, which was more salesand support oriented. Because our archival and interviewdata indicate several strong similarities between the twofirms, we present them together here.

Organizational structures: Both M&J had divisionalstructures based on products or services and charac-terized by three management tiers: general managers,division managers, and area managers. Managerial andemployee turnover was low: 3% at both firms. Duringthe merger, most employees were males in their late30s or older. M&J employed similar work processes:managers indicated that decision making was bureau-cratic, centralized, secretive, and followed standard oper-ating procedures, but was, at the same time, informal.Management had an open-door policy for employeeideas and grievances but insisted on formal reporting onbusiness meetings outside M&J and approval of minorexpenses. According to our informants, executives over-saw everything from HR to sales and operations. Neitherfirm had professional managers for these functions; thetop management did it all.

Low management turnover and the technological ori-entation of M&J employees made it uncommon foremployees to aspire to promotions to management. Bothwere publicly traded firms, owned by a leading Israelibusiness group, in which employees enjoyed generousbenefits, including tenure, which was seen as part of bothfirms’ fundamental ethos. Favorable collective agree-ments protected employee rights and tied compensationto seniority. Thus, incentives to remain at M&J werestrong. For employees, the firms’ conservative practicesmeant following standardized operating procedures andstaying put in a static structure with stable terms ofemployment—an arrangement that appears to have beennecessary given the nature of M&J’s business environ-ment. M&J employees attributed the firms’ relativelysecure market position to their professional expertiseand reputation; both firms participated in joint ven-tures with high-profile international partners. Marketsand customers were taken for granted and not consideredto be the drivers of the technologically based projectwork. “We didn’t count the customer; we didn’t botherto dirty our hands, so to speak, with the customer,”one Mars project manager admitted. “The product spokefor itself.”

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Values and practices: Despite M&J’s divisional struc-tures and concentrated managerial authority, informal-ity governed the sharing of technological expertise.This could be explained by normative control, whichreinforced a dual ethos: well-defined routines andpractices through which members promoted egalitar-ian and cooperative values (e.g., Kunda 1992). Infor-mants described informal one-on-one consultations withknowledgeable colleagues, cross-departmental meetings,and brainstorming sessions as common practice in whichmanagement and employees participated, regardless offormal status. As Narkis, a programming team leadput it, “It was not rare to see Yitzhak [Mars’s CEO], whowas a renowned computer engineer, leaving his officeand becoming a simple member of my team, delving intotechnical issues.” Table 3 shows representative quotesfrom the interview transcripts drawn from the analyti-cal categories associated with boundaries at Mars andJupiter.

Table 3 Analytical Categories for Mars and Jupiter Prior to Merger into Miracle

Category Defining characteristics Illustrative quotes from interviews

Community Familial relations “[Mars] was a way of life. It was life, because my friends came from thisworkplace: fantastic relations with managers, relations of partnership,and friendship. We were one big family.” (Avi, senior programmer)

Trust “In [Jupiter] everything was about personal trust. There were no writtenlabor agreements, [just] two-sided trust and loyalty. Friendship andloyalty are the values I believe in and that characterized [Jupiter].”(Jerry, area manager)

Solidarity “[Mars] was a way of life. Your peers were caring and supportive at workand outside of work. When I have to tackle personal difficulties, peoplefrom all over the organization stand by me.” (Eran, area manager)

Egalitarianism “We worked with the managers shoulder to shoulder; there were noconspicuous status symbols. You enter the CEO’s office and you getsuch a welcoming reception that you would come again. The onlythings that counted were your contribution and technical knowledge.This was the real compensation for very limited career paths here at[Jupiter].” (Haim, senior programmer)

Job security Lifetime employment “In my job interview, Dani [the division manager] told me, ‘Here in [Mars]we have no tenure, but I can promise you that if you come to work withus, you will leave only when you reach retirement age.’ ” (Reuben,technical manager)

“In [Jupiter] we never fired people; we kept even the weak and themediocre. We passed difficult times without letting people go. It waspart of being a family.” (Dana, support manager)

Coordination and control Bureaucracy “[Mars] was a red-tape organization. Everything was done according tothe book, from taking vacations to project work.” (Uri, project manager)

Measurement and monitoring “We were the champion of project tools and quality control. In [Jupiter], allaspects of our activities were monitored, and we spent at least twohours a day just filling out reports, not to speak of writing memos oneach request we have in our project work.” (Eli, support manager)

Technology and projectorientation

Technological excellence “[Mars] specialized in technology; [it] was a company that starts andfinishes projects in a very professional manner. The work methodologywas very structured; there was great emphasis on that.” (Ami, projectmanager)

Technological innovation “[Jupiter] was a pioneer in implementing innovative methodologies in thefield of software development. We were [a] bunch of whiz engineerswith total commitment to technological progress.” (Yossi, marketingmanager)

M&J specialized in IT and related projects for thedefense industry, work that entailed meticulous plan-ning, accurate implementation, and close monitoringof standards and procedures. Furthermore, the military-industrial complex values discretion, and both firmsdownplayed their successes. “We as an organizationwere reluctant to ‘blow the trumpets’ in successful dealsor projects,” said Gary, a division manager at Jupiter.“Also, when somebody did a very serious and success-ful project, he or she was being praised and rewardedquietly, with no big fuss about it.” Nor did either firmpromote status symbols, such as assigned parking spacesand executive dining rooms. Several Mars employeesmentioned that managers who visited New York on busi-ness never stayed in hotels, opting instead for the homeof a local manager.

M&J managers sought to maintain the success oftheir firms by blurring boundaries between the socialand work domains to exact high commitment. Social

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activities such as weekend hikes were commonplaceamong managers and employees, as were friendshipsand social gatherings outside of work. These practicessupported solidarity at work and an organizational iden-tity that drew meaning from both the work and sociallives of its members, reinforcing values of solidarityand trust (e.g., Mizrachi et al. 2007). Our intervieweesdescribed several practices that supported a familial cul-ture at M&J, including a zero-layoffs policy and arrange-ments that allowed employees to work from home. “OnFriday, three of us from work are always going to Sab-bath dinner with the families,” said Yossi, a marketingmanager. “The women are always complaining that atleast half of the evening we talk about work.” M&Jemployees referred to such practices in normative terms,reflecting solidarity, togetherness, and trust in the indi-vidual and organizational domains alike. They seemedproud to incorporate their personal emotions, attitudes,and motivations into their professional lives. Thus, atM&J, the enactment of boundaries functioned to com-bine the professional and social domains.

The stability of M&J’s labor force resulted from thezero-layoffs policy, which promoted long-lived socialrelationships and facilitated cooperation across func-tions. M&J employees described the resulting environ-ment in terms that evoked fairness and egalitarianism,which led to high levels of mutual help and generalizedreciprocity. M&J employees recalled several instancesof help offered without any expectation of reciprocity.Roni, a veteran programmer at Mars, told a typical story:

When I was on maternity leave I was replaced in man-aging the project by another center manager, and all thecredit and income continued to flow to my center. Mostremarkable was the family atmosphere, organizing forparties or events that were not formal company affairsbut with coworkers.

Thus, blurry boundaries between work and non-work reinforced belonging both within and outside theworkplace. At work, this blurriness transcended hierar-chy, giving M&J the flavor of an egalitarian collectiveand creating a sense of “communitas” (Turner 1967).Employees described this communitas with special ref-erence to the formative years of the merger. Many infor-mants from M&J described routines and practices asLevi, a support manager, did: “For a long time after themerger, before making any decision I consulted our peo-ple. I even went to Tamir’s [Miracle’s chief operatingofficer (COO), a division manager at Mars] home afterwork and consulted with him. It is not only me, butmany of us did the same, as at the beginning we feltunwelcome here. But luckily we have our bonds.”

Jupiter’s multiple identities: Within Jupiter, there werestrong divisional demarcation lines. For managers, thedivision represented another identity through which theycould express professional affiliations and identify their

place in the firm. For example, the Real Time groupwas considered the home of the firm’s elites. Thegroup, which worked mainly on classified R&D defenseprojects and enjoyed high prestige, was viewed as cohe-sive and isolated. It developed its own internal identityby drawing on a set of boundaries reflecting a differ-ent set of norms and practices than the rest of the firm.For example, by adhering to standards of secrecy aroundissues of national security, the group sometimes with-held the expected level of transparency and account-ability regarding the economic viability of its projects.Unlike the rest of the firm, the group’s recruitment ofnew employees required broad-based consent from mid-dle and top management and was highly selective, result-ing in few hires. “In my six years working in the group,only a handful of people were hired, and only tech-nologists,” Rami, a lead programmer, explained. “Westayed a homogeneous group. And, I think because ofwhat we were, we were the last [group] to integrate into[Miracle].”

In contrast, the IT group consisted of a mix of tech-nologists and salespeople and considered itself open,dynamic, and competitive. Making sales and winningnew projects and clients were seen as key criteriafor individual evaluation. Members of the IT divisionexplained that its exposure to the external environmentand shifts in markets directly influenced its practicesand routines. “Working at the clients’ and meeting theirdemands forced you to adapt and change,” said Eli,a support manager. “To work in the IT division, youneed to be flexible, open-minded, dynamic, and thinkand make fast decisions. This is us.” Turnover in the ITdivision was much higher than in the Real Time divi-sion, and the employees were younger. “Our employ-ees, who were younger and often left us, have createdmore difficulties in coordinating activities,” said Raviv,a former manager of the IT division. “So we were wellknown within [Jupiter] as the division who worked inchange mode. I saw it as a positive, but others may haveseen it in a different light.” This suggests that a cogni-tive boundary of age may have been a meaningful pointof differentiation between units in the firm. Also, theIT division was the most profitable at Jupiter. Unlikethe Real Time division, its reward system was basedon team performance, encouraging internal competition.Our interviewees observed, however, that competitiondid not weaken cooperative norms, which they describedas key to solidarity and familial ties.

The accounts of M&J suggest that boundaries insti-tuted a strong identity that supported a system ofcoherent beliefs. This identity facilitated normative con-trol and an ideology that emphasized commitment tothe mission. We identified a demarcation of bound-aries that regulated internal interaction (Hernes 2004)and supported familial norms as well as boundariesthat stressed bureaucratic practices. These boundaries,

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based on seemingly contradictory mechanisms, createda high threshold for change and reflected the strategy ofoperating in a relatively stable environment.

Venus. Venus was a typical start-up, described by itsemployees as having a dynamic pace, flexible struc-ture, and entrepreneurial nature. Venus changed its strat-egy often to adapt to the dynamic IT market. It was ayoung firm; most employees and managers were under30. Employees referred to Venus as a close-knit, egalitar-ian network of friends who shared a vision and workedhard together to achieve it. This was supported by arecruiting system based on nepotism and friendship. Insuch an environment, social relations can transcend for-mal work arrangements (Trice and Beyer 1993). Get-ting work done at Venus was associated with opennessand accountability rooted in deep identification with thefirm, which filled its management ranks by promotingfrom within.

Organizational structure: Venus employees wereexpected to set their own roles, regardless of their formaljob descriptions. As a Venus manager described, “Youmay come in the morning with an idea and were givenall the resources needed to try to make it happen. Noone [would] scold you if you fail; it was part of thedoing. We were encouraged to ‘enlarge our heads’ andto succeed at all costs. The adrenaline of success was inthe air, and everyone was part of it.”

Internal entrepreneurship called for management tobe action oriented, which encouraged employees to ini-tiate activities without regard for their own status orroles, or the consequences. “You were encouraged togo after your ideas,” said Tulio, a marketing man-ager. “The motto was ‘Those who never make mistakes

Table 4 Analytical Categories for Venus Prior to Merger into Miracle


Entrepreneurshipand initiative

Role spanning “If you had an idea, you could come in the morning and try to implement it. Allpossibilities were given to you so you could succeed in your own right. You [were]encouraged to start and finish, doing everything yourself, to be a generalist.” (Nirit,area manager)

Creativity “We simply initiate, think of new ideas for making progress and developing, about howto better succeed, both as individuals and as a company.” (Moshe, marketingmanager)

Tolerance “There was a lot of patience and tolerance. Even if you made mistakes, you wereencouraged to keep trying. They believed in you as a worker, gave you backing,and that contributed to the will to contribute.” (Yunit, sales team leader)

Managerial style Transparency andopenness

“[Venus] was a very open company: no secretaries, no distance, no status. Everythingis done out of tendency for friendship—encouragement without envy, completeopenness, and a lot of togetherness, regardless [of] your position. You should dirtyyour hands, do whatever you can. Very pleasant feeling of esprit de corps.” (Eden,vice president of marketing)

Trust “There was a lot of trust, and you were not measured for each line in Excel. In terms ofresults, this allowed me as a manager great flexibility, but also big mistakes.” (Zivit,presales manager)

Selection Social fit “The people working with me were above all my friends. We all stayed in the eveningsto play computer games, and it could have been after 14 hours of work. When Irecruited workers, the first thing I checked was how they will fit socially. It was moreimportant to me than the professional aspect.” (Rivi, product manager)

are not doing [anything].’ ” Venus’s action orientationwas consistent with its flat structure, informal normsof accountability, and openness. In contrast to the for-mal decision making that characterized M&J’s divisionalstructure, Venus’s flat structure enabled decentralization,a relatively wide span of authority and responsibility,and consensus-based decision making. A flat structurealso helped discourage the development of hierarchies.Managers at Venus made a point of doing their own sec-retarial work, and the criteria for management positionslargely involved interpersonal and leadership qualitiesrather than technological or professional excellence.

Values and practices: Table 4 displays representa-tive quotes from the interview transcripts drawn fromthe analytical categories that are associated with pastboundaries at Venus.

Venus’s laissez-faire entrepreneurial identity encour-aged informality, shared decision making, and initiationof new activities. Leaders preached the benefits of takingrisks and driving relentlessly for new ideas and busi-ness opportunities, and they treated favorable outcomesas shared successes. “In [Venus] we promote thinkingout of the box and provide the organizational arrange-ments for that,” said Ari, an area manager. Venus’s char-acteristics generated an informal, organic communitythat relied on employees’ commitment for its success.One manager pointed out two key managerial practices:handsome incentives for employees who created morebusiness and rituals designed to promote “a completelyunparalleled sense of pride in being part of the com-pany.” Former employees described a “permanent feel-ing of elation” and “encouragement to reinvent a newwheel.” They also noted that the firm was demanding

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and emotionally draining, “pushing people beyond theirenvelope and helping them to discover their best capa-bilities,” as one interviewee put it. Venus’s founderasserted that the firm’s central value was “sharing insuccess.” The firm’s incentive model encompassed mon-etary rewards and stock options for all, together withpublic recognition and celebration of successes big andsmall. Thus, Venus’s values and practices suggested thateach success was the outcome of choices by every mem-ber of the firm. The sense of autonomy that characterizedVenus was salient to its members after the merger intoMiracle. As Yochi, a project manager claimed, “I havefew of ex-[Venus] people under me, together with peoplefrom other companies, I don’t have to tell them much,and blindfolded, I trust them. They don’t need muchinstruction and supervision like the others.” Thus, Venusmembers not only retained their old allegiances, butin practice, reconstructed boundaries reflecting the pastemphasis on internal entrepreneurship and autonomy.

Pluto. Pluto was a systems integration and outsourc-ing firm that specialized in IT systems and computernetworks for the private and public sectors. It was pre-dominantly a sales and support firm that treated cus-tomer satisfaction as its highest goal. Its strategy tosell at any cost required a flexible management sys-tem, which focused on the bottom line at the expenseof orderly routines and a coherent strategy. Aggres-siveness and responsiveness were perceived as the onlyexplicit guidelines for closing deals. Pluto operated asa fast-growth firm in a dynamic environment under thedirection of a founder who pursued a strategy of indis-criminate expansion. Such expansion required frequenthiring and resulted in relatively high turnover, on-the-jobtraining, and regular modifications of everything fromthe configuration of office space to the firm’s structure.

Organizational structure: Neither standard operatingprocedures nor bureaucracy existed at Pluto, and middlemanagers found themselves at liberty to set their ownstrategies and make decisions without approval fromor even notification of top management (Balogun andJohnson 2004). “The attitude is do first and then ask andcheck,” explained Pluto’s founder. Pluto’s structure as aholding company with independent subsidiaries but nocentralized functions intensified the autonomy of eachsubsidiary, creating a degree of chaos, as well as thelikely presence of boundaries between autonomous unitsand groups within the firm. The improvisational natureof work stemmed from a strategic preference for gainingmarket share and new clients at the expense of buildinginternal organizational structure, core competencies, andmodes of operation in keeping with Pluto’s actual abili-ties. This strategy entailed risk taking and exploration ofnew markets via trial and error. The atmosphere of risktaking, which entailed entering markets and professionalareas with which Pluto was not familiar, forced the firm

to invent work methods and systems while executingthe job. Pluto employees took pride in their risk-takingways, seeing them as an expression of their enthusi-asm, youth, and nimbleness. Table 5 displays represen-tative quotes from the interview transcripts drawn fromthe analytical categories that are associated with pastboundaries at Pluto.

Values and practices: Pluto’s founder was viewed byemployees and managers as charismatic and manipu-lative and, at the same time, caring, personable, andinformal. His leadership was described as centrist andpatriarchal in a way that transcended work procedures,behavioral codes, and formal lines of responsibility andauthority. The founder’s management style was based oncreating personal obligations between himself and hisemployees.

Pluto’s focus on clients meant that members perceivedits boundaries as stretching beyond its own walls andreaching into the domain of the client. Employees wereheavily engaged in cultivation of clients. Managementelevated clients above all else and catered to their needsunconditionally, even at the price of exposing the firm’sweaknesses. Several Pluto interviewees asserted that thefirm never said no to a project, whatever its profitabilityor Pluto’s existing capabilities to execute it.

Pluto members noted their experience of tensionbetween normative boundaries supporting aggressivesales with little bureaucracy with boundaries theyencountered at Miracle, which also valued sales butpursued them in a more systematic way. The mis-match between the values and practices of the two firmsyielded frustration. For example, Yossi, a sales man-ager, explained, “On one hand, [Miracle] managementpushes hard for sales. This is our natural ground, butwe can’t do it when they impose endless bureaucraticrules and reports on our work. Let them do it the [Pluto]way; [it] liberates our free spirit. Judge us just for thebottom line and not on our timely reporting.” ThoughPluto members brought the values and practices associ-ated with sales at all costs to the merger, they still had tonegotiate new boundaries that combined this focus withunfamiliar bureaucratic controls.

Merging Mars, Jupiter, Venus, and Pluto intoMiracle: The First StageIn this section we analyze the dynamic process of merg-ing Mars, Jupiter, Venus, and Pluto into one firm—Miracle. Specifically, we present the first stage of post-merger integration, in which boundaries were negoti-ated to leverage and import best practices and legacyfirm knowledge mainly for operational integration(Haspeslagh and Jemison 1991, Stahl and Voigt 2008,Vaara et al. 2012).

Boundary Negotiation: Implementation of Best Prac-tices. The effective transfer of practices during Miracle’s

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Table 5 Analytical Categories for Pluto Prior to Merger into Miracle


Task orientation Speed “We were constantly running ahead, the target being to make more and more sales,bring more and more clients, make them happy and us rich. And everything washand-to-mouth and moving at great speed. And they learned from us to run, to behungry, and to swallow the market.” (Ronen, executive vice president)

Decision making “Decision making was very quick thanks to the fact that we the managers were veryindependent, and that there was no enforcement of procedures. … Flexibility ofdecision making and performance was very high. Decisions would change fromminute to minute, for better or for worse.” (Yuval, marketing manager)

Risk taking “We entered dangerous adventures that perhaps, thinking back, even scare me a little.We promised clients things we had never done before, went into projects with biggerand more experienced competitors than ourselves. Everything was done on atrial-and-error basis. The lack of experience is covered by commitment, youth, andenthusiasm. We were naïves from Jerusalem. Sometimes ignorance makes you takehuge risks, which you never dream of taking later.” (Ram, founder)

Coordination andcontrol

Improvisation “Everything with us was very fast and quick. There were no procedures or workmethodologies; there was almost no coordination with other functions of theorganization. Everything was a mess—no structure, no procedures, no transfer ofknowledge. When we grew and had more than 150 workers, we started to feel themess.” (Orit, support manager)

Autonomy “Everything was done independently with each manager; there werenot 0 0 0headquarters functions. Except for salary 0 0 0 there were no human resources.”(Nimrod, vice president of operations)

Informality “There was no central organized headquarters. I used to interview workers in a coffeeshop, and so did all the others, and the salary discussions were also held in coffeeshops. There were informal recruitment procedures. One day I called my ex-IDF[Israel Defense Forces] unit and asked who was discharging today, took [thefounder’s] GMC, and went to the discharge base to bring guys that were dischargedthat very day.” (Dagan, marketing manager)

Leadership Paternalism “[Pluto] has extraordinarily loyal workers, because you had a father and a mother—thefounder and his brother would take care of everything for you. A worker in distresscould approach the founder, and he would get out of his skin to help. Sometimes hetreated us like children. I remember that once when there was a snowy day inJerusalem; the founder summoned all of us in the morning and announced a day offon the occasion of the snow.” (Talia, service area manager)

Charisma “We were like those who follow the Pied Piper of Hamelin, which just move on, not eventhinking ‘one step forward,’ or questioning [the founder’s] logic.” (Amos,technological area manager)

postmerger integration was a high priority of Miracle’smanagement. To implement best practices, managementformed several postmerger steering committees includ-ing those dedicated to logistics, technology, support, andsales. Committee members were considered leaders intheir subjects and were prominent members of the firmsthat comprised Miracle. The committees drafted recom-mendations only after interviewing various members ofeach legacy firm to detail the diverse practices of the fourfirms. Zvi, an area manager who chaired one of the com-mittees, explained,

The most useful way to develop new practices for sales in[Miracle] is first to hear how sales had been done in eachcompany before the merger. So, we interviewed the saleschampions. We got different ideas. Each person 0 0 0 sworethat his or her system was good for [Miracle]. Then,in the committee we debated what to do. And it wasfunny, as those members pushed for their old system. Ichanneled the debates of my committee in such a waythat we moved from a solution based on adopting whatworks in [Venus] or [Mars] to what will work for [Mir-acle]. For example, in [Mars] they never got bonuses on

sales, and in [Venus] they got disproportionate bonuses.So we debated and used the different incentive schemesof [Mars] and [Venus] as a tool, as prerequisite knowl-edge, to build a new incentive scheme for salespeople in[Miracle].

Thus, the various committees served as a mechanismof rejection and adoption, screening routines, practices,and management blueprints of the merged firms, adopt-ing some best practices and rejecting others. In gen-eral, members pushed for the adoption of their legacyfirms’ practices. The justification given was the benefitof taking advantage of proven, available practices andexpertise so as not to reinvent the wheel. For example,in an apparent attempt to manage the merged firm moreeffectively, Miracle’s management adopted the formalback-office procedures of Mars and Jupiter. This changewas accomplished in a series of steps. First, senior man-agers from either Mars or Jupiter were appointed to leadoperations, HR, logistics, and finance, whereas man-agers from either Mars or Jupiter were named as lead-ers of three of the five major business groups. These

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decisions served to ensure that the practices of Marsand Jupiter would be well represented in the central-ized functions and business groups comprising Mira-cle. In a sense, Mars and Jupiter would then become amodel for the boundaries that would be imported intoMiracle. Research suggests that these early models areimprinted and transferred from organization to organiza-tion via managers and their practices (e.g., Baron 2004,Baron and Hannan 2005, Baron et al. 1996, Burton andBeckman 2007, Hannan et al. 2006). Typically, thesemodels come to define the assumptions and practicesin use. However, at Miracle, the issue of coordinationand control loomed as a potential roadblock to integra-tion. “After completing the merger, we were thousands,”said Dov, a business group manager. “The only way wecould control the company was by working with def-inite rules and procedures.” The resulting bureaucraticprocesses were viewed by employees from Pluto andVenus as cumbersome, time-consuming, and unfriendlyin their impersonality, eliciting a sense of alienation.“The bureaucratic culture at [Miracle] overlooks ourneeds as individuals with specific demands and needs,and sees us as running numbers,” lamented an area man-ager from Pluto, who continued, “the human touch, thesoul, disappears.” The wholesale introduction of theseaspects of Mars and Jupiter as best practices drew com-plaints from members of other legacy firms whose ownpractices reflected fewer formal controls.

Bureaucratic procedures were first implemented insystems such as logistics and the internal help desk,which were crucial for quick integration and centraliza-tion. The bureaucratic standardization of these systemsstripped away the intimacy and informality that markedboth Pluto and Venus. But employees from each firmagreed that, given Miracle’s size and complexity, thesenew procedures were necessary and even welcome fortheir efficiency. Thus, boundary changes enacted prac-tices and values that reflected increased bureaucraticcontrol. Miracle members whose legacy firms used adifferent basis for control reacted to the postmergerintegration with acceptance through contestation. It ispossible that although members of Venus and Plutoresented the changes, they realized that as less cen-tral and more recent players in the merger, acquies-cence was a legitimate response. Indeed, merger part-ners who view themselves as subordinate are more likelyto accept changes viewed as legitimate (e.g., Hogg andTerry 2001, Marmenout 2010). This sense is reflected byShalom, an area manager from Venus, who explained,“In a huge organization such as we became after themerger, you have to implement bureaucratic procedures,and it is only natural to draw them from [Mars] or[Jupiter]. But this does not imply that we take it forgranted. I and many of my friends from [Venus] alwaysweigh the new culture here against the backdrop of whatwe used to have in [Venus].”

Thus, management oversaw the redrawing of bound-aries by importing best practices from Mars and Jupiterto strengthen aspects of Miracle that boosted formalcontrol and accountability. At the same time, as wewill show, Miracle’s managers adopted a results-orientedfocus that denoted the performance-related boundariesof Pluto, with its focus on maximizing results aboveall else.

Boundary Negotiation: Transfer of Information. Par-ticipants often raised the transfer of information, notingits key role in the negotiation of internal boundaries.Knowledge transfer is considered a crucial input tomerger success, as learning from the other firms’ experi-ences aids successful integration. In Miracle, two typesof information were transferred: (1) formal informa-tion about operational issues and strategic moves and(2) informal information concerning management inten-tions about integration-related issues, including lay-offs, appointments, and new acquisitions. The firsttype of information was circulated through Miracle’sintranet, emails, and meetings. However, news was usu-ally viewed according to one’s past affiliation. As Hannastated, “If one of us [from Pluto] is getting a promo-tion, we are happy, because it means that he or she willtake care of us. Although we are now all [Miracle], stillyour original family is your real family.” The secondtype of information was informal and regarded manage-ment intentions. This information was interpreted usinga double prism. The first prism involved the relevanceof information for the self and the team, and the secondprism involved the relevance for the legacy firm. Mem-bers shared information along legacy firm lines with anaim to take action that reflected loyalty to the legacyfirm. Again, Hanna noted, “We have our founder as VP[vice president], and we got many pieces of informationwhich we share among ourselves [members of Pluto],for example, the idea to merge certain operations within[Miracle]. This gives you leverage, because you couldpreempt the situation of being redundant by seeking thehelp of our founder to move into another unit or bylooking at the job market ahead of time.”

Retaining and promoting particular practices that werethe legacies of Mars, Jupiter, Venus, and Pluto servedto create much-needed autonomy and empowerment inthe first phase of postmerger integration (Cartwrightand Cooper 1992). Indeed, scholars of postmerger inte-gration note that acquirers benefit from preserving thetarget firm’s capabilities by maintaining its autonomy,thus using a symbiotic postmerger integration strategy(Haspeslagh and Jemison 1991). The degree of dif-ference between firms, the nature of contact betweenthem, and the level of integration intended are key fac-tors in the creation of a new identity (e.g., Weber andSchweiger 1992).

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Merging Mars, Jupiter, Venus, and Pluto intoMiracle: The Second StageIn the second stage, boundaries were blurred as man-agers built on established postmerger practices andemerging understandings among legacy firm members tocreate a shared identity. At its core, this stage of inte-gration featured the transformation of the streamlinedpractices, values, and structures that resulted from thebottom-up negotiation of boundaries in the first stage.The boundaries shaped in the second stage became thebuilding blocks used by managers to shape the futurevision and strategy of Miracle. Thus, boundary forma-tion in the second stage is based on the legacy of themerged firm and, later in the integration process, on thereformulation of the legacy according to the new strat-egy and mission of Miracle. In the following sections wedescribe how the postmerger boundaries emerged andshaped a new identity focused primarily on performanceand expansion.

Boundary Negotiation: Performance and Success.During the merger process, Miracle introduced formal ITsystems to provide information on numerous parametersof effectiveness. Using these tools to link together eachelement in the chain of business activity, Miracle man-agement achieved instant vertical integration. The sys-tem held Miracle employees to predetermined standardsof performance that were continuously monitored. Man-agers and employees both perceived the monitoring sys-tem as a symbol of a demanding and stressful “bottom-line” focus (Sales and Mirvis 1984). Monitoring andmeasuring output were viewed by employees as serv-ing the purposes of enhancing performance and promot-ing healthy competition and motivation while inhibitingrisk taking by emphasizing the bottom line and usingboundaries as social control mechanisms (e.g., Stinch-combe 1978).

Even amid increased monitoring, Miracle employeesneeded flexibility to perform necessary tasks. “At thebeginning of the merger things were loose, and it wasgood that they were so,” said an area manager, “becausewe can have more freedom to make knowledgeable deci-sions without following instructions which do not fit ourdaily business reality.” Initially, employees had auton-omy to shape practices according to both premerger andemerging cultural repertoires (Swidler 1986).

A fervent commitment to success was apparent fromthe start of the merger and manifested itself in thepromotion of competition among units, work teams,and individuals, by both formal and informal means.Formal mechanisms included organized competitionsamong individuals and groups, public dissemination ofindividual achievements and results, and publication ofinformation on the firm’s successes, including its quar-terly results. For example, a senior manager regularlywalked Miracle’s halls ringing a bell and announcing

the name and sales data of the top sales employee. Thecompetition that resulted, for credit and position, wasclear. Furthermore, HR practices—in particular, formalevaluations—were a distinct tool not only for measuringand evaluating performance but also for assessing mem-bers’ fit with the merged firm and its values. Iddo, a salesmanager, noted, “The implementation of 360 [multiraterevaluation] is suffocating. It is not only about perfor-mance but also about compliance with the new practicesand rules of competition and ‘killing’ for every deal.”

The informal mechanism for boosting the standardsof and focus on success was normative control. “Weare asked to show better results each quarter and at thesame time to be more efficient,” Dorit, an area manager,explained. “In contrast to [Jupiter], and like in [Pluto],we all feel the pressure, up to the last employee. Weare all accountable and expected to pay a personal priceif we underperform.” This attitude toward performancewas perceived as a legacy of Pluto, which had treatedsales as the sole yardstick of professional and personalsuccess. Unlike at Pluto, however, the drive for bottom-line results was embodied in formal procedures that, inform if not in spirit, were more reminiscent of Marsand Jupiter. In either case, the boundaries implementedno longer simply copied a straight importation of prac-tices or values from a legacy firm. This shift of bound-aries led to accusations of a cold management style.“In [Miracle], the profit is what counts. Managementbecame structured and impersonal,” said Itai, a divisionmanager originally from Jupiter. “You don’t look in theeyes: no contact, no soul. We don’t have the human sideof management anymore.”

Many employees found Miracle’s focus on resultsabove all else, combined with bureaucratic proceduresthat closely monitored how those results were reached,to be unfair. This was particularly true for employeesfrom Mars, Jupiter, and Venus, where performance wasnot externalized in this way. Formal evaluations focusedon the current period’s performance and ignored employ-ees’ past contributions. The top management team wasreferred to as “Big Brother,” who used employees like“pawns in a chess game.” The boundaries in use inof all four firms had in common loose control overperformance paired with a strong normative commit-ment to success generated by the employees themselves.This was replaced by a boundary that emphasized thecurrent period’s performance as distinct from the past.Although results had been stressed at Pluto, motivationwas assumed to be based in entrepreneurial zeal and acommitment to customers, rather than in external mea-sures of success. At Miracle, motivation became lessintrinsic, rooted instead in external standards and thepressure and anxiety they brought. “The anxiety overresults and meeting your objectives and the fear of notperforming is the dominant motivator,” said Irena, a pre-sales manager from Venus. “When I compare [Venus]

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to [Miracle], it is like changing a concrete floor to afloating and dwindling one.”

To create shared identity, Miracle managementemployed various strategies to enhance integration.Miracle managers committed themselves to practicesthey adopted to support success, such as individualrewards, firmwide dissemination of business results, andpublicly naming high achievers. “There are lots ofadvantages to the ‘the-sky-is-the-limit’ approach. It givesyou a strong sense of importance and empowers you.You can make a difference, and the reward may wellbe a promotion,” said Tovi, an area manager. “In [Mars]you couldn’t do it.” At Miracle, managers linked fairnesswith a tangible recognition of a job well done—a depar-ture from the familial, informal, and egalitarian practicesthat defined Mars, Jupiter, and Venus. In terms of bound-aries, the former normative way of thinking about per-formance was shared by each legacy firm, but at Miracle,the definition of performance combined strong norma-tive control of output with external rewards and punish-ments intended to reinforce normative beliefs. The factthat the strong normative commitment to success wasrooted in different bases of motivation in each legacyfirm made it hard for managers to combine a simulta-neous commitment to family, innovation, experimenta-tion, and results. Attempts to build shared identity wereparticularly evident in the creation of marketing tools.Miracle instituted an ongoing marketing seminar builton social science research to teach employees to exploitcognitive heuristics to make sales. This seminar signi-fied a new approach, not drawn from any of the legacyfirms, and the evaluation metrics collected from employ-ees were positive. At this point, managers also hireda consulting firm to plan and implement the marketingstrategy and train the sales force.

Other activities added during this phase included fre-quent social events that were accompanied by, accordingto an interview with Leah, an HR manager, “preachingsessions” by the top management team on the “impor-tance of synergy and working together.” The result-ing shift in boundaries, in which external rewards andinducements were introduced in conjunction with avoiced commitment to the past, gave management addi-tional flexibility in controlling performance using mul-tiple levers to motivate employees while monitoringexactly how results were produced. However, as evidentin earlier quotes in which employees complained aboutor ridiculed the new systems, this was widely resistedby employees from each of the legacy firms who foundit deeply unfair. For example, management establishedvarious incentive schemes such as the “employee of themonth,” which came not only with financial benefits butwith the circulation of the news throughout the firmand a celebration by management. By and large, thesemechanisms bothered members from Mars and Jupiter,where familial boundaries based in the safety of tenure

meant that no one was singled out for celebration orpunishment. Resistance was less common from thosewhose legacy firms emphasized performance (Pluto) orfrom those who were hired at Miracle after the merger.David, a salesman who joined Miracle after the merger,stated, “I don’t understand why some people here areat odds with all the financial incentives and kibbudim[honors]. This is typical practice in every IT firm Ihave worked for. Here, some people are too sensitive,maybe because they used to work in more of a kib-butz environment. I tell them, ‘Wake up folks, you arenot in [Mars] anymore. This is not the Histadrut [thenational labor union]; you are in the real world now.”Thus, members of Miracle both endorsed and resentedaspects of the postintegration firm, and this often dividedalong the boundary between new employees and thosewho had worked for a legacy firm. In general, mem-bers from legacy firms expressed feelings of unfairnessand resentment toward the merger. Management’s effortsto reinforce an identity that emphasized expansion andgrowth aimed to bypass social conflicts that stemmedfrom internal frictions and mistrust in the merged firm(Vaara 2003).

Boundary Negotiation over Ownership and Strate-gic Approach. Miracle’s American ownership was man-ifested in formal gestures and practices in a range ofdomains. Official titles, formal job descriptions, and sta-tus symbols like company cars and lavish offices createdan emphasis on status and hierarchy and were justifiedby its CEO as “a part of [Miracle’s] existing strategy,which was given high priority by the founder.” Infor-mants claimed that the new emphasis on status-basedpractices and status symbols were imitations of “Amer-ican corporate culture,” and they were introduced bythe founder as part of a strategy of expansion throughinternational acquisitions.3 “It is bizarre, all these prizes,clapping, bell ringing, parading the employees of themoment in front of all of us,” commented Dor, an areamanager. “More bizarre is to see our [Mars] ex-managersorchestrating this.” The new social events were dubbed“cocktail parties” by interviewees to connote their super-ficial nature, where participants jockeyed to impressmanagement. “In [Pluto], things were simple. We werelike in kibbutz, and even our social events were likekumzitz [sitting around a bonfire],” lamented Eli, an areamanager. “At [Miracle], people become stuffy and for-mal, wine drinkers and eaters of small pastries.”

The differences between the premerger legacy firmsand the postmerger firm took political shape, evolvinginto friction about mission and identity. During the firststage, management promoted its mission by engagingin power struggles that often resulted either in the lay-offs and resignations of managers or in the reshufflingof their roles. Amir, a division manager, summarized,“After the merger, we encountered a hectic time. Those

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managers which we considered as not a fit in terms oftheir understanding of the new mission left. Then westarted with a ‘musical chairs’ process. It took time tofind those managers who are with us, understand whatwe want to do, and can do what they have to do toaccomplish [Miracle’s] new mission of being an aggres-sive organization, a leader in the IT field in innovationand effectiveness.” Thus, by positioning managers com-mitted to the new mission, the formation of Miracle’sidentity was quickly galvanized and disseminated.

To position itself as a top industry player, the firmpursued intensive public relations efforts to create ahigh profile. This aspect of Miracle’s identity had adual aim: First, it was intended to signal to the exter-nal environment of competitors and allies that a newplayer had arrived with the objective of leading the mar-ket. Second, it also boosted the internal integration ofemployees around Miracle’s strategy. Specifically, thedefinition of new external boundaries by Miracle’s man-agement served to mobilize employees who were retain-ing premerger boundaries that clashed with the newidentity. Perhaps the most dominant symbolic event inthis process was a meeting at which former presidentBill Clinton was the guest of honor. Management viewedthe meeting as the single most formative event in the lifeof the firm and one that established its external recog-nition. Employees were highly aware of its symbolicmeaning. “It felt like during taking the oath in the army,”said Avi, a veteran Mars marketing director. “But thistime it was not a ‘General’ Clinton, who was the figurewhich united us under the same flag. He symbolized thespirit and the ambition—to be in the top, and mainlyto lead.”

But the focus on such external symbols to demar-cate Miracle’s claims to status and leadership appalledmany employees. Specifically, employees from Jupiterand Mars, whose firms were both discreet and egalitar-ian, were horrified. As Eva, a technical manager andformer Jupiter employee, put it, “The culture of ringingbells for announcing results, the big [Miracle] logo onthe company cars, the huge logo on the building, whichyou can see from miles away, are all expressions ofan impression of greatness, populism, and Americaniza-tion which is dominating our culture.” Some employeesviewed the cultural practices associated with this exter-nal focus as indicative of a system that ascribed moreweight to Miracle’s collective image than to the individ-ual. Employees perceived Miracle as spending massiveamounts on glitzy events and management perquisiteseven as they worried about being laid off as a result ofthe strong focus on individual-level results and success.This tension points to an important tension of symbolicnational boundaries (Ailon-Souday and Kunda 2003) inwhich the characteristics of the legacy firms that wereinterpreted as authentically Israeli conflicted with new

characteristics of Miracle that are seen by members asbeing derivative of American culture.

Another manifestation of the negotiation of the bound-aries around ownership and strategic approach involvedmiddle management—namely, the division managers upto the vice presidents of Miracle. During the formativeperiod of the postmerger integration, many former man-agers of the merged firms struggled to consolidate con-trol over their units and at the same time play a politicalrole to gain the attention and endorsement of Miracle’stop management (Drori and Ellis 2011). After the initialperiod of focusing on integration as a tool for creatingcommon practices and a shared sense of the new iden-tity, Miracle management resorted to what was termedas the next stage: a “global expansion and ongoing orga-nizational change to institute the best structure to sup-port the global expansion” (from a January 2003 internalemployee memo). Miracle started its expansion activi-ties with a series of acquisitions in the United States,the United Kingdom, and continental Europe and byopening regional offices in two countries in Asia. Thisexpansion had the impact of blurring internal boundariesamong the various firms and created new demands stem-ming from accelerated growth and the need for basicglobal integration and coordination. Asher, a divisionmanager originally from Mars, described this stage:

Two years after the official merger, we started withaggressive global expansion together with ongoing struc-tural changes. This blurred everything. It forced us to dothings the [Miracle] way. New managers with interna-tional experience were hired. Those of us without inter-national experience practically left. Those like me withexperience from [Mars] were forced to change the waythey manage and conduct business. In [Mars] it wasslow dealing. We worked mainly for the Israeli and U.S.defense establishment, and the rhythm was slow. Thebusiness cycle was long. Here in [Miracle], we startedto work according to Darwinian principles. Those whoadapted and managed aggressively and delivered, stayed.Others left. The little bit of solidarity and the com-mon fate which we as senior managers established whenwe had just merged, evaporated. We became hedonis-tic and risk takers, even at the expense of others in theorganization.

The global expansion was a corollary of an assess-ment that the merger was working. In 2003, an internalmemo from the COO, who had been a Mars manager,to a division manager who had been a close associateof his there, stated that “knowing your top salespersonand the work he has done to train and build a team thatunderstands international business, I have no doubt inmy mind that your division will take advantage of ourrecent acquisitions abroad.” The focus of Miracle’s man-agers shifted from internal integration to capitalizing ona streamlined firm that could exploit new opportunitiesto build competitive advantage through global expan-sion. The memo also lauds the internal learning and

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knowledge transfer within the sales team. Miracle gal-vanized its postmerger identity as more market oriented,and this identity marked the institution of objectivesand a mission that emphasized sales and customer ser-vice, supported by numerous new workshops and on-the-job training described earlier. The entire firm, includinggroups dedicated to support, logistics, and administra-tion, across all levels, participated in a special workshopdeveloped by Venus’s CEO. The workshop focused onengaging and retaining customers, understanding theirneeds, and providing them with the best service. Man-agement encouraged the various divisions to initiate avariety of marketing activities that sometimes competedwith one another while encouraging employees to sharethe knowledge and practices that existed in the pre-merger firms.

The logic supporting our process model is drawn fromthe varied types of negotiation of boundaries we found.Table 6 provides illustrations of each type of boundarynegotiation. In the first stage of the merger, members ofpremerger firms clung to their legacy identity and nego-tiated two major issues: best practices and knowledgetransfer. The second stage is marked by blurred bound-aries in which both managers and employees negoti-ate the new identity by focusing on creating tools andstrategies of action to achieve Miracle’s objectives andenhance its performance.

DiscussionThe main contribution of our study is to advance under-standing of the impact of boundaries in the two-stageprocess through which identity is shaped during post-merger integration. Our findings suggest that boundary

Table 6 Analytical Categories for Negotiation of Boundaries in Miracle

Stages Boundary dimensions Illustrative examples

First stage Implementation of bestpractices

“In [Venus], I felt I’m in a family; here [at Miracle], I’m a manager, expected tobring results. In [Venus] I developed a well-monitored support system. I useit here with little modification.” (Revital, support manager)

First stage Transfer of information “This is big organization, not a start-up. So here you don’t dump everything,you know, on everyone. I’m still open as in [Jupiter] but share all theinformation with my group and friends from [Jupiter] in the entireorganization and only what is necessary with the others.” (Eliav, productmanager)

Second stage Performance and success “Today, we have very clear HR practices. We know exactly our rights andresponsibilities. HR even issued a special booklet for the workers whichspecifies exactly what is expected of us and how to achieve our personalobjectives.” (Orit, accountant)

Second stage Ownership and strategicapproach

“Business development in [Miracle] is not only focused on services andproducts but almost exclusively on identifying opportunities for globalexpansion, again through M&As. This time abroad. In our last managementmeeting we singled out the key to our successful postmerger integration.Most of the managers claim that our ability to position [Miracle] externally,as international company, helps to galvanize our operation internally.”(Yoav, COO)

demarcation shapes the processes through which pre-merger identities endure and decay as well as the pro-cesses underpinning new identity creation. The researchreveals how the identities of premerger firms are used toserve as the foundation for the emergence of the identityof the merged firm. The postmerger integration of Mira-cle illustrates how identity endures and changes in a pro-cess of identity building enabled by the construction ofhistorical legacies that are used for identity formation inpostmerger integration (e.g., Anteby and Molnar 2012).

A Stage Model of Postmerger IntegrationOur research uses data collected over a period of morethan two years to demonstrate that boundary negoti-ation is a mechanism for identity creation by linkingpremerger identities to the new practices and valuesthat define the postmerger firm. In particular, our datareveal boundary negotiation dynamics on the part ofemployees, management, or both around the implemen-tation of best practices, transfer of information, assess-ment of performance and success, and the assertion ofownership and strategic approach. These dynamics formthe basis of the process of postmerger identity cre-ation. Specifically, boundary negotiations enacted pro-cesses of rejection or acceptance of various practices,beliefs, and values during integration. Our findings sug-gest that the rejection of some practices was related tomanagement’s belief that such practices failed to servethe postintegration modus operandi. For example, man-agement rejected justifications for actions or activitieson the grounds that these were practices from premergerfirms. Rejection of premerger practices marked a funda-mental shift in how management framed and acted uponcritical integration issues, serving to reduce internal con-flicts among legacy firm practices and promoting shared

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identity (Clark et al. 2010). Likewise, acceptance of pre-merger practices constituted a mirror image of the rejec-tion of premerger practices. Acceptance of practices thatmanagement deemed effective reduced ambiguity aboutfirm objectives and also enhanced shared identity. Boththe rejection and acceptance of practices by managementrepresented boundary demarcation that expressed whatwas required for the merged firm to succeed and createdthe conditions needed to forge a shared identity.

Our analysis of the boundaries in use in the legacyfirms and in Miracle itself reveals that boundary nego-tiation evolved through two stages. In the first stage,boundary negotiation involved implementation of bestpractices and information transfer, with legacy firmboundaries providing direct guidelines for the practicesof employees and managers. The legacy firms actedas a set of menus from which managers could importbest practices and members could interpret and act uponinformation. These practices explicitly refer to the legacyfirms and use differentiated boundaries to inform controland coordination. For example, bureaucracy was broughtin from Mars and Jupiter, whereas the sales and mar-keting approach came from Venus and Pluto. Whethermembers of Miracle embraced or resisted these negoti-ated boundaries, their sources were firmly rooted in thelegacy firms.

In the second stage, the performance, success, own-ership, and strategic approach was negotiated througha more explicit blurring of the premerger boundaries.Instead of importing legacy firm practices, this stageshows the development of new boundaries of Miracle.Using the outcomes of the first stage, in which the consol-idation of different legacy practices yielded a new set ofboundaries at Miracle, management moved beyond ele-ments of premerger firms to seed the identity of a firmbased on a marketing strategy and global presence. Thisconstitutes a distinct second step in the evolution of thefirm’s identity, in which the mixed boundaries and prac-tices were used to support the new strategy in novel ways.For example, the marketing seminars that were taughtfirmwide in a top-down manner constituted a new prac-tice that defined a boundary not drawn from any of thelegacy firms but instead built from the amalgamation ofboundaries that had been negotiated in the earlier phase.

In this second stage, identity creation was sup-ported by consolidation of the knowledge bases ofthe premerger firms (Larsson and Finkelstein 1999).The blurred boundaries reduced internal conflicts andincreased Miracle’s capacity to effect its growth strat-egy. Specifically, top management adopted an integra-tion strategy founded on the belief that the acquiredfirms’ identities must be combined and that the new firmwould emerge out of “mixing hot, cold, and lukewarmwater,” in the words of Miracle’s COO. Managementviewed this initially symbiotic approach (Haspeslaghand Jemison 1991) as compatible with Miracle as a new

entity and, in the words of Miracle’s COO, “for the sakeof becoming a global IT player and integrating all fourcultures into one entity.”

At Miracle, during the first stage of postmerger iden-tity formation, members maintained premerger practicesand values by retaining their legacy firm identities. Man-agement supported this by implementing practices thatdrew directly from premerger practices. Proceeding inthis manner seemed to reduce both operational and cul-tural uncertainties as members faced the identity threatsinherent in a merger. In the second stage, when Mir-acle management established its strategic and opera-tional course, focusing on sales, customer support, andinternational expansion, management blurred premergerboundaries, bringing in new boundaries and symbols tosupport the strategy and postintegration firm identity.These findings support a view of postmerger integrationas an evolving and dynamic project in which bound-aries influence identity and vice versa. More specifically,this research supports the claim that premerger identi-ties directly influence the formation of the new identity(Hogg and Terry 2001, Terry et al. 2001, van Leeuwenand van Knippenberg 2003). Our findings also illus-trate that cultural clashes during postmerger integrationare resolved through boundary negotiation that is con-tingent on how multiple identities are mobilized duringintegration.

Our focus on boundaries highlights a contextual treat-ment of identity during postmerger integration. Recentstudies have mainly focused on dynamics of contestationthat characterize the formation of identity in mergers andacquisitions. For example, Ullrich et al. (2005) claimthat the identity tensions accompanying mergers repre-sent a disruption in the sense of continuity that spansthe past, present, and future and has a direct bearing onmerger success. In the same vein, Vaara (2003), Vaaraand Tienari (2011), and Maguire and Phillips (2008)note that the cultural differences embedded in mergersare manifest in constructs such as sensemaking (Clarket al. 2010), narrative construction (Riad 2005), contes-tation and negotiation (Langley et al. 2012), and the useof language (Vaara et al. 2005). These constructs pro-vide interpretive tools for identity building. Although ourstudy is part of this tradition, we emphasize a processthat captures the dynamics of premerger identities andthe corresponding emergence of identity during post-merger integration (Clark et al. 2010).

Our findings illustrate that boundary demarcation andthe creation of postmerger identity is shaped by two pro-cesses. First, postmerger identity is an intentional out-come of an integration process pursued through plansthat are institutionalized by both managers and employ-ees. Second, postmerger identity simultaneously evolvesthrough the rejection and adoption of premerger valuesand practices, as well as the creation of new ones inaccordance with the firm’s mission and objectives. The

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two processes affect identity through different bound-ary dynamics. In the first case, the intended outcome ofidentity building is based on the formal demarcation ofboundaries through the adoption of certain practices andrejection of others. The second process results in blurredboundaries through the subversion of formal boundaries.For example, when members seek help along legacyfirm lines, political games and informal relations influ-ence the resulting firm identity in unplanned ways. Asthe process of postmerger integration unfolded and Mir-acle executed its integration plan, the strength of thepremerger identities waned. However, building a newidentity does not entail full disengagement from the pre-merger identities. The premerger identities, as Miracle’sCOO articulated, “serve as the foundation for the post-merger integration as well as symbols of anachronism,nostalgia, or reminiscence of the past and are lookedupon as out of time and out of place.”

Theoretical Implications andFuture Directions for ResearchThe case of Miracle suggests how and why legacy iden-tities are preserved and adapted over two distinct stagesto create a new firm. This view departs from a depictionof win–lose contests between legacy firms that result inthe emergence of a single dominant identity and, relat-edly, culture. In this paper, we have analyzed bound-aries for their manifestations and content and for howthey were used and contested by members and man-agers of Miracle. Our results have several implicationsfor research on identity, boundaries, culture, and post-merger integration.

Implications for Research on Identity and Boundaries.First, though M&A scholars have asserted that bound-aries and integration are contradictory because bound-aries emphasize division and integration focuses on unity(Haspeslagh and Jemison 1991), we offer an alterna-tive view of how these concepts intersect. Past researchsuggests that boundaries are relatively stable featuresof firms and that the boundary changes involved in amerger involve a managerial dilemma to be solved in theintegration process. Given stable boundaries, the solutionlikely involves recreating distinct boundaries to restorebalance between the merged firms. However, we illus-trate postmerger integration boundaries that are fluid andin a constant state of renegotiation over their meaningand content among internal and external constituencies(Hernes 2004). We demonstrate that in the first stage ofintegration, premerger firms enacted boundaries to legit-imate practices and values to maintain aspects of pastidentities that proved instrumental for integration. In thesecond stage of integration, the boundary frontier wasbroadened to create a strategy and identity that was notrooted in legacy firm identity.

Second, our study complements traditional views ofsocial identity processes in mergers by exploring the

identity dynamics that unfold when several firms mergein a short period of time. Social identity theorists haveargued that status, power, and uncertainty will influenceoutcomes differently based on whether or not a legacyfirm held the upper hand with respect to these vari-ables (e.g., Amiot et al. 2007, Hogg and Terry 2001).Although this research integrates social identity theorywith merger outcomes, the relationships proposed andtested have been built on models where two groupsmerge, there are winners and losers, and individualsreact in accordance to which group they belong in themerger. Though our research also finds that individu-als defend their identity groups, it also highlights howthe boundaries that defined the identities of the mergingfirms get repurposed to create a firm with an identitythat simultaneously represents a departure from any ofthe premerger firms while it preserves aspects of iden-tity that allow members to uphold values that shapecourses of action to reach desired outcomes. This preser-vation of valued aspects of identity may allow membersto achieve a sense of optimal distinctiveness (Brewer1991) from others as they identify with elements reflect-ing their legacy firms. How this happens through therepurposing and revisioning of existing boundaries andhow it shapes the identity of the merged firm opensspace for future research on how identity processesinfluence merger outcomes. Specifically, future researchcould assess the microprocesses through which memberscome to accept or reject the merged firm, testing whetherboundary characteristics matter more than the status ofmembers’ legacy firms in this process.

Implications for Research on Postmerger Integration.Our study contributes in at least three ways to the liter-ature on postmerger integration. First, our findings sug-gest a need to put boundaries at the center of researchon postmerger integration, and in particular on “cut-and-paste” mergers, in which the pace is rapid and post-merger integration is intense. We propose that the studyof boundaries allows examination not only of how socialactors reconstruct their premerger and postmerger cul-tures and identities (e.g., Meglio and Risberg 2011,Vaara and Tienari 2011, Vaara et al. 2012) but alsoof the extent to which they enact boundaries based onpast experience when pursuing postmerger strategies ofaction; that is, our study can help reveal not only howidentity is situated in the integration process but alsohow it is imprinted on the past (Baron and Hannan2005). A focus on imprinting contributes needed nuanceto understanding exactly what is being contested whenfirms join to form a new entity.

Second, our research contributes to theoretical workon boundaries by demonstrating how boundaries are putin play during a process of change. Boundaries have longbeen understood to be a powerful element in shapingorganizational identity and culture and, therefore, organi-zational action (Heracleous 2004, Hernes 2004, Lamont

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and Molnar 2002, Marchington et al. 2004, Vallas 2001).Far less is understood about the ways in which bound-aries shift and evolve in broad organizational change.Moving beyond a simple denotation of why boundariesmatter, this paper adds a perspective on what boundariesrepresent and how they shift over time. By contributingan empirical study of the enactment of boundaries totheoretical work on boundaries, we hope to move thisarea of research forward. Specifically, we show how themix of legacy firm boundaries that evolve in the firststage of integration provides the foundation for the sec-ond stage of integration. Through identifying the waysin which boundary negotiation creates streamlined prac-tices and values of postmerger firms, we can analyzethese new boundaries as the material that the firm has towork with to further shape firm identity. In this way, thefirm evolves and moves forward in defining its futurevision and strategy.

Third, our approach contributes a necessary correctionto notions of culture as fixed and freestanding scriptsthat circumscribe social actors’ ability to actively influ-ence the construction of culture. Although we focus onorganizational identity, the relevance to cultural studiesin M&As is obvious; culture is a manifestation of thenorms and assumptions that guide members’ behaviors,and these norms and assumptions are directly informedby the identity of the firm (e.g., Fiol 1991, Martin 1992).Our approach values a complex view of the boundariesthat constitute identity and the multiple ways they can becombined in service of an integrated firm. This approachcounters studies on culture construction in M&As thatsupport building strong cultures as the superior inte-gration mechanism. One strand of research on culturalintegration in M&As suggests that overcoming culturaldifferences between merging firms is critical for elicitingbuy-in during integration (Nahavandi and Malekzadeh1988, Weber 1996). Cultural differences have also beenfound to be negatively associated with commitment tothe merger and to cooperation with the acquirer’s man-agement on the part of the acquired firm’s top man-agement (DeNisi and Shin 2004, Weber 1996, Weberet al. 1996).

In contrast, rather than viewing culture as derivingfrom fixed identities, our study highlights the fluid andongoing negotiation of boundaries that ultimately con-structs the identity of the postmerger firm, suggestingthat how and why boundary negotiation occurs in M&Ashas a meaningful role to play in mergers. Building onour findings, future research should explore how inte-gration processes unfold when boundaries created bymanagers are imposed prior to or instead of the mixingof legacy firm boundaries that we observed in the firststage of Miracle’s integration. It is likely that this typeof integration process would seem more efficient at firstglance but be less effective with members, who have nothad the opportunity to first participate in a process in

which various legacy firm boundaries are represented inthe merged firm.

LimitationsLike any study, ours has limitations that must be noted.First, our analysis is based on a case study. This methodoffers a detailed, contextually rich perspective on organi-zational processes, with particular relevance to buildingtestable theory in the area of boundaries and their role inmergers and acquisitions (Larsson and Finkelstein 1999,Larsson and Lubatkin 2001). But it represents only onefirm’s experience, and as such, general principles can bedrawn only with caution. The specifics of the story willshift in different arenas, and other contexts have var-ied social and political meanings and may have complexand unexpected ramifications. This is because the enact-ment of boundaries creates the foundations for both firmcollaboration and a new identity in a merger context,but it can also threaten to tear the organizational fabric.Indeed, it is apt to be the failed process of creating anew firm identity out of the old ones that produces somany of the failed mergers of which we are students.

ConclusionIn summary, our paper advances research on identityevolution during postmerger integration by illuminat-ing the process of enacting boundaries and the flex-ibility of those boundaries in creating identity duringpostmerger integration. Mergers are often characterizedby attempts to force a unified firm identity, often throughclashes of identity and culture, as reflected in the bodyof research that examines the contests for identity dom-inance during mergers. Our analysis suggests a processof integration that departs from a win-or-lose contestbetween dominant and subordinate identities that resultsin the emergence of a single winner. We propose amore nuanced understanding of how the process of cre-ating identity during integration involves more than sup-porting or resisting the merger based on one’s status.Rather, we claim that members of different premergerfirms enact flexible boundaries to negotiate the accep-tance and rejection of those values and practices that areperceived as relevant and necessary for successful inte-gration. These boundaries are then used as a platform bymanagement to further align the merged firm with thestrategic direction envisioned for the future.

AcknowledgmentsThe authors thank Tina Dacin, Klaus Weber, and three anony-mous reviewers for their helpful comments on earlier drafts.

Endnotes1“Miracle” and the names of the acquired companies arepseudonyms.2Only one CEO remained at Miracle at the time of theinterviews.3Between 2003 and 2010, Miracle continued to acquire ITcompanies in several countries.

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Israel Drori is a professor of management at the Schoolof Business, College of Management and visiting professor atthe Faculty of Management, Tel Aviv University. He receivedhis Ph.D. from the University of California, Los Angeles.His research interests include genealogical evolution of indus-tries, transnational and high-tech entrepreneurship, and orga-nizational ethnography with particular emphasis on culture inM&As, trust, identity, legitimacy, cross-cultural management,and organization of work.

Amy Wrzesniewski is an associate professor of organi-zational behavior at the Yale School of Management, YaleUniversity. She received her Ph.D. from the University ofMichigan. Her research interests include the meaning of workin challenging contexts and how people craft their tasks andinteractions with others at work to change the meaning of andtheir identity in the job.

Shmuel Ellis is an associate professor of management andorganizational behavior in the Leon Recanati Graduate Schoolof Business Administration, Tel Aviv University. He receivedhis Ph.D. in Social Psychology from Tel Aviv University in1985. His research interests include organizational learningand knowledge creation, entrepreneurship and genealogicalevolution, and social networks.

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One Out of Many? Boundary Negotiation and - Yale University