The failed merger between Daimler-Benz and Chrysler suggests that the integration of large corporations requires in-depth assessment of external risks and possible conflicts within an organization. Provided that these precautions are not taken, even very efficient companies can become stagnant. On the whole, it is possible to make several recommendations on the basis of this case.
First of all, the management of merged companies should not be too optimistic about the performance and profitability of their organizations. The thing is that the integration of large corporations is a very time-consuming process because it is necessary to align different cultures, production methods, performance appraisal techniques and so forth.
This issue is particular important in those cases when business administrators set timelines or develop schedules. The management of DaimlerChrysler expected significant revenues within several years, but these expectations were unrealistic.
The problem is that unrealistic expectations often lead to panic and hasty decisions. For example, many Chrysler executives were fired only because DaimlerChrysler did not attain the expected financial goals. Such a strategy only increased the tensions within the organization.
Prior to the merger, the management of companies should pay close attention to the competitive positions of each other and the trends that emerged in a certain market. For example, Daimler-Benz was an indisputable leader of the German car-manufacturing industry.
Moreover, they believed that the partnership with Chrysler would give them access to the U.S. market. Yet, Chrysler faced significant competition from Ford as well Toyota. Again, this recommendation is related to the problem of unrealistic expectations set by corporate executives who expected that the merger would become successful almost immediately.
The executives of such companies should find ways of reconciling various organizational cultures. It should be noted that Daimler-Benz and Chrysler had different polices regarding executive compensation, work styles and decision-making within the company. These differences resulted in many conflicts between the employees of these corporations.
Their corporate executives should create a culture that appeal to the workers of a newly-created company. Under these circumstances, the HR managers of both companies should join their efforts and develop a set of policies related to compensation, evaluation of performance, and the structure of the new company. In this way, companies can avoid many potential conflicts.
The managers of merged companies must ensure that different departments or divisions of the organization can share resources, technologies or information. For instance, Chrysler did not receive any support from Daimler-Benz. Thus, corporate executives should eliminate the barriers that prevent different departments from cooperating with one another. These organizational policies were not developed in DaimlerChrysler.
Business administrators should inform the employees about the future strategies and goals of an organization. The workers should now what is expected from them and how they are supposed to achieve these goals. The Chrysler employees never had an opportunity to interact with the management and discuss future activities of the organization.
Many workers were not confident of their job security and this lack of certainty could adversely affect their performance. It should be noted that many former executives were fired because of satisfactory results and this influenced the overall morale with within the company. This is one of the reasons why this merger was unsuccessful.
The executives, who plan the merger of two organizations, should determine whether this partnership will be really a merger of equals. They have to decide which partner will play the leading role.
The union of Daimler-Benz and Chrysler was described as the merger of equals, but this approach resulted in a great number of conflicts between the executives of the American and German divisions of DaimlerChrysler. At the very beginning, this issue was not properly addressed by the leaders of two corporations.
Finally, business administrators should find ways of making large corporations less bureaucratic and hierarchical. In particular, they must ensure that workers can communicate with top executives of any organization.
This task is particular important for merged corporations like Chrysler and Daimler-Benz. This goal can be achieved by joining several departments and empowering workers. The managers of DaimlerChrysler did not do it.
Conclusion
On the whole, the merger of Daimler-Benz and Chrysler can be viewed as a valuable lesson for other companies that intend to merge with one another. Moreover, the recommendations put forward in this paper can be applicable to other industries, for instance, financial services sector, IT industry, manufacturing and so forth.
Furthermore, the challenges described in this report are particularly relevant to large corporations that can be based in countries with legislation, work culture, language, and labor relations. In particular, this case illustrates the importance of reconciling different organizations, exchange of information between departments, and employee involvement.
Furthermore, such a problem as unrealistic expectations can occur in various organizational settings. This is why the lessons of DaimlerChrysler should be considered by the management of various organizations that are supposed to merge with one another; otherwise these companies will not attain their objectives.
Conflicts are a constant reality in our society and the effective resolution of the same may spell the difference between a successful and failed society. It is therefore imperative that the people involved in a conflict resolve the contentious issues constructively. Key to the process of conflict resolution is the use of negotiation tactics and strategies. This is because a deeper understanding of negotiation results in people getting the necessary skills required in diffusing conflicts. Knowledge of the negotiation process is therefore vital for effective conflict resolution. In this paper, I shall give a detailed description of how a merger problem can be solved through negotiation. The steps that should be followed during the negotiation shall also be discussed.
Shamir (2003), claims that negotiation can be defined as a form of communication whose purpose is persuasion. The negotiation process is therefore a process by which parties to a dispute discuss possible outcomes to their conflict. The parties involved might choose to adopt one of the two fundamental negotiating approaches: Competition or collaboration. Despite the fact that the proposed merger is beneficial to both companies, we all need to protect our interest to ensure that each company remains relevant after the merger. As such, the fundamentals of negotiation that should be employed in this case are finding resolves through the interests and positions of the parties.
Negotiation fundamentals employed in resolving the merger issue
The competition approach of negotiation is based on opposing positions (demands), and ends up in a win-lose scenario. Hunt (2009) states that the negotiation process may be futile if a partys wants are not fully addressed. For example General Dynamics may want a particular price, work schedule or changes in the mode of operation of Lockheed-Martin. In this case, using the demands (positions) of General Dynamics as the baseline for this negotiation would be very important.
This is attributed to the fact that if General Dynamics feels like their demands (stand on the issue) have been addressed through the negotiation, they will have no choice but to sign off the merger. However, Lussier (2008) states that while using this strategy, it is always important to ensure that the negotiators demands are also addressed with little to no compromises. Being the negotiator in this case, I have to ensure that the demands of General Dynamics are addressed so that they can agree to the merger.
On the other hand, I have to employ the collaborative approach which is based on common interests therefore yielding to a win-win outcome. In addition to the competition approach, I have to find the common interests between our companies and use them as leverage in pursuit of an agreement. Information is important towards a successful negotiation. All companies want to make profits, expand their market base and lower costs. As such, I would ensure that I gather as much information as possible regarding to General Dynamics position on these aspects. I would then use this information to present my arguments for this merger. This would ultimately lead to a unanimous consensus and ensure that the merger is a success because the common interests of both firms have been addressed.
Negotiation sub processes that will help ensure a successful negotiation
The first step in the negotiation process is to describe what it is that you want to negotiate (interests). This is based on the concept that negotiation involves conflicts about particular resources. General Dynamics will therefore identify if there is a situation that needs to be negotiated. Lack of an identifiable area of conflict invariably renders negotiations unnecessary. Having acknowledged the conflict, the negotiations between General Dynamics and my company can be deemed as being ready to begin.
The process ideally begins by both parties presenting their issues which are mostly in the form of demands and goals to be met. A goal is defined as a known or presumed commercial or personal interest of all or some of the parties to the negotiation and it is these goals that set the grounds for the negotiation process (Barry, Lewicki & Saunders, 2010). From this an outline of expectations from the parties involved can be made and the agenda for the negotiation process outlined.
Having established the basis for the negotiation, we can now delve deeper into the task. While the preliminary stage acted as ground for negotiation, the information on the issues at hand was only sparingly addressed. The second step involves a deeper probing to enable both parties understand each other better. As such, this step is characterized by the informational exchange between the parties involved in a bid to establish the real needs and goals.
Each side aims at understanding the opponent, their limits and how far they are willing to compromise so as to reach a consensus. Use of open-ended questions and allowing the other party to correct your understanding of the issue are some of the best means of ensuring that a good understanding of the issues at hand is attained. Restatement of information leads to clarity and confirmation thus assuring that communication is effective.
A key element in this step is to get as much information as is possible to enable the parties to come up with as many options as are possible. It is in this stage that a person can also gain a better appreciation of the other partys point of view. This will be hugely beneficial since once you are able to look at the conflict from the other persons point of view, you can propose solutions that they would find appealing and therefore resolve the issue.
Concession trading which is the aim of good negotiation is the next stage in negotiating. Shamir (2003) defines consensus building as a decision and agreement reached by all the identified parties. In this process, each party is required to reduce their demands or aspirations so as to accommodate the other party. Through this process, unanimous agreement over the disputed issue(s) is reached. As such, each side makes some gains and possibly some loses.
Conclusion
Negotiation is one of the most productive means through which disputes can be successfully resolved. An understanding of the negotiating process greatly empowers a person in his/her negotiating undertakings. In addressing the merger issue between these two companies, the key steps in the negotiation process have been outlined. While the process described herein is basic and might have to be modified to be applicable to the specific disputes at hand, it provides a good framework for negotiation tasks. An understanding and proper implementation of these process will lead to greater success during negotiations.
References
Barry, B., Lewicki, R., Saunders, D. (2010). Negotiation Readings, Exercises and Cases. New York, NY: McGraw-Hill Companies, Inc.
Hunt, P. (2009). Structuring mergers & acquisitions: a guide to creating shareholder value. New York, NY: Aspen Publishers.
Lussier, R. (2008). Management Fundamentals: Concepts, Applications, Skill Development. San Fransisco, CA: Cengage Learning.
Shamir, Y. (2003). Alternative Dispute Resolution Approaches and their Application. Buenos Aires, Argentina: PCCP Publications.
The airline industry is a capital-intensive industry that has stiff competition. Some of the avenues that airlines use to compete include convenience of flights, inflight comfort, capacity, and ticket prices (Inderwildi & King, 2012). Stiff competition necessitates airlines to form collaborations to improve their profitability. National flag carriers are the major airlines that dominate the market.
The national carriers may use their vast resources to acquire small airlines. This reduces competition in the industry. KLM is a Dutch national carrier. On the other hand, Air France is a French national carrier. Problems that the two airlines faced necessitated the merger of the airlines. The merger would lead to the formation of Air France-KLM holding company.
This would make Air France-KLM the largest airline in the world in terms of revenue. The European Union (EU) is a powerful body that can negotiate on behalf of its members. The EU has the right to enter into open-skies agreements with non-member states. In so doing, the EU ensures that it safeguards the interests of member states. Therefore, the EU plays a critical role in shaping the future of the airline industry.
The EU kicked off negotiations with the US on behalf of the member states (Tagliabue, 2003). It was vital for the merger of Air France and KLM to get the approval of the EU. The merger would lead to the formation of Air France-KLM holding company. However, the individual airlines would continue operating as independent companies to preserve their distinct identities (Tagliabue, 2003).
The holding company would have three major operations. These included passengers, freight, and aircraft maintenance. The merger would be greatly beneficial to both airlines. The merger would lead to financial stability of the Air France, which was on the verge of bankruptcy in the mid-1990s. On the other hand, the merger would inject capital into KLM.
The merger of Air France and KLM would lead to significant changes in the market. In the long-term, the merger would help in reducing the number of the carriers that compete in the European airline market. The merger would help in the formation of a small number of large carriers. This would make the European airline market resemble the American airline market, which has a small number of large airlines.
American Airlines and United Airlines are the dominant players in the American airline industry (Ireland, Hoskisson & Hitt, 2008) Focus of the large airlines on the long-haul routes would help in the growth of small airlines, which focus on short-haul flights. Growth of the short-haul flights would increase competition in the short-haul routes. This would put pressure on the traditionally high fares of European carriers.
However, certain analysts believe that the merger would limit competition in the airline industry. According the analysts mergers of large airlines would lead to reduced capacity and higher ticket prices. In addition, large carriers may use their resources to push small airlines out of the market.
Mergers should take into the consideration the interests of shareholders of the respective companies. Most mergers offer shareholders a premium price on their shares (Peng, 2011). Shareholders of KLM received 11 shares of the holding company for every 10 KLM shares. In addition, the shareholders had warrants of additional shares until 2008.
On the other hand, shareholders of Air France received one share of the holding company for every Air France share. Therefore, the merger was more beneficial to the shareholders of KLM. This led to an increase of the price of KLMs shares and a fall in the share price of Air France in the stock markets.
The merger of Air France and KLM would lead to significant changes in the European airline industry. The merger threatened the position of the British Airways and Lufthansa, which were the two largest airlines in Europe. However, it was vital for both companies to formulate strategies that would enable them combine their strengths to improve their competitiveness (Ireland, Hoskisson & Hitt, 2012). Otherwise, the merger would be ineffective.
References
Inderwildi, O. & King, D. (2012). Energy, transport, & the environment: Addressing the sustainable mobility paradigm. London: Springer.
Ireland, R.D., Hoskisson, R.E. & Hitt, M.A. (2008). Understanding business strategy: Concepts and cases. Mason, OH: Cengage Learning.
Ireland, R.D., Hoskisson, R.E. & Hitt, M.A. (2012). Strategic management cases: Competitiveness and globalization. Mason, OH: Cengage Learning.
Peng, M.W. (2011). Global business. Mason, OH: South Western Cengage.
When in 1987 the Detroit Free Press and Detroit Daily News merged under a special exemption from the antitrust laws, both companies expected to have successful cooperation that could provide more benefits. As it was an important measure of surviving both news-papers, the merger allowed companies to consolidate their resources. In total, according to Savage, the Detroit Free Press had lost $81 million between 1979 and 1986 (1989). Both newspapers were losing about $10 million per year and needed the special forecasts that could improve the situation. The forecasts for the merged firms profits are the use of financial resources to implement the latest technologies, develop a new structure of papers, and provide new creative ideas.
After the merger, the papers began to publish joint Saturday and Sunday numbers. Changing the structure, the papers were able to remain separate within the common edition. As both companies had millions of readers, such a measure provided the possibility to retain the whole audience.
Today, trying to provide the new structural ideas, the company does not afraid to lose the interest of people. Thus, Carmichael cites the words of Rich Harshbarger, vice president for consumer marketing at the Detroit Media Partnership which operates the joint agreement between the Free Press and the News, our readers have come along with us in this model (Carmichael, 2010). Therefore, it is possible to notice that, changing the structure and providing the new editions, the merged firms can expect more profits.
If the permanent audience is retained, the companies can think about creative ideas that can help to attract new readers. For instance, companies could print additional editions dedicated to special events. Such an idea can find new readers and, besides, open more places for the advertisement. Creative ideas are the key aspect of the successful policy of every corporation. As it was announced after the merger, the companies expected to convert what had been annual losses of $10 million a year for both papers into an estimated $100-million-a-year profit to be shared by the two companies (Savage, 1989). However, today, the merged companies cannot say that papers are profitable ( The Detroit Free Press and Detroit News are Michigans largest daily newspapers , n.d.). Therefore, it is necessary to provide new ideas, attracting new readers and, thereby, getting the profits.
Achievement of a profitable economic scale is impossible without the use of the latest technologies that can make the process less expensive and more effective. Although, after the merger, both companies got an opportunity to reduce the outgoings related to the publication of two separate editions, it is necessary to change the technical arsenal, proving the most effective high-tech facilities. Joining financial resources, companies have more economical capacity to buy such technologies.
Concluding, it is possible to notice that the merged companies should pay more attention to the facilities as the technological basement of the newspaper. Since companies joint their financial resources, they can spend more money to use high-tech. Besides, it is always necessary to develop new creative ideas that can attract new audiences and providers of the advertisement. Such recommendations can help merged companies to get more profits. The example of the Detroit Free Press and Detroit Daily News merger demonstrates that it is possible to save the original face of each newspaper and its readers, however, it is more important to elaborate on the new ideas and find the perspectives of development.
Reference List
Carmichael, K. (2010). Not So Daily. American Journalism Review. Web.
The M&A is a complicated process and requires the company to conduct research and planning before the actual application. Meanwhile, the preparation stages role cannot be underestimated, as it contributes to the understanding of potential threats and opportunities. It is critical to determine a relevant action plan, which will prepare Caracal Light Ammunition (CLA) to the actual process while proposing the matters, which have to be emphasized during the implementation stage.
Firstly, value creation and establishing the objectives and goals have to be prioritized since it helps CLA maintain its finance on a sufficient level (Chanmugam, Shill, Mann, Ficery, & Pursche, 2005). In this case, the acquisitions primary goal is to enhance the flow of the processes within the organization, as the ownership of Expert Future Cargo will assist in the reduction of costs and improvement of the logistics. Consequently, the acquisitions critical intention is to advance the production process and the financial performance, and it could be said that selecting the required personnel, training, and leadership to ensure the efficiency of the process has to be prioritized.
Meanwhile, the management of CLA has to evaluate to ensure the organizations functioning at a sufficient level, as the information provides the company with the basis for the decision-making (GeorgePShenas, 2009a). In this instance, the company has to access various acquired firm matters, including its financial performance and liquidity (GeorgePShenas, 2012). Furthermore, this analytical process defines CLAs subsequent actions while providing the rationale for its future actions. In the context of the presented case, the company has to expand knowledge about the potential firms for acquisitions such as Expert Future Cargo. This aspect will define the companys success in the future while affecting financial performance dramatically.
Furthermore, the risk assessment can be regarded as one of the critical instruments for completing the acquisition due to the matters related to the presence of conflicts and inadequate actions of the integrated company after the procedure (Lynch & Lind, 2002). The existence of the transparency will ensure the relationships with the rationale behind the decision-making and improve the quality of the overall process (GeorgePShenas, 2009b). It could be said that the risk assessment will not only help understand the overall threats related to the acquiring firm but also determine the potential jeopardies related to the external environment. This approach will help assess the issue from dissimilar perspectives while depicting all internal and external issues.
In turn, the evaluation of the required time will have an advantageous influence on the companys functioning as the acquisitions are beneficial while being implemented within 12-24 months (Chanmugam et al., 2005). In the context of the presented case, the overall process will be implemented within 12 months due to efficacious leadership and communication network. Nonetheless, the due diligence timeline will be maintained since this aspect is critical for monitoring the costs and incomes related to the operations of CLA.
In the end, a combination of these factors will contribute to the understanding of the risks and opportunities related to the decision-making while preparing the organization for the potential changes and fluctuations in the environment. Nonetheless, CLA has to prioritize the goal setting, and personnel selection as the subsequent matters are dependent on this aspect. In turn, the information analysis and risk assessment role cannot be underestimated, as they define the rationale and appropriateness of the acquisitions while defining the due diligence timeframe.
References
Chanmugam, R., Shill, W., Mann, D., Ficery, K., & Pursche, B. (2005). The intelligent, clean room: ensuring value capture in mergers and acquisitions. Journal of Business Strategy, 26(3), 43-49.
Managing change is one of the most important management activities when two firms merge to form a single entity. According to Franklin (2014), when there is a merger between two large firms, the management must restructure various operational activities and management roles to create an environment that will be conducive to all the stakeholders. Al Bawadi Islamic Bank has been operational for the last 16 years and has over 10,000 employees working in its 55 local branches and 12 overseas branches. This is an indication that it has managed to overcome environmental challenges to achieve such a level of success.
This firm has achieved success through its traditional approach to Islamic banking. On the other hand, Al Shurooq Bank is a relatively smaller bank with about 2000 employees working in seven local branches and it currently has no overseas branches. The firm has taken the online banking strategy that is increasingly becoming popular in the modern society. These two banks have taken two different approaches that make them strong in different ways. Merging these two banks will ensure that they bring together their strengths in order to sustain the emerging forces in the environment. In this paper, the researcher will critically analyze the approach that the merge should take, and give appropriate recommendations to ensure that the new entity becomes successful.
Name the new Bank
According to Suchy (2004), when two entities are merging to form a single business unit, one of the very first factors that they should take into consideration is the name that will be appropriate. I strongly suggest that the name should have a reflection of the current names of the two banks. Al Bawadi Islamic Bank is indeed the dominant partner that is popularly known, with a larger customer base and a strong market brand.
However, Al Shurooq Bank has also made an effort to acquire a customer base over the years, and it should not be considered an underdog when coming up with the name. Customers of the two banks and the employees will be brought to the new entity hence they should feel some sense of belonging in the new name that is developed. The proposed name should be Al Bawadi-Shurooq Islamic Bank. This name will reflect that the new entity brings together two previously independent firms.
Possible Impacts of the Change on the Stakeholders and How to Deal With Them
When the complex task of coming up with an acceptable name has been done, the next phase is to understand the forces of change and the impact that it will have on various stakeholders. As Franklin (2014) says, change is often present in various contexts of a firms operation, but when there is a merger, it becomes more pronounced and sometimes very disruptive. The merger is expected to result in serious restructuring and rightsizing to avoid cases of duplication of work in the new entity. The new firm will indeed have more operational activities, but some positions cannot be held by two people. These are some of the areas that will need to be reviewed when coming up with the new structure. The following are some of the specific stakeholders who will be affected by the new structuring of the firm that is expected.
Impact on the shareholders
The shareholders of these two firms will be affected by the merger. They will indeed have a larger firm under their ownership, but their number shall also be increased. One of the main areas of change that will affect the shareholders is how they will receive their dividends. Each of these banks has its own ways of giving their shareholders dividends. When they merge to form a single entity, they will have to redefine a new formula of sharing the dividends.
Another impact on the shareholders is that their level of control in the new business will be significantly reduced because of the increase in their number. For instance, if one shareholder at Al Shurooq Bank had a 50% control of the firm, it meant that nothing could be done without his approval. However, when the two firms merge, his shares in the new firm may be reduced to as little as 10% or less. It means that his decisions will be of significant effect on the final decision taken by the shareholders. Another effect will be in the decision making.
According to Suchy (2004), it is easier to make decisions when dealing with just a few people than when one has to deal with a large number of employees. Under the new entity, the shareholders will now have to contend with a huge number of decision-makers who must be taken seriously when coming up with decisions. It is expected that the impact on the stakeholders will be positive because the new firm will be bigger, more profitable, and better placed to overcome market challenges such as stiff competition in the banking sector.
How to deal with the impact
To deal with the expected impact on the shareholders, it will be necessary to inform them of the new dynamics that will be experienced under the new organization. I strongly suggest that before the merger, the shareholders of the two companies should have more than one meeting to iron out issues that may affect their relationship in the future. This will help avoid any disagreements or a feeling of betrayal in the future.
Impact on the customers
Customers will also be affected by the expected restructuring after the merger of the two firms. As Levasseur (2010) says, customers are often the biggest beneficiaries when two firms offering two products in different approaches merge to form a single entity. Al Bawadi Islamic Bank is operating under traditional banking based on the Islamic banking system while Al Shurooq has embraced the internet banking system.
When the two banks merge, customers will be offered an opportunity to have access to both forms of baking. They will not have to seek for banking services in two different institutions because their needs will be adequately be met in this new single entity. This will reduce the service fee they are charged if they were to operate two different banks. It is important to note that they will have to embrace the new rates that will be adopted by the new firm. I highly recommend that the new management should avoid hiking banking charges under the new system. This may drive away a section of the customers who may not be willing to pay more for the banking services offered to them.
How to deal with the impact
The policy of customer is the king must be embraced in the newly structured entity to avoid negative experiences that customers may have under the new system. The new marketing team must ensure that clients from both firms feel that their interests are adequately taken care of in the new firm. The cost of operating their accounts should not in any way be higher than it was previously.
Impact on government
The government may be affected by the planned merger of the two banks. According to MacLeod (2015), mergers are often counterproductive to the development of an industry because it kills competition. When these two banks come together, they might have a strong competitive power that can enable it to frustrate other banks within this economy. It may force other smaller firms to either relocate to other markets or fold-up their operations.
If that happens, the government will be affected in terms of reduced revenues because there will be few firms within this banking industry. Some executives may lose their jobs based on the restructuring and downsizing that is expected when streamlining the operations of the new firm. It will hurt the government in terms of reduced revenues from pay-as-you-earn taxes. It will also increase unemployment, something that the government is keen on combating.
How to deal with the impact
It is always in the interest of the government that mergers should help struggling firms not to fold up instead of giving strong firms an unfair advantage in the market over their competitors. It should create more jobs and increase government revenues, not vice versa. For that reason, it will be important for the government agencies to take an active role in this merger process. The United Arab Emirates Ministry of Economy must ensure that the merger will not affect market competition and that it will not be counterproductive to the governments effort to create more employment.
Impact on the top managers
According to MacLeod (2015), mergers often affect top management unit the most because there are always positions that have to be merged. There is often the fear that top managers such as the chief executive officer, chief financial officer, marketing director, human resource manager, and chief operations manager may lose their jobs. Indeed this is true because these are offices that must only be held by one office-bearer. The fear may affect the morale of the top managers, and this may affect the entire firms operation. Some top managers may have to be redeployed to other positions that may seem junior to the positions they previously held in their respective firms. Others may have to be laid off if they cannot fit in the newly structured management unit.
How to deal with the impact
The new firm must come up with effective ways of dealing with this problem because it may affect the firms operations and profitability in the market. All the top managers must be prepared psychologically that under the new system, some of them may be redeployed to positions that may seem junior to the position they previously held. They should be, therefore, prepared for such eventuality. When selecting the top managers from among the current top managers in the two firms, emphasis should be placed on the skills, experience, and productivity of the executives based on their past records. Fairness should also be seen in terms of selecting the managers from the different firms.
Impact on the junior managers
The junior managers, supervisors, and employees in non-managerial jobs may not be affected much by the expected structure that is to be created. According to Levasseu (2010), in most of the cases, these employees may continue working in their respective positions as long as branches, where they were previously working before the merger, is not affected. Even the junior managers and supervisors such as branch managers may not be significantly affected by the merger. However, they should expect minor changes such as being transferred from one branch to the other to integrate the workforce.
This integration is important to ensure that the employees can share their experiences and knowledge gained while working in different firms. They should also be ready to deal with the new organizational culture that is likely to be developed after the merger.
How to deal with the impact
The top management unit will have to find ways of dealing with the problem of culture shock. It is expected that the new organizational culture may be strange to some employees who were used to a given culture. The top manager should prepare these junior managers and employees psychologically and make them ready to deal with new systems and structures that will be developed at the new organization.
Leading the Change
According to Harrington (2006), managing change is not an easy task, especially in a system where a section of the stakeholders feel that their position will be affected. However, the new firm (Al Bawadi-Shurooq Islamic Bank) will have no choice but to embrace change in various departments and areas of operation. Leaders of change will be the top managers of this firm. The newly constituted board of directors will initiate the change by appointing the new chief executive officer and top managers who will work with him or her in steering the firm in the right direction. After initiating the change, the newly constituted team of executive leaders will take over the role of leading change within the organization.
They will come up with an organizational culture that is fit for the employees from both firms, determine how the workforce will be integrated without making any of them feel intimidated, and redesign operational activities that will be suitable for both online and traditional customers of the newly constituted bank. As the top managers lead the change process, they should not ignore the role of the junior managers and non-management employees. Everyone should be allowed to participate in defining the new path that this company should take after the merger. According to Suchy (2004), embracing an open-door policy may be specifically important in ensuring that employees can participate in the policy formulation.
Type of leadership style required
When leading change in this newly created firm, various types of leadership will be required to ensure that success is achieved. The first type of leadership that will be required is Participative leadership, also known as democratic leadership. According to MacLeod (2015, p. 220), participative leadership values the input of team members and peers, but the responsibility of making the final decision rests with the participative leader.
The newly appointed chief executive officer and other top executives should embrace this form of leadership. They must understand that although the final decision must come from them, they are in a better position to come up with good decisions if they allow the rest of the team some room to share their views. It is under this leadership style that open-door policy will be applied.
When coming up with policies that may have a significant impact on a given department or the entire organization, all the relevant stakeholders should be involved. This leadership strategy will help promote cohesive organization as the stakeholders get to learn from one another. The new leadership style that the top managers must embrace is transformational. Levasseur (2010, p. 160) says that the transformational leadership style depends on high levels of communication from management to meet goals. Communication is critical given that the managers and employees were previously working at two different entities, but now have to work as a team.
Maintaining proper communication will eliminate possible cases of disagreements, misunderstandings, and suspicion among the stakeholders. It may be necessary for the top management unit to constitute a team that will be specifically responsible for ensuring that there is integration at all levels within the firm. This special committee will be responsible for addressing issues that may arise within the newly constituted firm within the first two years of operations.
Culture to Accept the Change
Change is a force that many stakeholders will try to avoid specifically because of its disruptive nature. Suchy (2004) says that whenever stakeholders are forced with a situation where they have to embrace change, they often develop the fear of the unknown. The fear of the unknown may be so strong in them that they may make every effort to ensure that they reject the proposed changes. However, under this context change will be unavoidable. The team will need to develop a culture that will accept change as it occurs.
The culture of change will have to be inculcated by ensuring that employees and other stakeholders are actively involved in the change management process irrespective of their position within the firm. In this culture, employees will become agents of change instead of being its recipient. They will be allowed to detect the need for change in their respective areas of work and make a proposal to their supervisors. This way, they will always be in control of the new environmental forces. A culture of flexibility will also need to be embraced by the top management unit. The top managers must be ready to embrace change when it is necessary.
Change model to follow
To develop a culture of change, it will be necessary to develop a model that will guide the stakeholders in managing change in this new firm. I strongly propose the use of Kurt Lewins Change Model that follows three steps. The following figure shows the steps that should be followed when using this model of change.
Figure 1: Kurt Lewins Change Model.
The first step is to unfreeze. It involves informing the relevant stakeholders about the need to change from one system to another early enough so that they can be prepared for what is to come. To unfreeze in this context means to let go of the policies and practices that were in use before, and be ready to use new approaches based on the emerging trends. The next step is to employ the change itself. After involving everyone and preparing them for change, the actual changes can then be made because they will be fully prepared for it. The final stage of refreezing involves making the stakeholders accustomed to the new systems and processes introduced. This model will be very useful in this new firm.
How to achieve each phase of the model
This model is simple to use and can be applied in this new firm without facing challenges. To achieve the first face, all the team members will need to be informed of the impending change and their views taken into consideration. The management will ensure that everyone within the organization is ready for the impending change. In the second phase, the actual change will be introduced. If it is a new culture, the entire team will be introduced to it so that they can live the experience. As Marwah (2011) states, this is often the challenging face is the team members were not adequately prepared. The last stage of refreezing is where everyone will be expected to master the new systems and structures.
Maintaining Change to Achieve Sustainability
As a firm expands in size, one of the primary areas of concern is always the need to achieve sustainability. The growth of Al Bawadi-Shurooq Islamic Bank should be sustainable for it to have a bright future. However, Harrington (2006) argues that a firm that is incapable of managing change cannot achieve sustainability.
For this bank, change management will have to be maintained even after the merger. The three pillars of sustainability (natural environment, social environment, and economic environment) will define the approach that this firm will need to take when managing change. Change may occur in any of the three environments that may demand a significant change in the firms operations. When that happens, the management should be ready to adjust its strategies in order to streamline itself with the environmental changes. The above model and the proposed change culture will help in ensuring that employees are always ready to embrace change.
Conclusion and Recommendations
The merger between Al Bawadi Islamic Bank and Al Shurooq Bank will create a new firm that will be appealing to clients interested in the traditional banking system and those who want the emerging online banking products. The new firm (Al Bawadi-Shurooq Islamic Bank) will have a greater competitive edge over its rivals in the market. However, the discussion above indicates that there are a number of challenges that this new entity will need to deal with. Integrating the two firms into a single entity will be very challenging because it will involve restructuring, rightsizing, and a change in organizational culture. As a consultant, I propose that the new firm should consider the following recommendations.
The board of directors of the two firms should meet and form a new board that will run the new firm.
The new board should then select the top management unit for this firm from the existing executives at the two firms based on their skills, experiences, and records.
The new management unit should involve all the stakeholders in creating a new culture at the new organization.
A committee should be set up to guide in the integration of employees in the newly created firm.
Reference List
Franklin, M 2014, Agile Change Management: A Practical Framework for Successful Change Planning and Implementation, Cangage, New York. Web.
Harrington, J 2006, Change Management Excellence: The Art of Excelling in Change Management, Paton Press, Chico. Web.
Levasseur, R 2010, People Skills: Ensuring Project Success: Change Management Perspective, Interfaces, vol. 40, no. 2, pp. 159162. Web.
MacLeod, I 2015, Change Management in Materials Conservation: Combining Analytic Approaches with Street Wisdom, ANU Press, New Delhi. Web.
Marwah, G 2011, Change Management: Exploring the Understanding of an Organizations Capacity to Change in, Grin Verlag Ohg, Berlin. Web.
Suchy, S 2004, Leading with Passion: Change Management in the 21st-Century Museum, AltaMira Press, Walnut Creek. Web.
Mergers are often criticised for their potential to create both losers and winners. Merging two universities is a process that many leaders and stakeholders disagree on due to the uncertainties regarding the outcome. One culture outweighs another; one employee unseats another, thus leading to power struggles. Since organisational decisions are restructured, the organisation may find itself in limbo and gradually be disengaged from its objective. Since change is inevitable, leaders who are ready to grow to try new options. When done in an organised manner, mergers have proven as key strategies for promoting innovation and market share (Chrusciel & Field 2006). However, this report seeks to show how the American University of Al Ain and the British University of Al Ain can consolidate to form a single entity referred to as the University of Al Ain. The merging of the two universities can occur through the determination of the leaders who realise the possible advantages of a merger. Such leaders should be ready to strive through challenges in the early stages of the merger process. This section will show that the benefits of a bigger, more diverse organisation with a common vision can outweigh the challenges of resistance and combining two diverse cultures.
Literature review
Most studies on change model concentrate on providing a better understanding of change regarding institutions. This review will look into various change and transition methods, which many institutions select from as they pursue their specific institutional change. Many institutions do not favour change since it is seen to bring forth unpredictable consequences leading to loss and sometimes closure of the institution (Holten & Brenner 2015). Since change is inevitable, institutions have to adapt to new ways of doing things or encounter the possibility of losing relevance due to competition. However, it is the responsibility of the leaders to bring awareness of the need for change. Such awareness ignites the whole change process (Burnes, 2003). A prior assessment of the current condition is crucial when applying any form of change in an institution. Some of the factors to consider while seeking the right model to implement change should factor in issues such as what events lighted the need for change. This event helps identify the transition model that fits the current needs of the institution.
A second consideration regarding the transition models is the people involved in the parties seeking to merge. In this case, it is upon the human resource personnel to come together and initiate the change models since they have a better understanding of the institutions culture and the employees (Thomas 2009). Such familiarity with the culture is important in a change process. Even though it is difficult to predict the consequences of the change process, working together as a team driven by a vision is a sure way towards success (Simoes & Esposito 2014).
Implementing change
Merging these two institutions is a complex activity that needs absolute care and professionalism (Daly, Teague, & Kitchen 2003). In todays environment, as institutions seek to form a merger, there has to be a formula for a successful transformational process. Therefore, to optimise the possibility of success, it is necessary for the action plan to commence with a genuine understanding of transition and the essence for the universities to face it. The capability to adapt to a new environment is gradual in nature; thus, it is essential to conduct thorough planning and consultation before commencement. Besides, there has to be a concrete plan rooted in learning and change theory. This plan can be seen as the roadmap for change by which all the parties gain from the process.
The players involved should admit that transformation is not easy and cannot be achieved overnight but rather a complex learning and training demanding concentration. Learning and training should help create a common understanding so that those involved can see the entire picture of integration (Mayfield 2014). This systems thinking provides the basis for shared vision and reflection of future impediments. The university leadership should encourage decisions that are empirical but not merely based on individual opinions. Since the leaders serve as the role models, they should lead a culture that prioritises working as a team and often address areas that seem to drag integration.
According to Brisson-Banks (2010), there are two types of change, planned and imposed. In the case of the two universities, it is categorised as an imposed change since the government drives it. Consequently, the management of the two institutions is compelled to work under pressure to implement change effectively. Since change can be risky and is costly, a positive mindset is needed to facilitate the process. Managers should first understand that most individuals resist change, but because change is inevitable; people will adjust given time and with the right individuals in leadership.
Impacts of the change process
Merging these two universities means that two sets of management, staff, cultures and facilities will have to be consolidated to form a common unit. Workers will unseat others, and one culture may come out strong and outdo the other. Besides, one of the institutions presidents will have to settle for another position or even risk losing the job. Although the merged unit is expected to be larger, some of the staff may not be required anymore to avoid surplus workforce. Most mergers concentrate on the financial aspects of integration, which is functionally very crucial and the predictor to forming the grounds for success. Consequently, the minimal concern is given to human factors. This ignorance makes the transition process a mess since many employees leave the organisation or lose track of the change process. Worker disengagement and resistance are major signs of post-merger complications (Whitaker, 2012). Therefore, to avoid this aspect, the senior leadership should ensure that workers values are tolerated, and justice encouraged in all aspects.
In many scenarios, institutional culture happens to be unique to a certain entity (Edmonds 2011). For instance, the American University and the British University of Al Ain have diverse traditions and beliefs. Therefore, an integration of the two leads to the condensation of two institutions cultures to one. This interweaving of cultures is a fragile endeavour that affects all players of the merger. Despite the variances, managers should let their staff realise that justice will prevail since all are encountered with similar experiences.
Managing the impacts of change
According to Aula and Tienari (2011), the workers attitudes and behaviour regarding an institutional transition manifest the most fundamental forecaster of its victory. Within any institution seeking to merge, different humanistic factors need to be addressed. At the top is fairness to all parties involved. Fairness hugely determines the outcome of the transformational process. Apart from helping develop the organisational goals, fairness also promotes individual development. This aspect motivates individuals to embrace the change process. As a result, it becomes easy for the workers to let go of their current positions and roles. This acceptance of the current situation makes it easy for the merged management to allocate new roles to employees concerning the newly developed structure. The favourable attitude towards change process is the commitment to change so the leadership should issue incentives such as rewards to ensure workers are dedicated to working. Good transformational leadership qualities are a key way to impact on workers and other stakeholders (Whitaker 2012).
To transform the entire learning environment of the universities to fit the objective of the merger, leaders need to factor in various strategies that include engagement, alignment, and governance. Engagement involves issuing all the main players with the sustainability plan and ensuring their interests are covered to attract support. This plan should ensure that the profits of engagement outweigh the costs (Weber & Tarba 2012). On the other hand, alignment is the means to ensure that the mergers structure, objectives, resources and main performance predictors are in line with the vision and purpose of the merger. Besides, the structure should align staff enrolment and role placement with the mergers sustainability goals. Governance forms the backbone upon which sustainability leadership of the merged university is anchored (Edmonds 2011).
Who should lead the change?
The two top managements of the universities should appoint one of the university presidents to act as a senior leader responsible for overall planning and decision-making. The senior leader should oversee a senior leadership team and coordination team to enhance collaboration and communication across departments. The leader should purposely steer a culture of collaboration in which team members assist each other rather than reporting. The leader should be able to come up with a manageable number of desirable priorities for action and ensure that the teams mandated to apply these changes are in consensus upfront (Appelbaum et al. 2007).
The leader should not expect every stakeholder to fit the integration plans. Resistance to change is common in any institution due to the unpredictable nature of transformation. Resistance is brought about by anxiety and tensions associated with that particular change. The anxiety often differs depending on the magnitude of change and its influence on the norm. To eliminate such resistance, the senior leader should ensure learning becomes mandatory to enable the employees to adapt to alterations in their work setting. Learning helps the workforce to cope with challenges as they arise and ensures that workers benefit from the experience of the solution-finding process.
The change model
These institutions can adopt various models for a successful change process. However, in this case, three phases of transition can be used to bring the two universities together. The steps include unfreezing, moving and refreezing. According to Abrell-Vogel and Rowold (2014), from these stages, the management can assess the possible benefits of a transition to the institution. Unfreezing involves recognising the potential benefits that are coupled with the expected change (Mader, Scott, & Razak 2013). In this stage, the managers have to create awareness of the whole change process. All the stakeholders should be sensitised to avoid resistance to change in later stages. In essence, the main goal at this level is to ensure that all involved parties have shared the vision and avoid negations by conservative members.
The moving phase comes in when the involved parties agree to pursue the intended change. This stage entails the actual development and exchange of ideas. Since change is costly, time-consuming and unpredictable, technical teams are needed to control the process. Organisational training is also necessary at this stage to eradicate potential tensions, resistance, and emotional disengagement (Appelbaum et al. 2015). At this stage, the top management with close consultation with all stakeholders should consider means to accommodate new factors that include flexible curriculum, institutional culture and worker enrolment, among other factors. The merged institution should put to consideration that the two universities have a different curriculum, and thus both parties should be fully involved when designing the way forward.
Refreezing is the last phase that entails supporting and anchoring the change as a perfect fit within the institution. At this level, those individuals with conservative ideas recognise the change since the process alters their basic assumptions and help them subscribe to the version of the change agents. However, sustaining the change is the real puzzle since the merged institution is faced with the need for an organisational culture that everyone can appreciate (Kitchen & Daly 2002). The organisational cultures should be combined in a way that addresses majority values and expectations to optimise the rate of success.
Change sustainability
Change management is crucial because institutions work in changing environments. Given the current state of competition and tensions in racial diversity, within learning institutions, there is the need to create relationships. When change is achieved, people get in the way and disrupt operations. The result is instability and losses. Therefore, the staff members in the merged institutions need to learn how to cope and thrive in the new environment. Moreover, it is critical for any integrating institution to learn stakeholder engagement. When there is a clear understanding of cutting across all players, it becomes easy to sustain the established change (Lind & Stevens 2004). The president of the merged institution should be one to lead, direct or encourage people, but not to manage them.
Teamwork, as well as interpersonal relationships across the departments, has to be embraced. Good communication is also needed to enhance the clarity of goals and direction (Goldberg 2011). Communication needs to be handled in a way that avoids confusion at all levels of integration. To ensure smooth integration between the two universities, roles and responsibilities should be defined clearly to increase personal accountability. However, team leaders in this integration process should allow some autonomy for the team members to make consultative changes to the plan when the need arises. Team leaders should also reward and motivate the staffs who get on board well (Abraham, Fisher, & Crawford 1997). These rewards inspire commitment making it easy to integrate and sustain the institution.
Conclusion
The framework mentioned earlier provides valuable guidelines for leaders of the merging universities to figure out the key issues to consider during the integration process. The framework emphasises transformational leadership in achieving integration by mentioning the essence of leaders interpersonal skills when influencing the stakeholders. Upfront consultations, working as a team, and organisational learning have been viewed as predictors of significant benefit towards merging. Ultimately, research has identified human capital as the precursor to effective mergers and their sustainability.
Reference List
Abraham, M, Fisher, T & Crawford, J 1997, Quality culture and the management of organisation change, International Journal of Quality and Reliability Management, vol.14, no.6, pp.616-636.
Abrell-Vogel, C & Rowold, J 2014, Leaders commitment to change and their effectiveness in change a multilevel investigation, Journal of Organisational Change Management, vol.27, no.6, pp.900-921.
Appelbaum, S, Degbe, M, MacDonald, O & Nguyen-Quang, T 2015, Organisational outcomes of leadership style and resistance to change, Industrial and Commercial Training, vol.47, no.3, pp.135-144.
Appelbaum, S, Lefrancois, F, Tonna, R & Shapiro, B 2007, Mergers 101: training managers for culture, stress, and change challenges, Industrial and Commercial Training, vol.39, no.4, pp.191-200.
Aula, H & Tienari, J 2011, Becoming worldclass ? Reputationbuilding in a university merger, Critical Perspectives on International Business, vol.7, no.1, pp.7-29.
Brisson-Banks, C 2010, Managing change and transitions: a comparison of different models and their commonalities, Managing Change and Transitions, vol.35, no.4, pp.241-252.
Burnes, B 2003, Managing change and changing managers from ABC to XYZ, Journal of Management Development, vol.22, no.7, pp.627-642.
Chrusciel, D & Field, D 2006, Success factors in dealing with significant change in an organisation, Business Process Management Journal, vol.12, no.4, pp.503-516.
Daly, F, Teague, P & Kitchen, P 2003, Exploring the role of internal communication during organisational change, Corporate Communications, vol.8, no.3, pp.153-162.
Goldberg, R 2011, Mergers & acquisitions 2011, Practising Law Institute, New York.
Holten, A & Brenner, S 2015, Leadership style and the process of organisational change, Leadership & Organisation Development Journal, vol.36, no.1, pp.2-16.
Kitchen, P & Daly, F 2002, Internal communication during change management, Corporate Communications, vol.7, no.1, pp.46-53.
Lind, B & Stevens, J 2004, Match your merger integration strategy and leadership style to your merger type, Strategy & Leadership, vol.32, no.4, pp.10-16.
Mader, C, Scott, G & Razak, D 2013, Effective change management, governance and policy for sustainability transformation in higher education, Sustainability Accounting, Management and Policy Journal, vol.4, no.3, pp.264-284.
Mayfield, P 2014, Engaging with stakeholders is critical when leading change, Industrial and Commercial Training, vol.46, no.2, pp.68-72.
Simoes, P & Esposito, M 2014, Improving change management: how communication nature influences resistance to change, Journal of Management Development, vol.33. no.4, pp.324-341.
Thomas, M 2009, Mergers and acquisitions, Thorogood Publishers, London.
Weber, Y & Tarba, S 2012, Mergers and acquisitions process: the use of corporate culture analysis, Cross Cultural Management, vol.19, no.3, pp.288-303.
Whitaker, S 2012, Mergers & acquisitions integration handbook, Wiley, Hoboken.
Competition in the business world has forced several companies to adopt various strategies. Such business strategies include mergers and acquisitions. The companies coming into a partnership should formulate policies in order for the partnership to be successful. Well-conducted mergers lead to market growth, build complementary strengths, and eliminate potential inefficiencies. Since this process involves human resources, it is impossible to anticipate its success based solely on balance sheets via tangible factors like headcounts, market shares, and infrastructure, among others. It is for this reason that meetings between both teams become a crucial element in the process because what eventually matters is what is in the hearts and minds of the people and the culture that they decide to build while making progress.
Strategy for conducting meetings in merger/acquisition
Bearing in mind that these are two distinct entities coming together as one, the recommended strategy should involve scheduling of separate meetings with each team and then bringing all teams together. Such meetings will formulate and look into the objectives of each partner. These meetings will produce a report of intent outlining each teams position and desires with respect to the merger. The separate meetings have several advantages. First, it will provide the involved teams with the opportunity to discuss projected deliberations informally and in confidence before making any further progress. Secondly, the teams will have a chance to separately discuss the jurisdiction, legal and other issues such as the scope of information to be presented and competition considerations. They will also prepare teams for the forthcoming investigations by identifying crucial issues at an early stage. Further, these meetings will lay a better foundation for all teams meeting to be conducted next because there will be an excellent understanding of the pertinent issues resulting in more conversant discussions on the transaction rationale and function of the merger in question. However, the cons associated with these meetings is that they consume a lot of time, particularly in complex cases that require subsequent meetings, thus delaying transactions for the companies involved (DG Competition, 2004).
The next step is bringing all teams together in one meeting under this strategy. The aim of these meetings will be to enhance intelligibility in handling daily merger issues and particularly ensuring good communication between the merging companies. It will also provide ample opportunity for the involved companies to conduct frank and open discussions and ensure that their standpoints are known throughout the merging process.
The importance of these meetings is that they contribute to both efficiency and quality of the decision-making process since there are transparency and good communication. They also provide a round-table through which information is mutually exchanged by the merging companies. Further, it is in these meetings that a non disclosure agreement will be signed by both companies to maintain confidentiality should the deal fail and incomplete declarations are eliminated. Finally, teams get a chance to deliver additional comments, thus facilitating coordination. However, a third party is required to ensure that each companys rights and all legal issues are observed, hence incurring additional costs.
With this strategy, both companies will be guided, co-operation and understanding on business and legal matters will be fostered and built upon, the efficiency of research will be enhanced, high level of transparency and certainty in the merger review process will be ensured and the available short time for merger procedures will be made efficient and productive as much as possible for the companies and parties involved.
Venues for the meetings
Internal meetings scheduled separately with each team should be held in places where strict confidence is upheld and, at the same time, where real-time feedback to members present and represented is ensured. Therefore, the appropriate venue for internal meetings should be on each teams company premises. This is because each team member will be selected from involved companies, and they are expected to guide integration. When held at the companys premises, consistent communication will take place while employees receive on-time feedback and problems handled as they arise. Also, the employees will feel connected to the process, and the course will be adjusted easily as needed. It will also favor teams that are stacked in a hierarchical approach according to areas or levels of responsibility like a senior team comprising of several teams broken into units (Knilans, 2009).
Meetings with all teams at the same time should on the other hand be conducted at commissions premises where agreements are signed down or alternatively by videoconferencing or telephony if appropriate. This is because discussions in these meetings are voluntary part of merging process and should be conducted without prejudice to the investigation and handling of issues. In addition, mutual benefits for the companies involved can only materialize if discussions are conducted in a co-operative and open environment where all crucial issues are discussed in a constructive manner. Further, such venues will ensure that discussions proceed in accordance with each teams areas of concern and as per agreed agenda, as well as accommodating information exchanges and discussions throughout the process as appropriate (DG Competition, 2004).
Information that members of each team should bring to the meetings
Members of each team should bring in fully and openly disclosed information that relate to all possible competition considerations and affected markets, even if they consider themselves not affected and take a specific view to issues like market definition. Such information will ensure early testing of alternatives or other teams positions on the issue in question. It will also minimize surprise submissions and avoid requests for extra information at late stages of the process.
In addition, the team members should also bring internal documents like reports, studies, surveys and analysis evaluating the proposed merger, economic rationale for the merger, competition significance and market environment where each issue will take place. These documents will provide information that will lead to early and conversant merger views as well as its prospective competitive impact, thus allowing fruitful deliberations and finalizations. These should be brought as early as possible.
Further, where appropriate, members of the teams should forward in the meetings any elements showing that the merger will result in efficiency gains and feel that such elements should be considered for the purposes of merger competitive evaluation. Since such elements comprise of claims that are likely to initiate further and extended analysis, members should be encouraged to present them possibly early to ensure that both companies and any other involved party has adequate time to appropriately put those elements into account in relation to the proposed merger. Both companies should not omit any part of the specified information. Omission, if any, should be done following detailed discussion and agreement.
Questions to ask IT people
The crucial questions to ask IT people are: What information systems and technologies were they using? Can both companies information systems and technologies be integrated and if so, how? Does the merger require upgrading informational systems and technologies or new ones? What functionalities or added value shall be upgraded or new information systems and technologies bring to the merger? How will all owners understand the new systems? By answering these questions, cost and complexity of IT environment will be reduced, redundant software and hardware will be eliminated, services will be consolidated and IT corporate standards will be enforced.
Questions to ask manufacturing people
Among the key questions that manufacturing people should be asked are: How will they deliver on the value they promised their customers in terms of timely and quality products while simultaneously maintaining their wheels on the business? How will they successfully integrate manufacturing operations while keeping their focus on customers? This will help in determining if the manufacturing people will employ a rigorously integrated manufacturing process.
Questions to ask distribution people
For this group it will be good to ask: How shall they restructure their distribution channel after consolidation? How shall they distribute the increased stock, use bigger fleets like Lorries or vans? What strategy shall they employ to minimize distribution cost and increase earnings?
Questions to ask marketing people
Marketing people on the other hand should respond to: What new marketing strategies shall they adopt? What will be their new brand name? Shall target customers change and how shall they target additional customers? Is there a new market definition? Such questions will lead to informed regarding market size, marketing strategies to be adopted and brand name to market under.
Most crucial roles to the success of the consulting engagement requiring most time/effort
In relation to this particular project, information gathering and analyzing are the most crucial roles of consulting team members to the success of the consulting engagement and will require most time and efforts.
Information gathering facilitates development of suitable antitrust strategy for the merger. In this particular project, it will entail tremendous costs in terms of time and efforts. This is because broadly speaking there are two types of information gathering to be conducted here namely; market power effects and efficiencies. Good understanding of scope and nature of competitive interaction to be created is required. Further, more time is needed in order to ensure that the information provided is not destructive, forged or making invalid evidence. Information must also provide actual and possible overlaps and competitive effects. It therefore requires more time.
Information analyzing in this particular project must identify, prevent and provide a remedy to those factors that are likely to downturn the merger and acquisition significantly. The aim of merging is reduction of costs, production of higher quality products, increase investments on innovation and efficiency. To achieve this goal, detailed information analysis is required. It needs substantially more time and effort because exclusive focus on identifying, preventing and remedying anticompetitive factors is required. Economic and legal issues pertaining to this merger must be analyzed to uncover all potential threats, and thus extra effort is needed.
References
DG Competition, (2004). Best practices on the conduct of EC merger control proceedings. Web.
Knilans, G. (2009). Mergers and acquisitions: Best practices for successful integration. Web.
The study entails an analysis of cultural differences on the success or failure of mergers and acquisitions. In conducting the study, a case study involving one firm that has succeeded and one that had failed in its merger and acquisition process was evaluated. The two firms considered in the study included Cisco Systems Incorporation and Bay Networks. A comprehensive review of literature related to success or failure of mergers and acquisitions is conducted. The review considered the elements which result into emergence of cultural differences within the organization. The effects of cultural differences on communication in a merged entity ware reviewed.
The study also detailed the key cultural differences which result into either success or failure of mergers and acquisitions. Cultural assessment, cultural selection and cultural integration analysis and their contribution towards the success of mergers and acquisitions are also conducted with specific reference to the two firms considered in the study. The methodology used in undertaking the study was also evaluated.
This includes the research design and approaches used in conducting the study. The findings from the study were interpreted to ensure that entrepreneurs understand the importance of addressing cultural differences in the process of forming mergers and acquisitions. Finally, a conclusion and a set of recommendations were made to enable entrepreneurs improve their merger and acquisition process. The future research section entails areas which practitioners and scholars should considered conducting research.
Introduction
This chapter will first present the background information of the study with particular interest on the success or failure of mergers and failures. The statement of the problem which identifies a gap in mergers and acquisition with regard to existence of cultural differences between the merging organizations will be presented followed by the research objectives which will act as a guideline for the study. Moreover, the research question that delves on the cultural factors that influence the success and failures of the mergers will be presented. Finally, the chapter will present the scope and limitations of the study while giving the summary of the entire chapter.
This chapter is organized in a number of subsections. Sub section 1.2 presents a statement of the problem which identifies a gap in mergers and acquisition with regard to existence of cultural differences which is justified in subsection 1.3. The research objectives which act as a guideline for the study are outlined in subsection 1.4. This is followed by corresponding research questions in subsection 1.4. The significance of the study to the various stakeholders is outlined in subsection 1.6. The scope and limitation of the study are evaluated in subsection 1. 7. Finally, a summary of the entire chapter is given in subsection 1.8.
Background information
Over the past two decades, there has been a rampant change within Networking and Communication Devices Industry. This has been instigated by a number of factors such as increment in the intensity of competition. In addition, both individual and organizational customers are incorporating electronic commerce in executing their duties. Firms operating in this industry are increasingly formulating strategies on how to attain a high competitive advantage through acquisition of a large market share and increment in their profit levels (Sherman & Hart, 2006, p. 36). One of the strategies that they have incorporated includes formation of mergers and acquisition.
Merger entails integration of two or more firms whereby the selling firms assets and liabilities are absorbed into the purchasing entity. Despite a new entity being established, the purchasing firm mainly retains its original name. Alternatively, mergers can be defined as joining of two firms.
This mainly occurs via exchanging the shares. On the other hand, acquisition refers to purchasing another firms asset or the entire firm. As an operational strategy, firms in different economic sectors have been able to develop their financial stability. Due to the effectiveness of merger and acquisition strategy, both large and medium enterprises are integrating this concept in their strategic management processes (Sherman & Hart, 2006, p. 36).
According to Brodkin (2009, para. 1), numerous mergers and acquisitions were conducted in networking industry during 2009. Some of the companies that were involved in mergers and acquisition include Oracle, Dell Hewlett- Packard, International Business Machines and Cisco. Integration of e-commerce presents a potential of growth in mergers and acquisition. In conducting mergers and acquisition, understanding the existing organizational culture of the two parties is paramount (Alvesson, 2002, p.1). This arises from the fact that organizational culture plays a significant role towards the success or failure of mergers and acquisition.
According to Dwivedi (1995, p.9), organizational culture is defined as a system consisting of shared meaning amongst members of a given firm which distinguishes it from other organizations. A number of factors define organizational culture. These include values, norms, attitudes and beliefs. Despite operating in the same industry, there are differences that exist in relation to organizational culture. As a result, the success of mergers and acquisition is dependent on the effectiveness with which the existing cultural differences are managed.
This chapter is organized in a number of subsections. Sub section 1.2 presents a statement of the problem, which identifies a gap in mergers and acquisition with regard to existence of cultural differences, which is justified in subsection 1.3. The research objectives, which act as a guideline for the study, are outlined in subsection 1.4. This is followed by corresponding research questions in subsection 1.4. The significance of the study to the various stakeholders is outlined in subsection 1.6. The scope and limitation of the study are evaluated in subsection 1. 7. Finally, a summary of the entire chapter is given in subsection 1.8.
Problem statement
History has become somewhat of a critical arbitrator of the strategies used by companies to gain faster growth through mergers and acquisitions. The 1960s and 70s witnessed a style of management whereby organization were managed in the form of a conglomeration. Many companies assumed that the commercial and other business sectors could easily come together even when the two companies were totally unrelated and find success. Even in the absence of synergy between companies being acquired or those intending to form a merger nevertheless, there was still a lot of enthusiasm amongst companies to come together.
Empirical results however indicated that many firms in unrelated fields easily failed to gain momentum and work to greater success while a few managed to do so. For that reason, the problem statement How dos organizational culture affects mergers and acquisitions In the UK Networking and Communication Devices Industry
The reason why this paper focuses on one industry in one country is because of the fact that in 1990s, merger and acquisition trends shifted towards companies of related industries. Since unrelated companies needed different management and organization skills to run them. The strategic alliances will be investigated in this paper so that the current activities in the UK communication industry are used as evidence to explain why these strategies do not always succeed in achieving the goals hoped.
Justification
Formation of mergers and acquisition is aimed at increasing shareholders value. According to Chatterjee, Lubatkin, Schweiger and Wember (1990, p.1), numerous literature have been advanced in relation to the importance of mergers and acquisitions. Most of these literatures assert that attainment of the intended shareholder value is dependent on the compatibility of cultures between the two firms.
According to Stahl (2005, para. 1), cultural differences are considered as an obstacle towards the success of mergers and acquisition. Stahl further concurs with findings of studies conducted on mergers and acquisition which reveal that a considerable number of firms have failed to attain the intended integration benefits of mergers and acquisition due to existence of cultural differences. On the other hand, firms that have considered cultural factors in implementing mergers and acquisitions have been successful in attaining a high competitive advantage. Recklies (2001, p.1) opines that developing and sustaining a shared culture is vital in the success of mergers and acquisition.
Research Objectives
In conducting the study, a number of research objectives have been considered as:
To identify the key cultural factors which lead to the success or failure of mergers and acquisition in Cisco System Incorporation and Bay Networks.
To describe the nature of the cultural factors in which influenced mergers and acquisition performance of Cisco System Incorporation and Bay Networks.
To explain the nature of the relationship between the cultural factors which improve mergers and acquisition success in Cisco System Inc and Bay Networks.
To make practical recommendations on how to successfully implement key cultural factors on Cisco System Incorporation and Bay Networks. In order to improve future mergers and acquisition success.
Research Question
How did cultural factors affect success of incorporation of mergers and acquisition in Cisco Incorporation?
Significance of the study
Through the study, management teams of firms intending to integrate mergers and acquisition in their strategic management will be able to develop sufficient knowledge of the importance of developing competency with regard to cultural differences. Developing an understanding of the existing cultural differences between organizations can result into effective management of mergers and acquisition. Gaining knowledge on the existing cultural differences will contribute towards efficiency in managing ambiguous and confusing issues relating to organizational culture that arises on daily operation of the firm. The resultant effect is that the firm will be able to attain the intended synergy.
The study will also aid management teams in appreciating the importance of values in analyzing organizational culture during formation of mergers and acquisitions. According to Roger (2000, p.3), some of the elements to be considered include the firms mission statement and its goals.
Addressing cultural differences can contribute towards the firm attaining a high competitive advantage. This arises from increased productivity since there will be harmony amongst the firms employees. By only considering firms which have a cultural fit in the process of implementing mergers and acquisitions, it will be possible form the merger to succeed. Higgs (n.d, para. 2) asserts that human capital is paramount in developing sustainable competitive advantage.
Evaluation of cultural differences in mergers will help in evaluating the extent to which firms can manage existing cultural differences. For example, it will be possible to determine the extent to which the employee can tolerate to either ambiguity or uncertainty. Appreciating the contribution of cultural differences towards the success or failure of mergers and acquisitions will contribute towards effective decision-making on whether to continue with the merger and acquisition deal or terminate it. If cultural fit exists, there is a high probability of the merger succeeding. According to Gertsen, Soderberg and Torp (1998, p.77), culture difference in organization can be classified as low, medium or high.
Through this classification, it the management is able to determine whether it is possible to manage the existing cultural differences by analyzing the associated degree. For example, if the percentage difference is less than 33%, it is considered as manageable. On the other hand, if it is 66%, it is considered being high. The study will also aid firms that have incorporated mergers and acquisition in their strategic management to develop programs aimed at conducting cultural integration upon completion of merger deal. One of the ways through which this can be achieved is incorporation of pre and post-merger intercultural training program.
In addition, it will be possible for the management team to deal with intercultural differences that arise in the course of operation. This will arise from formulation of a mutually accepted intercultural framework. According to Kwintessential (2010, para. 7) intercultural framework acts as a guideline for ensuring that post-merger synergy is attained. In addition, effects of cultural differences can be minimized by integration of cultural due diligence which entails a step by step process of conducting cultural assessment between the acquiring firm and the target (Thomas, 2000, p. 29).
Scope and Limitations
The analysis of this paper is aimed at investigating the impact of cultural differences in the success or failure of mergers and acquisitions in the Networking and Communication Devices Industry. This will be conducted by analyzing firms in the industry with specific reference to Cisco Systems and Bay Networks. Due to time and resource constraints, the research will be conducted on only a small group of respondents.
Summary
This chapter introduces the reader to the subject of study by offering succinct background information concerning the current activities in the business sector concerning mergers and acquisitions. The study is specifically about the UK communication industry. The statement of the problem gives the declaration on which the investigation would revolve around. Using research objectives, a researcher is able to design his/her research questions in such a manner as to realize the aim of the study.
The study is indicated to be significant to the managers and other this is because the success of mergers or their failure is determined by how they well or bad the management can deal with the cultural differences that exist between the two merging firms or engaged acquisitions. The next chapter entails a review of relevant literature.
Literature review
This chapter will first present literature on the general knowledge surrounding all aspects of mergers and acquisitions in modern business environment with emphasis on the role of corporate level strategy and the various level of culture. An analysis of the cultural differences in the organizations in combination with the cultural factors affecting mergers and acquisitions will also be discussed. In addition, the chapter will present the effects of cultural differences on communication in the resultant outfit and an evaluation of the linkage between organizational culture and acquisition. In tandem with the research objectives, a review of the cultural factors affecting mergers will be presented. More importantly, two case studies describing real life situations of failure and success on the effect of cultural differences on mergers will be presented. Finally, a summary of the chapter will be presented at the latter stages of this chapter.
The purpose of this chapter is to conduct a comprehensive review of relevant literature. This will enable the researcher to gain a comprehensive understanding of the various aspects related cultural differences in mergers and acquisition. The chapter is organized into a number of subsections. Subsection 2.1 entails an analysis of cultural differences in organization. The cultural factors affecting mergers and acquisitions are evaluated in subsection 2.2. Subsection 2.3 gives the effects of cultural differences on communication in the merged entity. The link between organization culture and acquisition is evaluated in subsection 2.4.
The various key cultural factors affecting success of merger and acquisition are evaluated in subsection 2.5. Hofstede theory is discussed on section 2.5.4. In order to illustrate the effect of cultural differences on the success of mergers and acquisition in real life situation, a case study of a success and failure is included in subsection 2.6.
Incorporating an effective corporate level strategy has become a priority among firms in different economic sectors due to increment in the intensity of competition. One of the corporate level strategies being considered by firms entails formation of mergers and acquisition. Over the past two decades, management of firms in different economic sectors have realized that incorporation of Mergers and Acquisition (M&A) in their strategic management processes is one of the ways through which they can be able to respond to the dynamic business environment (Bruner, 2004,p. 3). Stahl and Mendenhall (2005, p.3) assert that M&A are becoming popular in a firms effort to attain diversification and corporate growth. As a result, mergers and acquisition have become a competitive business activity. Bruner (2004, p.3) asserts that the concept of M& A is currently being characterized as aggressive change agents within the economy.
For mergers and acquisition to be successful, it is paramount for the management teams involved to consider integrating three main dimensions related to business strategy. These include process, context and content. These dimensions should be used in evaluating cultural differences existing amongst the firms. The ultimate effect will be success of the merger and acquisition (Saee, 2007, p. 8).
According to Vaara (2000, p. 81), there are three main levels of culture in relation to an organization. One of the levels entails artifacts, which includes the visible, audible and tangible results. The second level relates to values, which consist of the goals, philosophies, and standards, which are considered to be of intrinsic value to the organization. In the third level, this is where we have the study assumptions. These concepts result into emergence of differences in organizational culture.
Vaara (2000, p. 82) asserts that numerous failures in mergers and acquisitions over the past decade are because of cultural differences. Findings of studies conducted on mergers and acquisitions reveal that approximately 80% of all mergers and acquisitions formed do not attain their intended objective. On the other hand, approximately 50% of firms, which incorporate this concept, fail (Mohibullah, n.d, p. 2). One of the reasons associated to cause these failures relate to lack of cultural fit. According to Recklies (2001, p.1), failure of mergers may either occur during the pre-merger negotiation phase or post merger integration.
The purpose of this chapter is to conduct a comprehensive review of relevant literature. This will enable the researcher to gain a comprehensive understanding of the various aspects related cultural differences in mergers and acquisition. The chapter is organized into a number of subsections. Subsection 2.1 entails an analysis of cultural differences in organization. The cultural factors affecting mergers and acquisitions are evaluated in subsection 2.2. Subsection 2.3 gives the effects of cultural differences on communication in the merged entity. The link between organization culture and acquisition is evaluated in subsection 2.4.The various key cultural factors affecting success of merger and acquisition are evaluated in subsection 2.5. In order to illustrate the effect of cultural differences on the success of mergers and acquisition in real life situation, a case study of a success and failure is included in subsection 2.6.
Cultural differences
Cultural differences are one of the core issues that should be considered when considering integration of mergers and acquisition strategy. According to Mohibullah, cultural clash is one of the major factors that result into a failure of mergers and acquisitions. Findings of a study conducted by KPMG revealed that existence of cultural differences amongst firms is a key contributor towards failure of mergers (Gitelson et al, 2004, p. 1).
There is a strong direct correlation between how an organization deals with intercultural challenges in relation to mergers and acquisition and its performance. This mostly occurs in post-merger phase. This further affects the firms long-term failure or success (Kwintessential Limited, 2010, para. 5). However, the strength of the correlation with regard to cultural differences varies from one organization to another and from industry to industry.
In the process of conducting mergers and acquisition, it is important for the management team of the firm to evaluate the key cultural differences existing between the two organizations. This will aid in determining the probability of the merger succeeding. The initial stage of the strategy process entails identification of potential firm to consider in forming the mergers and acquisition. Effective evaluation of cultural differences among potential firms will ensure that only firms in which minimal cultural difference exist are considered.
In order to attain this effectively, the firms management team must consider the context of the potential firm by identifying the industry in which both firms operate (Saee, 2007, p. 8). To minimize the existing cultural differences, management team should consider firms operating within the same industry.
Identification of cultural differences will enable the firm to identify the content of the cultural differences. The ultimate effect is that the firms management team will be able to formulate the most effective strategy to deal with the differences. For example, if the existing cultural differences are minimal, the management team may consider integrating a harmonization strategy.
Cultural factors affecting mergers and acquisitions
According to Gitelson et al (2004, p. 1), culture clash translates into in-fighting and internal confusion. As a result, the firms involved experience inefficiencies and loss of time. Consideration of cultural differences in mergers and acquisition is vital in determining how a firms employees respond to the new firm formed. Culture clash is defined as the conflict, which arises from existence of differences with regard to company values, missions, styles, norms, attitudes, beliefs and philosophies.
Culture clash in a merger is made evident by a number of issues that include what is valued, treatment of employees, decision-making process, how to communicate and what is to be measured. It may also result from difference in opinion with regard to opinions and arguments related to the process to be undertaken in implementing new business strategy (Gitelson et al, 2004, p. 1). Mergers and acquisitions can also result into a change in orientation, character and nature of either merger partners.
Most of the researches conducted on merger and acquisition have failed to highlight the importance of harmonizing the cultural differences existing between organizations. However, harmonization of these issues presents a challenge to firms and may take a considerable number of years before the employees feel incorporated into the new entity. Effective harmonization of culture between firms plays a significant role in ensuring the success of the merger. Considering the intensity of cultural differences existing between the two partners, employees experience numerous challenges in the process of adjusting to post merger periods. A large proportion of the firms employees are concerned with loss of job and the consequent financial debt.
Gitelson et al (2004, p. 1) asserts that news of eminent merger affects the productivity of employees. This arises from the fact that employees will be preoccupied with how such a change will affect him or her. Such an organization change result into both the managers and line employees reducing their productivity with a margin of 15%. This arises from misinformation, rumors and worry. In addition, the merger may mean that the employees will be under a new management team that is quite distressing. Gitelson et al (2004, p. 6) postulates that formation of mergers and acquisitions results into the existing teams becoming ineffective. By establishing a merger and acquisition, the existing teams are disintegrated.
Coming under a new management coupled with new team members may hamper the freedom that existed in raising sensitive issues due to lack of trust in the new team. Mohibullah (n.d, p. 4), asserts that mergers and acquisition may result into loss of cooperation that existed in the individual firms prior to the merger. In addition, cultural differences may result into difficulty in attaining the intended synergy.
According to Kelly, Cook and Spitzer (2009, p. 9), synergies are paramount in the process of mergers and acquisition succeeding. A large number of firms management teams involved in mergers and acquisitions have realized that it is difficult for them to succeed in business without the necessary synergy (McGarvey, 1997, p. 6). However, if the management team does not deal with cultural differences, it will be difficult for the firm to attain the intended synergy. In addition, it will also be difficult to resolve conflicts that arise in the firms course of operation.
The degree of complexity in relation to mergers and acquisition is relatively high if the parties entering into a merger and acquisition relationship are from different countries or geographically separated due to existence of cross-cultural differences. Despite the firms involved in mergers and acquisition operating in the same industry, its employees may react to similar circumstances in a totally different manner. Therefore, it is paramount for firms involved in mergers and acquisition on a local or international scale to considerer the existence of these differences during the pre-merger and post-merger integration phase.
Effect of cultural differences on communication in a merged entity
Upon formation of a merger and acquisition, there is a high probability of existence of ambiguity in terms of communication. Ambiguity in an organization arises if there is no clear definition of a number of events. In addition, ambiguity may occur in the entire firm or amongst individuals. It also depends on cultural knowledge amongst the employees. Existence of ambiguity in a merged entity is directly associated with insufficient communication within the firm. Ambiguity can also be defined as lack of consistent information. Upon merging of two firms, the employees who were working independently are required to adapt to a new working environment.
This is emphasized by Gitelson et al (2004, p. 2) who asserts creation of a critical mass in relation to operational change is one of the contributors towards the success of mergers. Significant changes will be incurred in relation due to differences in work environment. On the firm becoming organized, there is a high probability that the expectations of the employees will be totally different.
Fost and Sullivan (2010, para. 3) are of the opinion that incorporation of an effective communication can result into minimization of the challenges associated with ambiguity. One of the ways through which management teams of firms can enhance success of mergers and acquisitions is by acknowledging the existence of the cultural differences and developing strategies on how to harmonize them. Communication is vital in minimizing resistance amongst the employees. Effective communication should be enhanced from top to the lower levels. It should be ensured that there is continuous communication during the entire transformation period. Young and Post are of the opinion that effective communication is the most important tool in managing change especially during establishment of mergers and acquisition.
Link between organization culture and acquisition
For mergers and acquisitions to be successful, it is important for there to be established a fit in the culture of the firms involved. One of the ways through which this can be attained is by ensuring that there are similarities in relation to the management style incorporated and the corporate culture adapted. This means that the firms involved must work towards integration so as to establish a homogeneous corporate culture. According to Gitelson et al (2004, p. 1), corporate culture is one of the key drivers which can result into the firm attaining superior performance. This arises from the fact that organization culture has an effect on issues related to customer satisfaction, innovation, organization flexibility, teamwork and quality of products and services that the firm deals with.
Key cultural factors that lead to the success or failure of M&A
In the process of integrating mergers and acquisition in the operation of a firm, management teams of firms pay more emphasis on issues related to legal, business factors and financial issues. Minimal consideration is given to cultural issues. The resultant effect is that the new entity experiences difficulties later in the future. With regard to existence of cultural differences, there are a number of factors that management teams of firms should consider in an effort to ensure successful cultural integration. These processes include cultural selection, cultural integration analysis and cultural assessment.
Cultural assessment
This is usually undertaken during the process of conducting the merger and acquisition due diligence process. Due diligence refers to paying more attention to employees or workforce priorities. According to Hewitt (2009, p. 2), due diligence should be considered in evaluating human capital issues. Employees of a firm intending to undertake a merger and acquisition are more concerned on the cultural fit (Albe, 2007, p. 6).
As a result, a considerable amount of time should be devoted to ensure that a comprehensive assessment of organization structure and human capital. While undertaking the cultural assessment of an organization, there is the need to take into account the products, values and the beliefs of the organization in question. This occurs approximately 30 days prior to finalization of the merger. For cultural assessment to be successful, the management team of the firm undertaking acquisition must consider a number of issues related to individual firms separately. Some of the issues to be assessed include the firms mission and vision statement, core values, goal and objectives, strategic intent and direction, integration policies, customer focus, employee empowerment, ability to respond to cope with new environment and cope with change.
Cultural integration analysis
Formation of mergers and acquisitions result into in-depth and extensive combination of strategies and structures between the firms involved. As a result, employees become uncertain with regard to corporate culture culminating into loss of trust amongst the employees. This means that there is a high probability of the intended value being destroyed. In order to prevent this, it is important for the management team of the firms involved to conduct a cultural integration analysis.
According to Mercer (2006, p. 1365), cultural integration is aimed at shaping a new culture through mutual absorbing and strengthening of the various cultural trait via effective communication. Alternatively, cultural integration is defined as the process of eliminating contradictions that arise from conflicts after formation of mergers and acquisition.
Through culture integration analysis, the acquiring firm is able to identify the existing cultural gaps and also opportunities presented for improvement. Culture integration is also referred to as cultural acculturation. A number of studies conducted on mergers and acquisitions have revealed that lack of congruence amongst organizational culture increases stress thus reducing their satisfaction and hence productivity. In addition, organizational cultural differences may also culminate into symbolic conflict. This entails where one group formed as a result of the merger breaches core team values.
This arises from the fact that organizations groups socialize in a given pattern. The resultant effect is that the employees are accustomed to specific values, ideas and practices. Mercer (2006, p. 1365) asserts that cultural differences may result into a strenuous relationship within the organization (Sarala, 2004, p. 147). This may limit transfer of knowledge within the organizations through the teams formed.
Mercer (2006, p. 1365) further asserts that there are four main modes of acculturation which can be integrated in mergers and acquisitions. These include assimilation, integration, separation and deculturation. Assimilation entails the culture of the merging firm totally replacing the culture of the merged firm. This means that the merged firm is totally absorbed by the merging enterprise. On the other hand, integration entail development of a hybrid culture that consists of the major related to the two firms. Culture integration is aimed at developing a strong culture by merging the two cultures (Dwivedi, 1995, p.9).
Separation involves keeping the culture of the two firms involved in the merger and acquisition distinct. In most cases, this mode of acculturation is incorporated if the employees of the firms involved (merged) refuse to accept culture of the other firm (merging). This mode is aimed at avoiding intense conflict amongst the parties involved. Deculturation often arises if employees of the emerging firms do not intend leave organizational values that they are conversant with. In addition, deculturation may also result if employees of the merged firm refuse to identify the culture of merging firms. The resultant effect is that psychological and the cultural bridge that is expected to be established amongst the different employees is broken. This culminates into organizational values and behaviors becoming chaotic.
There is a high probability of the firms involved in mergers and acquisition to have adopted different communication structure. This may result into cultural conflict within the new entity. Effective communication plays a significant role in ensuring that there is effective cultural integration. According to Mohibullah (n.d, p. 5), lack of effective communication in relation to merging firms is a problem since it may result into uncertainty, reduction in employee loyalty and reduction in trust. It is universally acknowledged that development of a high degree of trust in an organization results from incorporation of superior managerial beliefs, actions and philosophies. This serves in reducing transaction costs.
Cultural selection
This entails conducting a discussion with the management team of potential acquisition. Cultural selection entails identification of top performing employees. This enables the firm to make a decision on the employees to retain based on defined cultural criteria. The discussion enables the acquiring firm to identify potential leaders from the firm being acquired and their cultural matches. Lack of communicating to the top performing employees in time may result into their exit (Dwivedi (1995, p. 8).
The Hofstede theory
Hofstede did a great job studying culture and he developed dimensions that define the work related values in the context of national culture. These factors have been integrated into organizational culture since many companies that are successful have gone global (Hofstede, 2001, p. 12).
They use merger and acquisition as a strategy to expand into other countries. These factor include, power distance, individualism, masculinity, long term achievement and avoidance of uncertainty. From this, the Values Survey Model was devised and its a very useful model for use in the study of cultural difference in organizations and their impact. According to Hofstede, Culture is something that is collective yet in most cases intangible. Its nonetheless, the concept that differentiates one particular group of people, an organization or a country from another (Hofstede, 2001, p. 12).
Hofstede asserts that culture is made up of two main elements, the internal and invisible aspects very the external elements that are very visible and in most cases described as practices. Latter Practices include things like courtesy in greeting, character of employees, and communication. Values on the other hand are virtues like honesty, responsibility, accountability and dedication.
Dimensions of Culture:
Power distance: this in areas like UK where there is low power distance, there is minimal inequalities among the people. Organizations are decentralized in their operations and activities. The subordinates expect that the mangers would consult them and there are very little privilege and status symbols. Conversely, high power distance will be a description of a society that relies on few superiors who are very powerful. Organization is likely to b centralized and the subordinates are separated from the management by great margin in terms of salary, privileges and powers (Hofstede, 2001, p. 17).
Individualism: the ties among people are loose and every individual is expected to take care of him/herself and his/her family. The UK organizations show that individualism is more important and they place very little emphasis on loyalty and protection. In the collectivist culture, employees would tend to expect a lot from the employers. Individualism, however, individual effort is more important to the success of the organization(Hofstede, 2001, p. 22).
Masculinity: masculine organization like the UK communication industry, there is nothing like division of labour in that the more assertive roles are allocated to men. The success of the organizations is based on the academic prowess, competence and career achievement (Hofstede, 2001, p. 22). France on the other hand is conserved a feminine country and the organizations success is thought to stem from relationships, life skill and cooperation.
Uncertainty avoidance: weak uncertainty in UK means that it does not perceive things that are not familiar to be dangerous as those with strong uncertainty. Such organizations seek to reduce the risk by rules to enhance order and coherence.
Long-term goals: this deals with the virtues that are set to support future rewards. This is where personal adaptability is emphasised (Hofstede, 2001, p. 22). The investments include real estate investment and savings. The time for leisure is not very critical and soothing being bad or good depends on the circumstance.
With increasing need to expand globally, many people find themselves working with or in the management positions of organisations from different cultures. Hofstede is enthusiastic to stress on the fact that dimensions are not a strict prescription or strategy to work out success but rather a mere concept. Their role is to equip the manager and workers with tools to analyse and help in understanding intercultural differences, For instance, when multinational companies build international teams to do a research.
Managing cultural differences in mergers and acquisitions
Case study 1: A case of success; Cisco System Incorporation
Cisco Systems was established in 1984 within information technology industry. The firm has been successful over the two decades it has been in operation. Due to effective management, the firm has incorporated the concept of internationalization enable it to become a global firm. This has also resulted from the high rate of industry growth. The expansion of the firm resulted into the firm expanding its product lines to include products such as network management software, diverse networking solutions, IP telephony, switching, wireless technology and routing, optical networking and website management tools. Growth of Cisco System into an international firm is associated with formulation and implementation of effective business strategy.
One of the operational strategies incorporated by the firm entails formation of mergers and acquisition. Through this strategy, the firm has been able to access new technologies. Adoption of the concept of formation of mergers and acquisitions by the firms was perceived as a major weakness by other firms in the high technology industry. Ciscos System management team considered integration of merger and acquisition to be the most effective and efficient way of attaining competitive advantage (Cisco System Incorporation, 2004, p.3). One of the firms recent mergers entails Cisco System and Starent Networks at cost of $ 2.9 billion.
Incorporation of this strategy arises from consideration of forming mergers and acquisitions as the firms key growth strategy. Through this strategy, it is possible for the firm to attain a high level of customer satisfaction through innovation of next generation products. In line with this, the firms management team has developed an acquisition philosophy that entails consideration of acquisition as the key strategy in accessing scarce intellectual assets (Cisco System Incorporation, 2004, p. 4). In addition, formation of mergers and acquisition is considered by the firms management team as a key force in the process of identifying driving market transitions.
In conducting mergers and acquisition, the management team of Cisco System Incorporation is guided by three key objectives. These include employee retention, return on investment and new product development. The firms management team is committed at ensuring that it retains a large percentage of employees from the firm it acquires. This results from realization of the fact that unsatisfied employees will definitely leave the firm or if retained in the new firm they may result into inefficient performance of the firm. In order to eliminate occurrence of this, the firms management team has integrated a criterion with regard to cultural compatibility for all the firms it considers having a potential of being acquired (Paulson, 2001, p. 103).
The firms management team has developed this strategy upon realizing that it is a challenging task to make incompatible cultures cooperate to the extent that the all the employees of the acquired firms will be satisfied. In conducting its acquisition process, the firm ensures that it only considers firms that have similar cultures. The firm has often walked out of a merger and acquisition deal as a result of lack of cultural fit despite the financial terms being appealing (Jeffery, 2008, p. 8). According to the firms Chief Executive Officer (CEO), Cisco does not prefer acquiring other firms if it is sure that it will lay off all the acquired firms employees due to cultural differences.
Incorporation of employee retention objective has enabled Cisco System Incorporation to successfully manage cultural differences in the firms that it acquires. In order to minimize cultural differences, the firms management team ensures that one third of the top management positions in the new firm established after completion of merger and acquisition are set aside for employees from the acquired organization.
The firms employee retention as a strategy to eliminate cultural differences is also undertaken through incorporation of employee benefits (Pfeffer & Sutton, 2001, p. 8). One of the ways through which this is attained is by provision of stock options. Upon completing a merger and acquisition process, the firms management team ensures that it concerts the stock options of the acquired firm into its own stock. This provides a high potential of the acquired stock options appreciating. The resultant effect is that the firms employees execute their duties more seriously since they consider it as an opportunity for acquired stock options appreciating. In relation to employee retention, the firms management team has formulated a strategy that entails key employees of the acquired firm signing a non-compete whose duration is two years.
This is the time limit before these employees can leave the firm. In addition, this time is sufficient for the firm to develop another product. By limiting the employees from earning income from another firm in their industry, the firm is able to incorporate a sufficient culture amongst the employees. This results from the fact that a strong incentive amongst the employees to stay in the firm is developed. Through effective management of cultural differences that occur in mergers and acquisition, the firms Chief Executive Officer (CEO) asserts that the firm has been successful in retaining personnel. For example, Chambers, Cisco System CEO asserts that the firm witnessed minimal voluntary employee attrition in relation to the employee of the acquired firms at a rate of 6% in 1999 compared to the previous two years.
In its cultural integration process, Cisco System Incorporation management team ensures that in invests substantially in acquisition of integration resources in all its functional and corporate levels. Some of the issues considered by the firms management team in its cultural integration process include reward system, decision-making process and the organization structure.
Cisco System Incorporation has developed a comprehensive cultural integration process. The first step involves developing a lucid understanding of the mergers and acquisition rationale by all the parties involved. The management team also ensures that all parties understand the intended outcomes. Clarification of specific behaviors necessary for effective operation of the new entity is undertaken. The key drivers that are necessary for the success of the behavioral change are evaluated. In order to ensure that cultural differences are sufficiently dealt with, the firms management team ensures that change management is conducted.
In selecting a firm with which to enter into merger and acquisition, Cisco System Incorporation ensures that only firms with shared technological and business vision are considered. In addition, compatibility with regard to core values is also considered in an effort to ensure that culture differences are eliminated. This serves in developing an environment conducive for the success of the merged entity. The firms management team also conducts a comprehensive discussion with the top management team of the firm it intends to acquire. The objective of this discussion is to receive feedback related to the top performing employees. This enables the firm to formulate effective organizational culture strategies thus enhancing its capacity to retain employees of the acquired firm.
Case study 2: Case of failure; Bay Networks
In 1994, Synoptic Communications and Wellfleet Communications that were operating within the networking industry merged resulting into formation of Bay Networks. The objective of the merger was to form a strong player within the industry (Markoff, 1994, para. 1). Bay Networks have experienced a series of problems since its inception. One of the major challenges faced by the firm includes lag in developing and introducing new products.
This has greatly cost the firms competitive advantage. For example, despite the firm venturing into production of Automated Teller Machine switches, it was overtaken by Cisco Systems Incorporation. Bay Networks was also overtaken by Fore System that ventured into this market at the same time with Bay Networks. Due to effective product development, Fore System managed to become the market leader. In addition, Cisco Systems attained a market share of 17% compared to Bay Networks that had a market share of 6% in 1995 as illustrated below.
Pie chart illustrating Bay Networks and Cisco Systems ATM switch Market share.
The firm has not been able to market its products effectively. This results from difficulties in managing its sales force. According to Cnet (1996, p. 1), Bay Networks management team was not able to integrate its sales force since the formation of the merger. According to Cnet (1996, p. 2), there were cultural differences between Synoptic and Wellfleet Communications in relation to motivation and management styles. This had a strong negative impact on the entire Bay Networks sales force. The firm experienced challenges in integrating direct and indirect distribution channels of the two firms. The resultant effect was the competition between the firms direct sales force and resellers.
The idea of establishing Bay Networks by merging Synoptic Communications and Wellfleet Communication was appealing on paper. However, the success of the new entity was limited by existence of differences in corporate cultures between the two firms. Wellfleet Communications management team was doubtful of the mergers success after considering the vast difference in corporate cultures.
In addition, the two firms had a large geographical divide in relation to location of their headquarters. Synoptic Communication was based in Santa Clara in California while Wellfleet Communication was based in Boston. According to Sadri & Lees (2001, p. 1), geographical separation culminates into a difference in corporate cultures amongst organizations. This results from the fact that employees develop different values forcing the organization to align its organizational culture in accordance with its immediate environment. Existence of geographical distance resulted into poor performance of Bay Networks.
On the other hand, Cisco System Incorporation minimizes cultural distance with regard to cultural differences that result from geographical distance. In order to undertake this, the firms management team gives priority to firms operating in networking industry that are located in Silicon Valley or those located close to its remote sites (Cisco System Incorporation, 2004, p. 5). In 1998, Bay Networks was acquired by Nortel at a cost of $ 9.1 billion (Weston & Heskett, 1998, para.2). Poor management of cultural differences is one of the factors that contributed towards failure of Bay Networks. Currently, Cisco Systems Incorporation continues to dominate the market.
Summary
From this chapter, the investigator gives the readers the literature that addresses concepts that are related to the merger and acquisition process in business. There is an extensive coverage of what the various aspects of business, organization culture and company management interacts to bring about the success or failure of a company. They include theories of culture, management factors and case studies of Cisco and bay networks. These are real companies in real business across the United Kingdom. They helped to give then background information of the business industry as it is today and the way mergers and acquisition have been impacted upon by organizational culture. The methodology chapter develops from this in a unique manner because it where the raw information will be collected. The chapter will help explain how data will be gathered for analysis.
Research Methodology
This chapter will present the research design utilized in conducting the study. In addition, the data collection techniques with emphasis on data coding will also be presented. The sampling techniques, sample size and selection of respondents are then presented before a justification of the sample population is offered. Moreover, the qualitative and quantitative methods of data analysis and ethical considerations will be presented in the latter stages of the chapter. Finally, presentation of the limitations encountered during the study followed by a brief summary of the study will be presented
The objective of this study was to conduct an in-depth analysis of the cultural factors that cause failures in mergers and acquisitions with specific reference to the Networking and Communication Devices Industry. The study was instigated by an increase in the number of mergers and acquisitions, which fail during pre or post merger phase. One of the major reasons, which contribute, to these failures is existence of cultural differences. In order to attain this, a number of objectives were formulated.
These include identification of the cultural factors, which contribute towards success of mergers and acquisition. In addition, the nature of the relationship between key cultural factors aimed at improving mergers and acquisitions in the Networking and Communication Devices Industry was determined. Through the analysis, it will be possible to make recommendations on how to implement cultural factors in the industry.
This chapter is structured in various subsections. Subsection 3.1 entails identification of the research design used in conducting the study. The method used in collecting data from the field is analyzed in subsection 3.2. In order to condense the raw data collected, the concept of data coding is evaluated in subsection 3.3. Due to the large size of the population, sampling technique is incorporated in selecting the respondents. Sampling, sample size and selection of respondents are considered in subsection 3.4 while justification of sample selection is illustrated in subsection 3.5. The method of data analysis and ethical consideration are outlined in subsections 3.6 and 3.7 respectively. The limitations of the research methodology are discussed in subsection 3.8. Finally, a summary of the chapter is given in subsection 3.9.
Research design
In order for a research study to attain the stipulated objectives, a well-defined research design should be incorporated (Saunders et al, 2009, p. 23). The research design acts as a framework, which guides the study. The resultant effect of incorporating research design is that the study becomes logical. According to Creswell (2003, p. 203), research can either be explanatory or descriptive. Explanatory research mainly deals with answering why questions. This means that a well-defined causal relationship have to be established. Considering the nature of the research question of the study, this study is characterized as being explanatory. This is because it is aimed at evaluating why and how cultural differences have an effect on the success or failure of mergers and acquisition.
Consideration of a research design enables the study to be logical thus resulting into appropriate findings. Selection of the research design should ensure that it results into a high degree of accuracy in relation to the findings. The design adopted should be reflexive of the entire research process. According to Maxwell (2005, p. 2), a good research design is characterized as one in which all the components work harmoniously in promoting the findings of the study. On the other hand, a flawed research design results into failure. The research design adopted is dependent on whether the research questions considered is explanatory or descriptive.
There are two main research design incorporated by researchers in conducting a study. These include qualitative and quantitative research designs. Qualitative research design is also considered as being detailed which enables it to provide in-depth assessment of the issue under consideration. This arises from the fact that there is no definite procedure of conducting the study by utilizing this research design.
According to Thomas (2003, p.1), qualitative research design is defined as a multi-method of research which is interpretive in nature. In addition, qualitative research design is naturalistic in nature. This means that the researchers conduct a study on the subject matter by considering their natural setting. Qualitative research design gives the researcher capacity to utilize a wide range of empirical materials such as interviews, observation, personal experience and case study in collecting data. Maxwell (2005, p.3) postulates that qualitative research design entails a back and forth process of in relation to the various research design components.
This enables the researcher to effectively assess the objectives, research questions and methods. The research design selected must not only have a fit with its use but should also consider its environment.
In an effort to improve ease of interpretation of the research findings, the researcher integrated quantitative research design. According to Thomas (2003, p. 3) quantitative research design incorporates a number of statistical methods. This is made possible by use of numbers specific to the phenomenon under investigation. By interpreting the data, the researcher is able to make effective. Linking qualitative and quantitative research designs enabled the researcher to incorporate the concept of triangulation. Flick (2009, p. 26) opines that triangulation enables the researcher to effectively focus on the issue under consideration.
Data collection
According to Morse and Field (1995, p. 54) data collection is the process of obtaining useful information related to the phenomenon under investigation. In order to improve reliability of the data, it is important for the research to collect the most relevant data. Reliability in a study ensures that the results of the research are repeatable (Bryman & Bell, 2007, p. 40). The quality of data collected contributes towards an improving the decision making process by only focusing on relevant information. To ensure that the data collection process was organized; the researcher developed a data collection plan.
This resulted into elimination of subjective elements by clearly defining operational parameters for the study. The data collection plan was developed during the Plan-Do-Check-Act cycle. According to Morse and Field (1995, p. 53), PDCA provides a comprehensive framework for the researcher to develop a concrete understanding of the data collection and interpretation process culminating into improvement of the real process. Despite data collection planning process being time consuming, it is vital since it acts as guidance towards obtaining the correct data. In conducting the study, the researcher considered the field as the key source of data.
This enabled the researcher to obtain relevant data. Considering the fact that the study was aimed at analyzing how cultural factors affect mergers and acquisition in relation to firms within the Networking and Communication Devices Industry, data was collected from employees of Cisco Systems and Bay Networks. Prior to the actual data collection, the researcher conducted a reconnaissance to familiarize with how the firms operate. Through the preliminary research, the researcher is able to understand various issues such as language, practices, norms and social issues (Miller & Salkind, 2002, p. 45).
In order to improve reliability of the study, various methods of data collection were considered. According to Pearce and Axinn (2006, p. 28), incorporation of mixed methods of data collection culminates into production of high quality results. Both primary and secondary methods of data collection were utilized. Primary methods involved conduction of interviews and use of questionnaires.
The researcher made a decision to use semi-structured questionnaires to give the respondents a certain degree of freedom in answering the questions. According to Morse and Field (1995, p. 94), use of semi-structured questionnaires culminates into the researcher acquisition of all the required information. This means that the error of omission is eliminated to a certain degree. In addition, use of self-administered questionnaires enables the researcher to ask leading questions which easily help in getting the required answers from the respondents (Lancaster, 2005, p. 130). It was ensured that open and closed ended questionnaires were used.
The resultant effect is that the findings obtained were intense. In addition, close-ended questions based on yes or no were also incorporated. Use of yes and no questions were integrated where the researcher wanted to obtain specific information. Before administering the questionnaires to the respondents, the questions were reviewed to ensure that there is clarity and that any form of ambiguity is eliminated. By ensuring clarity, it was easy for the respondents to respond to the questions.
With regard to interviews, the researcher incorporated both face to face and telephone interviews. These were used in collecting data from those in the firms management level and the other lower level employees. Telephone interviews were considered to minimize the cost involved. An electronic voice recorder was used in collecting data obtained through telephone interview. An interview guide was also developed to ensure that the interview was well organized. Creswell (2003, p. 195), asserts that interview guide enables the researcher to emphasize on the topic under consideration during the actual process of conducting the interview. According to Longnecker (2008, p. 31), interviewing enables the researcher to understand the underlying reasons in relation to a certain individuals or a groups attitude or behavior.
Data coding
The data collected was assigned codes based on the responses. Data coding was considered to increase the ease of the data analysis process. Through data coding, the researcher was able to incorporate various statistical data analysis tools such as the Statistical Package for Social Sciences (SPSS) and Microsoft Excel (MS Excel). Incorporation of these data analysis tools arise from the fact that qualitative data is transformed into variables, which are easy for the two data analysis, tools to understand. To ensure effectiveness in the utilization of the SPSS, the various codes were developed into a matrix by considering the various responses.
This made it possible for the researcher to incorporate the Likert Scale. As a result, it was possible for the researcher to identify the attitudes of the respondents with regard cultural differences in mergers and acquisitions. Data coding also contributed towards significant reduction in the volume of data collected from the field. According to Longnecker (2008, p. 56) data reduction culminates into the data becoming sharp and focused through elimination of data which is not relevant.
Sampling, sample size and selection of respondents
Sampling and selection entails identification, choosing relevant data sources, which will be used in generating information (Bryman & Bell, 2007, p. 185). In order to integrate the concept of sampling, a target population was identified. This included all Cisco Systems and Bay Networks Incorporation employees. Sampling technique was incorporated from realization of the fact that it is not possible to collected data from all the employees.
The resultant effect is that the researcher was able to overcome time and cost constraints. Sampling technique enabled the researcher to select a sample population from the target population. Through sampling, all the parties in the sample population had the same probability of being selected hence eliminating bias. A sample population is defined as the total number of objects in a study, which have the same, and independent potential of being selected as the actual sample. From the sample population, a sample, which is the finite part of the statistical population, is selected.
According to Kent (2007, p. 23), the respondents should have common characteristic to ensure that the feedback is related. The sample consisted of employees in the management level and other ordinary employees working in Cisco Systems and Bay Networks. This was attained through use of simple random sampling which made it is possible for the researcher to eliminate sampling bias. The selected sample is considered representative of the entire population.
The sample consisted of 60 respondents. Twenty-four of the respondents were selected from the management team. Twelve respondent managers were selected from each company. These respondents were from different management levels. Six of them were top managers while the other half was from the lower management levels. Thirty-six of the respondents were ordinary employees belonging to different department of the two firms. Eighteen of these respondents were selected from each company.
Justification of the sample selection
Consideration of both ordinary employees and those in management level as respondents was considered to gain understanding of their perception on how cultural differences affect their operation. In addition, those in management have the capacity of knowing how cultural differences affect performance of mergers and acquisitions. This is because they are charged with the responsibility of managing the new entity formed. On the other hand, ordinary level employees have concrete understanding on how cultural differences affect them in the process of executing their duties.
Data analysis
Grounded theory was integrated in analyzing the data collected. Grounded theory involves a research method in which the data collected is used in developing the theory relating to the phenomenon under study (Schwab, 2005, p. 83). According to Lincoln and Denzin (2003, p. 249), grounded theory is qualitative in nature and utilizes systematic procedures in an effort to develop theories related to a given phenomenon. This means that grounded theory enables the researcher to expand the on a given phenomenon by identifying various elements related to the subject under study.
In addition, grounded theory was important in conducting a research if the researcher intends to generate or explain a given situation. Through grounded theory, it will be possible for management teams to gain knowledge on how to conduct cultural fit analysis before implementing merger and acquisition decisions.
Ethical consideration
Consideration of ethics is an integral part of the research process no matter the nature of research (McBurney & White, 2009, p. 49). According to Gravetter & Forzano (2008, p. 97,) there are two main elements which should be considered when dealing with ethics. One of them entails responsibility to various individuals involved in the research (human and non-human). The second element involves being responsible to discipline of science.
This means that the researcher has to integrate honesty and accuracy in the reporting process. In conducting the research, the researcher ensured that voluntary consent in relation to the parties involved in the research was ensured. This was achieved by ensuring that the respondents had a legal capacity to give their consent on whether to participate in the research or not. There was no any element of force, duress, deceit, fraud, over-reaching, any form of intervention or ulterior for of coercion or constraint. As a result, the respondents had the capacity to pull out of the study as desired without any form of loss in relation to the benefits he or she was entitled. There was no any form of penalty associated with pulling out of the study.
It was also ensured that the respondents selected had comprehension and sufficient knowledge with regard to the subject matter of the research. This consideration ensured that the respondents had a capacity to fully participate in the research.
Before the actual study, the researcher ensured that the respondents were conversant with the nature, purpose and duration of the research. This was considered to increase the degree of confidence amongst the respondents. The respondents were made aware of the benefits associated with participating in the study as one of the outcomes. Additionally, any foreseeable discomfort and risks were made known to the respondents well in advance.
In order to increase freedom of respondents participation, the researcher ensured that a high degree of confidentiality was ensured. The need to protect confidentiality arises from the realization of the fact that qualitative research is conversational in nature and hence it is important for the researchers to maintain a well-defined boundary of what they tell the participants and what they are told. In addition, the researcher ensured that the concept of beneficence is incorporated. This contributed towards development of an environment conducive between the researcher and the respondents. The resultant effect of this is to make the interviewing session interactive (Johannison, 2006, p. 34).
In addition, creating an informed consent greatly contributes towards ensuring that there is a high level of respect during the process of conducting the research. Individual consent was presented to the researcher in understandable language. In conducting the research, the researcher obtained consent from the local authorities. This will be attained by approaching the management teams of the selected companies and explaining the objective of conducting the research.
Limitations
The study was limited in a number of ways. For instance, it was not possible for the study to consider all the employees as respondents due to resource scarcity in relation to time and financial constraints. This prompted the researcher to use sampling technique. It was assumed that the results obtained from the selected sample were representative of the cultural differences experienced in mergers and acquisitions. The study was also limited in that some of the respondents were not exhaustive in replying to the questions asked. This made the study challenging to the researcher.
Summary
The chapter gives the step through which the researcher when through to collect the data that was used in this study. The chapter covers all the aspects of data collection from the way the study was designed, data collected and the presented for analysis. As indicated, the qualitative and quantitative studies were both used in the study to enable extensive collection of data. The methods were also justified so that the conclusion could validate the study or be considered reliable. However, the chapter also highlights the limitations of the study process so that the reader can be able to understand that there could be errors and the reasons why. Ethical consideration paved the ways for study to process without damaging the people and business environment. Having collected all relevant information, the data was taken to nest chapter for analysis
Data Presentation and Analysis
This chapter will first present the demographic description of the respondents in the study with emphasis on their gender, management level and their respective age. Next, an analysis of the research questions and the factors leading to the success and failure of the organizations will be presented. An analysis of the cultural factors with regard to due diligence, communication style and nature of the cultural factors, which influence performance of mergers and acquisitions, will also be presented. Finally, an analysis of Individualistic versus collectivist culture of the entities and the summary of the chapter will be presented in the latter stages of the chapter.
There has been an increment in the rate at which firms are scanning the environment in order to identify potential partners to enter into merger and acquisitions with. Despite the increased integration of mergers and acquisition, their success is not guaranteed. However, success of mergers and acquisition depends on the effectiveness of its management. Some mergers, which have been formed, have been disappointing. On the other hand, some mergers such as those undertaken by firms such as British Petroleum, Cisco and General Electric have been successful.
According to Gertsen, Torp and Soderberg (2004, p. 76), mergers and acquisition result into a significant degree of disruption and transformational change within the organization. One of the issues of great concern relates to cultural differences. Culture is a key factor, which determines whether the merger will fail or succeed. Therefore, it is paramount for the management team to determine the most effective way of managing culture.
This chapter is organized into a number of sub- sections. Sub-section 4.1 entails a descriptive characteristic of the respondents. Some of the key characteristics considered include gender, age and employee rank and organization department. Sub-section 4.2 entails an analysis of the research questions used in conducting the study. The research questions are analyzed by identifying the various components. In sub-section 4.3, the various factors leading to success or failure of mergers and acquisition are analyzed. This is attained via identification of various factors. A summary of the chapter is given in subsection 4.4.
Primary and Secondary Data Presentation
In conducting the study, the researcher considered Cisco System Incorporation and Bay Networks employees. Diverse demographic data was evaluated in conducting the research. Demographic data was also utilized in conducting the study. This was attained by considering a number of demographic variables that included gender, management level and their respective age.
Employee rank. Both employees in the management level and ordinary employees were considered. Selection of these respondents was considered because they experience cultural different issues related to cultural differences. The study took into consideration t the top, middle and lower level managers. Decision to consider different management levels arose from realization of the fact that their roles are different. As a result, a difference existed in relation to the effect of culture on their operation.
Organization department. The study considered the different departments that exist within the two firms. The core objective was to determine how cultural differences affected performance of employees in various organizational departments.
Age. The study took into consideration the age differences that exist amongst the respondents. Decision to incorporate age arose from need to determine the efficiency with which the employees can cope with the change, which results due to formation of mergers and acquisitions.
Gender. Sixty percent of the respondents considered in the study were male employees while the rest forty percent were female. The table below gives an illustration of the demographic data considered in the research.
Questionnaire on the general demographic data
Table 1: The Questionnaire Results.
Gender: Male (60%), Female (40%)
Age range
Management Level
Ordinary employees
20-30
6
5
31-35
5
5
36-40
5
6
41-45
4
7
46-50
5
4
51 and above
5
3
Rank in the department.
Management level (rank)
Top level managers
8
Middle level managers
9
Low level managers
13
Ordinary employees
30
Department of Work.
Department
Number of respondents
Purchasing and procurement
9
Marketing
10
Finance
8
human resource
13
Research and development
9
Production
11
Major Cultural Differences.
Cultural Factor
Response
Difference in Organizational Value
70%
Difference in Organizational Norms
50%
Differences in Organizational goals
60%
Difference in language
20%
Difference in Organizational Practices
60%
Difference in Organizational Beliefs
50%
Difference in Organizational Behavior
70%
Presentation of demographic data.
Primary and Secondary Data Analysis
In conducting the study, one research question was considered. This includes How did cultural factors affect success of incorporation of mergers and acquisition in Cisco Incorporation and Bay Networks? In order to enhance the effectiveness of data analysis, a comprehensive analysis was conducted on the research question. This was achieved by breaking down the research question into a number of components. The various components considered are outlined below.
Cultural factors leading to success or failure of mergers.
Nature of the cultural factors that influence performance of mergers and acquisitions.
Nature of the relationship between key cultural factors that result into improvement of mergers and acquisitions.
Primary Analyses
Quantitative Results
When the respondents were asked to respond to the 9 question that asked which factors resulted into the success or failure of mergers and acquisitions, they gave widely varied responses. A considerable percentage of the respondents mentioned a number of sub-cultural factors that were listed on the question number six. These factors included reasons that related to organizational values, to organizational customs, beliefs, traditions, the firms policies, to organizational objectives and to organizational behavior. The atmosphere that is generated by these factors has an effect on the mergers and acquisitions success.
Seventy percent of the respondents were of the opinion that success of mergers and acquisition is dependent on the effectiveness with which the firm appreciates value in an organization. The core objective of entering into mergers and acquisition is to attain synergy in the firms course of operation culminating into attainment of a high competitive advantage. These respondents were of the opinion that firms management teams do not conduct an evaluation of the existing values between the two firms to determine whether the merger will succeed or not. A significant proportion of the respondents cited differences in organizational philosophies as a major factor contributing towards the success or failure of mergers.
Difference in organizational goals was also cited as a key cultural factor affecting mergers and acquisitions. This arises from the fact that the management teams of the two firms have adopted diverse strategies with regard to attainment of the formulated goals and objectives.
Sixty percent of the respondents were of the opinion that differences in management style have an effect on the success or failure of mergers and acquisition. The leadership skills that a firm can adopt include autocratic, democratic or laissez faire. Democratic management style involves the employees in the decision making process. For example, some respondents from Bay Network asserted that they had the discretion to take their own approach towards attainment of the stipulated goals. On the other hand, autocratic management style tends to be authoritative in nature. Laissez faire leadership entails a situation where everyone is treated as being equal. If firms with different management styles enter into a merger and acquisition the probability of the merger failing is high. The table below gives an illustration of the varied responses in relation to mergers and acquisition.
Qualitative Results
The results of qualitative investigation were deciphered from the eighth question that sought to find the relationship between the main factors of cultural inconsistencies and similarities. These factors are critical in the determination of the success or failure of the mergers and acquisitions. The connection between the different cultures is what determines the compatibility of two different companies that are coming together to begin on a new path with same goals, same management style and try to work out with same strategies.
Due diligence
Most of the respondents in the management level were of the opinion that mergers and acquisitions fail because of not conducting comprehensive due diligence. According to Galpin and Herndon (2003, p. 21), mergers and acquisition are faced with numerous chances of failure or success. Culture should be a critical issue during the integration phase. However, cultural issues have not been considered central amongst the executive level managers in the process of settling the deal. One of the reasons cited to contribute to minimal due diligence entail the existing familiarity between the executives of the firms conducting mergers and acquisitions.
The resultant effect is that there is sloppiness amongst the executives who are well aware of their partner. 65% of the respondents were of the opinion that increased familiarity between the executives culminates into numerous assumptions in the process of conducting mergers and acquisitions. This makes the deal to be less sensible of the real business environment thus reducing its probability of success. According to Galpin and Herndon (2003, p. 23), it becomes difficult for mergers and acquisition to reconcile existing cultural differences which were assumed during conduction of due diligence process after the deal is completed. The resultant effect is that these mergers and acquisitions fail upon their inception.
Communication style
Fifty percent of the respondents were of the opinion that communication style is a major factor that determines the success of mergers and acquisitions. Communication in an organization is defined as the process through which information is disclosed within an organization. When asked of the various communication styles, the respondents cited open and closed communication styles. Open communication entail free sharing of information and opinions. On the other hand, closed communication style entails a form of communication where sharing of information amongst co-workers is limited.
In addition, an organization can have either supportive or defensive communication style. Supportive communication style refers to a style of communication where the degree of honesty and openness is high. If the two firms entering into a merger and acquisition have different communication styles, there is a high probability of the merger failing. This arises from the fact that employees of the two firms cannot get along with each other smoothly since they are used to different types of communication.
Secondary Analysis
Individualistic versus collectivist culture
The respondents were of the opinion that mergers and acquisition fail due to diversity of cultures amongst the firms. In a firm with individualistic culture, the employees are usually concerned with their personal interests.
This attained by giving the employees a given degree of freedom enabling them to attain their personal goals. When asked why diversity in culture in terms of individualistic and collectivist culture result into failure of mergers and acquisitions, the respondents asserted that the decision making process during the merger is inconvenienced by the individualistic culture. On the other hand, collectivist culture tends to work in groups. In this culture, there is a high degree of loyalty amongst the employees. In a collectivist culture, employees hold that the firms welfare is as important as their own. There is a high probability of a merger and acquisition entailing firms with different cultures failing. This arises from the fact that the employees have a different mindset.
Nature of the cultural factors which influence performance of mergers and acquisitions
Divergences in cultural factors result into cultural clash within the organization. There are two main cultural contexts identified in conducting the study. These include high and low context culture. Polychromic and monochromic concepts also tend to impact on the issue of mergers and acquisitions. Monochronic employees tend to undertake a particular task at a given time. This makes them to concentrate on their work while considering the set deadlines.
On the other hand, polychronic employees have the capacity to multitask. Despite their multitasking characteristic, these employees are not able to successfully complete their tasks at the end of the day. Monochronic employees require a lot of information for them to be effective in conducting their duties. Polychronic employees already have the necessary information to execute their duties. A merger entailing a firm with a large number of monochronic employees with another having polychronic employees tend to fall since the employees cannot work along each other well.
Hofstede Dimensions
Doing business in the UK entails creating relationships. Its been not that the British only work favourably with the people they are familiar will and trust. Sometimes they do this at the expense of very lucrative deals. Its imperative that good working relationships are established on any prospective partner. Forming a merger or acquiring another company is the fashionable way of expanding the operations of business on the international scene as it makes organization penetrate markets faster and establish bigger statuses in a short time (Hofstede, 2001, p. 17). This should take place on the level of the organizations, that is to demonstrate strong business acumen and also at an individual level. This enhances how partners would relate and exhibit the positive traits of trust and respect. The following are the Hofstedes cultural dimensions discussed in relation to UK.
Individualism. Past researchers have found that UK has very high individualistic attitude in relation to other countries in Europe though this is changing very fast (Brown & Humphreys 1995, p. 7). The loose bonds with others are transforming. People are more self reliant and they look up to themselves for everything or for their families. Privacy is a cultural norm and distance has to be maintained here. This means that any attempt to bring personal; ingratiation is easily rebuffed.
Power Distance. Hofstede introduced this concept as the degree to which an organization is able to anticipate and acknowledge unequal power distribution. When there is high power distance ratting, then this means that the inequalities in power and riches have been accepted in the organization (Hofstede, 2001, p. 17). An organisation characterised by low power distance would normally support equal opportunity for all. Power rating for UK is slightly low and its a show of the relatively high equality of power in the society which is likely to translate to the business sector (Brown & Humphreys 1995, p. 17).
Masculinity. This concept of culture is described by Hofstede as the distribution of the duties of men and those of women in a cultural organization. Past researchers on culture have shown that the values that men and women hold are very different. Men are considered to have very assertive values that are also very competitive from country to country and organization to organization. Women on the other hand have been found to be modest and caring (Hofstede, 2001, p. 17). These aspects are very similar across nations and organizations. The assertive characteristic of culture is described as masculine and the humble and caring feature is called feminine. Masculine organizations are where the men are tough and leaders while women are expected to be modest. Feminine organization culture requires that both men and women be modest, gentle and concerned. Masculine organization are therefore aggressive and money oriented like capitalist economists while feminine ones are people oriented will little interest in personal recognition. UK communication firms have a balance of the assertiveness and modesty (Brown & Humphreys 1995, p. 12).
Uncertainty avoidance. This is the culture dimension that addresses the level to which people are able to tolerate ambiguity or uncertainty in an organization. These are situation that are unstructured. A situation of high uncertainty avoidance shows that the organization cannot tolerate uncertainty. This therefore led the organization into creation of rules, controls and laws to assists in reducing uncertainty. Otherwise perception means that the organization has allowance for a variety of opinions since it is not scared of the uncertainty prevailing. The organization in such case would be less rule-oriented but rather accepts liberal thoughts and changes. UK scores low and therefore the communication sector are likely to cope up well as they would welcome new ideas and thoughts (Brown & Humphreys 1995, p. 17).
Long-Term Orientation. This the aspect of culture that Hofstede tries to use for incorporating the eastern attitudes as founded by the Confucian theory. UK has a moderately high ranking of long term goals. This score indicates that the culture is persistent, thrifty and stingy. The Britons have a sense of shame and this is common among people and their relationships are described by order of status (Hofstede, 2001, p. 12). An UK business organization expected to plan further out in the expansion of the business plan because of the long terms goals. When the Britons travel outside UK, they settle faster wherever they go and work even harder for long-term benefits (Brown & Humphreys 1995, p. 17). In order to succeed there needs to be business strategy, the readiness to adapt to changes and proper organizational competencies.
Questionnaire on Cultural Factors (Five scale likert-questions)
Do you think is Ok to arrive at a meeting a little late (1,2,3,4,5)
Do you think a promotion is an motivation to work harder (1,2,3,4,5)
When situations get out of control, then there is no way to contain them (1,2,3,4,5)
Maintaining a good relationship with colleagues at work is important part of job (1,2,3,4,5)
Its not a well-mannered thing to refuse others their request directly (1,2,3,4,5)
Its a good practice to invest company money for the future (1,2,3,4,5)
Do you think men do a better job than women on most aspects (1,2,3,4,5)
Its proper to have adequate training before getting into a job (1,2,3,4,5)
Would you do whatever the boss says even if its contrary to organizational policies or not legally right (1,2,3,4,5)
Planning project should embrace more flexibility (1,2,3,4,5)
you prefer working in a group than alone (1,2,3,4,5)
the work of women is to take care of children and their families and not in corporate work (1,2,3,4,5)
it is absolutely necessary to hang-out with work mates after days work (1,2,3,4,5)
people need to be treated nicely respected and get rich (1,2,3,4,5)
you prefer making long term plans rather than the short term ones (1,2,3,4,5)
women should always respect men (1,2,3,4,5)
things usually happen according to fate (1,2,3,4,5)
people are never equal, as seen from the way they live (1,2,3,4,5)
in order to succeed, planning needs to be done (1,2,3,4,5)
women should not take leadership position is business (1,2,3,4,5)
Uncertainty avoidance is highlighted in questions 1,3,10, and 17. The answers that give 1 and 2 have not tolerance for uncertainty
Power distance is brought out in questions 2,9,14 and 18. Answering 1 and 2 shows that inequalities of power are allowed in the organization
Individualism is assessed in questions 4,5,11 and 13. Answering strongly agree means that there is low individualism. The organizations will be well integrated
Long Term Orientation perception is answered in questions 6,8,15 and 19. Answers 1 and 2 show that there is high indicates that one organization culture is perseverant and parsimonious
Masculinity is addressed in questions 7, 12, 16 and 20. Answering 1 and 2 means that the organization is more masculine meaning that the policies are tough, patriarchal and assertive.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Respondent 1
2
1
2
1
2
2
1
2
2
3
1
2
2
2
3
1
1
1
1
3
Respondent 2
2
1
1
2
1
3
2
2
1
2
2
2
2
1
2
1
2
1
1
2
Respondent 3
3
3
1
3
2
3
1
1
2
3
2
2
1
4
2
2
3
2
2
3
Average
2.3
1.7
1.3
2.0
1.7
2.7
1.3
1.7
1.7
2.7
1.7
2.0
1.7
2.3
2.3
1.3
2.0
1.3
1.3
2.7
Responses to the Questionnaire on Cultural Factors
Dimension
Weighted average
Rating
Uncertainty avoidance
2.1
High
Power distance
1.8
High
Individualism
1.8
Low
Long Term Orientation
2.0
High
Masculinity
1.8
Low
The differences in the five major dimensions were observed to vary across the lines of age and gender. The power distance, masculinity and individualism showed the most significant variations.
Summary of the Chapter
This chapter helps in presenting the data collected to the reader in a manner that they can easily understand and be to connect the outcomes to the questions that were asked in the interview. Every question is strategically answered and presented in this chapter. The reasons answers are also assessed and presented in tables that are concise for this information. The researcher is on the other hand able to make the analyses from the data presentation and clearly link research question to data presentation and eventually to the analyses. The variables considered include employees rank, organization department, age and gender.
This chapter offers simpler data that will be used in the next chapter for interpretation and eventually discussion. From the discussion, the conclusions will be drawn. The trends in then data presentation also guide the recommendation because interpretation helps in understanding. The theories of culture, individualist and collectivist are used in analyses to assist is explaining the reasons that hinder success during mergers.
Discussion and Interpretation
This chapter will present the discussion and interpretation of the research findings based on various relationships espoused by the findings. To start with an analysis of cultural fit in determining the success or failure of mergers and acquisition will be discussed. Next, an evaluation of the relationship of cultural factors in mergers and acquisition will be presented while relating it with aspects of organizational culture in Bay Networks and Cisco Systems Incorporation. Finally, the relationship between communication and leadership as one of the cultural differences in mergers and acquisitions and the summary of the chapter will be presented.
In the 21st century, the global economy has witnessed rampant transformation. Some of the changes that have been witnessed relate to increased incorporation of mergers and acquisition. One of the reasons, which have made entrepreneurs to incorporate this strategy, is the need to access new markets thus enhancing the probability of attaining their profit maximization objective. According to a study conducted on mergers and acquisitions, approximately 10, 000 and 11,000 mergers and acquisitions were conducted in the United States and Europe in 2004 respectively (Marmenout, 2008, p. 3).
During the 1980s when the concept of mergers and acquisition was being incorporated in businesses, entrepreneurs realized that the mergers and acquisition did not result into the intended synergy. However, there are numerous challenges, which are facing the success of mergers and acquisitions. Some of these challenges arise due to existence of differences amongst the firms involved in the merger and acquisition (Accenture, 2009, p. 7).
Increased failure of mergers and acquisition formed prompted scholars and entrepreneurs to shift their focus to the human side (Marmenout, 2008, p. 3). With regard to the human side, mergers and acquisitions present a challenge to entrepreneurs.
This arises from the fact that there are numerous complex issues that the entrepreneurs have to deal with to ensure that the strategy succeeds. One of the issues, which present a challenge to mergers and acquisition, is the existence of cultural differences among potential mergers. According to Uliin, Duysters and Meijer (2010, p.1), the past decade has witnessed a significant growth in mergers and acquisitions and strategic alliances. Despite their proliferation, a significant proportion of studies, which have been conducted on mergers and acquisition, assert that their rate of failure is alarming.
Ulijin eta al (2010, p. 1) is of the opinion that the failure rate is because of cultural differences. Considering the challenges facing mergers and acquisition as a result of existence of cultural differences, it was the objective of this study to conduct a comprehensive analysis of the success and failure of mergers and acquisitions as a result of cultural differences. This chapter entails a discussion and interpretation of the research findings.
The chapter is organized into three subsections. Subsection 1 entails an analysis of cultural fit in determining the success or failure of mergers and acquisition. Subsection 2 entails an evaluation of the relationship of cultural factors in mergers and acquisition. The section also details some of the findings that were revealed from the study in relation to Bay Networks and Cisco Systems Incorporation. Subsection 3 details the relationship between communication and leadership as one of the cultural differences in mergers and acquisitions.
Cultural fit in mergers and acquisition
Cultural fit has been considered as a critical element in the formation of mergers and acquisitions. In the operation of every firm, cultural fit between the firm and its employees is very important. This arises from the fact that there is a direct relationship between cultural fit and the firms profitability hence its success. An organization, culture is formed because of the existence of employees experiences and individual personalities.
In addition, it also entails the team orientation, management style and the working methods employed. In the initial stages of establishing mergers and acquisitions, it is important for the partners being involved to determine the existing cultural fit between the two organizations to determine the existence of cultural fit. Hackett (n.d, p. 104) defines cultural fit as the existence of compatibility the attitudes, values and behaviors formed within an organization and the employees. Lack of cultural fit in mergers and acquisitions is one of the factors which contribute towards the failure of mergers and acquisitions.
Before implementing the concept of merger and acquisition in its operation, Cisco Systems Incorporation management team incorporated the concept of cultural fit. When asked why the management team paid more emphasis on cultural fit, the respondents said that it was because of realization of the fact that change occurs upon the formation of mergers and acquisition. Hackett (n.d, p. 104) asserts that despite the employees work experience, knowledge and skills, these elements may be of minimal importance upon the formation of a merger and acquisition. This is because work content and the assigned responsibilities change upon the integration of the merger.
As a result, the employees may be forced to develop new skills in order to execute their duties more efficiently. However, their attitude, values and beliefs with regard to their job may not change significantly in the short term. This makes it challenging for the firms management team to develop a cultural fit within the organization.
According to Marmenout (2008, p. 7), employees of a particular organization are embedded in the culture established within the organization. In addition, they do not recognize the impact that their behavior has on their organizations. During formation of mergers and acquisitions, existence of cultural collisions makes them to appreciate this influence.
In the process of undertaking its merger and acquisition, the respondents from Cisco System Incorporation management team said that the firm conducts a comprehensive cultural assessment. The assessment considers the positions which will be adversely affected by the formation of merger and acquisition. As a result, it is able to identify and develop an understanding of the culture formed by employees of the potential partner. Cultural assessment entails comparison of the existing organization culture of the firm with that of its acquisition targets culture. Some of the issues which have to be considered during cultural assessment include values, products, and location and company beliefs amongst others.
Seventy five percent of the respondents selected from Cisco System Incorporation management team said that the firm conducts an on-the-job observation of its potential partner. This is undertaken prior to Cisco System Incorporation entering into negations regarding the merger and acquisition with its potential partner. As a result, the firm is able to identify the culture established amongst the employees in the course of executing their duties.
Some of the observations made relate to the interaction amongst the employees and with the management. In addition, the respondents said that the management team observes how the employees solve conflicts amongst themselves and how they express their emotions. In order to determine the most effective strategy that will minimize occurrence of failure, Cisco System Incorporation management team asks the employees which areas should be changed in order to improve their productivity.
Relationship of cultural factors with mergers and acquisition
According to Sarala (2004, p. 147), cultural factors are a key determinant in the success or failure of a firm. Considering the fact that different organizations have adopted different ideologies and values a difference exists between these firms. An organization culture can interpreted as an umbrella which encompasses the various subcultures existing in the organization. This means that organization culture aids in establishment of organizational cohesiveness. This is attained through establishment of a link between an organizations procedures, strategies and policies.
Sixty five percent of the respondents considered in the study from Cisco Systems Incorporation said that in implementing its merger and acquisition strategy, the firm conducts an analysis of its potential partner procedures, strategies and policies. This enables the firm to determine the degree of congruency between the two firms. One the other hand, in the formation of Bay Networks which entailed a merger between Synoptic Communications and Wellfleet Communication would be a success.
The decision was based on the assumption that the two firms were operating within the same domestic context and hence organizational culture would not have been a major hindrance in the operation of the firm. However, Sarala (2004, p. 147) asserts that there is a high probability of diversity between the culture of the two firms involved in the merger and acquisition despite them operating within the same domestic context.
This is further enhanced by studies conducted by Ulijn (2010, p. 99) who opines that there should be no generalization regarding cultural aspects. This means that the formation of merger and acquisition in Bay Networks was based on the fallacy of assuming the existence of familiarity of culture between the two firms since they had a similar national culture. Studies conducted by Sarala (2004, p. 148) on mergers and acquisition reveal that national differences are more prominent in domestic context compared with international acquisitions.
Existence of extensive cultural differences within an organization is one the restraining factors which limit success of post-acquisition integration. Sixty percent of the respondents in the management level were of the opinion that cultural differences have a negative impact on the performance of those in the top management level. When asked why, these respondents said that cultural differences between the two firms involved result into tension and high stress levels. The resultant effect is that their decision making capacity is negatively influenced and hence the performance of the firm. According to Finkelstein (2009, p. 60), extreme stress is one of the factors which contributes towards a high turnover amongst those in the management team in mergers and acquisitions.
The success of a merger and acquisition is directly related with the extent of cooperation established between the employees. Forty percent of the respondents interviewed who were selected from Bay Networks said that lack of trust between employees of the two firms was one of the factors which contributed to a decline in their productivity. When asked why, these respondents said that teamwork within the organization was adversely affected and hence the performance of the firm. Finkelstein (2009, p. 60) asserts that cultural differences lead into formation of cultural conflicts in an organization. This scholar further asserts that cultural conflicts have the effect of diminishing commitment in addition to creating a negative with regard to employee cooperation.
Seventy percent of the respondents interviewed said that the resultant effect of the differences in culture between the two firms makes them to develop a feeling that they are alienated from the new entity formed. This is in line with findings of a research study conducted by Finkelstein and Cooper (p. 21) which reveal that employees identification with an organization can be threatened by implementation of the merger. The resultant effect is that their loyalty, cooperation and dedication to the success of the intended merger and acquisition. In addition, the employees said that cultural differences affect the performance of mergers and acquisitions due to existence of ambiguity with regard to employees roles.
In assessing existence of cultural fit between the firm and its potential partner, it is paramount for the management team to develop an understanding of the firms value. According to Frensch (2007, p. 60) an organization value is composed of those values which are explicitly stated in addition to those which are implicitly held. In the process of implementing its merger and acquisition, Cisco Systems Incorporation ensures that a comprehensive examination of both types of cultures is conducted and intimately understood. In order to attain this, the firm evaluates the mission statement of the firm to be acquired.
This enables the firm to gain an understanding of the firms goals. By analyzing a firms mission statement, Cisco Systems Incorporation is able to gain knowledge on what the potential partners organizational culture emphasizes. Seventy percent of the respondents interviewed were of the opinion that an organization values and beliefs underpin how an enterprise should treat its employees and other stakeholders.
For a merger and acquisition to be successful, it is vital for the management teams of the firms involved to conduct a comprehensive evaluation of the organizational value existing between the two firms. This enables the firm to determine the most effective culture which will suit the two organizations. In its merger and acquisition process, the management team of Cisco System Incorporation evaluates the relationship developed between its potential partner and its customers. Lack of proper analysis of the relationship, which exists between the firm and its customers, is one of the reasons, which have contributed towards failure of Bay Networks.
According to Network World (1997, p. 55), lack of establishing the culture existing between Bay Network and its customers has limited the firms ability to convince customers to purchase its products. On the other hand, Cisco Systems Incorporation has managed to be effective
In addition, the firms management team also evaluates whether all the employees operations are geared towards developing attaining customer satisfaction. Through cultural analysis, Cisco System Incorporation is able to determine the possible hindrances, which may result from existence of cultural differences (Cisco System Incorporation, 2004, p.3). Analysis of cultural differences enables the firm to determine which values will be retained in the firm and those, which need to be changed. Frenshch (2007, p. 65) opines that there is a high probability of the powerful partner imposing its organizational culture on its partner.
This mainly occurs if there is no optimal evaluation of the culture between the two firms. Cultural analysis helps to determine the most appropriate culture to be integrated within the new origination. In addition, cultural analysis minimizes the chance of organizational value being destroyed. As a result, the firm is able to attain the intended synergy. Such an evaluation increases the probability of cultural integration taking place at a faster rate. According to Ulijin (2010, p. 97), the success of mergers and acquisition as going concern entity is not only dependent on the existence of organizational and strategic fit between the two firms but also on cultural fit.
Communication and leadership
Despite the importance of effective leadership in the operation of mergers and acquisition, a number of firms which have incorporated this strategy have not addressed this concept. One of the reasons which have promoted this is lack of clarity on the impact of effective leadership in mergers (Frensch, 2007, p. 68 Considering the rate of dynamism within the business environment, it is vital for effective leadership to be incorporated within an organization. As a result, it will be possible for the organization to incorporate the changes which occur in the external environment.
There are various leadership styles which an organization can incorporate. However, the most appropriate leadership style should be incorporated within the organization (Frensch, 2007, p. 68). Considering the fact that mergers and acquisition result into the organization having different types of employees with regard to their behavior and beliefs, it is important for the management team to consider some elements. Some of elements which determine the type of leadership style to be adopted relate to the nature of subordinates and organization size (Gadiesh, Buchanan, Daniell & Charles, 2005, p. 13).
Mergers and acquisition can result into increase in the organization size. Therefore, leadership should be distributed within the entire organization. In such a case, democratic leadership style is the most appropriate. Lack of effective leadership is one of the reasons which made Bay Networks merger not to succeed compared to that of Cisco Systems Incorporation.
Summary
This chapter discusses the key research finding as obtained from the preceded chapter following analyses. An interpretation is the process of translating the information on the paper as numbers and verbatim into reasonable statements and theories that have valid explanations. Discussion puts reason to the numbers obtained from the data analysis chapter. This chapter also helped linking the qualitative and quantitative data together so that they translate into one conclusion.
This is chapter is also where various factors were connected or linked to each other to bring out the best way possible that the interaction can be described. Cultural factors in on organization are evaluated in connection to mergers and the management strategies are also studied in relation to culture and different companies objectives. These interactions of all these aspects need connection of the different pieces of information into a specific basis. This is why they are set to the next chapter for that reason.
Conclusion and Recommendations
This chapter will first present the conclusion of the entire study in relation to the research objectives. In addition, the chapter outlines a number of recommendations that entrepreneurs should consider with regard to culture in the process of incorporating mergers and acquisitions in their strategic management process. Finally, areas that may require future research will be analyzed by identifying the gaps which exist with regard to how management teams of firms integrate the concept of merger and acquisition.
Mergers and acquisitions is one of the methods which are increasingly being favored by management teams in the attaining organizations growth targets. As a result, the firms are able to attain wealth maximization objective of the stakeholders (McDonald, Coulthard & Lange, 2005, p. 1). This is attained via increasing the value of stakeholders. The core objective of the study was to analyze the impact of cultural differences on the success or failure of mergers and acquisitions.
A number of research specific objectives were formulated in order to guide the study.This was undertaken by considering a number of issues which include cultural factors which lead to the success of mergers and acquisition. The nature of the relationship which exists between the key cultural factors which affect the probability of success or failure of mergers and acquisition were evaluated. In order to gain a better understanding of the impact of cultural differences in mergers and acquisitions, a case study involving a success and failure was considered. The two firms considered in the study include Bay Networks and Cisco Systems Incorporation which operates within the Networking and Communication Devices Industry. A comprehensive review of literature regarding the merger of the two firms was conducted. This enabled the researcher to identify various issues related with organizational culture.
This chapter entails a conclusion of the entire study. This is attained by considering the research objectives and corresponding research questions. In addition, the chapter outlines a number of recommendations that entrepreneurs should consider with regard to culture in the process of incorporating mergers and acquisitions in their strategic management process. Finally, a future research is analyzed. This is undertaken through identification of gaps which exist with regard to how management teams of firms integrate the concept of merger and acquisition.
Conclusion
The concept of mergers and acquisitions has increasingly been incorporated in organizations strategic management process. Decision to consider mergers and acquisitions results from the benefits associated with the concept. According to Pablo and Javidan (2004, p. 55), effective implementation of mergers and acquisitions presents an opportunity for firms to attain their profit maximization objective as going concern entity.
This is enhanced by the fact that mergers and acquisitions result into the two firms complementing each other. In addition, mergers and acquisitions enable entrepreneurs to venture into new markets. However, mergers and acquisitions are faced with numerous challenges which threaten their success. This means that it is important for both for those involved in the merger to determine the most effective way of ensuring that integration difficulties are effectively addressed (Straub, 2007, p. 78).
One of these challenges relate to existence of cultural differences between the two firms. The effectiveness with which a firms management team analyzes the cultural differences existing between the firm and its potential partner determines whether the new resulting from merger and acquisition will succeed or fail. From the case study conducted, Cisco Systems Incorporation has been successful in its merger and integration process. On the other hand, the merger involving Synoptic Communications and Wellfleet Communications which resulted into formation of Bay Networks did not succeed. This arises from the fact that the team involved in implementing the merger did not conduct a comprehensive evaluation of cultural issues between the two firms.
In their operation, organizations have different corporate culture despite them operating within the same industry or country. Cultural differences arise from diversity of held by an organizations employees in relation to values, norms, attitude and beliefs. Harmonization of cultural differences between mergers and acquisitions presents a challenge to firms. However, the associated benefits contribute towards the success of the firm in the long term. This can be attained through conduction of cultural analysis. Cultural analysis in mergers and acquisition enables the management team of the acquiring firm to determine whether there is a fit between the two firms. This serves in minimizing occurrence of cultural clash during the post integration phase which may lead to the failure of the new firm established.
Through cultural analysis, the acquiring firm is able to identify important values in the firm being acquired which should incorporated in the new firm. As a result, the firm is able to attain its goals as a going concern entity. Studies conducted by various scholars reveal that there is a high probability of the culture of the firm being acquired to be suppressed. This may limit attainment of the intended synergy.
Employees are very important in the success or failure of mergers and acquisitions. In order to address their needs and requirements, the management team should conduct a comprehensive cultural assessment. This is undertaken by considering the concept of due diligence which entails pay attention to employees or workforce priorities. Due diligence enables the management team to put into consideration issues related with human capital.
As a result, a considerable amount of time should be devoted to ensure that a comprehensive assessment of organization structure and human capital. Cultural assessment entails comparison of the existing organization culture of the firm with that of its acquisition targets culture. Some of the issues which have to be considered during cultural assessment include values, products, and location and company beliefs amongst others.
Cultural integration analysis is also vital in the success of mergers and acquisitions. This arises from the fact that it results into an in-depth and extensive combination of strategies and structures between the firms involved. Mergers and acquisitions may result into employees become uncertain with regard to corporate culture culminating into loss of trust amongst the employees. This affects the performance of the organization. For example, lack of trust affects cooperation amongst employees and hence teamwork which is a key element in the success of mergers and acquisitions. The resultant effect is that the productivity of the organization is adversely affected.
Cultural integration aids in shaping a new culture within the organization which is attained via mutual absorbing and strengthening of the various cultural traits existing between the two firms. In addition, culture integration analysis enables the acquiring firm is able to identify the existing cultural gaps and also opportunities presented for improvement. This means that the acquiring firm is able to determine the most effective way to develop culture within the new firm.
Effective communication also plays also plays a significant role in the success of mergers and acquisitions. Lack of effective communication in relation to merging firms is a challenge in the success of mergers and acquisition.
This arises from the fact that it may result into uncertainty, reduction in employee loyalty and reduction in trust. Development of a high degree of trust in an organization results from incorporation of superior managerial beliefs, actions and philosophies which compose an organization culture. Creation of an effective communication amongst the employees of the new firm is one of the ways through which employees can understand these components. In order to attain this, the management team should consider cultural selection. This entails identification of the top performing employees which enables the management team to determine which employees to retain. Cultural selection should be based on the cultural match existing between the two firms. Lack of communicating to the top performing employees in time may result into their exit.
From the study, a number of sub-cultural factors were identified to result into either success or failure of Cisco Systems Incorporation and Bay Networks These related to values, customs, beliefs, traditions and the firms policies. The respondents were also of the opinion that management teams do not conduct a comprehensive evaluation of the values between the two firms prior to formation of mergers and acquisitions. Differences in organizational philosophies and goals were also cited as some of the cultural factors which determine the success or failure of mergers and acquisitions.
Existence of differences with regard management style is also a factor which was cited to limit success of mergers and acquisitions. During the pre-merger phase, it is important for the management team to evaluate whether there is a similarity between the two firms with regard to management style. There are various management styles which can be incorporated by a firm. These include democratic and authoritarian management style. If the two firms being involved in a merger and acquisition have adopted different management styles, the probability of the merger succeeding are slim due to cultural clash. In summation, managers must have an understanding of the cultural differences existing between firms despite them operating in the same industry.
Considering the fact that existence of cultural differences is one of the factors which contribute towards failure of mergers and acquisitions, it is important for management teams of firms intending to integrate mergers and acquisitions to conduct a comprehensive cultural analysis. This will help in identification of potential cultural differences existing between the two firms. As a result, the firms management team will determine the most appropriate strategy to adopt. Some of the strategies which should be considered include assimilation, integration, separation and deculturation. These strategies should be based on the extent of cultural difference existing between the two firms. A comprehensive cultural assessment should also be conducted to address human priorities between the two firms. This will contribute towards establishment of cultural fit between the two firms.
Existence of cultural fit is directly related with employees productivity and hence the performance of firms. In order to ensure effective integration of cultural fit between the two firms involved, an integration team should be formed. The team should not assume homogeneity of culture between the two firms. In addition, various components which affect culture in organizations should be evaluated. These include organizational norms, beliefs, values and behavior.
Future Research
Considering the benefits associated with mergers and acquisitions such as attainment of competitive advantage, a large number of entrepreneurs are considering integrating this concept in their operation. Over the past few years, mergers and acquisitions have received numerous attentions by both scholars and practitioners. Some of the issues mostly addressed relate to financial matters. However, the human side of mergers and acquisitions is ignored.
There are a number of challenges which face mergers and acquisitions. Some of these relate to cultural differences. More research should be conducted to analyze the effect of cultural differences in mergers and acquisitions. One of the issues which should be addressed is the effect of cultural differences during the pre-merger phase and how they affect attainment of the intended synergy after the merger and acquisition deal is sealed. In addition, future research should also entail the most appropriate way of identifying potential targets to acquire. In relation to post-merger integration, more research should be conducted to determine the most effective way through which acculturation should be implemented in the organization. In addition, a research should be conducted to develop a criterion which would enable management teams to identify a number of issues such as the most appropriate structure to adopt in the new firm and critical human capital to be retained.
A research should also be conducted to determine the importance of developing trust amongst employees during the post-merger integration process. The effectiveness with which teamwork is integrated in the organization is dependent on the degree of trust existing amongst the employees. Research should also be conducted on the most effective way through which communication will be undertaken within the organization. This arises from the fact ambiguity may occur to an individual an also within the entire organization in relation to the cultural knowledge held. This means that different employees within the organization may experience ambiguity due to ineffective communication at different intervals.
Summary
The paper has show that organizational culture matter a lot in management especially during the process and after acquisition and merger. The cultural factors determine whether the companies will succeed or fail. Compatibility or sticking together to is a very difficult undertaking. Culture is the main challenge are viewed from two distinct entities that are coming together for business but with different backgrounds in terms of age, types of employees, management style, technology and assets. It is important to note that, however, that culture is something that can change with time. When the result is failed performance or poor return in financial investment, the solution could be to revert back to less participative culture.
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In 1995, Kimberley-Clark, a company that specializes in paper products merged with another company known as Scott Paper in order to expand its business operations. However, the company is faced by a major problem which is influenced by different background facts. The first background fact is that after many years since its establishment, Kimberley-Clark decided to branch out its business operations by introducing personal hygiene consumer products into the market.
There are many reputable companies such as Procter and Gamble that deal in the same products. The company is therefore experiencing tough competition from Procter and Gamble and other companies that have been in the industry.
The second background fact influencing the current problem Kimberley-Clark is experiencing is the decision by the company to merge with its competitor, Scott Paper. Although mergers are important in business organizations, sometimes they cause problems that are difficult to solve. The decision made by Kimberley-Clark to merge with Scott Paper has introduced a major problem in the company because it is difficult to manage the two companies effectively.
The third fact influencing the current problem being experienced by Kimberley-Clark is lack of growth in developed countries as a result of market saturation. By the late 1990s, the managers of the company had succeeded in addressing some of the merger challenges it was going through. However, failure to secure markets in developed countries has affected its growth negatively. In addition, it is losing its market share to P&G.
Constraints of the Situation
The first constraint Kimberlay-Clark is facing is tough competition in the disposable diapers industry. Attempts by the company to diversify its market by producing new products are not succeeding because of other companies which have the same products in the market. For instance, when it introduced disposable baby wipes, Johnson & Johnson launched its own line of baby wipes. Tough competition in the market is therefore a major constraint that has been preventing Kimberley-Clark from diversifying its market successfully.
The second constraint kimberley-Clark is experiencing is lack of enough support from shareholders since it highly depends on them. Once the company makes decisions, they must be presented to the shareholders for approval. Sometimes the shareholders disagree with the decisions made by the company, something that makes its operations difficult. For instance, when it decided to revise its forecasts, the shareholders reacted negatively. This prompted the executive to reconsider the decision. This is a major constraint for the company because it cannot make independent decisions.
Problem and Related Symptoms
The first problem in the case study is that Kimberley-Clark operates in a competitive business environment. This makes it important for the company to identify a structure that can deal with competition in the market (Vance, 2009). In a bid to handle the competition, the company decided to merge with its rival, Scott Paper. However, the merger did not succeed because it introduced new problems instead of increasing profits. Integrating the two companies became a major problem, something that caused some of its managers to leave. This prompted Kimberley-Clark to conduct a restructuring process.
The second problem highlighted in the case study is failure by Kimberley-Clark to market its products fast. This is because there are many rival companies in the market who sell similar products. When the company decided to come up with a new product, the rivals also developed new and superior products. Even after introducing the grow, sustain and fix strategy, the company registered losses due to tough competition. This prompted the managers to introduce reorganization in order to deal with the problem. However, the company realized that a merger was a difficult concept to deal with because of differences that defined individual companies (Brock, 2002).
Answers to Case Questions
The main reason why Kimberley-Clark decided to use grow, sustain and fix strategy in its restructuring was because the strategy seemed the most appropriate to deal with competition in the market. The idea behind growth was that by investing in products that sold faster in the market, it was possible to gain profits within a short period of time. Such profits were supposed to enable the company to compete well with its rivals.
The concept of sustenance implied that the company was likely to succeed by investing in products that could not be moved out of the market by competitors easily. The first disadvantage of this strategy is that it is not easy to implement it since it requires large financial investments and development of new products. Its second disadvantage is that it might take a long period of time to realize the intended goals, something that would give competitors an opportunity to expand their businesses (Alkhafaji, 2001).
The organizational structure announced by Kimberley-Clark in 2004 was better than that of 2003. This was because it focused on emerging markets in order to maximize the growth of the companys products. In addition, the new structure focused on products that were selling faster in the market. It was a good structure since after its implementation, positive results were recorded.
The decision by the management to reshape the identity of Kimberley-Clark as a consumer product health care and Hygiene Company together with its cost reduction effort would improve its competitive position relative to P&G. This is because consumer products attract customers easily. This would enable the company to earn more profits and compete with P&G (Organizational Restructuring, 2002). In addition, reducing costs would increase the financial stability of the company, thus making it more competitive than P&G.
References
Alkhafaji, A. (2001). Corporate Transformation and Restructuring: A Strategic Approach. New York: Greenwood Publishing Group.
Brock, D. (2002). Restructuring the Professional Organization: Accounting, Health Care and Law. New York: Routledge.
Organizational Restructuring. (2002). Web.
Vance, D. (2009). Corporate Restructuring: From Cause Analysis to Execution. New Jersey: Springer.
