Decision-making is a critical process that has to be undertaken by any leader in the management of an organization. A systematic approach is required to take charge of the business. In some cases, it is necessary to consult and reach a consensus. In the case of a highly valued venture, decisive action is appropriate. For effective leadership and management to take place, the process of making decisions should be systematic and procedural. There are several models that can be used by leaders to make decisions. One of them is the Vroom-Yetton framework. According to Vroom (1976), the model is preferred when consistency and order are necessary.
In this paper, the author will discuss the decision that should have been made by Masayoshi Son with regards to the merger between Sprint and T-Mobile. The Vroom-Yetton model will be used to analyze the decision-making process. In addition, the significance of the model to contemporary corporate executives will be highlighted.
The Decision-Making Style that is Appropriate to the Masayoshi Sons Case
A company merger is an important decision in the business world. Companies like T-Mobile are highly valued and their acquisition, as a result, is important to the competitors, such as Sprint. If it succeeds, the merger will increase Sprints market value and its income base (Gelles & Merced, 2014). As Masayoshis son, I would need to respond to the questions posed in the Vroom-Yetton model to determine the best style to use in making decisions for the company. The questions and their responses are highlighted below:
The quality of the decision
In the case of Masayoshi, it is important to take into consideration the quality of the decision made. The reason is that the merger is a huge risk that involves a lot of money and input from the team led by Masayoshi (Yao, 2014). A venture like this will determine the future of the company in terms of its market share and profit margins.
The importance of team commitment to the decision
The commitment of the team is necessary. However, at times, a decision from one individual makes more sense. All the decisions made in the company are carried out by the team. As such, without the commitment of the team, the decisions made cannot be actualized (Merced, 2014).
Information required to make the decision
There is scanty information regarding the merger. The situation makes it hard to make some decisions, especially those involving a risky venture like this merger (Merced, 2014). Government regulations and the ability of the other firm to provide the necessary documentation are crucial to the success of the resolution made.
Structuring the problem
The structure of the problem involving the acquisition of such a big company is complex. In this case, the structure required to make the decision-making process easy is lacking (Gelles & Merced, 2014).
The likelihood of the team to support the decision
The involvement of the team in the decision-making process is important to the business. With regards to the merger between Sprint and T-Mobile, the support of the team is assured even if the resolution is made by one person. The single managerial decision highlighted by Vroom (1976) is needed in this case. Reliable and committed leaders will have the support of the team even in cases where decisions are made by one party.
The link between the organizational goals and the team
Organizational goals bring the team together. As such, they need to take part in the process. To meet the organizational goals and mission, the team should work together even when crises arise (Rigolosi, 2005).
Conflicts between the team members
Conflicts between the team members over the decision made are more likely. According to Merced (2014), there is a government regulation that is opposed to the merger. The regulation may lead to an uproar among the workmates.
The Decision-Making Style Recommended for Masayoshis Son
A merger is a technical process and it involves serious decisions. In the case of Masayoshi, the son should involve the team in discussions to get their suggestions. However, the final decision should be his (Vroom & Yetton, 1973). The answer to this question is not surprising. The reason is that a critical analysis of the questions posed in the Vroom-Yetton model reveals that the decision made regarding the merger was inevitable. The process needs a clear mind and the information required should include the input of the team and other relevant agencies interested in the merger (Rigolosi, 2005). The figure below was used to arrive at this decision:
Figure 1. Vroom-Yettons decision-making model. Source: Rigolosi (2005).Decision-making takes place on a daily basis on all organizations. The choices arrived at have significant impacts on the operations and growth of the business (Stanford, 2007). A leader should make sound decisions that take into account the quality of the suggestions made by the team (Stanford, 2007). According to the diagram above, the type of decision-making process undertaken by the leader as per the response to question 7 is consultative (Rigolosi, 2005). Based on the existing information and the evidence regarding the quality of the merger, it is advisable to recommend this type of decision-making model to Masayoshis son in relation to their negotiations involving the acquisition of T-Mobile. It is the most appropriate model given the situation (Rigolosi, 2005).
The Significance of the Vroom-Yetton Model to Corporate Executives
According to Stanford (2007), managing an enterprise requires leaders to have skills in all the decision-making models. Executives play an important role in decision-making. As such, their input is crucial to the success of the firm. The parameters that determine the success of leaders include the commitment of other members of staff and the resources used in making decisions (Vroom & Yetton, 1973). Leaders are expected to assess the work environment and take into consideration the interests of the team they are leading.
It is recommended that corporate executives should be trained on the Vroom-Yetton model. However, the framework can be improved by including parameters that factor in a time constraint and lack of resources in the process of making decisions. In its efforts to acquire T-Mobile, executives at Sprint took the time to analyze the deal. A lot of resources were used to come up with a suitable deal (Gelles & Merced, 2014). Progressive decisions are required to improve the relationship between the managers and the employees.
Conclusion
The success of most business organizations is entirely dependent on the ability of the managers and the team they lead. Leadership plays a critical role in decision-making and the management of resources. As indicated in the case study analyzed in this paper, the growth of enterprises is determined by the decisions made on a daily basis by the managers and the employees. As such, all managers should have the skills required to make decisions. The Vroom-Yetton model can help them to achieve this. Masayoshis son and the entire team at Sprint can use this framework to make a sound decision with regards to the acquisition of T-Mobile.
Rigolosi, E. (2005). Management and leadership in nursing and health care: An experiential approach (2nd ed.). New York, NY: Springer Publishing Company.
Stanford, N. (2007). Guide to organization design: Creating high-performing and adaptable enterprises. Mason, OH: Bloomberg Press.
Vroom, V. (1976). Can leaders learn to lead?. Organizational Dynamics, 4(3), 17-28.
Vroom, V., & Yetton, P. (1973). Leadership and decision-making. New York, NY: University of Pittsburgh Press.
Yao, D. (2014). Moodys: Sprint/T-Mobile merger faces negative free cash flow until at least 2018. Web.
The terms merger and acquisition imply two different things. Acquisition refers to a situation where a company takes over another established company and establishes itself as the new owner of that company (Anonymous, 2010). The company which has been taken over or swallowed by the new company therefore ceases to exist. Merging involves two separate companies which opt to come together and form a new single company and is often referred to as the merger of equals . However, for a merger to exist, the two companies must often be about the same size. Take over (acquisition) can either be friendly or hostile depending on the circumstances.
The motivation behind the merger/acquisition between Interclean and EnviroTech was that the company wanted to consolidate its markets and gain a competitive advantage in the industry. Interclean wanted to provide its customers with a full range of service packages which met the individual demands of its clients. Interclean also wanted to be in position of forecasting and acquiring a different line of business that will help it build a cutting edge through reduction of competition across the industry (Barney et al, 2009).
There exists five types of merger/acquisition namely, Conglomeration, vertical mergers, horizontal mergers, product expansion mergers and market extension mergers. Horizontal merger is case where two companies who directly compete and serve the same market opt come together for the purpose of serving the market as one entity. Vertical merger happens when the organization decides to merge with the customer or the supplier. Conglomeration is the merger of organizations which do not share the same market or even sale related products. Product extension merger entails merging of companies which sell related products to serve a common market. Market extension merger is executed between two companies which sell products that are related but in different markets (Anonymous, 2010).
The kind of merger that existed between Interclean and EnviroTech was a Horizontal merger because Interclean Company and EnviroTech were two separate companies which offered the same products and served the same market.
The challenges that Interclean and EnviroTech merger will face as result of their merger and acquisition is that they will have to convince their clients that they havent sold their businesses or company by making them feel the same or better. The clients will not feel good when they discover that the company they have been dealing with has been sold out or acquired by another company and therefore the biggest challenge that will face these companies is convincing the customers that they are still the same people. Another challenge that will be forced by this merger and acquisition is that the company will have to try by all means to reduce anxiety among it sales personnel (Anonymous, 2010).
Mergers and acquisitions should therefore be done in a way that takes in the interests of the customers, the employees and all the stakeholders so that all the business ideals that were represented in the parent company continue to exist. Failure by companies to take in the interests of the stakeholders involved often lead to reduction in sales and therefore making the merger and acquisitions to be a raw deal. The top management should therefore take into consideration all advice from the stakeholders with a common view of improving the image and income of the new company.
References
Anonymous (2010). Waiting for a wave. Web.
Barney, J and Hesterly, W. (2009). Strategic Management and Competitive Advantage (3rd edition) New York: Prentice Hall.
Companies cultures within the Competing Values Framework:
Competing Values Framework;
Utah Operas culture;
Utah Symphonys culture.
Message strategy for Anne Ewers:
The main reasons for merger;
The benefits of the merger;
Specific arguments;
Difficulties to overcome;
New strategic goals.
Two technology tools to help the companies merge their administrative technology applications.
Competing Values Framework
The competing values map has four hierarchies:
Hierarchy is a traditional structure where control flows from an organizations chain of command.
The market value framework is one that seeks control by venturing more into the markets and having controlled costs of transaction.
Clan organizations place more focus on flexibility rather than structure. They are driven by a flexible vision and have no room for strict procedures.
Adhocracy is a more flexible system than clan and is always ready to adjust to the changing markets (Herzog, 2007, p. 67).
Utah Operas culture
The main idea of Utah Operas culture is as follows,
being forced to compete for funds and audiences by being more outward and market-focused, flexible in responding to change (Delong & Ager, 2005)
Utah Opera exhibits a clan culture:
Personal and close organizational characteristics
Mentoring and nurturing leadership style
Management of employees involves team work and participation
Loyalty and trust are the organizational glue
Strategic emphasis on human development and high trust
Utah Opera has integrated a creative, competing and creative culture to open up to growth.
Competence through innovation and growth.
Collaboration by investing in the team.
Creativity which is evident from the companys innovation
Control through rules and regulations.
Utah Symphonys culture
The main idea of Utah Operas culture is as follows,
a strong identity derived from companys high-powered conductors and professional approach to the art form and the business (Delong & Ager, 2005)
Utah Symphony exhibits a market culture:
Organizational characteristics are competitive and driven by market achievements.
Leadership style is aggressive and result-oriented.
Employee management is more driven by achievements.
Goals accomplishments hold the organization together.
Strategic emphasis is on winning and competitive actions.
Utah Symphonys is competitive and driven by market achievements.
Utah Symphony is aggressive and result-oriented.
Utah Symphony is more driven by achievements.
Goals accomplishments hold the organization together.
Utah Symphony has their strategic emphasis on winning and competitive actions.
Message strategy for Anne Ewers
A weakening economy
Decline in support for art
The need for better products (Conrad, 2005).
There are a lot of different reasons why the key members of the opera contractors and the orchestra employees should be retained. These three ideas mentioned on the slide should be considered as the main reasons for the merge. The merger is supposed to help the companies economize on costs and replace lost revenues. A merger is also considered the best option for these two companies to expand their artistic potentials.
Control will give the business efficiency and quality
Creativity will enable it launch new into the global markets
Collaboration will be possible through long serving music directors
Competence will allow the business venture into international markets
The merger of these two companies will allow the companies to experience the following benefits:
Control has given the business efficiency and quality through adhering to their budgets and persistent management.
The company exhibits creativity by speculating and taking advantage of new markets every time there is an opportunity.
Collaboration has been possible by having long serving music directors.
Creativity is evident from the companys ability to venture into international markets even when it was not a common trend.
It is important to remember that Anne Ewers may use the following arguments for retaining employees:
Some employees are very critical for a companys success. Retaining such employees from both companys may simply require reassuring them that they are needed and are important to the business.
Autonomy is the most treasured right of privilege by most managers. However, Anne Ewers should only allow this for those managers linked to highly valued company goals.
Employees will many times identify with a companys culture and may not longer be comfortable when it changes. Anne Ewer must ensure that the integration and culture changes do not leave employees feeling alienated.
Increasing the pay of key employees will definitely attract their attention.
Anne Ewers shouldnt hide the fact that the first years are going to be rather difficult for these two organizations, still, it is possible to overcome those It is impostant to be honest with the key members of the opera contractors and the orchestra employees and say hem that the following problems will occur, but, still, it is possible to cope with them:
A merged management will ensure that executive teams from both companies are in agreement.
Employees need to be educated and trained on the new business model, practices and changes.
The new company will need to build a business reputation, based on the strength of each of the companies.
A brand strength will be made possible by merging products to make one strong brand and avoid internal competition among products.
The new companys strategic goals will include managing internal mobility and merging financial management through:
Needs analysis
Training
Establishing responsible departments
Merging stakeholders from both businesses
A human resource management technology will help the company establish responsible and well able departments through tools such as training.
The new company will need a harmonious system to integrate employees from both companies and their responsibilities. Managing human resources will be the foundation of the merger and its operations.
The business will need to merge and integrate other stakeholders from both businesses such as suppliers.
Available technology will help the new company easily identify and manage arising problems.
Managing a mergers financial operations determines how well it can hold its stability in future. A financial management technology will help the merger manage its financial needs and operations such as revenues, salaries, purchases and other expenses.
Technology Tools
Human Resource Management Technology
HR auditing
Training and re-training facilities
Leadership strategies
Creation of the healthy environment
Restructuring of the staff ()
Certainly the business will need to integrate all the employees from both companies and manage their new responsibilities.
A key goal for the new company will be to create harmony amongst employees and allow a smooth transition of cultures and responsibilities.
Financial Management Technology
Problems:
Radical difference in scale and action
The absence of the performing artists under continuing contract in opera
Differences in organizational structure
The merger of these two organizations may lead to numerous problems. The financial one will suffer the most and to understand the tendency the analysis will have to be completed. Moreover, it is obvious that some employees will have to be retrained.
Solving:
Merging their financial supply chains management
SAP software implementation
The financial department is going to be responsible for the task. A financial management technology will enable the company achieve one of the most important goals, which is merging their financial supply chains management. A financial management software such as SAP will give the new business modular applications.
Conclusions and Recommendations
The business will need:
Re-evaluation
Research and consideration
Consultations
A competent leader
Employees training
Re-branding
Advertising
A successful merger requires that both companies models be broken and be re-evaluated.
When a transaction has not been tried before, as is the case of Utah Symphony and Utah Opera merger, the risk becomes bigger and therefore needs more information and consideration.
Every stakeholder in both companies must be involved to reduce disruption of business after the merger is complete.
After the merger, the new business would require a leader who is familiar with the industry.
Reference List
Conrad, B.H. (2005). Five thousand concerts: A commemorative history of Utah Symphony. New York: Routledge.
Delong, T.J., & Ager, D. (2005). Utah Symphony and Utah Opera: A merger proposal. Boston: Harvard Business School Publishing.
Herzog, P. (2007). Open and Closed Innovation: Different Cultures for Different Strategies. Wiesbaden: Gabler Verlag, 2007.
Mathis, R. L., & Jackson, J. H. (2007). Human Resource Management. Stamford: Cengage Learning.
The dimension of masculinity (MAS) elaborated by Hofstede refers to the level of importance of traditionally male values such as assertiveness, ambition, intention to have power, and materialism, and feminine values, including relationships and modesty. Cultures with more pronounced masculinity typically present more distinct differences between the sexes and are prone to rivalry and achievement of goals. The smaller index of the mentioned dimension means that the culture is characterized by less significant differences between the sexes and a higher value of the relationships.
The case study focusing on the merger between two companies such as Upjohn and Pharmacia is a vivid example of how feminine and masculine cultures interact, and what challenges they encounter. In particular, the former is an American company, while the latter is composed of Italian and Swedes employees. The given case reveals a misunderstanding between these cultures that occurred because of different MAS index. For example, Americans have pronounced masculinity since they are quick and resolute in their decisions and have strict rules in a business area. In their turn, Italians and Swedes belong to a feminine culture, which is expressed in modesty, focus on relationships and family, and comfort at a workplace. For example, the fact that in the US, all employees should pass alcohol and drug abuse tests, while people may gather to drink at work in Italy causes confusion. At the same time, even though both Italy and Sweden demonstrate a low MAS index and belong to a feminine societal culture, they also have differences and difficulties in communication. As an example, one may note the situation with the organizational structure. If Swedes prefer to treat each other as equal at work, then Italians value hierarchy, which is largely affected by power distance in the given cultures. In particular, Sweden is characterized as a culture with low power distance, and Italy has medium indicators. In general, Hofstede’s dimensions should be considered in combination to understand relations between cultures appropriately.
The second case relates to the experience of Steve Austensen in Norway as an area manager working for the United Cinema. Norway as a culture with a feminine fashion and the US culture with a high MAS index belongs to two diverse poles. The regions that are geographically isolated from other communities are psychologically-oriented to permanent norms of thinking and behavior, which generally contribute to the formation and cultivation of traditions in society at the local level manifesting in family and intergroup relations. Such communities have inherent features of autonomy and self-sufficiency, on the one hand, and feelings of social involvement in the national-corporate spirit, on the other hand. As can be observed from the case, the representatives of such communities tend to rely on their own strength, but with the obligatory consideration of group thought, morality, and values. In general, Norwegians are known for their modesty in behavior even though they may be rude to some extent from the point of Americans. The latter and Steve, in particular, tend to illustrate social dynamics against the background of expansiveness as a manifestation of decisiveness, while the active social position is associated with individualistic intentions.
Taking into account the dimension of masculinity with the one regarding collectivism-individualism, one may note that they are closely connected. For instance, Norway is a collectivist culture, and America is an individualistic one. This is clearly observed in the case, when Norwegians are more prone to support unions organized at their workplaces compared to Americans as the latter consider it something unusual and leading to increased costs. For Norwegians, family, and society take the first place on their value continuum. On the contrary, value orientations of masculine cultures are distinguished by a high evaluation of personal achievements, when a high social status is considered a proof of personal success. For instance, even if a Norwegian employee knows more than others, he or she would never show it so that they would not think of him or her as an aggressive person. This demonstrates care about others.
Considering the given case from the perspective of core differences between Norwegian and American cultures as of feminine and masculine nature, respectively, it is possible to pinpoint several issues. The most significant aspect is associated with the management style. While Norwegians prefer to come to the compromise through negotiations, and the final decision may change several times, it may seem to be non-productive to Americans, as in the case of Steve. On the contrary, the collaboration between the American manager and Norwegian employees shows that decisions taken rapidly are unacceptable in the local context. The statement of Steve who declared that employees would be charged 6.5 percent instead of 2.5 accompanied by the immediate claim of signing the contract caused a violent reaction that can be characterized as a cross-cultural conflict as cinema licensees also belong to the Norwegian culture. The above statement and the one regarding uniform policies were shocking for the local population. In order to eliminate such cases in the future, it seems critical to explore the Norwegian culture and values and prepare a candidate to understand them and react properly, thus avoiding cross-cultural conflicts and making business more effective.
The merger of the Belgian beer maker Inbev and the American beer giant Anheuser-Busch in 2008 made world headlines. It was the coming together of two beer manufacturing giants, Inbev of Belgium and Anheuser-Busch of the USA. Inbev headquartered in Leuven, Belgium boasted worldwide net sales of $ 16.7 billion in 2007 through sales of its key products like Stella Artois, Beck’s, etc. (Birnbaum 2008). Anheuser-Busch headquartered in St Louis boasts of brand names like Bud Light, Budweiser, etc. While Inbev took over Anheuser-Busch after a concerted effort by its acquisition team, initially Anheuser-Busch took the takeover initiative as a hostile bid. Lawsuits were filed by both companies in the process. But when the merger happened, the merged entity with its headquarters at St Louis was estimated to have annual net sales of around $ 36.4 billion and the price tag of Anheuser-Busch was around $ 52 billion (The Indian Express July 2008). Inbev paid $ 70 per share in the other beer maker for closing the dealing. The takeover was regarded as the third largest takeover by a foreign firm of an American company.
Influence of Government on Company Business Strategy
With the repeal of the Prohibition under the 21st Amendment to the US Constitution in 1933, the states got the power to “regulate production, importation, distribution, sale, and consumption of alcoholic beverages within their own borders” (NYSBWA 2009). The system of regulation then introduced to control the alcoholic industry in the US was the Three-Tier System which envisaged three distinct tiers, namely, the manufacturer, the distributor, and the retailer. This meant that beer could be sold only through intermediate independent distributors.
This system was more or less implemented along similar lines in each state. Also, other regulatory laws were put in force. For instance, beer sales on credit and sales on consignment were banned. The objectives of such a system were to preclude the aggressive marketing or sales promotions that could otherwise have been resorted to by beer sellers and manufacturers, to facilitate the control over manufacture and sale of all types of alcoholic beverages, restrict consumption of alcohol to moderate quantities and also to help generate revenues for the government in the form of taxes from the beer industry (NYSBWA 2009). As per the Clayton Act, Sec 7, “beer is considered as a line of commerce and also a relevant product market”. Also, the US federal government was driven by the constitutional requirement to see that the competition in the beer market was not minimized by mergers of companies.
In the backdrop of the strict federal and state legislation for controlling the manufacture, sale, and distribution of beer in the US markets, the company Inbev needed to tailor its business strategy so that its takeover of Anheuser-Busch as also the continuing operations of the future merged new entity would be viable and smooth. However, any action by the government installing such a merger process was perceived by knowledgeable sources as also company insiders in Inbev as unlikely or even token. The sources felt that only antitrust issues could be a deciding factor in allowing or not allowing the merger process under the US laws. The relevant US legislation in this regard is the Antitrust Procedures and Penalties Act of 1974 also termed the Tunney Act [Antitrust Procedures and Penalties Act, 15 U.S.C. 16(b) – (h)]. Section 7 of the Clayton Act, 15 U.S.C. 18 is also the defining legislation in as much as the Courts considered that the merger of the two companies would substantially reduce competition for the sale of beer in Buffalo, Rochester, and Syracuse (New York) metropolitan areas and hence needed to be addressed for ensuring fair competition.
Since competition appeared to be the main concern for the US Government and the company perceived that Anheuser-Busch could be bought out by offering a minimum as its share price, the Inbev strategy managers concentrated on the point that Inbev would operate in different geographical markets through its breweries and the merger would not diminish the competition, and hence would not violate the antitrust laws. Also, the company maintained that they would not close down existing Anheuser-Busch breweries so that no job cuts were envisioned. The byelaws of Anheuser-Busch also permitted such a move in case it was supported by even 25 percent of the board members. The two companies also did not have a substantial clash of interests and served as major players in their different geographical markets. The Inbev management also perceived that the shares of their target company were also in a two-year low on the stock exchanges and that a share price offer in the range above $ 60 apiece was quite attractive for that company. (www.usatoday.com 2008)
Role of Policymakers in the Process
Although the states play a major role in the company merger process and the decision to allow it, the federal government also has an important part in it. The US Bureau of Alcohol, Tobacco, and Firearms (BATF) was constituted solely to provide licensing regime as also regulate the packaging, labeling, and advertising of tobacco, beer, etc. The US Food and Drug Administration attends to the purity and cleanliness checking of alcoholic beverages sold in the US. The BATF collects the higher federal taxes on alcoholic beverages. The federal government also restricts the sale of alcohol to military reservations. The state governments control the retail sales within the states. The states also charge a special excise tax on retail sales. The states were thus empowered for the most part by the 21st Amendment to the US Constitution.
Besides these, there are also agencies called as Alcoholic Beverage Control Board in most states, that frame rules for implementing the ABC laws and sets rules on the density, location, etc through licensing regimes. The agencies thus license outlets that sell alcoholic beverages. Additionally, ABCs also enforce fair trade laws. “States influence alcohol prices through fair trade laws (in all but a few license states) and set them by administrative fiat in monopoly states” (National Research Council 1981)
Politicians’ Reactions to the Merger
Politicians were generally appalled by the news that Inbev wanted to acquire Anheuser-Busch. While some perceived the merger as hurting national sentiments and did not want a foreign company to acquire their very own international branded beer maker even seen as a national icon, others felt that such merger would concentrate competition among a selected group of big companies to invite prosecution under the strict antitrust act provisions of the US. Among the first to react were the two senators of Missouri, where the proposed merged company would be based in. They publicly opposed the deal. Senator Kit Bond, R-Mo sent a letter to the Attorney General to carefully study the acquisition deal. Here, the superior powers of the Attorney General in such cases can be perceived. The letter mentioned that the proposed merger could violate the stringent US antitrust laws since such a merger would mean that a major part of the US beer market would be under the control of a select few competitors.
The other senator, Claire McCaskill stated her intention of sending a letter to the Anheuser-Busch management asking them to reject the deal. Even Republican Gov. Blunt opined that he was against the deal and sent a letter to the State Department of Economic Development regarding the issue. The issue invited such extreme reaction that a former Chief of Staff co-founded a website named www.SaveAB.com and where numerous petitions to the federal lawmakers to halt the merger were electronically published. Many rallies were also held in downtown St Louis. Even President Obama appears to have been against the merger. Even some other Congressmen like Republicans Lincoln and Mario Diaz-Balart were against the deal since they felt that Inbev was a company that sold Cuban beer and hence was a collaborator of the Cuban dictatorship regime. But the US Treasury Department itself did not state at any time that the company would be affected by its operations in the US due to the US embargo on Cuba (www.guardian.co.uk 2009). However, even though most politicians, both Democrats and Republicans were against the proposed merger, it did not appear at all to even the most critical observers that, other than antitrust issues, the government could advance any reason whatsoever for stalling the merger (The Huffington Post Apr 2009).
Inbev’s Reactions to Legislators’ and Policymakers’ Decisions
Inbev CEO, Carlos Brito followed the political opposition and legal considerations in the US by organizing various consultations with noted politicians, congressmen, and other authorities. He also organized conferences where he laid bare his company’s plans and stated that the US or Anheuser-Busch had nothing to fear from the takeover. In his view, the merged entity would become the largest manufacturer of beer in the world. He also stated at the conferences that employment at Anheuser-Busch would not be curtailed and no jobs would be lost in the process. He then stated that the company did not feel that such a merger would violate the US antitrust provisions. Since, Inbev and Busch catered to different geographical markets and sold different branded products in those markets, without any conflict to one another, each could hold on to its own product identity and brand image as also hope to enhance the overall profitability when merged.
No breweries of the acquired company would be closed down at all, said Britto. After the court case filed by the SU government against the merger on grounds of violation of the US antitrust provisions were overturned by the Court, the merger could take place and as per the court order, if Anheuser-Busch could be convinced of the benefits of the merger. Ultimately, Inbev arrived at the share value of $ 70 for each of the shares that it would acquire from Busch and this proved to be an enticing offer that the acquired company could not refuse, given that its market price could not hope to breach the $ 65 mark even, going by the prevailing trends of the stock market. Inbev offered to keep the HQ of the merged entity at St Louis, all its breweries open, and all jobs intact. Also, Inbev promised to make the Budweiser brand of Busch a global and popular brand like Coke or Pepsi.
Inbev even hired four leading PR firms to help it in the acquisition of the US beer maker. Additionally, Inbev’s team contacted local politicians to convince them that their reasons for acquiring Busch were above board and that everything would work in favor of both companies. In such efforts, it was coordinated by a leading local communications firm called Brunswick Group whose team then explained to all that Inbev would preserve the American heritage nature of Anheuser-Busch even after the acquisition. To the question of Cuba, Inbev kept silent and did not say anything that could harm its prospects in the US since it was aware of how strongly Americans felt on the issue. But Inbev clarified that its operations did not in any way violate any US, EU, or international laws at all.
However, in keeping with the Justice Department recommendations and as directed by the Court, Inbev promised to sell off its subsidiary Labatt USA to get the required regulatory approval for the merger. The Justice Department stated this condition since it felt that otherwise, the merger would increase the prices of beer in the metropolitan Buffalo, Rochester, and Syracuse (NY) markets owing to the decreased competition (www.manufacturing.net Nov 2008). Perhaps the greatest leeway that Inbev ultimately granted was by way of raising its purchase price of shares in Anheuser-Busch to $ 70 per share and also to the US government by agreeing to sell its US subsidiary, which was making and selling Labatt beers.
Conclusion and Takeaways
While governments impose some regulations on businesses and maintain strict control over their functioning in their country, politicians raise various issues before the general public and the country’s citizens. In such actions, they may either be prejudiced or may help in highlighting a real problem issue. But companies and their managements are driven by the profit instinct. The set of legislative, executive, and judicial measures and procedures in any country serve to both implement and propagate the social and political objectives of the government of the day. The government itself can only perform within the binding framework of the country’s constitution. This however is true only in the case of a free democracy like the USA. The US has as its supreme structure the US Constitution as amended through the various Amendments made from time to time. The Judiciary is also independent of the Executive and the Legislative. But all three Branches of government pursue some common goals as enshrined in the US Constitution. They complement each other and the system of checks and controls vests various powers of one over the others so that each does not go beyond their authority or against the common objectives.
In the given situation, when firms like Inbev wish to enter the market by acquiring a major national company like Anheuser-Busch, the foreign acquirer invariably needs to plan its business strategy beforehand and also vary the same in terms of issues and happenings that may take place in course of such business entry process. The process itself may take several months, depending on the local perceptions or opposition to the acquisition, national and cultural characteristics, how the company being acquired perceives such acquisition, etc. But the political class in that country can mold public opinion in favor or against the interests of the foreign company. Hence, that company’s management needs to take into confidence both the US citizens as also the politicians and regulators, so that the acquisition and business operations can be conducted smoothly. Since the government, the federal government, and the state government, function according to the constitutional framework, the rule and process of legal and other procedures need to be followed in the country by foreign businesses. In this regard, the influence of the State is of vital importance and non-market strategy too assumes significance to the management of the foreign company.
It was Baron (1995) who stated that “non-market strategy could often be used more broadly so as to structure the market competition”. According to Baron, “the non-market environment consisting of social, political, and legal arrangements help structure the firm’s interactions outside of, and in conjunction with, markets and it could be said to exhibit four principal features-issues, interests, institutions, and information”. Baron advised the “integration of a non-market analysis and strategy formulation into a competitive strategy process, where the ongoing process was controlled by a high-level executive of the firm who could effectively assess the prevailing environment (government, interests, activists, public), identify and classify issues, define the firm objectives, make plans depending upon the agendas of stakeholders, and evolve suitable non-market strategy that could be successful”.
Baron’s non-market strategy appears to have been very well followed by the Inbev management in the entire acquisition process. The Inbev management even employed the services of lawyers, PR firms, etc to effectively present their viewpoints to the various stakeholders including the state (US government). They had a very focused and long-term view. Their political strategy also appears to have been strong since they could successfully appeal to the general public, acquired the company’s management and shareholders, government, judiciary, politicians, etc., and also successfully target the most influential stakeholders and customers, like politicians and judiciary. The Inbev management also resorted to lobbying in the form of conferences and PR campaigns that they arranged for addressing the stakeholders and clarifying their viewpoints and company objectives in such an acquisition process. Inbev, additionally, was also responsive to the concerns of government, US citizens, and trade unions on the question of possible unemployment at Anheuser-Busch because of the merger and also tried to assuage fears in this regard. It rightly perceived the political clout that organized labor unions could have. It was well aware of the power of collective bargaining that unions enjoyed, particularly in the US where this was sought to be protected and free labor practices were enforced by legislation. Also, Inbev management had an idea of the amount of financing that private companies in the US, including Anheuser-Busch, made into either Democrats’ or Republicans’ election coffers and which fact was important in turning politicians against Inbev.
The Anheuser-Busch Inbev merger may be regarded as a good lesson in evolving successful business strategy based on the prevailing social, political, legal, and another environment present in a country. The case can be cited as an instance where the top management of Inbev led from the front in tackling hostile opposition to their taking over of a company perceived by many Americans as their national icon and treasure and not available for foreign ownership or control in their perception. The Inbev bosses also implemented sound judgment and took recourse to established principles of strategic planning after careful study of business and political conditions in the US. They simply evolved their actions as they went along, and their strategy was both dynamic and positive in outlook and result.
References
Baron, D.P., 1995, Integrated Strategies: Market and Non-market Components California Management Review. 37, 2: 47-65.
Birnbaum, Jeffrey H. 2008. Inbev Anheuser-Busch battle in Washington The Washington Post.
National Research Council, 1981, Moore Mark H. and D R Gerstein, (Editors), Alcohol and Public Policy: Beyond the Shadow of Prohibition Panel on Alternative Policies Affecting the Prevention of Alcohol Abuse and Alcoholism, Committee on Substance Abuse and Habitual Behavior, Assembly of Behavioral and Social Sciences, ISBN: 0-309-55748-8, 463 pages, Web.
New York State Beer Sellers Association (NYBSA), 2009, Three Tier System, NYSBSA, Web.
United States v. Inbev NV/SA, Inbev USA LLC, and Anheuser-Busch Companies, Inc, 2009, Response to Public Comments on the Proposed Final Judgment, 2009.
The Guardian, 2008, Anheuser merger may cause problems for John McCain World News. The Guardian, Web.
Jordan, Lara Jakes and Emily Fredrix, 2008, Justice Department OKs Anheuser-Inbev Merger, Associated Press Writers, Web.
Leonard, C., Dec 2008, Politicians oppose Belgian bid for Anheuser-Busch, The Associated Press, Web.
The Huffington Post, April 13, 2009, Politicians Line Up To Save Anheuser-Busch Shareholders from Profits, Inbev.
Biz Publications, 2008, Inbev to buy Anheuser for $50 billion The Indian Express Limited, Web.
In their article, the authors argue that the Q-theory can be linked to the purchasing/merging motives of the firms. The authors also test that (i) companies with a high Q are more likely to engage in merger and acquisition (M&A) operations because M&A is a high fixed cost. Moreover, they find that more mergers and acquisitions result from successful companies when replacement cost of capital is cheap (ii) and if the firms spend proper money on mergers and internal investment, they are overpaid. (iii) The author’s theory describes 4 decades of mergers from the prospect of merger waves but does not explain the peculiarities of the 1960s M&As. The data authors used for conducting this research is taken from newspaper sources dated between 1885 and 1925. As for the 1925-1998 period, the merger data was obtained from the Chicago’s Center for Research in Securities Prices (CRSP) database.
Method and Main Results
The authors propose a model, which considers mergers and acquisitions as “used-capital-market” deals (Jovanovic & Rousseau 2002, p. 198). By deploying it, they make an attempt to explain the motives of mergers and acquisitions. This model operates on obtained financial assets and immediate acquisitions of utilised capital between the “exchange-listed” companies and their transaction ratios (Jovanovic & Rousseau 2002, p. 198). They use the data about used and acquired capital and direct capital purchases between 1970 and 2000.
The authors focus on several aspects of the model such as costs of growth, merger gains, the Q equation, interior maxima, fixed costs of mergers, the disappearance of firms, evidence on overtaking, M&A deflator, etc. They use regressions for estimating equations of investment and acquisitions. At the same time, to properly address research questions, they normalise cash by firm capital (Jovanovic & Rousseau 2002, p. 200).
As a result, the authors come up with several findings. First and foremost, the firms are more interested in M&A operations instead of allocating cash resources for the purposes of internal investment (Jovanovic & Rousseau 2002, p. 198). The authors explain this phenomenon by pointing to higher profitability and efficiency of injecting funds in M&As (Jovanovic & Rousseau 2002, p. 199). Moreover, they state that Q is associated with M&As instead of direct investments due to the fact that mergers are “a high fixed cost and a low marginal adjustment cost activity” (Jovanovic & Rousseau 2002, p. 198). That said, they answer the initial research question.
Discussion
The authors’ model makes it possible to show that a company’s unification and purchase expenditure is more consistent with its Q than the company’s straight expenditure. Jovanovic and Rousseau (2002) perform a thorough analysis of several unification waves, which allows them to conclude that the causes for these waves are diverse. Still, they give an economic explanation but ignore the humanistic reasons. For instance, the role of CEOs and senior management is critical when it comes to analysing the causes of mergers but this aspect is not addressed in the article. Nevertheless, the initial objective of the article was to test the assumptions of the Q-theory of mergers. Reviewing the findings of the authors, it is possible to state that this goal was achieved, as they explained the behaviour of typical firms and factors, which stimulate them to get involved in mergers (Jovanovic & Rousseau 2002, p. 198).
Reference List
Jovanovic, B & Rousseau, P 2002, ‘The Q-theory of mergers’, The American Economic Review, vol. 92, no. 2, pp. 198-204.
The following paper details the controversial merger that occurred between Wachovia and Wells Fargo in October of 2008. The San Francisco based firm Wells Fargo purchased Wachovia Securities, headquartered in South Carolina, for the sum of 15.4 billion, a move that delighted Wachovia’s investors but angered officials at Citigroup, the government backed firm who had all but inked a deal to take over Wachovia at the time that the merger was announced.
Wachovia-Wells Fargo Merger
In October of 2008 Wells Fargo, the wealth management institution headquartered in San Francisco, paid 15.4 billion to purchase Wachovia, the South Carolina based securities firm (Enrich & Fitzpatrick 2008). At the time the federal government had been actively brokering a “shotgun marriage” between the troubled Wachovia and the New York based firm Citigroup, when Wells Fargo stepped in with a better offer (Enrich & Fitzpatrick 2008).
The Citigroup offer included provisions for the federal government to absorb hundreds of billions of dollars in Wachovia’s projected losses, yet the deal held virtually no interest for Wachovia’s investors, who would have been all but wiped out by the Citigroup buy out (Enrich & Fitzpatrick 2008). This particular deal stands out in the financial climate of the American recession, as the Wells Fargo Wachovia merger did not rely on any government funding or intervention (Enrich & Fitzpatrick 2008).
The merger began officially in January 2009. In 2008, Wells Fargo placed 23rd among all underwriting deals reached at the senior level; Wachovia, meanwhile, sat in the 12th spot, according to Phil Smith, Wells Fargo’s official in charge of government and institutional banking (McGee 2010).
Once the merger occurred, Wells Fargo jumped into the top 10; according to McGee (2010), Wells Fargo “ran the books on 378 issues worth $11.2 billion in 2009, ranking ninth as senior manager…and [in 2010] it…maintained the ninth spot as it senior managed 67 issues worth $2.4 billion” (McGee 2010).
Wells Fargo’s main goal following the merger, according to Phil Smith, is “to expand the investment banking arm so that its footprint is comparable to the commercial business, which is one of the top two in the country…Our goal is to make our investment bank as prolific – in other words, to be as good in the investment banking space as we are in the traditional space” (McGee 2010).
The merger occurred in a climate of uncertainty in many of the largest brokerage houses and banks in the country. According to Garmhausen (2009), not only have these firms endured staggering losses, but their employees have faced unflattering press and negative “headlines about their parent companies’ failings” (Garmhausen 2009).
Bad press has forced advisors to “field client questions about the bad news and the market meltdown. Perhaps toughest of all, advisers have to grapple with the uncertainty of where they stand as the industry consolidates around them” (Garmhausen 2009).
Once the merger was in full swing, Wells Fargo had to decide how it would manage the transfer of clients, particularly in the online banking realm. According to Marlin (2009), “some banks have forced customers to change bank accounts, re-enroll in online banking and set up their bill pay accounts over again,” a risky proposition which can lead to client loss (Marlin 2009).
In the current climate, strategically sound banks “shield customers from the upheavals that can occur when two large organizations come together” (Marlin 2009). Wells Fargo has the option to “allow customers from the legacy bank to operate in their familiar online banking environment, while deploying software that transforms legacy data into its own formats” (Marlin 2009).
The Wells Fargo Wachovia merger remains important as proof positive that there “is still a market, albeit limited, for private takeovers of these institutions, one that does not place taxpayer dollars at risk” (Enrich & Fitzpatrick 2008).
References
Enrich, D. & Fitzpatrick, D. (2008, October 8). Wachovia Chooses Wells Fargo, Spurns Citi. The Wall Street Journal. A1.
Garmhausen, S. (2009). Advisors at Top Banks Face Bad Press, Merger Turmoil. American Banker, 174,(129), 8.
McGee, P. (2010). Mergers and Acquisitions: Wells Fargo Takes a Big Step toward Merger Milestone. The Bond Buyer, 371(33287), 16.
Marlin, S. (2009). Integration: Move Customers, but Don’t Herd Them; Wells Fargo and Wachovia are Neck Deep in Post-Merger Integration Planning for their Online Channels. Attrition Levels Hang in the Balance. Bank Technology News, 22(4), 24.
The modern day corporate world has been characterized by an increased frequency of mergers. Mergers have occurred mostly in MNCs as well as in companies doing business locally. There are various reasons why companies undergo mergers and acquisitions. Traditionally companies that underwent mergers did so in as an expansion program.
In the modern day business environment, businesses undergo mergers in order to fit into the various business environments. Politics play a vital role in determining whether the company will undergo merger or not. This is more so found in the MNCs where the need to come into a new market compels the company to acquire another one or merge with a local company.
When a big company merges with another one, the merger is referred to as a mega-merger. A perfect example of a mega-merger is the one that occurred between AT&T and T-mobile or between Daimler Benz and Chrysler. The ever changing market conditions have been largely responsible for mergers
Many management scientists have argued for and against the practice of mergers. Mergers can be termed as desirable depending on various measurement tools. These tools include the market they serve, the nature of their products, their strategic goals and so on. The concept of dubious logic of global mega-mergers also presents an explanation of the reasons behind many mega-mergers that have taken place.
It should however be noticed that the ultimate purpose of mergers should not be to gain a market share so as to control the market by such acts as price setting (Kingx, Dalton, Daily, & Covin, 2004, p. 193). This paper critically analyzes the arguments for and against mergers with a look at the dubious logic of global mega-mergers and also presents some measures that firms can take to reduce the risk of failure in both the pre-merger and post merger phases.
The need for mergers and the concept of dubious logic in Global mega-mergers
In the modern day merger context, the aspect of dubious logic of global mega-mergers has spurred the increased rate of the mergers. It is commonly thought that ‘bigger is better’. As such many, organizational managers have developed a bias towards expansion through mergers and acquisitions.
The aspect of globalization that has presented the worlds as a global village has fuelled cross border mergers which have consequently resulted in firms expanding exponentially into the international markets and new global frontiers. However, this general thought of bettering the organization through global mergers has been criticized by many management scientists.
One of the ways to relent from this common management myth that ‘bigger is better’ is accepting that the global economy is not a ‘winner take it all’. The management scientists argue that there are better and more viable options for managers who are seeking expansion plans for their companies.
Besides, empirical evidence shows that the most of the global mega-mergers have failed to achieve their primary merger objective. As a result the companies have faced a rather hostile post-merger environment and operations have been highly affected (Lamoreaux, 1985, p. 132). Once such a scenario occurs, the competitors may take advantage of the failed merger to gain a considerable competitive advantage.
The problem with mega-mergers is that due to the big size of the two companies being merged, administrative challenges may arise during the process of working out the organizational issues such as culture and the structure of the new company and as such, they may take too long a time to solve (Kingx, Dalton, Daily, & Covin, 2004, p. 196).
Such problems were experienced during the merger between Hewlett Packard (HP) and Compaq. Other mergers that experienced such problems were the ones between Daimler Benz and Chrysler, America online and Time Warner, and CityCorp and Travelers Group.
Most mergers happen with a purpose of strengthening their market presence as well as increasing their competitiveness in the market. This usually ensures that these firm experience economies of scale. Firms that undergo mergers usually save on the fixed costs through combining departments and also reducing the number of top managers and executives.
This is usually desirable more so in such hard market conditions as experienced in the modern day business world. Firms are therefore able to minimize on their costs thus increasing their efficiency (Harwood, 2006, p. 373).
Besides, such firms are able to command larger market base than before. Through increasing their efficiency in operations, the merged firms are able to reduce their cost of production and hence enhance their competitive advantage over rival companies. An example is the merger between HP and Compaq that led to HP being the leading manufacturer of Personal Computers overtaking bitter rivals such as Dell.
Arguments against Mega-Mergers
The concept of dubious logic for global mega-mergers shows that many mergers happen because of an inclination to expansion among many managers. However, once the expansion program is implemented the company fails to realize its ultimate goals and objective because of various reasons.
There are several critics of global Mega-mergers. It is commonly argued that large companies have their own distinct organizational cultures. As such, merging these companies’ established culture may be a hard process and if this fails, the effectiveness of the merged businesses may result causing the companies to failing to realize their integration objectives.
Some mergers are exploitative in nature. This mainly happens when a merger occurs in an oligopolistic market structures. Where there are few firms operating in the same market and offering the same product, they may conspire to collude and dictate the market prices and therefore exploit the consumers. This can happen in markets where there are no regulations from the government or where there is lack of antitrust laws.
Firms that merge in such market structures usually form a kind of monopolistic structure and as such, they exploit the consumers. This is a disadvantage of mega-mergers more so to the consumers since the market forces of demand and supply cease controlling the market (Cartwright & Schoenberg, 2006, p. 106).
Mega-mergers that occur under such circumstances usually result in unfavorable market conditions and as such are undesirable. The other disadvantage of mega-mergers is that if they fail to realize their integration objectives, their rate of collapse is highly accelerated compared to small mergers. This is because of the publicity that comes along with such mega mergers and as such, the public eye is always on them.
Reducing the risk of Failure in both the Pre and the Post-merger phases
The process of planning and subsequent execution of mergers requires a lot of strategic management. Firms that rush into merging without paying a considerable look at all the factors governing the pre merger and post merger phases usually walk on a tight rope when it comes to effective management of the merged firm. One important consideration during a merger is the practice of due diligence.
It is of critical importance to have a holistic view when assessing the viability of mergers. Practicing due diligence means a company must look at all the organizational parameters in their wholesomeness before merging and/ or acquiring another company.
Practice of due diligence in the pre-merger phase
This is a phase that is characterized by market study, forecasting and strategic re-planning of the organizational goals and objectives so as to become congruent with the interests and goals of the merging firm. First the company intending to undergo a merger ought to practice due diligence. This means that the company must assess the viability of the company being merged with so as to establish potential threats to the merger.
Due diligence here means establishing a reasonable degree of care before entering into the merger so as to protect the firms from potential threats during and after merger has occurred (Ramzon & Michael, 2003, p. 108). Assessing the viability includes a holistic approach to the viability of the organizational attributes of the two companies and identifying areas where these attributes are congruent.
These attributes include the organizational structure, culture and all other organizational parameters such as the financial records etc.
Another important measure that pertain to due diligence that firms can take during the pre-merger phase to ensure a guaranteed success is developing a common merger interest (Harwood, 2006, p. 200). This happens through bridging the gap between the different theoretical assumptions and expectations from the two firms.
Establishing a common interest will enhance communication and also help harmonize the activities in the post merger phase. These are key aspects of ensuring that the firm’s goals and objectives are achieved as while pursuing the interests of the merged firms.
Firms should also pay a keen attention to the aspect of strategic re-positioning. This includes exploring the possible ways of executing market repositioning which include such strategic variable as complementarities between the firms, and the similarities in terms of production, and other operational parameters. A critical analysis of these factors will establish a desired operational framework that will govern the management of the business in the post merger phase.
Carrying out restructuring is another very important measure that firms can take to ensure a successful merger. Often times, mergers occur before integrating the corporate structures of the two firms and this always results in problems such as the flow of communication and most importantly the making of decisions.
Firms that want to merge should reorganize their affairs in such a way that the resulting merger’s structure does not present strategy implementation hurdles. Such problems of incompatible structure have been experienced in the past that resulted in total failure of mergers concerned. Mega-mergers such as the CitiCorp and the Travelers Group had such problems where it was agreed that the merger maintain the two CEOs who would be co-equal. This is a management goof since there was a vague reporting channel and the company had to subsequently force one CEO out.
Managing Post merger phase
Once the merger has occurred, the main challenge is for the management to set the ball rolling in the wake of the new corporate image, structure and the merged cultures. To effectively manage the mergers and ensure that the firms realize the much needed success, the management ought to closely manage two important aspects; the performance of the company and the realization of synergy. It is the role of the management to ensure a continued pursuit of excellence after the merger has occurred because.
Monitoring the performance of the company may take the form of absolute performance or the performance. Absolute performance has to deal with pursuing the merger strategic goals and setting targets that are evaluated using the mergers scorecard. The other form of performance in the post merger era is the relative performance.
This has to do with the achievement of the set objectives as compared to the premerger individual firms. This aspect of relative performance is the best way to evaluate the post merger success and as such post merger strategies should be crafted while putting the relative performance aspect in consideration (Kingx, Dalton, Daily, & Covin, 2004, p. 230).
Performance is known to be the single most important tool of evaluating the success of a company and as such, the company’s management should focus on improving performance through crafting plans, goals, and objectives which are aimed at achieving excellent performance results.
The other measure that can be used to ensure success of a merger during the post merger phase is pursuing the realization of synergy. Synergy is defined as the act of achieving increasing returns to scale and as such, if a company achieves one given level of operation, two companies when working together should achieve more than two levels. This is the basic assertion of the concept of achieving synergy in production.
One of the most common merger motives is achieving economies of scale and economies of scope. Economies of scale has to do with achieving a given production level using less costs due to integrating such controllable costs as fixed costs during the merger process. ‘Economies of scope’ has to do with the ability to produce several products from a single production process.
These two factors determine the success of a merger during the post merger era and as such, the management ought to keenly follow the achievement of these two merger motives. Once a company is able to achieve the economies of scale and economies of scope, it is thought to have achieved a milestone in living up to the pre- merger motives.
Conclusion
While some mergers have become successful in achieving their objectives, others have resulted in total failure and others have been forced to undergo splits or spin-offs. The management of pre-merger and post mergers phases is quite critical in ensuring that the goals that have been set are both realistic and achievable. A close study of the market conditions with a regard to the remote environment can be a valuable activity to any firm that plans to undergo merger.
As such, the management of the companies that merge should work tirelessly to ensure that the goals and objectives of these mergers are achieved in the best possible way while striking a balance between the shareholders interests and the interests of all other stakeholders. It should be noted that the success or failure of a merger depends on the management’s approach to the merger before, during and in the post merger phase.
References
Cartwright, S & Schoenberg, R 2006, ‘Thirty Years of Mergers and Acquisitions Research: Recent Advances and Future Opportunities’, British Journal of Management, Vol.17, Special Issue, pp. S1–S6.
Harwood, I A 2006, ‘Confidentiality constraints within mergers and acquisitions: gaining insights through a ‘bubble’ metaphor’, British Journal of Management, Vol. 17, Iss. 4.
Kingx, D, Dalton, R, Daily, C, & Covin, j 2004, ‘Meta-analyses of Post-acquisition Performance: Indications of Unidentified Moderators’. Strategic Management Journal , vol. 25, no. 2, pp. 187-200.
Lamoreaux, N 1985, The Great merger movement in American business, 1895-1904. Cambridge: Cambridge University Press.
Ramzon, B & Michael, S 2003, ‘The benefits of Banking Mega-mergers: Event Study Evidence from the 1998 Failed Mega-merger Attempts in Canada’. Canadian Journal of Adminstrative Sciences, Vol. 20, Iss. 3, pp. 196–208.
Merger is the process whereby two or more companies combine together such that all their operations are carried out as one. Over the recent past, there have been several mergers of firms within oligopolies. When two or more companies merge, the control of their assets becomes vested on under one control.
However, there are some regulations which guide the process. In this study, there is a need to distinguish between a merger and acquisition or takeover. The main difference between the two is that in the merger the company retains a shared interest in the corporation formed after merging.
On the other side, one company may buy a larger fraction of its partner’s stock which leads to imbalance in the ownership of the new formed company. The main aim for the companies to form merges is to increase their profitability. When two companies merge, the resultant company enjoys the advantages of bulk buying of the law materials, which significantly reduces its production costs.
There are several types of mergers. The first type of merger is known as vertical merger. This is the most common type of mergers in the business world. This is a form of merging where a corporation merges with its client (or suppliers) in order to build up on the chain of supply. The second type is horizontal merger.
This is a type of a merge between two companies which are direct competitors in the same market. In most cases, this involves a larger company taking the small one. After combining, the two companies can significantly reduce their operational costs as well as their financial obligations. Another type of merger is conglomerate merger. This type involves two companies in different businesses. These businesses are not related in any way. This form of a merger is fueled by the craving of a firm to get better its (financial) wealth.
The major concern with mergers is that they may eliminate competition in the industry. This leads to a situation where customers are left prone to exploitation by the producers. Different efforts have been laid to discourage the competitively harmful mergers. Commissions encourage the competitively beneficial or neutral mergers. These are not likely to cause suffering to the consumers. In other words, some form of mergers can lead to overexploitation of consumers.
Discussion
In most cases, the Federal Trade Commission has to be notified in advance about any proposed merger in order to access the impacts of the merge to the consumer. This is in attempt to protect the customer from unnecessary merges which can be dangerous. The commission has the right to stop any merger which poses a major threat to the consumer’s welfare.
One of the proposed mergers involves Keystone Holdings and Compagnie de Saint-Gobain’s Advanced Ceramics Business. This merger raised a major concern by Federal Trade Commission over its effect on the nature of competition. It was projected that the merger was likely going to affect the competition for alumina wear tile in the Northern America Market (Federal Trade Commission, 2010, Par 1). In such situations, the commission is forced to put certain restrictions in order to protect the customers.
Alumina tiles which the two companies deal with are used in a number of plants which plays a significant role in the well being of the economy. Alumina (wear) tiles are employed to insulate equipments from rasping wear by forming a (top) coating.
This type of tiles is used in a wide range of equipments used for different functions e.g. hoppers and the pipes used in ferrying ash and coal (Federal Trade Commission, 2010, Par 1). It is also used by asphalt and cement industries as well in mineral processing equipments. These tiles come in two broad categories. One category comes in different shapes while the other one is designed in order to fit unique shapes.
The commission feared that if the transactions were left to proceed as structured, the consequences would significantly affect the nature of competition in the market for these two types of tiles. This is because Saint-Goban and Keystone are the only key companies which represent a significant share of the Northern American market. Therefore, the consequence would be a significant reduction of competition in the market. These two companies also supply the best quality tiles in the market.
Reasons For and Against Mergers
Over the past, mergers have impacted both negatively and positively in the economy. These impacts can be viewed in different perspectives, that is, the impacts of the mergers to the industry, society, and consumers.
Reasons against Mergers
Mergers have a significant impact on the top level management. That is, it may result in conflict of the egos. For instance, merger between Goban and Keystone can affect the management. These two merging companies were managed differently by different managers before merging. There are differences in the cultures between these companies. Consequently, managers may find themselves being forced to use strategies which may not be familiar or verified to them.
This presents a challenging environment for them. When this occurs, the company’s management attention gets diverted from the normal activities of an organization as the leaders try to settle the matters arising from organizational differences. However, the extent of these complications is determined by the skills of the managers. A qualified manager will take less time to adjust while less qualified managers may face too many complications.
Mergers have significant adverse impacts to the society, customers and the industry in general. This has raised a concern of whether mergers should be encouraged in the economy or not. Another effect of mergers lies on the employment level in the economy. Merging companies can significantly affect the employment level in the society. According to Gugler (2003), “a merger can significantly affect the quantity of labor supply (p.4)”. It has affected the employment level in different ways.
However, Gugler (2003) noted that “the effect of merges on the employment level is ambiguous (p. 5).” In other words, a merger can lead to an increase or decrease in the employment level. For instance, a merger may lead to a reduction in the level of output, which is followed by lay off.
For instance, due to an increase in power after the merge hence increasing the returns to scale which consequently leads to a fall in the level of employment. On the other hand, a merger may increase the level of output for instance due to the combined efficiency of the two merging companies. However, Gugler’s study has indicated that a company can reduce demand for labor by about 10% (2003, p. 18),
In situations where there is cross cultural mergers, the acquired organisation may sometimes be forced to lay a significant number of its employees. Again, this increases the level of unemployment hence affecting the society negatively in general.
According to the Maps of the World’s report (2000), when two companies come together, they can be able to hire less workers to perform a particular task (par 2). Consequently, the company will cut down its work force. Again, this will increase the level of unemployment in the society.
Combination of two companies affects the shareholders of the acquiring company most. The shareholders are affected to a great extent especially by the debt load. This presents a suffering to the society.
Merges also results in low innovations in a company. Merger encourages the new firm to pay less attention on its innovative efforts below the level of innovation that prevailed before the companies merge (U.S. Department of Justice and the Federal Trade Commission.2010, p. 26).
For instance, when Goban and Keystone forms a merger, the resultant company will pay less attention on innovating in the alumina tiles. The Northern America market will continue receiving coating tiles which are never improved. This is characterized by less attention to continued product improvement and development efforts. Since the resultant company will be dominating the market, it will pay less attention on innovations.
In most cases, innovations are encouraged by competition in the market. This is because companies will not be facing competition for customers from its competitors. In competitive environment, companies will concentrate on innovations in order to please their customers. In the case of a merger, the resultant company will dominate the market which will consequently reduce their efforts to innovate.
For instance, when Gobain combines with Keystones, the resultant company will gain monopolistic power over North America’s market for alumina tiles. This is because the largest share of the market supply comes from these two companies. As we have seen, the resultant company will therefore be reluctant in encouraging innovations since it will have no threats from any competitor.
Since merging of the two companies reduces the level of competition in the market, there is a likelihood of a rise in prices. Competition will be more affected if the combining companies are dealing with less differentiated products. In this case, both Gobain and Keystone companies deals with alumina tiles which are not very much differentiated.
The newly formed company after merging will consequently raise the prices of the tiles. This consequently leads to an increase in consumer prices by the other firms. For instance, after the combination of Keystone and Saint-Gobain into one company, the company will raise the prices of the tiles. This forces the firms to raise the consumer prices altogether from their initial level.
As a result of prices manipulation through merges, there will be a reduction in consumer surplus. This oppresses the customers at the expense of the producer’s surplus. It is also important to note that mergers may have varying impacts on different consumers. This occurs when the newly formed company practices price discrimination. For instance, a company may decide to raise the prices for a certain group of consumers. In this case, some customers suffer more than others.
Mergers are likely to lead into low quality goods & services. This is as a result of lack of competition in the market. Therefore, the resultant company will not be having any fear of losing customers to its competitors. This denies the customers a right to access high quality goods and services.
Mergers also reduce the variety of a particular product in the market. Gobain and Keystone companies supplies the North American market with alumina tiles. These types of tiles come with different varieties. The tiles from these two companies are similar but not necessarily identical.
If these companies merge, then there will be no variety of alumina tiles since the tiles will be produced from the same plant and in the same equipments. This denies the consumers a right of choice. They will be restricted to use one type of product. In other words, the resultant company will pay less attention on the needs of the customers.
As already noted, mergers will decrease or completely eliminate competition in the market. One way through which mergers can eliminate competition is through coordinated interaction among companies which will adversely affect customers (U.S. Department of Justice and the Federal Trade Commission, 2010, p. 27). This involves actions by firms which are likely to favor their profitability. The resultant outcome will be overexploitation of consumers.
Merges are associated with time wastage. For instance, all the shareholders from both firms, must first vote and agree on the merge. Whenever disagreements arise, it consumes a lot of time for the companies. This time could be used on other activities that could have contributed in other development activities in the industry.
In the cases where cross-cultural mergers take place, various problems occur. Cross-cultural mergers are the types of mergers involving companies with different cultural backgrounds. In some cases, different cultures may cause disharmony that is difficult to escape in the organisation (Blurt, not dated, par 3). This may affect the operations of an organisation at the initial stages of its development.
Reasons for Mergers
Despite of the number of shortcomings that are associated with mergers, they are sometimes important in the society. They have some positive contribution to the industry, society as well as the customers.
In some cases, mergers lead to increase in the level of employment. This may be as a result of combined efficiency of two companies. The output may also be increased through a rise in the level of efficiency as a result of demand shifts and product improvements. According to Gugler (2003), true mergers ‘results in a wage decline by approximately 4% and an equivalent of 2% employment growth (p. 8).’
Mergers have also a significant effect on the company. First, they increase the productivity of a company. When two or more companies merge together, they form a larger company. The resulting company can then be able to benefit from bulk buying of the raw materials. This significantly reduces the operational costs of the company.
When companies form mergers, they are likely to reduce expenses significantly. For instance, when two companies are combined, the license costs are significantly reduced. Companies can also be able to cut down on the insurance costs. This contributes significantly to the overall performance of an organization, that is, it can expand its activities.
The profit margin of a company increases significantly after a combination of two or more companies. When the profit is high, a company can increase its investment on research and development. This will consequently lead to high quality goods and services for their customers. For instance, when Gobain and Keystone companies merge, the profits of the resultant company will automatically increase. The company will invest more on research and development on its products. Consequently, customers will be able to get high quality tiles.
Merging of two companies has an impact on the share holders of both companies. However, these impacts vary across these two categories of shareholders. The shareholders of the acquired company are in most cases the main beneficiaries of the merger. When a company is bought at a good price, the local community benefits significantly since it improves the local economy.
According to the information from Economics Help (not dated), mergers significantly benefits the newly formed company through economies of scale (par 1). When two different companies combine together, the resultant company will automatically be larger. This is because of combined tools of production as well as the other factors of production.
This will increase the company’s output with a significant scale. A newly formed company will enjoy technical economies. This will mostly help those companies which have significant fixed costs. When two companies combine, these fixed costs are significantly lowered. This helps in increasing the profitability of the firm.
Another area where companies enjoys the economies of scale through a merger is bulk buying. Combined operations of two companies will require buying of large quantities of raw materials. This will help the company to cut down on its costs. Eventually, this will decrease the unit cost of production. When the unit cost production falls, the prices of the product is likely to fall. However, this is based on the assumption that the market will remain competitive.
Shortages are likely to take place when two or more companies merge. These shortages can be as a result of two things. First, the newly formed company may decide to cut down on the output so as to raise the prices to their desired levels. This is because they have monopolistic power over the market. Shortages may also result from adjustment delays since the newly formed firm may take time to adjust. All this will be at the expense of the consumers.
Mergers have also helped in strengthening of companies. This is achieved through the restructuring and strengthening of the resultant company (William, 2008, par 4). After merging, the merging companies can apply the strategies which each of them had been using before. This reduces the number of risks in an organisation.
The resultant company formed after a merger can also enjoy a higher level of interest (Economics Help, not dated par 2). This is because it will be engaged on transactions involving huge sums of money. This improves the financial security of the company.
In terms of organizational efficiency, one head office is better than two. It improves efficiency by reducing the time taken in making decisions or trying to link activities between the two. Having one head office also reduces the operational costs.
Mergers also help companies to solve the problem of multinational competition. They rather face international competition. This boosts domestic companies in the international market. When domestic companies do well at the international market, the whole economy will be a beneficiary. For instance, it will contribute to improving the balance of payments.
Conclusion
In conclusion, this discussion has clearly brought out the impacts of mergers in the economy. It has been found that it is very critical to find an exact impact of a merger in an economy. It affects the economy both positively and negatively. However, the study has indicated that mergers can significantly cause consumer suffering.
In other words, mergers pose a great danger to the consumer and the society in general. This is through manipulated prices and low quality products resulting from elimination of competition in the market. The combination of companies increases the monopoly power of the resultant company and they use this as a weapon to exploit consumer.
In order to eliminate these problems associated with mergers, there is a need to have necessary interventions whenever mergers are proposed. This will give the responsible commissions a chance to give conditions on the newly forming companies on their conduct in the market.
There should be clearly structured guidelines which should be followed by mergers (U.S. Department of Justice and the Federal Trade Commission.2010, p. 5). Mergers should not be given an opportunity to exploit monopolistic power in the market at the expense of the customers. It is important to consider the market share represented by the merging companies. The larger the fraction they represents in the market, the more monopolistic power the two are likely to have and the more they are likely to exploit the consumers.
The overall merger plan is the integration of Southern Bank’s operations into Northern Bank’s operations. The merger is necessary to create a competitive edge. It is a reactive change that will also involve a strategic change. It is a reactive change because it is in response to the merger between Eastern Bank and Western Bank (Jick & Peiperl, 2011). The merger between the two competitors has created an external force that compels the two organizations to merge in order to remain competitive. It is a strategic change because it will involve restructuring.
Northern Bank acquires Southern Bank at a cost of $1.5 billion issued in Northern Bank’s stock. It indicates that Northern Bank paid a premium of $0.3 billion to Southern Bank shareholders. Southern Bank shares had a market value of $1.2 billion (Jick & Peiperl, 2011). Southern Bank’s shareholders directly benefit from the merger in the form of stock value. However, the market value can only be retained if the operations of the two firms are integrated successfully.
Northern Bank will discard components with lower ratings and integrate those with higher ratings in both firms to sustain. It will improve the combined market value of the two firms. Some of the branches will be closed down. Some of the processes may be merged. It will lead to downsizing of employees, which is the most challenging process of the change. It affects those who are laid off as well as those who are retained. Those who are retained may feel that the firm has violated their psychological contracts. It may need a strategic change to find other forms of motivating loyalty rather than job security (Jick & Peiperl, 2011). Retaining all employees may not affect customer satisfaction. However, it may reduce shareholder value.
The change
The approach that will be followed in the integration process is taking the best practices from each firm. They are mutually exclusive. The ratings of branches and employee work performances will be considered for retention (Jick & Peiperl, 2011).
The headquarters will be merged into one with the Northern Bank headquarter being retained. One simple rule is that there will be a branch in each town. The condition does not hold when the performance of the branches in the town has a rating of 1 and the reason for the low rating is a lower number of customers. The assumption is that a performance rating of 2 can be improved and a rating of 1 is unlikely to be improved.
Northern Bank appears to have better human resource management practices than Southern Bank. It will lead to the replacement of Southern Bank human resource management practices with Northern Bank practices.
Southern Bank’s loan approval practices will be replaced with Northern Bank practices. The use of collateral should be an item from Southern Bank practices that should be integrated into the change if the firm wants to continue targeting the same market niche.
Northern Bank appears to have a superior IT system (Jick & Peiperl, 2011). The Southern Bank IT system will be replaced with Northern Bank’s. It may also be linked to Northern Bank’s if the cost incurred from losing major customers exceeds the cost cut from the replacement.
Northern Bank’s participative management style will replace Southern Bank’s directive management style (Jick & Peiperl, 2011). The total number of managers retained will involve integration between Southern Bank and Northern Bank. Southern Bank managers’ higher average rating will be put under consideration. Individual ratings will be assessed for retention at the top level.
Products offered after the merger should be rationalized to reduce workload for employees. Retaining all products will ensure that all customers are retained. However, it may lead to a higher workload for employees. Replacing all Southern Bank’s products with Northern Bank’s products may become a weakness because the firm may lose synergies created by the acquisition. Replacing all products would have been possible if the two firms were targeting a similar market niche.
Impacted stakeholders
One group of stakeholders is the senior executives from both firms. Pettinger’s internal memo to the 7 top managers is a good indication of their concern for the anticipated changes (Jick & Peiperl, 2011). Based on the stakeholders’ profile, there will be one CEO after the acquisition. It may require the other CEO to accept change of role. The heads of departments will also change roles after the acquisition when others retain their roles. In case of two heads, one department head must accept a new role or be laid off. Downsizing is costly because it incurs send-off packages. The other employees are affected through change of job positions, downsizing, and compensation packages.
Another group of stakeholders are shareholders in the two banks. Shareholders consist of individuals from households, firms, and institutions. They will be affected through gains and losses in stock prices, which will depend on investor confidence based on the outcome of the acquisition. According to the stakeholder profiles, the Sunrise Pension Fund is a major shareholder. It will be concerned about share dilution. Southern Bank was issued with shares that exceeded the market value of the firm. The Sunrise Pension Fund may be affected if the share price falls below its current price as a result of the merger. It may also gain if the merger and the integration process are implemented successfully.
The American Banking Authority, as a regulatory body, will be concerned about protecting shareholders and customers (Jick & Peiperl, 2011). Mergers may be used as a substitute to collusion if firms continue to operate separately after the merger. Collusion results in higher prices for products. Mergers are also considered as a way of reducing competition. The American Banking Authority will ensure that competitive forces are not eliminated in the banking industry. Northern Bank and Southern Bank have slightly different market niches, which may increase the likelihood of an approval by the regulator. Northern Bank has a high target for corporate entities and Southern Bank for households.
Dott Manufacturing, as a customer, is another key stakeholder (Jick & Peiperl, 2011). The merger should conduct a cost benefit analysis to check whether the customized product for the customer can be continued or discontinued. If Southern Bank IT System is linked to the Northern IT system, the customized product will be retained. However, the firm foregoes $50.38 million in terms of non-interest expense reduction annually. The Southern Bank IT System is likely to be replaced with Northern Bank’s. In case the product is discontinued, the customer may be forced to seek other service providers or renegotiate a new deal aligned with the available products. It may affect the railway companies that it serves.
On one hand, Sergeant & Co. will want to see that the acquisition outcome increases their rating as an M&A consultant (Jick & Peiperl, 2011). On the other hand, the Daily Post editor has an interest in covering the story in a manner that analyzes it objectively and subjectively. The editor is likely to criticize layoffs, which may provide negative publicity.
Strategies and tactics to help stakeholders adopt
Shareholders will be the first group that will be concerned about the acquisition. They need to retain or increase the value of their stock after the merger. Shareholders approved the acquisition, which reduces resistance. The main tactic to use on shareholders is emphasizing the continuities and the gains of change (Jick & Peiperl, 2011). The firm should elaborate on synergies developed as a result of the acquisition.
Employees will be the second group of stakeholders concerned about their jobs. They will be assured that most of them will actually retain their positions because only a few branches will be closed. 11 out of 39 branches will be closed down (see Appendix A). One of the key tactics to help employees adapt to change is to reduce anxiety through communication (Jick & Peiperl, 2011). Anxiety comes when people stay for a long period without knowing who will be affected and the manner in which it will occur. There is the need to provide more information about what is about to happen as soon as more data is analyzed. It will help to create a mindset that anticipates change.
There will be a need to increase capacity for change through reducing the internal clocks (Jick & Peiperl, 2011). It enables the firm to respond to employee complaints and views in a shorter time. As the integration manager, I will listen to them and accommodate their emotional outburst as a natural way of responding to bad news. The best option is to help managers explore risks and options emerging from the merger. They will also be involved in decision-making to ensure that the process appears fair to all.
Major customers will be assured that the change will be gradual and they will be accommodated into new products if their customized product is scrapped from the list products. For the Daily Post and the American Banking Authority, it will be necessary to seek political support from key stakeholders and the public.
Merger decision plan (Rationalization)
The situation in rationalizing branches
When the branches are rationalized, the branch with a higher rating will be retained in each town. The one with a lower rating will be closed down (Jick & Peiperl, 2011). The main reason of a merger is to have the best of both sides. If all branches are retained, then the cost structure may remain the same. If the management decides to close all Southern Bank branches in towns that have a Northern branch, the firm will save 22.9 million annually.
Rationalizing would cut the combined cost structure by 4%, which amounts to $18.72 million annually (Jick & Peiperl, 2011). Rationalizing may increase efficiency and overall performance that may help the firm gain more than $4.18 million by which the first option exceeds rationalization in cost reduction. The firm is likely to report a higher profit margin under rationalization than in the first option. Not only does rationalizing cut costs, but it also creates synergies different from the economies of scale.
The change
The number of branches will reduce by 11 out of 39 branches as shown in Appendix A. Those that have higher ratings are retained in each town. There will be a downsizing of employees as well. It will be a complete restructuring. Managers from closed branches with higher ratings will displace those with lower ratings in retained branches. There will be an increase in workload for the remaining branches because they will have to serve the same number of customers that they used to have before the closure of some branches.
Impacted stakeholder groups
Employees will be the first group of stakeholders that will be affected by the downsizing. Some managers will have to be laid off to prevent lost self-esteem in case they are accommodated in lower roles within the organization. Those that remain will also feel threatened that they may find it difficult to be loyal to the firm, unless a different form of reward replaces job security. There are 2 county managers at the time of the merger in each county. One of the county managers will have to be laid off or accommodated in a new role depending on their choice. In towns with more than 1 branch manager, only one will remain.
The transformation will be much easier for customers if the same products are offered and the quality of customer service is improved. However, it may not be worse because the displaced branches are found within the same town.
The Daily Post editor would like to cover the story about the feelings of employees who are laid off and customers who have to be served in a different branch from the one they commonly use.
The Sunrise Pension Fund, which represents major shareholders, would like to see that there is no redundancy. The high cost can only be reduced if there is no duplication of branches or employee roles.
Sergeant & Co. would like to see that more employees are retained in their current positions and only a few are displaced.
Strategies and tactics to help stakeholders adopt
Managers at the county level and branch level will be notified about the likely changes. It helps to create a mindset that anticipates change (Jick & Peiperl, 2011). Another effort will be to help them explore the risk and options that come with the change. Some managers may be more willing than others to be laid off or to accept new roles. The firm policy is to retain the best in the current position. The procedures and criteria used to select employees will be publicized. For the managers, there will be a single list of ranking and a cutoff point from which all those above the cutoff point are retained in their current position. The managers will be able to see their credentials, ratings from employees, and customer ratings of their branches.
Managers who are to be laid off can anticipate the change even before the final list is compiled. It helps to reduce anxiety caused by expecting the unknown. I will need to listen to their feelings and make them understand that restructuring is the best option to remain competitive (Jick & Peiperl, 2011). Without it, all job positions in the firm are threatened by competitive forces. A few have to be sacrificed to retain the best. I will need to give them time to realize how important the change is to the survival of the organization. The firm will also promise send-off packages to reduce anxiety among employees.
There will be less displacement in cases where an employee has better credentials and a higher rating. They are likely to remain in their current positions as Sergeant & Co. would prefer.
The Sunrise Pension Fund would like to see a cut in costs, which comes through downsizing. The firm will emphasize the gains that are likely to come from the reduction of the number of branches and the retention of the best performers. The strategy will also work for the Daily Post editor.
Southern Bank’s Human Resource Practices replaced by Northern Bank’s
The situation
Northern Bank has better human resource practices than Southern Bank. Northern Bank’s practices will replace Southern Bank’s. Elaine Bolta, Southern Bank’s HR Director and Northern Bank’s Hector Rice would like to know who will be the overall HR director after the merger. Elaine Bolta has been in the position for a shorter time and is likely to be given a new role. Hector Rise has been instrumental in developing better human resource practices in Northern Bank. Southern Bank employees who will be retained will need to sign new contracts with Northern Bank that aligns itself with grades rather than individual negotiation (Jick & Peiperl, 2011).
The change
The change affects all retained Southern Bank employees. Their salaries will be affected because they will be assigned to grades with fixed salaries (Jick & Peiperl, 2011). It is better because employees performing the same duty will be issued with the same grade and salary. However, it may be discouraging for top performers. Promotions can be used to ensure that top performers are rewarded using a different approach.
The bonus scheme will be changed for Southern Bank employees. It will be based on individual performance rather than the profitability of the entire bank (Jick & Peiperl, 2011). In this situation, each approach has its own advantage. Using profitability of the firm to reward employees encourages teamwork. However, it may fail to distinguish low performers from top performers. Using individual performance to issue bonuses encourages all employees to increase their productivity. However, it may increase individualism that may threaten overall performance.
The company’s cars will be issued to all employees who are above the 12th grade. Directors of Southern Bank will retain their vehicles only if they are above the 12th grade.
All retained employees will be allowed to take a low-interest loan, which was not possible when Southern Bank operated separately (Jick & Peiperl, 2011). Employees will use corporate expense cards for costs incurred while conducting business. A refund was the usual method used by Southern Bank.
Pension contributions will become voluntary for Southern bank employees. It means they will have to use part of their salaries to make pension contributions. It also means that all employees can contribute, including those with less than 2 years working with the firm.
The number of holidays will increase by 2 days from 18 days to 20 days in addition to public holidays.
Most of the changes are improvements on Southern Bank’s human resource practices.
Impacted stakeholder groups
The two HR directors are the first group of stakeholders affected because they are concerned about retaining their positions and roles. Any change of position or role may upset the human resource managers. Southern Bank directors will also be concerned about retaining their vehicles. Grades will be used to assign salaries. None of the employees would like to see their salaries reviewed downwards. They have adopted lifestyles aligned to their current salaries that may be difficult to change. Southern Bank offers salaries that are above the industry average when Northern Bank offers salaries close to the industry average (Jick & Peiperl, 2011). It is likely that salaries will be reviewed downwards for some of the Southern employees.
Most of the changes are improvements to Southern Bank HR practices. The retained Southern Bank employees will be impressed by most of the changes apart from salaries.
Sergeant & Co. would like to see that most of the employees are pleased with the changes in HR practices for Southern Bank employees.
Strategies and tactics to help stakeholders adopt
The best strategy is to help Southern Bank employees separate the present from the past. It will be necessary to let them understand that they are being integrated into Northern Bank practices because Southern Bank has been acquired by Northern Bank. I will emphasize that grades offer opportunities for growth for top performers through promotions. Employee empowerment is also an option (Jick & Peiperl, 2011).
Employee empowerment allows them to make more decisions affecting their workstation. I will need to suspend judgment to allow the Southern Bank employees to understand the new terms. It will not be difficult to change the psychological contracts because the conditions are better in most cases. It will be necessary to use Southern Bank managers as role models who have accepted the change. There is need of magic leaders to increase acceptance for change (Jick & Peiperl, 2011).
Reference
Jick, T., & Peiperl, M. (2011). Managing change: cases and concepts (3rd ed.). New York, NY: McGraw Hill Ryerson.
