Organizational behavior is essential and important for a successful merger of two very different companies. TABLE OF CONTENTS Executive Summary2 Intr?du?ti?n4 Di??u??i?n5 Benefits Of Integration7 HRM ?tr?tegie?8 ?te?? F?r ?tr?tegy Im?lement?ti?n11 References13 Intr?du?ti?n Mergers and acquisitions have been essential tools of corporate growth and have become an attractive means by which to grow an enterprise. According to Cartwright and Cooper (1996), over 50% of North American business acquisitions failed as measured by an increase in shareholder value and additional studies revealed that the human capital element impacts more so han the financial factoring among the root causes of merger and acquisition failure (Cartwright & Cooper, 1996). As researchers narrow their focus on the issues surrounding the human capital impact on M&A success, new information is being developed in the area of employee morale and turnover intention and the impact these factors have on employees’ commitment to the new organization. Exploring how an acquisition impacts the employees of the acquired firm contributes to an understanding of how human capital impacts the success or failure of the acquisition (Luecke, 2003).
With the increased M&A activity over the past years there have been an increasing number of studies conducted that have looked at acquired employees’ reactions to a merger or acquisition through various complementary lenses. This study established an additional view of the concept of employee commitment may be viewed as a pivotal component of employee morale and turnover intention. This study first explored mergers and acquisitions and briefly touched on the benefits of integration strategies. The second section defined and explored the history of the telecommunications industry.
The third section investigated the impact human resources have on the success of M&As. The third part concentrated on employee morale and turnover. The final section uncovered the making of the telecommunication megamerger, and revealed the organizations being researched in this analysis. The purpose of this research is to provide a theoretical framework on the impact megamergers have on employee morale and turnover intention. Di??u??i?n Merger and acquisitions (M&A’s) often refer to the facet of business scheme, and management considering with the buying, trading and blending of another company.
According to Banal-Estanol and Seldeslachts (2004), mergers and acquisitions are often created to expand a current organization or operation aiming for long term profitability and an increase in market power. Mergers and acquisitions have continued to experience dramatic growth (Banal-Estanol & Seldeslachts). Record breaking megamergers have become commonplace across the globe, in spite of the disparity of failure versus successful stories (Feldman & Spratt, 1999). Mergers and acquisitions, historically have failed to significantly add value to the acquiring firm (King, 2004).
Despite the goals established pre-merger, such as increasing shareholder value, expanding market share, and operating more efficiently, the key element to the success of a merger or acquisition is often overlooked, that key element being, human capital. Feldman and Spratt (1999) acknowledged that key people often leave with core technology, crucial customer relationships, proprietary knowledge, vendor and industry relationships, and the loyalty of other employees who eventually follow them.
These departures often disrupt business, distract the organization, induce uncertainty, and lower productivity (Feldman & Spratt, 1999). An acquisition is anticipated to conceive worth and to provide a come back on investment. It is only through the blended efforts of two sets of workers that these objectives will be achieved. Although, human reactions to change are often difficult to anticipate. Change brings doubt and ambiguity. Psychological and sociological factors become intermingled and behavior influenced.
The buyer’s first decisions are scrutinized nearly, for they give a concept of what the new working environment will be like. The merger can lead to important changes in behavior, which may help or hinder the progress of the project. According to Bruner (2005), it is already difficult to manage a group of human beings, and even more so when a merger or acquisition occurs in which two staffs with different histories, practices, and experiences are joined. The pace of mergers and acquisitions (M&A’s) picked up in the early 2000’s after a short interruption in 2001.
The economic slowdown and recession in the United States and elsewhere in 2001 brought a halt to the record-setting fifth merger wave. The fifth signal, starting in 1992, saw the number of M&A’s increase. According to Gaughan (2007), larger deals, some similar in size to those in the fourth wave, began to occur again. Managers were determined not to duplicate the mistakes of the 1980’s therefore they focused their attention on more strategic deals that did not unduly rely on leverage (Gaughan, 2007). Certain industries make up a large share of the total M&A’s in the United States.
In particular banking and finance industry along with the communications and broadcasting industry accounted for 26. 5% of all of U. S deals between 1993–2004 (Gaughan, 2007). However, the percentage accounted for in these industries rose from a low 7. 5% in 1994 to a high of 41. 9% 1999. There were a combination of factors that caused these changes, including the continued impact of deregulation and consolidation of the banking industry as well as the dramatic changes that were ongoing in the telecom industry and Internet-related businesses (Gaughan, 2007).
Benefits of Integration History shows that many mergers are cost-driven and others are built on growth expectations, however they are always about change. According to Habeck et al. (2000), post-merger integration is most often the key to their success. Change in any environment is a challenge and it is important that management understands change and anticipates it along with prepare for the many aspects of change that will occur (Habeck et al. , 2000). M&A’s have become a more integral part of business life.
Frank (2002) acknowledges that the idea of a megadeal continues to haunt floors of the world’s largest companies. Therefore for companies involved in mergers or acquisitions, in an effort to prevent the hangovers that strike the majority of M&A’s, management must manage their post-merger integration more consciously and professionally. The integration phase plays the most integral part in the success or failure of the merger (Bruner, 2005). One of the most important factors in how well two companies integrate depends greatly on how well the integration is managed (Meschi, 1997).
Fisher (1994) asserted that the most success and best mergers were those where managers of both companies took the time to thoroughly understand what they were getting into. The leaders must be willing to create a new culture that makes use of the best parts from both partners. In order to convince all company members, it is essential to be honest with employees about all aspects of agreements and to take time to reassure valuable workers that their jobs are safe. HRM ?tr?tegie?
History shows that only 30–40% of all mergers and acquisitions are successful, despite companies stating that their merger has been successful but have been unable to derive the kind of benefits that were expected, triggers the question what is stopping these companies from achieving complete success (Ajjarapu, 2004). Ajjarapu reported that one of the main reasons for failure of a merger or acquisition is based on human resources neglect. Companies which have failed to recognize the significance of human assets in their associations and their function in the success of integration have failed to come to success.
Dixon and Nelson (2005) reported that HR professionals are not included as part of the M&A team, which is typically comprised almost entirely of people from finance, IT and other disciplines seen as essential to making the deal work. Unsuccessful merger activity is fast becoming the norm and one of the main reasons behind this is the underestimating impact culture has on merger success. Cartwright and Cooper (2000) accepted that the premier functions of up to date human assets purposes are to be dynamically engaged in the association and perform as a enterprise colleague and advisor on business-related issues.
Gaughan (2005) stated: Human resource departments in today’s organizations are practical and strategic. As such, they can add significant value for companies through development, managing personnel conflict, reinforcing the new HR system and corporate culture, and providing leadership and communication to reduce turnover. (p. 20) This is particularly critical in the locality of amalgamations and acquisitions. People issues have been the most sensitive but often ignored issues in a merger and acquisition (Giles, 2000).
When a decision is taken to amalgamate or come by, a business analyzes the feasibility on the business, financial and legal fronts, but falls short to identify the significance adhered to the human assets of the associations involved. Organizations fail to realize that people have the capability to make or break the successful union of the two organizations involved. Ajjarapu (2004) reported that it is important for organizations on the verge of integration to analyze the feasibility of the integration of key players from the human resource side of the house.
Research showed that only 35% of senior HR executives were involved in M&A activities (Giles, 2000; Liberatore, 2000). Other research reported that 80% of combinations failed at the implementation stage as a result of the following factors; an inadequate road map, senior HR professionals brought in too little, too late; senior HR professionals lacking in business experience; an inadequate skills base overall; and ultimately, failed organizational change (Charman, 1999; Greengard, 1999).
Anderson (1999) reported that it is imperative that human resource professionals are key in pre-merger discussions and the strategic planning phase of mergers and acquisitions early as to allow them access to the corporate cultures of the two organizations. Being engaged in the pre-merger stage permits HR to identify areas of divergence which could hinder the integration process. HR plays a vital role in addressing any communication issues, compensation policies, skill sets, and company goals that need to be assessed (Deal & Kennedy, 1999).
Deal and Kennedy (2000) reported that it is imperative to involve HR to handle other issues such as addressing employee concerns, developing a detailed integration plan for merging the people of the two organizations, conduct talent audits, manage downsizing with care and most importantly motivate employees (Deal & Kennedy, 2000). A study conducted by The Society for Human Resource Management revealed that more than two-thirds of the senior managers interviewed had been involved in three or more mergers, acquisitions or joint ventures within the past 5 years.
Key results of the survey indicated that, while the experience level in corporate America is deep, the quality of such M&A activities has gone missing. The findings included: [1. ] Only 43% of respondents reported success in achieving the expected pre-deal results. [2. ] Of the 82% of respondent companies that listed growth in market share as the most important expected result of the merger, only 49% reported achieving the goal. [3. ] Companies for whom the drivers were leadership in a consolidating industry and enhanced brand strength reported similarly disappointing results. 4. ] Respondents reported that the major obstacles to M&A success were: [a. ] Inability to sustain financial performance (64%) [b. ] Loss of productivity (62%) [c. ] Incompatible cultures (56%) [d. ] Loss of key talent (53%) [e. ] Clash of management styles (53%) (p. 5) Dixon and Nelson (2005) asserted: These outcomes give a clear suggestion and supply a cornerstone for healing the M&A persevering or at least beginning the remedy with the right prescription. After all, three of the five obstacles listed above fall squarely within the human resource arena. p. 5) Most of these senior HR leaders were not included in the pre-deal planning activities by their own companies. With so much to offer and a general consensus of the positive correlation between HR involvement and the success of mergers and acquisition, the question remains as to why HR does not play an integral role in the M&A proceedings (Dixon & Nelson, 2005). ?te?? F?r ?tr?tegy Im?lement?ti?n Mergers and acquisitions represent change, and it is this change that generates different emotions among different employee groups.
While employees from an acquiring company may feel excited about the new challenges that the integration brings to them, employees from an acquired company may have very different reactions, such as feeling anxious, uncertain, or even intimidated as they go through major changes (Machiraju, 2003). In the face of organizational changes from M&A’s, employees tend to be worried with issues such as job security and their future careers with the organization (Daniel & Metcalf, 2001).
According to Wasserstein (2001) when uncertainty drags on without being addressed, or when employees do not have a good understanding about the change process or new work roles and standards, it impedes productivity and performance. The rumor mill begins and employee morale not only decreases, but many employees do not wait around: they jump ship and leave the company. For example, when Hewlett Packard (HP) broadcast its merger with Compaq, employees became concentrated on protecting their occupations rather than of assisting customers.
Consequently, HP lost customers to other competitors (Nguyen & Kleiner, 2003). Given that change is inevitable when two organizations are combined, communicating upfront about what will happen can help prepare employees for these changes. Each stage in a M&A is a stressful time for both employees and managers, and each have to work together to avoid many of the disempowerment and mistrust that often comes with it. This is mostly because of today’s environment which seems to survive on rapid change and a great deal of uncertainty.
It is very important for a company to maintain the trust of its employees when the change is taking place, this will ensure that as few employees as possible are “injured” and you retain much of the loyalty of the workers that remain (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994). When employees are treated well, they can survive any type of future crisis that an organization will go through. The surviving employees of the M&A will work to build a better a better stronger company in the future.
How management deals with these employees affects their morale and can either positively or negatively affect their productivity. M&A’s are becoming a fact of life. They are something that will continue to happen unfortunately with no end in sight. As long as the economy continues to rise and fall, so to will the concept of merger, acquisitions, restructuring, streamlining and downsizing. References Abrahamson, E. (2004). Change without pain: How managers can overcome initiative overload, organizational chaos, and employee burnout. Boston: Harvard Business School Press. Ajjarapu, N. (2004).
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