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MANAGING PEOPLE IN MERGERS AND ACQUISITIONS D PRASANTH NAIR Abstract Mergers and acquisitions, as a form of Corporate restructuring, are a common feature of the global business scenario, especially since the 1990's, driven by the changing business dynamics. One key factor in ensuring success in the context of merger is the ability to integrate the organizations effectively. The management mantra for mergers and acquisitions, more often than not, has been 'make them like us'; an approach which research and practice, have indicated is not the best. Given the fact that the critical managerial challenge is to manage the 'People and Organizational issues' to deliver value in line with the strategic objectives for the merger, the paper seeks to understand the different approaches to Integration, factoring in the strategic and organizational variables. The paper also recommends proactive managerial actions to manage the employee reactions and create an environment to facilitate integration. This paper seeks to establish that the success, which is meeting the strategic and financial objectives set forth, depends upon the ability of management to identify and foresee key issues and problems that come up and evolve a plan, driven by the strategic objectives and factoring in the context, realities and issues with respect to both, organization and people. Prasanth Nair is a Fellow of the Indian Institute of Management, Ahmedabad. His dissertation was on The Organizational and Human Issues in Mergers and Acquisitions. Prasanth started his career in the engineering field with GEC Alsthom India Limited. After his Fellowship, he worked in HR function at different levels in the RPG Group and Wockhardt. Currently, he is President and Head-Human Resources for Thomas Cook India Limited. Context: Mergers and acquisitions, as a form of Corporate Restructuring, are a common feature of the global business scenario, especially since the 1990's, driven by the changing business dynamics. Mergers and acquisitions (M&A) worldwide are expected to set an all-time record of more than $3.57 trillion before this year ends and the Asian M&A market saw about 5200 deals worth $200 billion by September 2007. Interestingly, while M&A is dominated by strategic, financial and operational concerns and perspectives, research conducted across the globe aimed at analyzing the true benefits has indicated that 50% to 70% of M&A's are financial failures, and one of the main reasons for the failure are people and organizational issues. Given the criticality of this dimension, this paper will focus on: • The Human Issues in a M&A context • Managing 'Organization and People' Issues in the Context of M&A. The Human Issues in an M&A Context Given the fact that an important variable that contributes to success in mergers have been identified as the 'People and Organizational' issues, it will be important to understand the dynamics underlying the variable. A merger is more than just an act of bringing two different companies together like pair of boxes and many a time, in the pre-merger periods, dominated by financial analysis, the myopic focus stays limited to that. Notwithstanding the importance of strategic, financial and operational analysis, the fact is that the essence of an organization is its employees and 86 November 2007 NHRD Journal
the merger, in whichever form has an impact on them and thus, the 'People and Organizational Issues' need to be factored in and addressed in the context of merger. The dynamics involved in the merger process gives rise to different kinds of uncertainties in the merger processes. Previous research has shown that employees react unfavorably to mergers and acquisitions. There are two conditions that generate deprivation: discrepancy between actual and desired outcomes and a discrepancy between actual and deserved outcomes. An organization transformation process like merger could affect the desired and deserved outcomes and impact the actual; thus increasing the perception of discrepancy. This could result in a feeling of deprivation, leading to adverse reactions (Buono and Bowditch, 1989). It has been argued that the individual responses in a merger or acquisition process are part of a fairly predictable syndrome of merger related stress and tensions. Again, human responses arise from four factors: 1. Culture clashes that arise when dissimilar cultures come into contact with each other. The merger or acquisition requires members of one organization to interact with members of the other organizations with different cultures, behaviors, ideas, manners and working styles. Cultural differences between merging organizations influences the extent of employees participation and the creation of an atmosphere supporting capability transfer. 2. Further, separate from cultural differences, there exists an intense feeling of "we versus they" resulting in distrust, tension and hostility towards the other. It has been sufficiently documented that there exists a strong 'We versus They' feeling even in cases where perceived cultural differences were not very large. 3. Uncertainty associated with Process: Uncertainty, as a reaction, is caused when there is lack of understanding about the causal relationships between the actions and the potential outcomes of those actions. Since the process of Merger and the changes it brings forth are evolutionary and the final outcomes are not known during the pre-merger and through merger period, it creates uncertainty and ambiguity in individuals, along personal, professional and organizational dimensions. Uncertainty, in context of merger leads to dysfunctional outcomes like stress, lowered job satisfaction, distrust and decline in commitment, affecting job performance. 4. Anxieties on account of the effect or perceived effect it has on career plans through transfers, job loss, relocation, loss of individual influence and the uncertainties associated with these changes (Buono and Bowditch, 1989; Larrson and Finkelstein,1999). These factors, as mentioned earlier, give rise to negative reactions in individuals--often manifesting itself in active opposition (e.g. voice, voluntary exits and sabotage) and passive opposition (e.g. absenteeism, disobedience), -- reducing their commitment to successful integration of the organizations and the extent to which they are willing to cooperate with the members of the other organization (Weber et al, 1996). As such, the negative human responses do have an adverse effect on the individual performance and effectiveness; in the long term having an affect on the organizational effectiveness. Managing 'Organization and People Issues' in the Context of M&A Given the fact that mergers and acquisitions would continue and there are bound to be negative reactions from individuals in the context of merger, the critical element is what November 2007 NHRD Journal 87
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NHRD Journal Organizational Change
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S.no Title of the Article Author Pa
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ORGANIZATIONAL CHANGE INDIRA J PARI
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give subtle shape to the organizati
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to be tempered by a sense of humor,
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Although the result did not spell o
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the Project Sponsor to engage the C
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• Consultative - The target popul
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Now they are confronted with change
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A living system can never be direct
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ut in absence of formal process of
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Higgs, M. and Rowland, D. (2005),
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• Organization Structure Rigid hi
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magnitude of the programme, you can
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• In only about 10% of the school
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memorization, the focus of the teac
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HOW HR CAN IGNITE 'HOT SPOTS' YOGI
Page 35 and 36: pointed the prerequisites of change
Page 37 and 38: BRINGING CHANGE TO THE CHANGE AGENT
Page 39 and 40: were low, people lived simply and s
Page 41 and 42: 'People Academy' that seeks to fost
Page 43 and 44: DEFINING CHANGE AGENTS SANDEEP K. K
Page 45 and 46: human resource process like leaders
Page 47 and 48: References Chris Argyris, Initiatin
Page 49 and 50: needs to tell a trained nurse about
Page 51 and 52: esponse to changes in the external
Page 53 and 54: THE ENDURING SKILLS OF CHANGE LEADE
Page 55 and 56: left to resolve tensions, answer qu
Page 57 and 58: neglected step in the change proces
Page 59 and 60: enefits of the long march are lost,
Page 61 and 62: To address the challenge of executi
Page 63 and 64: very capable people; but the organi
Page 65 and 66: DRIVING ORGANIZATIONAL CHANGE LEENA
Page 67 and 68: change, preparing the leadership an
Page 69 and 70: However the good news is that the a
Page 71 and 72: Organizational Culture and Sub-Cult
Page 73 and 74: References Ashkanasy, N. M., Broadf
Page 75 and 76: • Finance and Accounts • Techni
Page 77 and 78: and gives the freedom to fail. Chan
Page 79 and 80: therefore shift gear and venture in
Page 81 and 82: COMMUNICATION EFFECTIVENESS, JUSTIC
Page 83 and 84: interactional justice focused on th
Page 85: and in a manner that is perceived a
Page 89 and 90: is high, implying that there would
Page 91 and 92: • Successful integration approach
Page 93 and 94: management and the labor leaders to
Page 95 and 96: ONE REASON FOR FAILURE OF CHANGE IN
Page 97 and 98: IPO: A POWERFUL INTERVENTION IN ORG
Page 99 and 100: In expectation of such a reaction,
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Page 105 and 106: Newsletters used to be published an
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Page 109 and 110: productive deployment of raw talent
Page 111 and 112: Conclusion There is a broad agreeme
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Page 115 and 116: and regional development programs.
Page 117 and 118: ORGANIZATIONAL CHANGE-MARUTI SUZUKI
Page 119 and 120: in the HR thinking, approach and th
Page 121 and 122: • Cross Functional Teams (CFTs) o
Page 123 and 124: i. Technology • Plant location
Page 125 and 126: consolidates in a short period of f
Page 127 and 128: PBIT (Rs in crores.) The Company ha
Page 129 and 130: concepts in an organizational conte
Page 131 and 132: APPEAL TO CONTRIBUTORS The National
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