Category: Merger

Problems resulting from the merger of Eastern Baptist Medical Center (EBMC) and St. Rupert Hospital (SR) are no surprise. Researchers, like KPMG suggest that over eighty percent of all mergers and acquisitions failed to deliver positive outcomes in the future. The main cause for this failure is cultural differences. Up to the date when the signing of papers is formalized, everything is financially driven. However after the merger transaction is finalized, other non-financial difficulties arise.

Problems encountered by mergers and acquisitions (M & As) are based on cultural situation, especially when the firms involved are from two different geographical locations, as is the case between EBMC and SR. The difficulties are likely to be amplified along areas of human resource, patient care and the community at large. This study attempts to extrapolate and foresee the difficulties resulting from the merger of the two hospitals and suggests possible tactical solutions.

The merger of these two hospitals has implications for the workforce of the two. Poorly managed Human resource issues in mergers and acquisitions have contributed to failure of the merger to bring desired outcomes. HR issues in mergers may be categorized into two; the pre-merger phase and post-merger phase. This article is focused on the later-post acquisition phase. HR planning, turnover, performance appraisal, employee relations and employee development are some of the important issues to the HR management in mergers.

The merger activity could lead to duplication of certain departments. Compensation wrangles is also expected; for instance EBMC’s (acquired firm) employees would expect a possible increase in compensation in relation to what SR’s Staff are likely to receive. This could lead to the involvement of the legal system with possible suits.

EBMC and SR, each has different set of beliefs and culture. These differences in corporate culture lead to a psychological state known as culture shock (Pande & Krishnan 1). This means that the employees are forced to abandon and adopt a new culture, causing stress among employees.

Culture shock can evoke hostility and discomfort among the employees which can lower their commitment and cooperation. This in turn affects the patients; mistakes in diagnosis and prescriptions become frequent. Patients would fail to receive care on time. The strong reputation based on customer care the two hospitals, when they operated separately before the merger, enjoyed would be crashed.

The uncertainty brought about by the integration would divert the focus of the medical staff from productive work to issues like career path, fear of working with new colleagues and job security. The merger activity may lead to relocation and assignation of new jobs to the medical staff leaving the staff in a different position which changes in job profiles and work mates. This could have an impact on the level of care patients get from the hospital.

Changes in productivity, low level of patient care and letting go of employees inevitably has an impact on the community at large. Customers of the acquired firm (EBMC), who were indigent and Medicaid, would face possible rejections from the new organization.

The letting go of unproductive employees would certainly increase levels of unemployment in the community. The previously satisfied middle and upper class patients would change their doctors and sort alternative health care from other institutions; the new hospital would lose most of its client base.

If I was a member of the senior management the following would be my proposals. Take time to spend with the staff and get to know them. Bring together employees from both hospitals (acquired and acquiring). Discuss the potential benefits of the merger with the employees honestly. Since SR’s employee relations were better, I would get EBMC’s staff to listen to SR’s staff. Release employees who are less equipped to contribute to the new hospital.

In conclusion, the management should expect such difficulties and plan for low productivity as the staff takes time to deal with the changes. Expect to release some employees. There is a possibility for a merger success; however, this success should be based on the creation, concentration and acceleration of operational change.

Work Cited

Pande Amit and Krishnan Sandeep. Management Personnel and Industrial Relations. Raipur: Indian Institute of Management, 2010. Print.

Mergers have for a long time been commonly used by most businesses as ways of expansion. The decision to come together in form of mergers is fundamentally made mutually by the two firms. The history of mergers can be traced back to the Great Merger Movement in the U.S in the period between 1895 and 1905.

In this period, small companies came together with other small firms to give rise to large, powerful organizations that subjugated the markets. Approximately, 1800 small firms went into these consolidations as a number of them obtained significant shares of the markets they were operating in. The tool used in these mergers was called trusts (Gal-Or, 640).

A number of factors pushed the firms into The Greater Merger Movement, for instance short-run factors like the need to keep the prices high and the Panic of 1983 which saw immense turn down in the demand of homogeneous goods. One of the major short run factors that sparked The Great Merger Movement was the desire to keep prices high. With many firms in a market, supply of the product remains high and therefore the need to outspread the high fixed costs by the producers and at the same time maintain profitability (Gal-Or, 642).

Similarly, there were long run factors that encouraged the mergers especially the need to maintain low costs. There was need to increase efficiency through the technology that was evident in the small companies, as well as reducing operation costs like transportation. The rules against price fixing by the U.S government through the Sherman Act in 1980 saw many companies use merger as a strategy of eliminating competitors while avoiding price fixing.

Today, the reasons behind mergers have diversified with others slightly moving away from the conventional factors of the Great Merger Movement. For instance, today companies merge to enhance customer service especially for firms in the same or close to their lines of production. There are also other mergers meant to conquer the cyclical bumps in the market in order to enhance investment portfolio.

This is done through acquiring or merging companies in different industries. They are also motivated by the need to acquire thoughts, methodologies, personnel and contacts and not necessarily the hard assets of the other company (Gal-Or, 680). This is evidenced in the case of Google, Yahoo and Microsoft where they prefer acquiring small firms instead of recruiting.

Other mergers are arising from the need to buy companies with their patents, licenses, methods and technology, market share, brand name, research team, consumer base, as well as culture. Such soft capital is very delicate, fragile, and watery. Integrating it by and large calls for more poise and know-how than incorporating machines, real estate, catalogue as well as other tangibles.

However, mergers and acquisitions are not without challenges including the failure of famous mergers involving big deals with huge financial outlays as well as laws barring merging attempts by some companies. Particularly, the focus is on these antitrust laws meant to regulate the activities of the mergers as in the case of cell phone companies, T-Mobile and Verizon as well as AT&T merge with T-Mobile.

These have not been the only cases of antitrust suits, for instance antitrust in Google and ITA, sports in the European Union, Hewlett-Packard and Compaq Computer merger in 2002, as well as the merger between Staples Inc and Office Depot, the two giants in office supplies among others (Goldman 1).

The department of justice filed an antitrust suit against T-mobile and Verizon in their bid to form a merger that would see the birth of the leading wireless company in the U.S, with a customer base of 130 million subscribers from the second and fourth largest wireless companies.

This will see the merger serve over two-thirds, which is over 78% of the wireless serving millions of consumers. According to the department of justice the merger would create unfavourable terms for the millions of subscribers. This is because of increased prices, fewer choices for the consumers, and low quality services (Goldman 1). The Federal Communications Commission is still in the process of going through the proposal.

This merger should be allowed because it will enhance the competitiveness of the two firms. The merger would first of all enable the provision of wirelesses services at lower costs in the market. This is due to the low prices charged by T-Mobile as it will confer its advantages to the market. There will also be a resultant decreased cost of production that will enable the provider to charge lower than the competitors. There will also be better chances as the market share will increase to beat competitors.

In the market, everyone is entitled to market freedom and thus they can exercise their property rights as they please. In this regard, the market is also a free market. Additionally, the price coordination arrangements as in a merger are a great way of enhancing efficiency in the economy.

Eventually price fixing will collapse in the long run and thus a merger will be more appropriate for both the companies and the economy or specifically, the consumers. Therefore to enhance this efficiency resulting from mergers due to economic liberalisation, all barriers to such moves should be removed.

The proposed merger between AT&T mobile and Verizon will ensure improved services and wide range of consumer choices. For example the 4G network wireless services will be much easier to attain through the merger. The technological innovation as a result of combination of the know-how is going to yield high quality services in terms of wireless services.

Additionally, T-Mobile is known for setting predominantly cheaper prices as the price leader in the market compared to the other three providers. This can only get better for the consumers after the merger. The innovation cost may be weighing heavily on T-Mobile but after the merger we are likely to see more high-end services in the market.

The merger between Verizon and T-Mobile is not going to create a monopoly or an oligopoly in the wireless service market. There are still other firms involved in the wireless network. However, this merger will undoubtedly birth a company with huge economies of scale due to the market, cost, sales and managerial advantages.

These benefits of increased profitability will spill over to the consumers in form of enhanced services, high quality and greater customer service. Therefore this merger will not only benefit the two companies, it will also benefit the customers through better prices since the cost of production will be much lower as a result.

The merger between T-Mobile and Verizon is likely to present major informational advantage especially in the stochastic market (Gal-Or, 675). If the argument of the antitrust law against the merger is protecting other firms in the industry then it is not enough. This merger will predominantly enable access to the rural areas for both the merger and the competitors, since they will only be required to pay for the roaming.

This roaming will enable access for many customers. Alternatively, on the price argument; the merger gives an opportunity to the competitors to increase their prices as well if the merger takes that direction. Moreover, since the Clayton Act, the antitrust laws have not been revealed to increase their efficiency in viewing mergers.

Mobile phone industry is very important in every economy as they have greater impact on economic performance especially in the current world of technology. Therefore decisions regarding them should be reviewed by considering both the short and long term implications of the merger involving such companies. This merger between T-Mobile and Verizon will see a great success and increased research and development.

Due to increase in profits and lesser operating costs there will be more investment in research and innovation for instance in the realization of speedy wireless network. This could also lead to diversification of more products in the mobile industry and therefore enhanced consumer choice and satisfaction. As much as competition will be reduced to some extend, this will not interfere with consumer choice and efficiency in service delivery.

In conclusion, the department of justice was not well justified to use antitrust laws governing competition and regulation of mergers to block the merger between T-Mobile and Verizon. There are other more important factors to consider beyond competition and prices.

There are greater benefits in terms of increased research and development, diversification and spread of services to the rural areas or wider consumer base. It is also bound to produce even better and fast wireless services at a lower cost as much as increasing competition to the other firms for greater services and consumer choice.

Works Cited

Gal-Or, Esther. “The Informational Advantages or Disadvantages of Horizontal Mergers.” International Economic Review 29.4 (1988): 639-661. Print.

Goldman, David. DOJ files antitrust suit to block AT&T merger with T-Mobile. 2012. Web.

Introduction

Mergers and acquisitions are sometimes a worthy undertaking for businesses. When Kraft foods acquired Cadbury it became the worlds largest confectionary, food and beverage manufacture with operations in almost 160 countries of the world (Cadbury 33-41).

Mostly, business executives when formulating, implementing or monitoring strategies usually use the porter’s model to determine their business move so that they can move their business to industries that are highly attractive. It is with the same technique that Cadbury and Kraft use to make sure that every business move of theirs is justified and highly logical because it is dangerous to make business decisions that lack weight.

Once top managers land in the industries which seem most suitable it is up to use their management skills to ensure that they coordinate their business ambitions for other organizations with lower level managers through communication. Communication is therefore a very important part of business especially when companies are very large company’s operating in numerous countries.

When Kraft took over Cadburys for $ 19 billion it was clear that the top management of Kraft Foods had sufficient data indicating that the business move would be a lucrative venture that would take Kraft’s dominance in that industry to another new level (Lieberman & Krantz 2010). Kraft decided to re-evaluate its business model and gather new opinions from its entire workforce with an aim of carrying out business re-engineering management practices so threat the company’s takeover of Cadbury would be a smooth and fruitful one.

The top management was highly optimistic and therefore even forecasted that their overall coasts would also fall by close to $ 675 million thereby making it very necessary to take over Cadbury and increase its market dominance in the confectionary industry(Odih 233-240). The company intended to utilize every resource and even human resource expertise from managers of Cadbury so that the company could enjoy business and realize its strategic goals (Riley np).

A balanced score card approach allows managers evaluate their strategic moves from both a financial and non financial angle, making it one of the most appropriate techniques used by managers to ensure that strategy is continuously evaluated

Figure 1: Kraft expected its cost structure to reduce by $675m after taking over Cadbury.

Porters five force model

Kraft industries before taking over Cadbury and entering into business in many other regions had taken into consideration the attractive and competitive nature of the industry, considering that the industry has been growing at a rate of 15% making the industry quite attractive considering that the industry is currently valued at over $ 113 billion annually.

Both Kraft and Cadbury have been in the industry for over 100 years making them very stable companies that own one of the strongest brands and even in some countries this brands are part of culture.

Threat of new entrants – Barriers are placed by existing companies and regulatory authorities to prevent new entrants from causing abnormal profit flows for existing companies some of the threats including government policies, exploiting cost advantages, access to distribution, capital requirements.

In this case, the Confectionery industry is known to be very capital-intensive and dominated by the world’s greatest industries that have been in existence for many years.

Although the British government opposed the taking over of Cadbury, Kraft food’s management strongly believed that by taking over Cadbury then their company could penetrate into previously impossible regions such as India and Brazil. Making this venture this venture and take over a good and worthwhile which would help ensure a futuristic long run business opportunity for Kraft foods.

Kraft foods knew by taking over Cadbury then the company will have enough facilities to enjoy all types of economies to scale and that Cadburys brand identity would be a big asset especially where Cadbury had over 14% markets share in the bubble gum and candy market globally. In summary the acquisition of Cadbury would have made Kraft strong and even competitors like Nestle leave alone new comers would have to struggle to keep up with Kraft foods in the market.

Intensity of competitive rivalry among existing firms– firms within the same industry always compete for the available market this can be through powerful competitive strategies, innovation, structure of industry costs, switching costs, degree of product differentiation and so on (Odih, 236).

There are many participants in the confectionary industry and every company uses aggressive strategies to ensure that it acquires and dominate a significant market share. After acquisition of Cadbury then Kraft became the largest confectionary company in the world.

Cadburys core competency and technologies in this industry together with human resources were transferred to Kraft making it more likely that the competitive nature of this company would even become stronger. Kraft’s main idea behind the acquisition was to make sure that the company would capitalize on the 15% annual growth of the industry and have more stakes in the $ 113 total worth of the industry through revenue growth (Lieberman & Krantz np).

Kraft’s overall expectation was that with the Cadbury brand under its wing then the its main competition would be less brutal to them because Cadbury would be used as a brand to attack other brands and make the industry competition more instance due to the good brand image that Cadbury had.

Figure 2: Kraft food’s expected revenues to grow and have more stake in the industry’s $ 133 billion after taking over Cadbury.

Threat of substitute products or services-consumers can opt to go for substitute products if quality is better, price is relatively friendly, or the cost of switching is favorable. But chocolates and confectionary products do not have many substitutes and children around the world always involve them in the art of impulse buying chocolates and other confectionary products.

This meant that Kraft would be better positioned and would therefore expand their business prospects by selling confectionaries to many parts of the world considering that the culture of eating chocolates has no direct substitutes.

The bargaining power of customers-the bargaining power of buyers depends on the number of buyers within the industry who purchase from the available suppliers, differentiation of products, and the profit margin of buyers especially if they are resellers, switching costs that are associated with switching brands and the importance quality and service to the buyers (Odih, 234).

By providing high quality and highly differentiated products and the large number of customers demanding their products as compared to its competitors Cadbury and Kraft Food is therefore able to charge higher prices for the various brands of chocolates and other confectionaries under their belt.

With the ability to charge premium prices for high quality products then the company’s management knew it would be easy to maximize revenue streams and also position themselves as high quality products making it quite hard for other participants within the same industry compete with their brands such as Kraft Dinner, Oscar Mayer, Philadelphia, Maxwell House, Nabisco, Jacobs, Côte d’Or, Milka, LU, Vegemite, Cadbury, Trebor, Poian.

The bargaining power of suppliers-Suppliers who provide raw material can determine the profitability and viability of an industry by setting prices of implements which in turn affect the profit margins. The concentration and number of suppliers affect their bargaining power, the importance of the industry to them, the ability of suppliers to integrate forward and the role of quality and service in the industry.

Kraft through Cadbury is able to use multiple sourcing techniques that enable the company get raw materials for manufacturing their products from many sources therefore making it more cheap and giving the company more leverage when it comes to bargaining this makes it possible for the company to keep costs at a low and revenues streams can be maximized.

Communication

Multinational corporations usually require very effective means communication especially if the parent company wants to maintain control over other companies under its control (Cadbury 88). If communication is poor then a company may often delink itself from its corporate strategic goals therefore injuring the performance of the company both financially and non financially goals.

Kraft, the parent company of Cadbury, usually prefers to alow managers to make important business decisions on a well informed basis and therefore the company uses a direct means of communication where the company provides the managers with the necessary strategic information and then encourages managers to make business decisions that are logical and factual in line with the strategic goals of the company (Odih, 233).

Managers within the company get their communication from the top executives who are in direct link with the corporate headquarters in Chicago.

Although them managers enjoy a high degree of autonomy while making decisions they are only required to act within the guidelines of the information that is handed to them by the top executives of the company who are in direct contact with the corporate headquarters. When corporate managers receive the information it then trickles down from the highest to the lowest level employees through official channels such as memos, letters, email and departmental heads (Wheelen & Hunger 76).

The advantage of using a direct means of communication that is more official enables the employees within the organization carry out their duties with more confidence because when there many centers of power and communication then massages may end up being confusing and ambiguous.

Balanced Score card approach (BSC)

The balanced score card approach is used by managers and strategists to evaluate, monitor and justify any corrections in strategy within organizations (Wheelen & Hunger 56). The advantage of a balanced scorecard approach is that it uses both financial and non financial measures to determine strategic success of an organization, by comparing input of various process and output.

BSC is a highly effective strategic performance management tool that enables managers takes a critical look on how appropriate corporate, business and functional strategy was to the organizations. The BSC approach allows manager to review strategy by taking an in-depth look at how the organization performed especially when it comes to financial parameters, customer parameters; internal business processes parameters and learning and growth parameters of the organization.

It is this approach that is used by the management of Kraft and Cadbury to evaluate how the organization performed strategically (Wheelen & Hunger 212-223). The outcome of this process that is used by top management to justify the need of carrying out any strategic changes in the company within various functional areas.

A table representing some of the BSC parameters that are used by Cadbury and Kraft to measure strategic performance.

Works Cited

Cadbury, Deborah. Chocolate Wars: The 150-Year Rivalry between the World’s Greatest Chocolate Makers. London: Public Affairs, 2010. Print.

Lieberman, David & Krantz Matt. ‘Is Kraft’s $19B Cadbury buy a sweet deal? Buffett has doubts.’ Usatoday.com. 2010. Web.

Odih, Pamela. Advertising and Cultural Politics in Global Times. Advertising and Cultural Politics in Global Times. New York: Ashgate Publishing, Ltd, 2010.Print.

Riley, Jim. ‘Kraft’s Cadbury takeover triggers management exodus.’ Tutor2u.net. 2010. Web.

Wheelen, Thomas & Hunger David. Strategic Management and Business Policy. New Jersey: Prentice Hall, 2002. Print.

Market features

OFT is the organization which is aimed at creating the circumstances where the customers are satisfied with the services and the business is fair and competitive (Office of Fair Trading 2010a). Considering the features of the oil market in the world and especially in the United Kingdom, it should be mentioned that the competition in the market is increasing.

To reduce this competition within the market, GB Oil Limited has decided to merge with Brogan Holdings Limited. The increase of the competition was not very profitable for the GB Oils Limited which wanted to monopolize the market. The Brogan Holdings Limited acquisition is one of the ways to reduce the competition and make the oil market more predictable (Completed acquisition by GB Oils Limited of Brogan Holdings Limited 2002).

Possible market failure issues

The completed acquisition of Brogan Holdings Limited by GB Oils Limited has affected the market greatly, especially heating oils and transport fuels markets (Completed acquisition by GB Oils Limited of Brogan Holdings Limited 2002). Moreover, considering the situation from the point of view of Office of Fair Trading, the acquisition resulted in failure “to be referred to Competition Commission” (Office of Fair Trading 2010b).

The current merge could lead to the monopoly in the industry which is considered to be the main market failure (Bagheri 2000, p. 16). A number of actions had been provided to eliminate that failure. One of those is the Highland Fuels purchase of Western Isles business which belongs to Brogan Holdings Limited. Hus, such actions may help reduce the market failure created by the virtual market monopoly and leave the competition in the industry.

Whether the market has failed in any significant way

If to consider the situation without the case where Highland Fuels purchases Western Isles, the market would not be competitive any more. The merge of the greatest oil companies in the country may lead to the market monopolization which will negatively affect the industry.

There is already an idea that “the oil market is one for the gambler” (Moore 2010) in the world. Moreover, the market could fail in a number of other fields different from monopoly, such as imperfect information, political and economic interests, and externalities (Bagheri 2000, pp. 17-21).

Whether there has been or could be a proportionate and effective intervention

Considering the oil industry in the UK, it may be competed that there are a number of different companies which could conduct the same intervention on the market by means of buying other companies. Still, that intervention could not be the same as the oil industry companies’ potentials are rather different.

For example, the acquisition of Brogan Holdings Limited by GB Oils Limited cannot be compared and contrasted with the acquisition of Dana Petroleum plc by the Korea National Oil Corporation in the UK (Office of Fair Trading, 2010c).

References

Bagheri, M., 2000. International contracts and national economic regulation: dispute resolution through international commercial arbitration. Kluwer Law International, 2000.

Completed acquisition by GB Oils Limited of Brogan Holdings Limited, 2002. Office of Fair Trading. Web.

Moore, J., 2010. The oil market is one for the gamble. The Independent. Web.

Office of Fair Trading, 2010. Targeted enforcement and improved capability are priorities in OFT Annual Plan. Web.

Office of Fair Trading, 2010. OFT accepts distribution business sale in heating oils merger. Web.

Office of Fair Trading, 2010. Anticipated acquisition of Dana Petroleum plc by the Korea National Oil Corporation. Web.

Introduction

Whenever there is need to increase and control the market share, cut costs, expand distribution and benefit from the best global practices, many companies turn into mergers and acquisitions. Mergers and acquisitions when used in business terms refer to the aspects of financial dealings and market strategies in which one tries to increase the market power by involving the others.

In contrast to acquisitions, which can take place through hostile takeover for example by buying majority shares in a company, mergers occur in friendly situations where the involved management personnel cultivates due diligence process to ensure that the merger results in a success and the desired goals are achieved.

In most of oligopolistic mergers, big companies (with the intention of increasing their market share or power) joins and forms a bigger company. Though some mergers may resemble takeovers they always results in changes of names. Mergers can happen through cash payments where one company pays the other in order for them to join (or else through stock swaps).

When a market is dominated by a small number of large companies (suppliers) who controls the supply thus dictating the prices in the market, the market situation is said to be an oligopoly.

Classifications of Mergers

When companies decide to merge there are three ways in which this can be achieved. A horizontal merger, characterised by the union of two firms whose products are identical, becomes the first approach. The main aim of this type of merger is to increase the market share by penetrating untouched markets which is made possible by the other company.

The second type of merger is the vertical merger which involves two companies working in different stages of a product development joining and producing the same product which meets wider consumer tastes and demands. In most cases the organizations which merge vertically are owned by one person or organization that completes the hierarchy. Last type of merger is the conglomerate merger that occurs when two firms operating in different fields combine to diverse the products and increase the market share of each.

The Oil Industry in the US

In the past, there has been assertion that the organization of the oil producing and exporting countries (OPEC) is a cartel whose main aim is to control oil production in the world and thus dictating the prices in which the commodity is usually sold in the market.

Whether this is true or false is a question for another day but the same way the organization behaves so has of late been the same behaviour by large oil companies in the United States who have merged and formed cartels which control the supply of oil and its products in the American economy.

What many of these companies fail to notice is that whenever the cost of crude oil rises the consumer purchasing power is reduced; while billions of dollars are gained by oil companies the American economy suffers as there is reducing spending in other sectors. Like any other country in the world, when the United States of America is faced with such situation it tries to protect its citizens by increasing the quantity of oil in the market.

However, with the responsibility of distributing oil being subject to oil companies most of the time this it is not possible since the companies supplies the market with what they want thus driving the oil prices high. This results in oil companies earning higher than usual profits. How the profits gained are allocated depends with the company though most people think the profits should be ploughed back to the industry to ensure the companies can have enough capital to maintain the product flow in the market.

The US oil industry did not begin until 1859 when America dug its first oil well. The industry did not just stop there, it has been growing since. The available statistics reveal that at present, U.S is the third biggest oil producer in the world however it consumes more than any other nation in the world. Thus, with the demand of oil products being such high, there is a major purpose to find ways of fulfilling the demands of such a big market.

In any economic situation, when the market is large and the players are few there follows the establishment of different institutions that try to govern the way the market behaves. Whether monopolies or oligopolies. United States of America being a world economic power, there are little chances of creation of monopolies but several big oil companies have of late joined and created mergers in a bid to increase and control a larger market share.

While it is not advisable to allow a few market players in such a big market, the United States of America has allowed large oil companies to merge reducing the chances of a fair competition thus increasing chances of cartel formations. Cartels are formed when companies agree whether tacit or overt to control the supply of a commodity in the market with the main aim being for prices to rise resulting in an easier way of making profits for these companies.

The markets with the largest share of the market in the oil industry are all as a result of mergers and they include ExxonMobil, ChevronTexaco, and ConocoPhillips among others (Claybrook, 2004). It should therefore be no great wonder why the oil companies are among the most successful industries in United States.

The Pros and Cons of Mergers

The proponents of mergers argue that mergers add shareholder values by the creation of economies of scale. The advantages of Economies of Scale result whenever a company produces in large scale using few variable companies compared to a smaller company which produces the same products at the same fixed costs but at higher variable costs thus bringing the advantage to the shareholders but what many fail to notice is that instead of the mergers resulting in decreased oil prices their main aim is to increase their market share and thus control the market behaviour.

As have been noticed though mergers result in higher profits to those who have invested in the companies very little is gained by consumers when mergers are formed.

Mergers are also known to create synergy among the joining firms thus creating better use of the resources that complete each other. This reduces the expenses involved thus increasing the earnings and gives the risk averse investors more confidence in investing in the merged company. The only problem is that the aim of mergers in the oil industry seem to be driven by the desire to earn more profits

When big companies within any economy merge, they are mainly driven by the urge of increasing the market power and consolidate the industry among the few players by trying to edge out the other competitive industrial players. Mergers in the oil industry have resulted in some practicing anticompetitive practices such as undermining effective competition in the markets by reducing the number of market players and using coercion mechanisms to eliminate them.

The US oil companies are simply driven by the greedy urge of earning higher profits to the expense of most Americans. All these problems should however be blamed on the Federal Trade Commission which has allowed all these mergers in such a big market (Slocum, 2007). Others who oppose formation of mergers argue that mergers do not always result in success.

The net loss of value that may be brought about by monopoly or technology incompatibility is one of the major failures of mergers and the resultant elimination of smaller industry players also results in loss of job. For a merger to be successful it must increase the shareholders value faster than when the company was separate and it must also not interfere with the activities of the minor players,

The American Oil Industry and the Impacts of the Mergers

America is the third largest oil producer in the world producing more than several big Asian producing countries combined but its consumption is more alarming with statistics showing that the US consumes one per every four barrels of oil produced in the world. This forces the country to import about two thirds of the oil and gasoline used in the country. It is a fact that US uses more than what China, Japan, India, Germany and Russia use combined.

With sixty percent of the oil being used as fuel and another 9% being used for home heating, America citizens are a big market for any oil company that would want to invest there. This desire to provide and control what American citizen uses has resulted in more than 2000 mergers being approved in the oil industry since 1990.

The last few years has seen mergers between big oil producing and manufacturing companies such as Exxon and Mobil, chevron and Texaco and Conoco and Phillips which has resulted in very few companies controlling a very huge market share in the United States. The market share of the big five oil companies have increased as shown by Claybrook

“In the year 1993, the five largest oil companies in the country controlled 33% market share and the largest 10 having 55.6% in the year 2005 this had increased to 88 and 81.4% respectively”. (pg2)

This has ultimately led to the high profit margins in the country among the oil companies. With the US Federal Trade Commission laxity over its regulatory role and the Anti Trust laws of the country being weak, this has allowed these mega companies to merge and form partnerships which do not observe the perfect market rules and will use any strategy to loot more from the American citizens.

Most of Americans are complaining that the mergers have resulted in them paying more money at the pump price than they would be paying if the mergers were not allowed, since the market suppliers would be many ensuring fair competition which would drive the prices down.

The high oil prices affect the American economy in a negative way in that due to the large oil imports, the American trade deficit slugs the American economy growth, increases inflation in the country, and also creates financial hardships both to the American individuals and businesses entities.

Another negative impact of the mergers has been that oil companies in the United States have been colluding and withholding stocks so as to increase prices of oil products. This is after the US Federal Trade Commission in a 2001 report concluded that oil companies in bid to raise their profits withheld gasoline supplies and the action cost Americans billions of shillings while the companies were smiling on their way to banks.

The threat of America oil drying up has also led to these oil companies increasing oil prices. In that as the administration tried to fill the Strategic Petroleum Reserve by drawing 100,000 barrels of oil per day from the national grid, the oil companies were taking advantage to induce an oil supply shortage which resulted in the hiking of prices. While this was aimed at protecting Americans from external market supply shocks it reduced the supplies available thus forcing the prices to increase (Claybrook, 2004).

Mergers have also resulted in the big companies literally exploiting the fact that USis a major oil consumer by reducing refinery capacity through forcing other smaller industry players shut down and move out of the market. As noted by Claybrook (2004), “From 1995-2002, 97% of the more than 920,000 barrels of oil per day of capacity that have been shut down were owned and operated by smaller independent refiners”(pg 5).

If these smaller independent refineries had not been eliminated it would have been hard for the big companies to manipulate the markets prices at will because there would be alternatives.

Mergers Concentrate The U.S. Oil Refinery Industry: Changes In Control Of Market Share 1993 To 2003.

Source: Clay brook, 2004. pg 12 Mergers, Manipulation and Mirages: How Oil

Companies Keep Gasoline Prices high, and why the Energy Bill Doesn’t Help

The table above shows how the market share increased over a period of 10 years. With the top 5 companies controlling more than half the market share this gave them the incentive to exploit the consumers more and with the increasing number of mergers Americans are in for more problems unless their government enacts legislations which will discourage the formation of mergers. As we have noted the companies greed for higher profits will always force bigger companies to merge in order to control the market.

Conclusion and Recommendations

As the study above has shown, if any country not only America does not check the merging and controlling of markets by the big companies in the industry, the market will be controlled by few players and the common citizens are the ones who always end up suffering. Dominance of a market by few players results in formation of cartels which as we have evidenced reduces the supply of oil products in the American market thereby forcing prices to rise at alarming rates.

It was also evident that consolidation of assets within the oil industry coupled with weak regulatory laws in the United States has given big companies an opportunity to exploit American citizens and not only does this hurt the consumers pockets but also slows the economic growth of the Americans.

To reduce consumer exploitation by the oil companies, the government should make it illegal for any oil company to withhold oil stocks in the aim of creating supply shortages which leads to sky rocketing prices. The US government should also order the oil companies to increase their capacities and build stores where they can keep their oil products so as to ensure the supply and demand of oil within the country remain at stable conditions always.

The country should also reduce the oil consumption by introducing efficient oil product using machines and technologies which would save the country from the huge consumption she has or can in turn invest in other energy sources such as the solar and bio fuel.

The country can also increase the percentage of tax in profits gained as this would discourage the desire for many companies to earn abnormal profits and finally legislations which will make the regulatory authorities stronger are much needed in order to restore competition to the oil industry.

Reference List

Claybrook, Joan. 2004. Mergers, Manipulation and Mirages: How Oil Companies Keep Gasoline Prices High, and Why the Energy Bill Doesn’t Help, Public Citizen’s Energy Program Web. Available at: https://www.citizen.org/wp-content/uploads/oilmergers.pdf .

Slocum, Tyson. 2007. Oil Mergers, Manipulation and Mirages: How Eroding Legal Protections and Lax Regulatory Oversight Harm Consumers Web. Available at: https://www.ftc.gov/ .

Warner has a history of four brothers who produced their film, which in 1923, they were able to launch their series on cartoons. Through their ambitions, they were able to acquire many labels on records. Their merging with Time, which was a publishing house, produced what is now called Time Warner.

Time Warner got hold of turner distribution system in 1996, which made it a powerful network company. Its competitiveness is therefore shown to have grown through acquisition strategies. The company congregated both the old and new media channels.

The reason as to why Time Warner wanted to merge with AOL were to get an effective method of distributing its content online instead of getting involved in creating its own channels. This therefore meant merging with an already existing company since creation of an internet branch would be costly, and would take the company’s time.

The company predicted that there would be synergy due to the combination of the two companies where it would be able to use the AOL’s clients, internet, and the online band to boost its contents and become more productive.

There was also a possibility that the combination would bring about premeditated advantages. The company also felt that its growth potential would increase because it would make use of the unexploited subscriber base for AOL and the e-platform. This way, the company would get new services and opportunities for revenue as well as the opportunities in the cross-market obtained.

Through the combination, Time Warner felt that its scale and scope would be increased, and grow more internationally. The company therefore wanted to combine its media contents with the strong internet in AOL to acquire distribution possibilities.

This would result into benefiting the customers since they would be at a position to get the company’s contents in the internet any time thereby increasing the revenue of the company.

AOL competitive position before the merger

AOL was founded in 1985 when it offered its services and content to customers through dial-up modems. It was the first online service provider that used proprietary software to be more competitive since it resulted in graphical user interface.

Anyone unfamiliar with the computers would get their services unlike other competitor service providers. Through its simple spontaneous interface and its marketing aggressiveness, the company grew very rapidly.

The growth was also propelled by several attainments by the company and expansion geographically. Aggressively, the company expanded in its online presence, and provided its clients with content that was original and interactive.

Before merging, the company had about 27 million subscribers. The company had grown in only eight years. It grew from subscriptions, e-commerce deals and advertising. It made sure that its customers understood its business model. As a media giant, the company strategically moved into an investment community.

The company had reasons as to why it wanted to merge with Time Warner. It felt that alone it would not get a piece of the internet future. The company wanted technology, and felt that the future generation of internet usage needed to have access to broadband.

With access to the broadband, the access to the internet would be faster, and the users would do more tasks online. The company therefore needed to improve its services such that its clients were more comfortable through the broadband.

Merging was very important to AOL Company since it would make the company increase its revenues through subscription, e- commerce, advertising and its content. The merging would be beneficial since there would be synergies in marketing, cross promotion and in the new technologies. The combination would also reduce the cost for launching.

Many people who heard about the merging of AOL and Time Warner were in a lot of fear. Even the companies themselves were in fear. For AOL, it wanted to change the internet to be able to access broadband. On the other hand, Time Warner thought that its networks needed a facelift, and needed internet for it to achieve its goal.

The synergies the company hoped to get through merging

It was only the vision about the synergy the combination could achieve that led the two companies to merge. Before the two companies came together, they had a clear picture of their synergies. AOL predicted that the merger would improve its market penetration, and provide interactive media to its users.

Through merging the companies saw the world class media, entertainment and the broadband systems that belonged to Time Warner combine with AOL’s internet permit, infrastructure and technology. These also could combine with the consumer online brands the cyber space community and the capabilities of AOL in e commerce.

The combination of the two companies would bring unparalleled resources of expertise, technology assets, journalistic talents that are creative as well as an experience in management. Through these resources, it was predicted that the companies would give their consumers an improved access to high quality content and interactive services.

The two companies predicted that since they were strong, merger could have benefited them a lot. Interactive medium would be developed quickly, and the general business would grow rapidly.

The new company that would result after merging was thought to distribute the interactive services through broadband and increase the subscription of the subscribers via cross marketing using the pre-eminent bands Time Warner had.

Since AOL was thought to be more experienced, Time Warner was sure to change its divisions, and make them digital through it. On the other hand, AOL was expecting that Time Warner would help it build the broadband for the future generation.

The combination of the companies would generate new strong and unique brands that the customers would effectively use. Together they would build develop wireless devises, phones and TVs. Through the contents of Time Warner, AOL’s clients would use its contents anytime despite of the location.

AOL believed that the synergies of the merger would reduce costs and increase opportunities. It saw revenue opportunities in advertisement, and growth opportunities were expected to be in the cross promotion that could exists after the merger.

It saw growth resulting from marketing of Time warmers content through its channels. Marketing was predicted to be very effective through different platform and distribution systems. Cost would be reduced as a result of shared functions of business.

The combination of contents from the two companies was thought to be the greatest idea since it could boost the operations of the two companies in a way that was too beneficial compared to when each company acted individually.

This was seen as a strategic advantage, which emerged from different brands, variety of content, strong infrastructure and capabilities in strong distribution. This way, the company predicted that if there was the merger, there would be increase value for the two companies compared to individual efforts.

Time Warner was happy about distributing its brand and contents via the internet AOL would provide. AOL would also use time Warner’s broadband to distribute its interactive services. The e- commerce by AOL would help Time Warner promote its music labels. Subscriber growth would be increased by the brands in Time Warner and the interactive services by AOL.

The numbers presented by the case

The merger was not successful because both companies entered into it in fear. The companies were not able to meet the predicted $90 per share because they did not operate well after the merger. Between the two companies, there has never been the development of an effective management strategy to enable the company progress positively.

Since the managers were not fully supported by the divisions in the new company, AOL’s internet technologies were greatly affected. The merging of the Time Warner and AOL was the largest merger that involved two big companies ever seen.

It was even difficult to determine the extent of synergy and growth rate the merger would bring. The company was expected to grow by 25% with a 5% terminal growth rate. Since the two companies were doing so well in the market, the predicted growth rate could have been achieved if the new company worked hard to realize the vision set before the merger.

It was however questionable whether AOL would continue to grow subscriptions revenues from advertising. It was also not clear if there was any synergy or one of the companies was indeed saving the other. The growth that the companies assumed in 2000 did not actually occur. The growth was actually realistic if it could have been estimated to be between 5-7%.

The former management of the two companies had hoped for a very big difference in the way the merger could have worked for the companies. However the expectations were not met partly because AOL was not a counterpart equal to Time Warner.

There was a mistake in over valuing AOL stocks at the start of the merger just because there was an internet bubble because investors believed in its potential. This gave AOL the same voting power and rights as the Time Warner.

The investors in AOL were very mad when there was the sale of stock and accused case of his greed to make profit. They also accused him of knowing the fate of the merger. Today, AOL is viewed as of less worth than Time Warner, and that it was paid too much for its shares during the time of merger.

On the other hand, Time Warner is receiving too little than it paid. Due to these factors, the stock price of the new company fell from about $90 in 2001 to $13 as per now. This has led the new company to change its name to Time Warner from AOL Time Warner and retained several of the Time Warner directors to manage it replacing many of the AOL board members.

Additionally, the new company failed because of failure to implement the companies’ vision and communicate them to the members of the company. The company did not even recognize the new trends it got into in the digital industry. The new company did not recognise the broadband internet or the telephony through internet, and company failed to build a business model for the new trend.

They also lost because even if they had a combined music platform, they did not communicate their idea very well, and lost it all to Apple.

The new company did not also recognise hoe important the highly personalised web services were and sold Myspace.com to Rupert Murdoch’s News Corp. the web service by the name Snapfish was meant to allow the users to store pictures online to publicize them but the company failed to see its importance. The new company, AOL Time Warner concentrated more on delivering serious news compared to the personalized content.

Though AOL was the largest internet service provider, they were late in offering broadband access to the users, and were overtaken by the local companies that dealt with phones. This led AOL to lose its subscribers thereby failing to promote AOL Time Warner content through the broadband.

This also decreased the income from advertising. Until today, the CEO’s of the companies at the time of merger view themselves as failures at that time. Since it was case’s idea for the merger, he still blames himself for the idea.

The biggest assumption that was made to affect the numbers was the assumption about the merger. Merger was given much expectation than it should really have. Each of the company saw some benefits that they could reap from the other company, and thought that the merger could lead to the synergy of their services and profits.

In reality, Time Warner did not benefit the way it had expected from AOL. However, AOL used Time Warner’s broadband cable network to expand its business in broadband (Hoopes 837–865).

Work Cited

Hoopes, David. Strategic Management. Dominguez Hills, California State University, 1999.

Mergers and acquisitions have become very common in contemporary business environment. This is because of the increased appetite of corporations to expand their operations into the international markets in order to take advantage of the growing profit potential.

In addition, firms are experiencing increased competition in their respective markets, thus finding it more prudent to engage in mergers or acquisitions as a strategy of gaining competitive advantage.

This paper will discuss two companies, where one (Walmart) has entered into a merger and diversified internationally, and the other company (D. R. Horton) has concentrated on domestic market without engaging in a merger.

Walmart’s Merger with Massmart

The contemporary Business environment has become very competitive, forcing many companies to invest in strategies that will make them gain competitive advantage. Most of the large companies are opting for mergers, acquisitions, or internationalization strategies as means of enhancing their operations.

One company that has embraced the importance of mergers and acquisitions is Walmart, as it enhances its business penetration across the globe. Walmart is one of the largest retail chains in the world, thanks to its low-price business model.

This approach has shown sensitivity to the needs of consumers, leading to the phenomenal growth of the company since its inception in 1962, and forcing the company to spread to foreign markers.

Today, Walmart is present in all continents of the world. However, Walmart’s global success has been facilitated by its strategy of merging with retail chains in the destination countries and blending its business model with the cultures of those markets.

One of the most high profile mergers that Walmart has been involved in is that of Massmart South Africa (Roberts & Berg, 2012). This merger seems to stand out due to its magnitude and the controversy it generated before its completion.

Massmart was one of the leading retailers of general merchandise in Africa prior to merger with Walmart, and operated in 14 countries in Africa. What attracted Walmart is the Massmart’s unique business model of high volume, low margin, and low-cost distribution of branded consumer goods.

This is in addition to its segmentation of business operations into four core groups namely Massdiscounters, Masswarehouse, Massbuild, and Masscash, each of which dedicated and specialized in a certain line of business or merchandise. In addition, Walmart viewed the African market as being unexploited and bearing a huge potential for sustainable growth and profitability of business.

However, despite the potential benefits that the merger would bring to the economy of South Africa, the government of South Africa expressed explicit resistance and reservations with claims that such a deal would have adverse effect on job market as well as hinder the growth of local manufacturing and production industries.

Nevertheless, the deal sailed through, albeit with conditions that saw Walmart take 51% shareholding and the rest going to the local investors.

The justification of this merger can be derived from the benefits enjoyed by both firms. First, Walmart gained from entering a well-established market, which was further compounded by the agreement signed with the government and labour unions allowing Walmart to introduce its business model and penetrate in the African retail market.

Secondly, Massmart was already a leader in retail business, meaning that, Walmart would not have to invest heavily in trying to capture market share in the new market. Thirdly, given that the market was readily available, Massmart only needed the expertise of Walmart in supplier planning and farmer development in order to improve on fresh food supply.

Moreover, the two firms complemented each other well as they embraced almost a similar business model of low-price to consumers. Indeed, the success of the merger is evident from the tremendous growth the merged business has witnessed in the last couple of years (Roberts & Berg, 2012).

D. R. Horton Domestic operations and Proposed Merger

D. R. Horton is an American company that has been in operation for the last 35 years. The company deals predominantly in real estates development and in particular specializing in single-detached dwellings. With its headquarters in Texas, the company operates exclusively in 26 states within the US, and it is ranked among the largest house builders in the US (D.R. Horton, 2013).

Despite its success, which is evidenced by high performance in the New York Stocks Exchange, the company has never contemplated merging with or acquiring another company. However, given the increasing demand for housing and other real estate products, the construction industry is becoming one of the most lucrative and profitable industries, thus attracting many firms to join and share these profits.

The result of this is increased competition and potential decline of market share for existing companies. Therefore, firms have to seek ways of improving their presence in the industry and attaining a competitive advantage. One of the mostly used strategies in contemporary business environment involves mergers and acquisitions.

In the case of D. R. Horton, a merger with a company like Lennar Corporation would prove appropriate due to the fact that both companies operate in the same industry and both are performing well in the US market.

In addition, Lennar Corporation has been in existence for a longer time (almost 60 years) and therefore it is more conversant with the history and trend of construction industry in the US. The positive aspect of this merger would be an increased market share and a strong capital base.

There a number of aspects, which make Lennar Corporation to standout as the most valuable merger candidate: First, the company has maintained a consistent history of quality, value, and integrity, which is a very important marketing tool. This is because most clients in construction industry would primarily focus on quality of the product and the value it will add to their lives.

Secondly, Lennar Corporation does not only focus on customer satisfaction, but also reinforcing that satisfaction with delight and happiness. Indeed, Lennar Corporation offers a unique service called Total Lennar Care that makes home purchase process a joy for customers, which includes a follow-up service by a dedicated and competent team of customer care (Lennar Corporation, 2013).

Thirdly, Lennar Corporation has a wide network of operation units with presence in over 18 states with the US. This will complement the units owned by D. R. Horton, making the merger one of the largest, if not the largest, real estate companies in the US. Lastly, the merger will provide a diversification of business due to the fact that Lennar Corporation has other business undertakings that are outside the real estate business.

These businesses include the Lennar Financial Services and Rialto Capital Management. The advantage of this will be the fact that, potential buyers of property will not need to look outside for financing but they will get financing within the company through the Financing Service business unit; indeed, clients will experience a one-shop-stop kind of business when the merger goes through.

Overall, a merger between D. R. Horton and Lennar Corporation will result to various benefits including reduced costs of operations, as some of the functions have to be merged such as marketing and advertisement. Secondly, the larger company will enjoy economies of scale especially in purchasing raw materials.

Thirdly, the larger company will have an increased potential to penetrate into a large market, especially considering that the two companies have been successful in their businesses as well as due to the fact that there will be an increased diversification of products from the larger company.

Lastly, the two companies will bring on the table expertise in different fields, thus enhancing innovation and greater industry performance (Gaughan, 2010).

Walmart’s International Business and Corporate Level Strategies

The success of Walmart in the international market may be attributed to the business-level and corporate-level strategies it adopts. Primarily, Walmart positions itself as a low-price retail chain supplying quality general merchandise. Therefore, the company focuses on cost leadership/differentiation as its strategy for gaining and maintaining competitive advantage (Schermerhorn, 2011).

It is important to note that the retail market is one of the most competitive markets; however, although many retail stores have tried to compete with Walmart, they have completely failed to beat it on pricing strategy.

In addition to low cost of products, Walmart also offers high quality products and ensures that it retains its image as a one-stop-shop, where consumer can find any type of products from food supplies to electronics to building materials and so on. Indeed, no other company has managed to beat Walmart in terms of variety of products, thus the success of its differentiation strategy.

Moreover, Walmart ensures that it continues to improve on its value chain by primarily focusing on providing value through its processes, a strategy that has significantly contributed to cost reduction in the company.

This is also enhanced by the company’s aggressiveness in embracing technology and innovation in all its stores worldwide, with the latest technological stunt being adoption of e-business concept where shoppers can make orders and pay through the internet.

However, despite this business strategy witnessing success in most international markets, there have been instances of total failure, especially in Germany and Korea; the company also struggled to penetrate the China market. One of the most undoing here is the cultural perceptions of the people in these countries regardless of whether the products are low-priced or not.

Therefore, it is recommended that Walmart try to understand the culture of the people first, and then enter the market using a strategy that makes the locals identify with what Walmart offers or what reflects their culture.

On corporate-level strategies, Walmart has adopted various corporate level strategies including horizontal integration, related diversification, and unrelated diversification among others. However, all its corporate strategies are geared towards reinforcing its cost leadership/differentiation strategy.

For instance, Walmart has adopted unrelated differentiation strategy by investing in transportation, logistics, and communication systems industries, where it gets not only increased revenues but also a platform for reducing its costs (Dess, Lumpkin, Eisner & McNamara, 2011).

Investment in technology has also contributed to Walmart s corporate positioning, as it has allowed the company to retain a lean management. The company’s website plays a great role in management of inventory and sales, as consumers can create accounts, order for products and track their orders online.

Moreover, the technology and inbound logistics enable the company to manage inventories efficiently by scheduling procurements, delivery, and managing the warehouses.

D. R. Horton’s Business and Corporate Level Strategies

Business level strategies normally refer to actions that a firm undertakes to enhance customer satisfaction and to gain competitive advantage. Therefore, D. R. Horton may consider various business level strategies in order to continue enjoying success in the industry or to become the leader in the construction market.

However, given the kind of market the company targets, it is most advisable to pursue the business- level strategy of differentiation, which will make the company unique from competitors.

Here, differentiation will be in terms of quality and value-addition to customers. It is important to note that, clients in the construction market will mostly focus on the quality of housing before considering price; indeed, they will more likely purchase a house of high quality even at an exorbitant price than a cheap house that will not be durable.

Therefore, D. R. Horton will need understand its position in the competitive construction market and then differentiate and position itself more strategically. Importantly, differentiation will be successful if the company addresses quality in terms of product, delivery, and promotion.

Here, D. R. Horton will have to invest in technology as well as the most unique and innovative architectural designs that will make it stand out as a home of value and quality. In addition, the company will need to look for strategic locations to deliver its housing projects, as well as use strategic promotional methods such as home expos/exhibitions and after-sale customer care services.

D. R. Horton will also need to consider corporate-level strategy that will push its business and profitability forward. As discussed above, D. R. Horton may consider merging with another company in the same industry in order to expand its market penetration, a strategy called horizontal integration.

However, in this section, I will suggest that D. R. Horton considers related diversification as a corporate strategy in order to enhance performance. Here, the company will need to invest in related businesses such as supply of construction materials, transport of materials and property management among other related businesses.

This strategy will allow the company to derive profits from each class of business and consolidating its industry performance. This will also be boosted by the fact that some firms in the construction industry will outsource related business from D. R. Horton’s related business portfolio, thus making it the largest company in terms of market share.

References

Dess, G., Eisner, A., Lumpkin, G., & McNamara, G. (2011). Strategic Management: Creating Competitive Advantages. New York, USA: McGraw-Hill Education.

D.R. Horton. (2013). D. R. Horton: America’s Builder. Web.

Gaughan, P. (2010). Mergers, Acquisitions, and Corporate Restructurings. New York, USA: John Wiley & Sons.

Lennar Corporation. (2013). Lennar Corporation. Web.

Roberts, B., & Berg, N. (2012). Walmart: Key Insights and Practical Lessons from the World’s Largest Retailer. London, England: Kogan Page Publishers.

Schermerhorn, J. (2011). Introduction to Management. New York, USA: John Wiley & Sons.

When two organisations merge, they have to decide how control and decision making will occur. They could place this upon functional managers who are considered generalists. In other words, such a firm may choose to be highly centralised. Alternatively, an organisation formed after a merger may decide to give decision making powers to product managers who are specialists. In this regard, such an organisation will have adopted a decentralised structure.

Functional organisation structures are more appropriate when there is a need for the new company to share resources across various units or when there is a need to synergise its operations. These decisions are quite complicated especially when the newly merged entity will need to adopt a different structure from the one that had been previously existent in the two independent companies (Alstyne. et. al., 2007).

They must also decide which operations will be kept and which ones will have to be reengineered. This is something that will definitely alter the organisation structure since some units will be eliminated while others will be retained. It should be expected that not all operations will overlap so very serious decisions must be made on the ones that are vital to the new organisation.

Coordination is always another tricky issue in such circumstances because communication issues will have to be addressed. The amount of time and effort allocated to any kind of communication will affect strategic choices. Members of the organisation may have different perceptions on how choices may be made and this may lead to clashes. Some may be uncertain about the person they will report to; an issue that falls directly under organisational structure.

Once a new reporting structure has been created, then members of the company may still have a problem trying to understand their new roles. This illustrates a need to have them trained so as to make them more effective. Companies need to make the organisational structures more flexible once they realise that there is a high level of uncertainty caused by markets and technology changes.

After mergers, companies need to look at the extent to which organisational structure will be aligned with strategy. The company needs to have certain common objectives that guide it in its operations but the best way of ensuring that strategy plays a key role in the new firm is by changing structure to suit it (Strauss et al, 2006).

Role that organisational structure plays in an organisation’s effectiveness and efficiency

Organisational structure will determine the key issues to focus on in an organisation. If the structure is organised around the product then this will move focus away from resource coordination or overall strategies. Value adding activities need to be done in a manner that will revolve around the main sequences so as to minimise time wastage. When the organisational structure contains activities which will slow down the company cycle then this will eventually lead to poor results and may minimise the efficiency of the company.

Time taken to make decisions as well as the effectiveness of those decisions will also be determined by organisational structure. Team based structures may allow organisations to respond more effectively to consumer needs because such individuals will have been empowered to do so when they need to. Furthermore, the ability to deal with recurrent decisions occurring in a firm is highly dependent on the organisation structure. A company will tend to be more efficient if it allocates recurring decisions to low level structures.

Managers or any other decision makers will often have a certain span of control within their premises. If the span of control is large then there will be less need to integrate certain business units. This will save a lot of money that could be lost due to lack of synergies of these units.

When an organisational structure possesses a high degree of layers then chances are that decision making will take longer and this may not be efficient (Mendelson & Anand, 2005). Furthermore, if a company has split up closely associated entities like sales and marketing then chances are that there conflicts will frequently arise and the company will be less effective.

These separate groups will keep directing decisions to top management which may not always be in a position to solve them. Therefore, general managers will be better off if the combined similar business units so as to cause them to report to one or the other so that minor issues are solved at the bottom. Speedy decisions and decision making processes will tend to create better outcomes and will make a firm more effective.

Organisational structure also affects efficiency and effectiveness in terms of the technical excellence offered by the company. When members of the organisation have their goals fully clarified then chances are that they will carry them out systematically with minimal conflicts; a fact that is determined by the nature of organisational structure chosen. High technical competence occurs in functional structures and is limited in team based approaches.

This is particularly relevant to those highly technical organisations but may not work well for service based firms. In other words, the need for technical competence will be highly dependent on the nature of organisation under consideration and the industry profile that it ascribes to. If the industry requires such qualities then an organisation structure that promotes it will be more appropriate than one that does not.

Lastly, an organisation’s load levels or the amount of work done will also be affected by structures chosen. If an organisational structure focuses more on teams then it is likely that its load capacity may be limited by the size of the team or the number of members in the team. Divisional organisational structure and geographic structures are often restricted in terms of load levels as well so companies may want to think through these issues.

Mechanistic versus organic structure for Indigo

Indigo is currently operating in a challenging retail climate. It is dealing with products that require a knowledge of the local conditions i.e. music and books. Consequently, the organic system would be more effective than the mechanistic system.

An organic structure is most appropriate in conditions that keep fluctuating but when the environment is relatively stable then the mechanistic structure would have worked well. In these circumstances, Indigo has just undergone a dramatic change that has seen it acquire a number of new business units. Now the company needs to be in touch with consumer needs and the best way of going about this would be through the use of an organic structure (Chang & Harrington, 2008).

In the mechanistic system, task scope is often very precise. The technical methods, rights and obligations attached to each functional role are clearly known however the same may not be said of the organic structure which diffuses responsibility to a number of individuals rather than to one specific functional role.

This allows for creativity and innovation which are both factors that are seriously needed within this organisation in order for it to remain on top of the music and books retail industry. Even conformance to tasks is spread further in the organic structure compared to the mechanistic one because people are more concerned with the issue at hand rather than the functional positions associated with that particular issue.

Currently, Indigo has over 14 stores from its former organisation, 90 big box stores with some 7000 employees, 2010 Coles Books and Smith books stores and an online division. This is clearly a very large portfolio and if the firm insists on running things from the top then it will have a hard time managing them well. Furthermore, the functional structure worked before the merger, now the internal environment has changed and this will require a re-examination of some past strategies.

The mechanistic structure often requires the leaders concerned to outline tasks. However, in the organic structure, a constant interaction with other members of the organisation is what leads to task definition so the entire group is responsible for task definition (Dewatripont & Bolton, 2004).

This attribute is especially useful in the Indigo scenario owing to the fact that the stores are located in various locations and will be carrying out various tasks such as offering gifts and creating gift ideas, selling music and books and also offering cafe services within their premises. These highly diverse functions need a well integrated team and will therefore contribute to greater synergy in Indigo after the merger.

Communication, control and authority in the organic structure are not hierarchical but are more network-based in that the organisational members are concerned with a certain community of interest. As the case is currently, Indigo needs to establish a more cohesive workforce and the best way of achieving this would be through an organic structure. The company will be at a good position of defending its position as a unit if it chooses this pathway.

Knowledge in mechanistic systems is often restricted to the executive because they are the ones who will eventually reconcile tasks or assessments that need to be done. On the other hand, knowledge may be found in any part of the network within the organic structure so this will be a good way of responding to consumer needs as they arise not after a very long time has elapsed. Additionally, employees on the ground are always at a good position to assess consumer trends and thus contribute towards betterment of the organisation.

This structure will be appropriate for a firm that needs to establish a firm footing in the music and books industry. In the mechanistic structure, greater value is attached to industry expertise and affiliation than to internal experience or skill.

In this regard, Indigo will be at a better place to grow and lead in the industry if its members are always aware of their external environment. Also because information is conveyed in a manner that appears as advice rather than particular instructions then the employees are likely to embrace it and also think of their own contributions.

Role of technology in Indigo’s organisational design

Technology will play a role in organisational design because it can make it more efficient. This is because in case lateral communication needs to be done then the firm will need to spend less on it through the influence of technology and more information will flow in the organisation.

When this occurs then chances are that there will be more decentralised authority within the firm (Galbraith, 2007). When top management tends to retain most of the information then chances are that there is minimal influence of technology but when information easily flows then the reverse is true.

Hierarchical organisation structures are often utilised when the costs of communicating are very high. Furthermore, the central information processor within a corporation will keep being diminished if the information flow within the company occurs at a very high pace. Information overload may therefore occur once only one party is mandated with the task of making particular decisions. In this regard, IT development may lead to decentralised structures (Stern & Athey, 2007).

Indigo is also likely to be affected by technology in terms of the members located within its organisational structures. Technology tends to facilitate a high degree of automation such that some functions like payments may no longer have to be carried out by cashiers as there may be machines in place to register payments. Consequently, technology will contribute towards a leaner organisational structure in Indigo if it will facilitate automation.

New technology also requires a reorganisation of structures because that technology may involve the reorganisation of company functions such that they can be more integrated with IT. In other words, business process redesigns are sometimes necessary upon use of greater technology. However, if Indigo will be too slow to respond to this need to redesign then it may be negatively affected by the new technology.

Lastly, technology will allow more employees to actually stop and think about what they are doing so that they can offer solutions to some of the problems in their organisation. This implies that Indigo will be better placed to handle a competitive environment since there will be a lot of new ideas that emanate from the firm’s stakeholders.

References

Chang, M. & Harrington, J. (2008). Organisational structure and firm innovation in a retail chain. Computational and mathematical organisation theory, 3(4), 267-288

Mendelson, H. & Anand, K. (2005). Information and organisation for horizontal multimarket coordination. Management science, 3,56

Stern, S. & Athey, S. (2007). An empirical framework for testing theories about complementarities in organisation design, MA: MIT

Dewatripont, M & Bolton, P. (2004). The firm as a continuous communication network. Economics quarterly, 109, 809

Alstyne, M., Renshaw, A., Brynjolfosson, E. (2007). Matrix of change. Sloan management review, 5(1), 72

Galbraith, J. (2007). Organisational design. MA: Addison and Wesley publishers

Strauss, G., Olson, L., Kochan, T., & Ichniowski, C. (2006). What works at work. Assessment and overview. Industrial relations journal, 35(3), 299

Introduction

Foxtel is a vibrant and fast growing pay TV service provider in Australia that offers cable, IPTV as well as direct broadcast satellite services.

Over the years, the company has been making milestones in the industry that includes, among others, the delivery of up to 20 channels over Telstra’s Hybrid Fibre Coaxial network, the acquisition of Galaxy satellite television in 1998 as well as the imminent take over of Austar, formerly one of Foxtel’s fiercest competitors, set to be finalised in 2012 (Foxtel, 2012).

This merger will have far reaching consequences in terms of business performance of other players in the same media industry. These implications are identified and explained in detail below.

Issues Resulting from the Merger

Weakening or killing competition

Austar and Foxtel intended merger will see the companies spend a hefty combined budget of $500 million each year on content originating from Australia. Apart from content, the company will also be bidding for technology as well as conducting national campaigns. $500 million is a huge amount of money that can hardly be raised by other players in this same industry due to their capacity in terms of market share.

In essence, Austar and Foxtel could be creating some sort of monopoly by virtue of their sheer expenditure value (Goldenberg, 1973). They will be able to acquire the best and most expensive technology and buy almost the entire TV programs prepared in Australia. Even if the competitors would, somehow, acquire rights for other local contents, it would most likely be less lucrative and less attractive.

Ethically, content producers may deny other TV companies like SWM the chance and opportunity to acquire their content simply because they will be anticipating for better prices offered by Austar and Foxtel. This ‘hoarding’ is not healthy for any business environment as it favours only one side or player at the behest of the others.

Similarly, all top cream broadcasters and other professionals will be lured by the handsome sums dangled by these two companies right at their faces. However, Foxtel and Austar’s rush to self-imposition as the market leader could open up many gaps that competitors could use against them with much success.

It will require some time before their internal working structures and systems are fully merged before producing as expected (Ferguson, 2011).

Untenable prices

The merger between Foxtel and Austar, if unchecked, could easily force other players in the market into folding up and quitting altogether. This is due to a number of factors which would work against other players while largely favouring Foxter and Austar. For instance, with a huge combined spending of $500 million per year, the margin of economies of scale that these companies will be enjoying will be enormous (Anderson, 1917).

Users will literally desert other pay TV service providers, including SWM, in favour of Foxtel and Austar because of their reduced prices. The only way that the competitors can match their prices to coincide with Foxtel and Austar’s prices would be to reduce theirs as well.

However, that would be suicidal given their size of revenue (Kimmons, n.d). Reduction in prices will mean little or zero revenues at the end of the day and therefore there will be no funds to run the enterprise (Biyalogorsky & Gerstner, 2004). Workers will do without salaries, marketing activities will not be sustained and repairs and maintenance will fail to take place.

These lost opportunities and business will lead to job cuts in all the affected companies and could also result in compromised qualities in a bid to remain in business (McGuckin, 2005). With the ongoing global recession, however, even Foxtel and Austar could find operating with low prices untenable.

This may force the company to maintain higher prices than expected to ensure sustainability in the hard economic times. There is biting inflation and therefore people would rather spend their little cash on basics like food and shelter rather than on entertainment (Grauwe & Ji 2012).

Reduced share prices

The planned merger between Foxtel and Austar will have a negative effect on the share prizes of other media players in Australia. So far, the deal looks lucrative and every investor both local and international is anticipating being part of the success story that will soon be Australia’s biggest television company (McKinsey et al, 2010). This is undoubtedly true given the great expectations.

The excitement is further fanned by the huge sums, up to $500 million, that the joint venture plans to spend in their budgetary allocation. This will herald anticipatory buying in the stock market in favour of Foxtel and Austar shares (Thaler, 2005). Their shares will shoot up in the stock market and will be bought in large quantities due to the rise in demand.

This is expected with a high stake company such as the one which would be realized from the merger. On the other hand though, share prices of other media players like SWM will stagnate or even fall in terms of prices. Demand for these shares will wane because they are not promising any unique investment in the market (Brigham & Houston, 2012).

Their relatively small profit margins at the end of every financial year will not be convincing investors of a possible chance to equal or even beat Foxtel and Austar’s anticipated performance. However, results posted by Foxtel and Austar in the first quarter of this year could be the turnaround of this trend.

If Foxtel and Austar, somehow due to the challenges of their merger, will not have recorded good profits, the same investors could flock back to the other companies like SWM (Malkiel & Tylor, 2008). That will raise demand for their shares in the stock market, thus proportionately causing rise in share prices. This fluctuation in prices on the extreme often is not the best for planning due to its unpredictability.

Poaching of workers

Both Foxtel and Austar have their weakness areas in terms of their daily operations. The merger will call for scrutiny of weaknesses on both sides with the view of addressing them once and for all so that the company can optimise profits. There are possibilities that they will be tempted to lure workers from other firms, like Seven West Media, particularly if the rival firm is performing excellently in the said field.

The bait most likely to be used is the promise of better salaries and improved working condition. However, that can be avoided by ensuring that your workers are satisfied while at their jobs. Run your Personnel function professionally and recognise contributions by individual employees to boost their morale (Gill, Fluitman & Dar 2000).

Spying

By virtue of their merger, Foxtel and Austar are faced with the challenge of disapproving their skeptical share holders that the deal was worth it. The management will only achieve this by making huge profits within the shortest time possible. However, it might not be smooth sailing because the firm’s operations are now complex given the new challenges arising from the merger.

In a bid to move things first, it could be possible that they plant spies within their fiercest rivals so as to ward off competition. Spies used by rival companies are often internal workers who feel dissatisfied or are paid heftily to do the dirty work.

Mostly, they will be looking for strategic information, information on promotional plans and even pricing strategies. Such information should be handled with utmost confidentiality to eliminate any such possibilities (Earnest & Karinch, 2010).

Conclusion

The imminent merger between Foxtel and Austar is posing real danger to other players in the media industry, particularly pay television services in Australia. Both companies have been in the market and they therefore understand the modalities of conducting their business effectively.

Their huge combined capital will stifle the market to their advantage because they will attract more investors and will be in a position to acquire the latest technology in the market for purposes of doing business.

However, it will not be smooth sailing as it sounds. The biting global inflation could slow down or even harm their interests during the initial phase of their joint operation (Janda, 2012). Equally, time will be needed to eradicate discrepancies in their individual internal structures and systems so as to have a hybrid system that is workable.

List of References

Anderson, B. M., 1917. The value of money. New York, NY: Macmillan Company.

Biyalogorsky, E. & Gerstner, E., 2004. Contingent pricing to reduce price risks. Marketing Science, 23(1), p.145-155.

Brigham, E. F. & Houston, J. F., 2012. Fundamentals of financial management. New York, NY: Cengage Learning.

Earnest, P. & Karinch, M., 2010. Business confidential: Lessons for corporate success from inside the CIA. Amacom

Ferguson, A., 2011. Foxtel, Austar merger plans put competition issues in the picture. Smh.

Foxtel, 2012. About Foxtel. Web.

Gill, I. S., Fluitman, F., & Dar, A., 2000. Vocational education and training reform: matching skills to markets and budgets. The World Bank.

Goldenberg, L. G., 1973. The effect of conglomerate mergers on competition. Journal of Law & Economics, 16.

Grauwe, P. D. & Ji, Y., 2012. Business spectator.

Janda, M., 2012. Global gloom makes rate cut likely in the face of benign inflation. ABC News. Web.

Kimmons, R., n.d. Advantages and disadvantages of non-price competition.

McGuckin, F., 2005. Business for beginners.

McKinsey et al, 2010. Valuation: measuring and managing the value of companies. Mason, OH: Wiley.

Thaler, R. H., 2005. Advances in behavioral finance. Princeton, NJ: Princeton University Press.

Introduction

The contemporary business environment is undergoing an unparalleled paradigm shift. Consequently, business entities are progressively adjusting their corporate and business-level strategies in order to remain competitive.

Some of the strategies that firms have adopted entail diversification, expansion, and the formation of mergers and acquisitions. Lakhman (2011) emphasises that mergers and acquisitions [M&A] have become a critical strategic tool that organisations are increasingly adopting in their quest to attain sustainable growth and profitability.

Additionally, the significance of mergers and acquisitions amongst organisations has further been increased by the need to establish strong brands and venture into new markets. The application of M&A’s is not isolated to a specific industry, but it has become a common phenomenon across diverse industries.

Firms within the fast food industry are amongst the organisations that have integrated the concept of M&A (Soni 2014).

Saunders (2009) emphasises that the industry has become intensively competitive and mature, thus making it a challenge for business entities to maximise their profitability. H.J Heinz Company, which operates in the US food industry, has attained remarkable market performance over the past few decades.

Its past success has arisen from the adoption of effective internationalisation and product diversification strategies. H. J Heinz has attained remarkable market recognition due to its delicious and nutritious food products. Moreover, the firm has established operations in over 200 countries.

Despite its past market success, Heinz is focused on attaining economic sustainability as one of the dimensions towards sustainable development. In a bid to achieve this goal, H. J Heinz Company announced its ambitious plan to enter a merger and acquisition agreement with Kraft Foods.

The merger will lead to the creation of a new business entity, which will operate under the name The Kraft Heinz Company. Under the M&A agreement, Heinz will have a 51% stake, hence earning the control of the new entity. The new firm will become the third largest food enterprise in North America.

It is expected that the merger will increase the sales revenue of the two firms to $28 billion (Market Watch 2015). Consequently, the entity will be in a position to maximise its profitability, hence generating high value to the shareholders.

Problem statement

Despite its quest to maximise the shareholders’ value and the level of profitability through the merger, H. J Heinz might experience challenges that might hinder the attainment of the desired goal. Weber and Tarba (2013) argue that successful implementation of mergers is a challenge to most organisations.

The frequency and scale of the M&A’s failure have increased substantially over the past decades despite their continued popularity to different organisations (Vazirani 2002).

The failure of M&As has largely arisen from the adoption of the ‘one-size-fits-all’ approach, which has translated into the adoption of ineffective post-acquisition integration process (Lakhman 2011). Most organisations engaged in M&As do not appreciate the importance of incorporating strategic human resource management practices.

Failure to appreciate the role of strategic human resource management practices during the M&A will increase the likelihood of failure of the intended Heinz-Kraft merger. Effective application of the SHRM will enable the firm to cope with some of the major causes of failure, which include culture shock and the employees’ resistance.

One of the fundamental SHRM practices that the firm must consider is effective leadership.

Purpose

The purpose of this research is to evaluate how H. J Heinz Company can undertake the post-merger integration phase successfully during its intended merger with Kraft Foods.

The report specifically assesses the concept of employee involvement and engagement as some of the fundamental strategic human resource management practices during M&A.

Analysis

Culture shock and employee resistance in M&As

Saunders (2009) cites economic sustainability as one of the critical dimensions that organisations can adopt in assessing their success in M&A’s processes. However, to achieve this goal, organisations must evaluate the efficacy of their resource utilisation in addition to the strength of the organisational culture.

M&As contribute to the achievement of strategic competitive advantage that might be difficult to attain through organic growth (Horwitz et al. 2002). Horwitz et al. (2002, p.2) emphasise that an organisation’s culture influences the development of ‘shared purpose, organisational direction, and early employee involvement’.

However, an organisation’s ability to sustain the positive outcome associated with the strategic management practices implemented is subject to the degree to which it has developed its capability. In order to develop a strong organisational culture, it is imperative for managers to entrench the Australian Public Service [APS] model.

The model postulates that leadership and strategy are some of the crucial components in promoting organisational capability (Markovic & Barjaktaarovic 2014).

Moreover, the existence of disparate organisational cultures may limit the merger’s integration process due to the existence of strong cultural norms, organisational identities, and work practices (Pugh 2007). A greater dissimilarity between organisation’s culture results in cultural shock.

Employees attach significant value to organisational culture and they are more concerned with its preservation (Horwitz et al. 2002).

According to the APS leadership model, organisational managers should be concerned with how to establish a high level of collaboration and building a common purpose amongst the employees (Markovic & Barjaktaarovic 2014).

Most organisations engaged in M&As tend to ignore the importance of conducting cultural due diligence, which is one of the aspects of promoting organisational capability. Markovic and Barjaktaarovic (2014) cite values and norms, which comprise the elements of culture, as one of the dimensions in nurturing organisational capability.

Poor leadership, for example failure to involve employees in implementing significant strategic initiatives such as mergers can culminate in the destruction of organisational value.

Saunders (2009) is of the view that the rate of the M&A’s failures across different industries is as high as 88% and it may increase in the future if effective leadership models and approaches are not adopted.

Consequently, organisations’ merger and acquisition processes have often been characterised by recurring problems such as ineffective communication and lack of a clearly defined change process to cope and manage emerging HR issues.

Most organisations have not understood the importance of incorporating a comprehensive guidance and support mechanism during the merger integration phase.

Vogelsang (2013) notes that mergers and acquisitions are characterised by a number of stages, which include the pre-acquisition stage, foundation-building stage, the rapid integration phase, and the evaluation and adjustment stage.

Kiessling and Harvey (2006) cite the importance of adopting the knowledge-based view during the M&A process. One of the critical organisational resources that the organisational leaders should consider includes the human capital.

This approach will play a fundamental role in organisations’ quest to exploit the privately held knowledge during the M&A process. Employees constitute one of the fundamental sources of tacit knowledge that organisations can utilise during organisational change processes.

The capacity to exploit the tacit knowledge depends on the organisations’ ability to implement employee engagement in their strategic human resource management practices.

Cummings and Worley (2014) further contend that employee involvement increases the employees’ level of motivation, hence their productivity, thus, ignoring employees during major change initiatives such as M&A.

The M&A between the two firms will lead to a significant change in Heinz’s operations. The M&A will culminate in the development of new job roles, which might be a source of stress for the firm’s employees. Myungweon (2011) corroborates that organisations’ M&As lead to varying psychological strains and outcomes.

The change processes characterised by high demands and low control lead to a negative impact on the employees such as job strain, which might culminate in high blood pressure and depression.

Conversely, change situations characterised by high demands and high control leads to positive outcomes such as motivation, high level of job satisfaction, and regeneration amongst employees (Myungweon 2011). This aspect underscores the fact that low involvement in organisational processes leads to negative change outcomes.

In its quest to invest in the M&A, it is imperative for Heinz to recognise the importance of assessing the prevailing cultural differences between the firm and Kraft Foods.

This aspect will play a fundamental role in determining the cultural fit between the two firms. Additionally Horwitz et al. (2002) emphasise that the propensity to entrench a strong leadership mind set increases the likelihood of a merged organisation to survive and grow.

Leadership in the change process

Heinz Company’s leadership must appreciate the role of people management during the merger and acquisition. The firm should not only emphasise on financial due diligence, but also the incorporation of the human factor.

In a bid to achieve this goal, the firm’s management team must appreciate the significance of incorporating efficient leadership strategy. Lussier (2008) affirms that the leadership strategy is critical in determining the employees’ commitment during the change process.

However, successful implementation of leadership during change initiative is a challenge to most organisations. Kouzes and Posner (2010) cite the dynamic business environment and change in the employees’ demands as some of the sources of complexity in organisational leadership.

Despite the internal and external changes, organisational leaders have an obligation to ensure that emerging issues are resolved adequately.

Truss et al. (2013) cite leadership as one of the core drivers of employee engagement.

In addition, Truss et al. (2013, p.307) corroborate that managers ‘must ensure that employees develop a clear understanding of the organisations’ vision and strategy for direction, demonstrating commitment to living the company’s values, and showing genuine concern for the wellbeing of their team members’.

In a bid to progress through the pre-merger and post-merger integration phases successfully, the Heinz’s management team should integrate a leadership style that is founded on the precepts of emotional and inspirational influences.

The Heinz’s management team must appreciate the importance of influencing its employees to support the M&A. The type of leadership style adopted determines the degree to which employees are influenced to support the change process (Lussier 2008).

Therefore, the Heinz’s leadership style should not simply emphasise on attaining the predetermined business, cultural, and corporate goals. On the contrary, the firm’s management team must ensure that it translates into increased employees’ benefits (Avolio & Yammarino 2013).

One of the most effective leadership styles that the firm’s management team should consider includes the charismatic leadership style. However, Lussier (2008) is of the view that most M&A processes are characterised by ineffective application of this kind of leadership.

This assertion arises from the failure to balance power between the firms involved in the M&A. The acquiring firm might exercise superiority with reference to leadership during the M&A. However, Lussier (2008, p.196) contends that this ‘could cause the acquirer to look at the acquired and its policies and systems in a condescending manner’.

The effective application of the charismatic leadership style is essential in creating a strong vision that will enhance the probability of attaining the desired change outcome. The charismatic leadership style leads to the development of a high level of enthusiasm, commitment, and loyalty amongst the followers (Czovek 2006).

By adopting this style, Heinz Company will be in a position to deal with emerging issues such as employee resistance to organisational processes. Moreover, the organisation will be in a position to nurture a strong connection with the top management.

This aspect means that employees will be in a position to offer critical insight on issues that they consider as most important in their continued stay within the organisation. Subsequently, the firms’ management teams will derive sufficient insight that they can consider in managing the M&A.

Employee involvement and engagement

Adopting the charismatic leadership style will enable the organisation to entrench the concepts of employee involvement and engagement successfully. This goal will be achieved by providing employees with an opportunity to express their ideas regarding the intended change.

Moreover, the organisational leaders will be in a position to share their ideas regarding the M&A. The implementation of employee involvement and engagement depends on the organisational leaders’ emotional intelligence, which entails the capacity to manage the employees’ emotions that arise due to organisational changes.

Through charismatic leadership, Heinz Company will be in a position to entrench employee involvement by advocating open communication.

Lussier (2008, p.376) defines employee involvement as ‘the set of practices adopted by organisations in order to increase the employees’ input into decisions that affect organisational performance and the employees’ well-being’.

Employee involvement is based on four main aspects, which include information, knowledge and skills, power, and rewards.

According to Lussier and Achua (2010), charismatic leadership does not emphasise the dissemination of information, but exchange of information amongst the involved parties. The Heinz’s management team must focus on ensuring that there is free flow of information across the organisation.

This aspect of engagement will make the employees feel appreciated and part of the organisation (Cook 2008). Charismatic leadership style will play a fundamental role in entrenching a high level of trust between the organisation’s management team and the employees.

Thus, the employees will support the organisation in its change process (Lussier & Achua 2010).

In addition to employee involvement, charismatic leadership will also play a fundamental role in promoting a high level of work engagement. Wolf (2011) defines work engagement as the degree to which an organisation’s workforce engages actively in self-managing activities. Thus, engagement is an effective motivation tool (Albrecht 2010).

However, attaining work engagement is based on the degree to which employees understand the organisations’ mission and vision. Charismatic and transformational leadership styles will enable employees to develop a strong vision regarding the intended change outcome. The employees will become more engaged in the assigned job roles.

Moreover, the employees will attain a strong degree of control and flexibility in their assigned the assigned job roles (Avolio & Yammarino 2013). This aspect means that employees will be provided with an opportunity to utilise their intelligence in making decisions on how to undertake the assigned job roles and responsibilities.

Through this approach, Heinz Company will develop a strong level of organisational identification despite the change being undertaken. Moreover, a high level of engagement will culminate in increased employee motivation.

Thus, the likelihood of employees being engaged extensively in implementing the change will be increased considerably.

In addition to charismatic leadership, the management team at Heinz Company should integrate the stakeholder engagement model. The model emphasises the importance of developing a comprehensive understanding of the employees concerns (Deloitte 2008).

One of the approaches that the management team should consider in integrating the model is the concept of participation (Bennett & Jennings 2011). The organisation should delegate tasks to employees in addition to integrating the two-way engagement through effective communication.

Kotter’s change management strategy

In its quest to achieve the desired M&A outcome, it is imperative for Heinz Company to integrate effective change management strategy. The strategy should be based on the charismatic leadership style.

One of the most effective change management frameworks that the firm should consider in its quest to undertake the pre-merger and post-merger integration processes successfully includes the Kotter’s change management framework. Under the Kotter’s framework, the firm’s management team should consider the following aspects.

1. Creating a sense of urgency – the Heinz’s management team should ensure that employees understand the need to implement the M&A within the shortest time possible. In a bid to achieve this goal, the management team should ensure that employees understand the importance of the M&A in strengthening the firm’s competitive advantage in order to achieve economic sustainability despite the turbulent economic environment.
2. Guiding coalition – implementing the change process culminates in the establishment of new job roles. However, executing such tasks may require additional knowledge and skills. Such tasks may lead to an increase in the level of dissatisfaction amongst employees. In a bid to avert such a situation, Heinz should constitute a team of leaders whose responsibility should involve guiding the employees in undertaking the new job roles. Moreover, the guiding coalition should focus on establishing a collaborative working relationship. This aspect will play a fundamental role in ensuring that employees are motivated and directed through the change process.
3. Creating the vision – the Heinz’s management team should ensure that employees are committed to the change process. However, this goal can only be achieved if the lower level employees have developed a strong vision regarding the change. Furthermore, it is also essential for the organisation’s management team to design an effective strategic plan to achieve the vision.
4. Communicating the vision – the organisation’s management team should entrench effective communication in order to sustain the vision for change. Additionally, this step should also entail promoting the development of the desired employee behaviour.
5. Empowering the followers – the organisation’s management team should ensure that the obstacles that might hinder the change process are eliminated. One of the issues that the firm should focus on entails eliminating uncertainty such as job loss and loss of status associated with change processes. In a bid to achieve this goal, it is essential for the firm’s management team to provide employees with an opportunity to make decisions associated with the assigned job roles. This aspect will make employees feel more engaged and involved in organisational processes.
6. Establishing short-term wins – in a bid to ensure that employees are sufficiently motivated, Heinz should establish short-term wins by undertaking appraisal on the progress of the change process. The appraisal process should culminate in rewarding and recognising employees who achieve the set benchmark.
7. Sustaining acceleration – Heinz should be committed to improving and sustaining positive change outcome. In a bid to achieve this goal, the firm’s management team should review and adjust its change systems, policies, and structures continuously. One of the issues that the firm’s management team should focus on entails investing in the employees’ development (Kotter 2007).
8. Institutionalising the change – the firm’s management team should develop a strong connection between the employees and the change outcome. This goal can be achieved by integrating effective leadership in order to foster the integration of the desired organisational behaviour. This approach will ensure that the positive change outcome achieved is sustained into the future (Kotter 2007).

Conclusion and recommendation

Mergers and acquisitions have incessantly become one of the most important strategic approaches that firms are increasingly adopting in an effort to achieve growth and sustainable development. However, literature shows that successful implementation of mergers and acquisition is a major challenge to most organisations.

The challenge arises from the involved organisations’ failure to adopt effective strategic management practices. In a bid to deal with these challenges, the organisation’s management team should integrate the concepts of employee involvement and engagement.

However, to implement these concepts successfully, the organisation’s management team should integrate effective leadership style.

Some of the most effective leadership styles that Heinz should consider include the charismatic and transformational leadership styles. By adopting these styles, the firm will limit the likelihood of resistance. On the contrary, the organisation will entrench a strong sense of organisational identity amongst employees.

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