Managers' Forum ~ Business Case Reviews

        The integration in 1983 of the struggling privately held Italian appliance company Zanussi into the thriving publicly held Swedish company Electrolux presented a number of cultural and strategic challenges to the Swedish managers entrusted with the task.  The following characteristics summarize the most important differences between the two companies before they merged:

Electrolux

Publicly owned Swedish company
Promotions based on merit
Protestant (active) work ethic
Individuals are self-controlled, unemotional
Open dialogue with, and involving, union workers
R&D emphasized
"We can solve any problem" attitude
Horizontal management structure
Cooperation is the way of life

Zanussi

Privately owned Italian company
Promotions based on nepotism
Catholic (passive) work ethic
Individuals are animated, emotional
Closed, distrustful attitude toward union workers
R&D abandoned
"It cannot be done" attitude
Vertical management structure
Conflict is the way of life

        The Swedes countered the first challenge to their legitimate authority in typical "no nonsense" Scandinavian fashion.  When the powerful Italian union leaders protested against selling the company to the "Vikings from the North," Hans Werthén, CEO of Electrolux, stood up in front of them and declared: "We are not buying companies in order to close them down, but to turn them into profitable ventures… and, we are not the Vikings, who were
Norwegians, anyway."  Having built credibility by clearly establishing not only that they are in charge, but also that they don't speak unless they know what they are talking about, the Swedes proceeded to build trust between
themselves and the union members.  Twenty union leaders were sent from Sweden to Italy, and the same number of Italian union leaders was invited to Sweden to observe Electrolux's production system and labor relations.  Unaccustomed to such sincerity and openness, the Italian union leaders appreciated their newly acquired involvement in the company's business, and even conceded to layoffs.

        Next, the uncooperative middle managers were targeted for improvement.  Under a new agreement, wage increases were linked to productivity and training programs were launched to broaden skills and
improve attitudes.  Rather than threatening to fire managers, the Swedes opened new channels of communication between top managers and front-line managers, thus threatening to bypass the middle managers' authority.  This
non-confrontational, manipulative approach to problem solving is common in Sweden, and is reminiscent of the Chinese proverb: "the river's water gets to its destination by flowing around the boulder that is in the way and wastes no time trying to budge it by force."

        The concept of time was clearly different for Swedes and Italians.  The former moved quickly to begin fixing Zanussi's problems.  One executive claimed: "We have a definite plan worked out when we go in and there is
virtually no need for extended discussions."  The Italians, on the other hand, were slow in getting things done: "We had the habit of analyzing and analyzing, without coming to any conclusions."  Ironically, it was the Swedes' patience in working with the Italians that finally convinced the latter to adopt a more disciplined approach.

        The Italian and Swedish managers had different standards of personal and professional integrity.  The Electrolux executives made a significant compromise when incorporating Zanussi: they decided to honor two unfavorable contracts that had been entered into by the Italian company before its acquisition.  However, they refused to make one important compromise in terms of ethics and professional conduct.  In the final stages of negotiations, the audit team from Electrolux discovered that a previous managing director at Zanussi had sold large amounts of equipment and machinery to a German company and had then leased them back.  If Electrolux had accepted the liability of this unethical act that violated Italian foreign exchange and tax laws, it would have potentially exposed itself to severe liabilities and fines.  The Swedes refused to proceed with the negotiations until the Italian government promised not to take any punitive actions against Electrolux.  Gianmario Rossignolo, the newly appointed chairman of the company, commented: "We adopted the Swedish work ethic-everybody keeps his word and all information is correct.  We committed ourselves to being honest with the local authorities, the trade unions and our customers.  It took some time for the message to get across, but I think everybody has got it now."  One wonders how Zanussi dealt with the authorities, the trade unions and the customers before it was acquired!  Perhaps the untimely death of the company's last private owner, Lino Zanussi, hints at an answer; Lino and several other company executives died in an air crash.  Could the crash have been caused by sabotage?  One feels compelled to question the involvement of the Mafia, given that the process of Electrolux's acquisition of Zanussi formally began when the most powerful financier in Italy, Enrico Cuccia, the informal head of Mediobanca and a man with close links to the Agnelli family, which owns the Fiat empire, proposed that the Swedish company rescue Zanussi from financial collapse.  It is a well-known fact that representatives of Italian "big business" are often also members of the Italian crime syndicate.   In any case, it is possible that the Swedes also had to contend with a culture external to that of either Zanussi or Electrolux: that of Italian organized crime.

        As part of Electrolux's rejuvenation program for Zanussi, the Italian company's customer base, which had been previously divided, for marketing purposes, by social class (i.e., "upscale" vs. "functional" product image),
was instead divided according to cultural characteristics.  Four brand-name families of products were designed and targeted at the following cultural groups: yuppies, conservatives, environmentalists and trendsetters.  Clearly,
the Swedes understood the importance of culture in business, and were not afraid to use customers' cultural preferences to enhance the company's profit margin.

        Before Zanussi was acquired by Electrolux in 1983, it reported a loss of 120 billion lire.  Three years after its acquisition, its bottom line showed a profit of 60 billion lire.  The company's financial success was largely due to the progress made in integrating it strategically, operationally and organizationally with Electrolux, while protecting its distinct Italian identity.  The successful Electrolux-Zanussi merger marked the largest acquisition in the history of the household appliance industry and in the Swedish business world.

        1.) This attitude has been evident throughout Sweden's history when, at various times (for example, in WWII) it proclaimed itself to be "neutral" on many issues of global proportions, but in fact remained involved and
affected outcomes by indirect means.
        2.) Pino Arlacchi, Mafia Business: The Mafia Ethic and the Spirit of Capitalism, Verso, New York (1983).
        3.) This paper was based on the Harvard business case Electrolux: The Acquisition and Integration of Zanussi, prepared by Dag Andersson, Nicola de Sanctis, Benjamino Finzi and Jacopo Franzan under the direction of Associate Professors Sumanta Ghoshal and Philippe Haspelagh.  The case was published in the following book: Christopher A. Bartlett and Sumantra Ghoshal, Transnational Management: Text, Cases and Readings in Cross-Border Management, 2nd Ed., pp. 427-447, Irwin McGraw-Hill, New York (1995).

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