Introduction
Managing change is one of the most important management activities when two firms merge to form a single entity. According to Franklin (2014), when there is a merger between two large firms, the management must restructure various operational activities and management roles to create an environment that will be conducive to all the stakeholders. Al Bawadi Islamic Bank has been operational for the last 16 years and has over 10,000 employees working in its 55 local branches and 12 overseas branches. This is an indication that it has managed to overcome environmental challenges to achieve such a level of success.
This firm has achieved success through its traditional approach to Islamic banking. On the other hand, Al Shurooq Bank is a relatively smaller bank with about 2000 employees working in seven local branches and it currently has no overseas branches. The firm has taken the online banking strategy that is increasingly becoming popular in the modern society. These two banks have taken two different approaches that make them strong in different ways. Merging these two banks will ensure that they bring together their strengths in order to sustain the emerging forces in the environment. In this paper, the researcher will critically analyze the approach that the merge should take, and give appropriate recommendations to ensure that the new entity becomes successful.
Name the new Bank
According to Suchy (2004), when two entities are merging to form a single business unit, one of the very first factors that they should take into consideration is the name that will be appropriate. I strongly suggest that the name should have a reflection of the current names of the two banks. Al Bawadi Islamic Bank is indeed the dominant partner that is popularly known, with a larger customer base and a strong market brand.
However, Al Shurooq Bank has also made an effort to acquire a customer base over the years, and it should not be considered an underdog when coming up with the name. Customers of the two banks and the employees will be brought to the new entity hence they should feel some sense of belonging in the new name that is developed. The proposed name should be Al Bawadi-Shurooq Islamic Bank. This name will reflect that the new entity brings together two previously independent firms.
Possible Impacts of the Change on the Stakeholders and How to Deal With Them
When the complex task of coming up with an acceptable name has been done, the next phase is to understand the forces of change and the impact that it will have on various stakeholders. As Franklin (2014) says, change is often present in various contexts of a firm’s operation, but when there is a merger, it becomes more pronounced and sometimes very disruptive. The merger is expected to result in serious restructuring and rightsizing to avoid cases of duplication of work in the new entity. The new firm will indeed have more operational activities, but some positions cannot be held by two people. These are some of the areas that will need to be reviewed when coming up with the new structure. The following are some of the specific stakeholders who will be affected by the new structuring of the firm that is expected.
Impact on the shareholders
The shareholders of these two firms will be affected by the merger. They will indeed have a larger firm under their ownership, but their number shall also be increased. One of the main areas of change that will affect the shareholders is how they will receive their dividends. Each of these banks has its own ways of giving their shareholders dividends. When they merge to form a single entity, they will have to redefine a new formula of sharing the dividends.
Another impact on the shareholders is that their level of control in the new business will be significantly reduced because of the increase in their number. For instance, if one shareholder at Al Shurooq Bank had a 50% control of the firm, it meant that nothing could be done without his approval. However, when the two firms merge, his shares in the new firm may be reduced to as little as 10% or less. It means that his decisions will be of significant effect on the final decision taken by the shareholders. Another effect will be in the decision making.
According to Suchy (2004), it is easier to make decisions when dealing with just a few people than when one has to deal with a large number of employees. Under the new entity, the shareholders will now have to contend with a huge number of decision-makers who must be taken seriously when coming up with decisions. It is expected that the impact on the stakeholders will be positive because the new firm will be bigger, more profitable, and better placed to overcome market challenges such as stiff competition in the banking sector.
How to deal with the impact
To deal with the expected impact on the shareholders, it will be necessary to inform them of the new dynamics that will be experienced under the new organization. I strongly suggest that before the merger, the shareholders of the two companies should have more than one meeting to iron out issues that may affect their relationship in the future. This will help avoid any disagreements or a feeling of betrayal in the future.
Impact on the customers
Customers will also be affected by the expected restructuring after the merger of the two firms. As Levasseur (2010) says, customers are often the biggest beneficiaries when two firms offering two products in different approaches merge to form a single entity. Al Bawadi Islamic Bank is operating under traditional banking based on the Islamic banking system while Al Shurooq has embraced the internet banking system.
When the two banks merge, customers will be offered an opportunity to have access to both forms of baking. They will not have to seek for banking services in two different institutions because their needs will be adequately be met in this new single entity. This will reduce the service fee they are charged if they were to operate two different banks. It is important to note that they will have to embrace the new rates that will be adopted by the new firm. I highly recommend that the new management should avoid hiking banking charges under the new system. This may drive away a section of the customers who may not be willing to pay more for the banking services offered to them.
How to deal with the impact
The policy of ‘customer is the king’ must be embraced in the newly structured entity to avoid negative experiences that customers may have under the new system. The new marketing team must ensure that clients from both firms feel that their interests are adequately taken care of in the new firm. The cost of operating their accounts should not in any way be higher than it was previously.
Impact on government
The government may be affected by the planned merger of the two banks. According to MacLeod (2015), mergers are often counterproductive to the development of an industry because it kills competition. When these two banks come together, they might have a strong competitive power that can enable it to frustrate other banks within this economy. It may force other smaller firms to either relocate to other markets or fold-up their operations.
If that happens, the government will be affected in terms of reduced revenues because there will be few firms within this banking industry. Some executives may lose their jobs based on the restructuring and downsizing that is expected when streamlining the operations of the new firm. It will hurt the government in terms of reduced revenues from pay-as-you-earn taxes. It will also increase unemployment, something that the government is keen on combating.
How to deal with the impact
It is always in the interest of the government that mergers should help struggling firms not to fold up instead of giving strong firms an unfair advantage in the market over their competitors. It should create more jobs and increase government revenues, not vice versa. For that reason, it will be important for the government agencies to take an active role in this merger process. The United Arab Emirates Ministry of Economy must ensure that the merger will not affect market competition and that it will not be counterproductive to the government’s effort to create more employment.
Impact on the top managers
According to MacLeod (2015), mergers often affect top management unit the most because there are always positions that have to be merged. There is often the fear that top managers such as the chief executive officer, chief financial officer, marketing director, human resource manager, and chief operations manager may lose their jobs. Indeed this is true because these are offices that must only be held by one office-bearer. The fear may affect the morale of the top managers, and this may affect the entire firm’s operation. Some top managers may have to be redeployed to other positions that may seem junior to the positions they previously held in their respective firms. Others may have to be laid off if they cannot fit in the newly structured management unit.
How to deal with the impact
The new firm must come up with effective ways of dealing with this problem because it may affect the firm’s operations and profitability in the market. All the top managers must be prepared psychologically that under the new system, some of them may be redeployed to positions that may seem junior to the position they previously held. They should be, therefore, prepared for such eventuality. When selecting the top managers from among the current top managers in the two firms, emphasis should be placed on the skills, experience, and productivity of the executives based on their past records. Fairness should also be seen in terms of selecting the managers from the different firms.
Impact on the junior managers
The junior managers, supervisors, and employees in non-managerial jobs may not be affected much by the expected structure that is to be created. According to Levasseu (2010), in most of the cases, these employees may continue working in their respective positions as long as branches, where they were previously working before the merger, is not affected. Even the junior managers and supervisors such as branch managers may not be significantly affected by the merger. However, they should expect minor changes such as being transferred from one branch to the other to integrate the workforce.
This integration is important to ensure that the employees can share their experiences and knowledge gained while working in different firms. They should also be ready to deal with the new organizational culture that is likely to be developed after the merger.
How to deal with the impact
The top management unit will have to find ways of dealing with the problem of culture shock. It is expected that the new organizational culture may be strange to some employees who were used to a given culture. The top manager should prepare these junior managers and employees psychologically and make them ready to deal with new systems and structures that will be developed at the new organization.
Leading the Change
According to Harrington (2006), managing change is not an easy task, especially in a system where a section of the stakeholders feel that their position will be affected. However, the new firm (Al Bawadi-Shurooq Islamic Bank) will have no choice but to embrace change in various departments and areas of operation. Leaders of change will be the top managers of this firm. The newly constituted board of directors will initiate the change by appointing the new chief executive officer and top managers who will work with him or her in steering the firm in the right direction. After initiating the change, the newly constituted team of executive leaders will take over the role of leading change within the organization.
They will come up with an organizational culture that is fit for the employees from both firms, determine how the workforce will be integrated without making any of them feel intimidated, and redesign operational activities that will be suitable for both online and traditional customers of the newly constituted bank. As the top managers lead the change process, they should not ignore the role of the junior managers and non-management employees. Everyone should be allowed to participate in defining the new path that this company should take after the merger. According to Suchy (2004), embracing an open-door policy may be specifically important in ensuring that employees can participate in the policy formulation.
Type of leadership style required
When leading change in this newly created firm, various types of leadership will be required to ensure that success is achieved. The first type of leadership that will be required is Participative leadership, also known as democratic leadership. According to MacLeod (2015, p. 220), “participative leadership values the input of team members and peers, but the responsibility of making the final decision rests with the participative leader.”
The newly appointed chief executive officer and other top executives should embrace this form of leadership. They must understand that although the final decision must come from them, they are in a better position to come up with good decisions if they allow the rest of the team some room to share their views. It is under this leadership style that open-door policy will be applied.
When coming up with policies that may have a significant impact on a given department or the entire organization, all the relevant stakeholders should be involved. This leadership strategy will help promote cohesive organization as the stakeholders get to learn from one another. The new leadership style that the top managers must embrace is transformational. Levasseur (2010, p. 160) says that the “transformational leadership style depends on high levels of communication from management to meet goals.” Communication is critical given that the managers and employees were previously working at two different entities, but now have to work as a team.
Maintaining proper communication will eliminate possible cases of disagreements, misunderstandings, and suspicion among the stakeholders. It may be necessary for the top management unit to constitute a team that will be specifically responsible for ensuring that there is integration at all levels within the firm. This special committee will be responsible for addressing issues that may arise within the newly constituted firm within the first two years of operations.
Culture to Accept the Change
Change is a force that many stakeholders will try to avoid specifically because of its disruptive nature. Suchy (2004) says that whenever stakeholders are forced with a situation where they have to embrace change, they often develop the fear of the unknown. The fear of the unknown may be so strong in them that they may make every effort to ensure that they reject the proposed changes. However, under this context change will be unavoidable. The team will need to develop a culture that will accept change as it occurs.
The culture of change will have to be inculcated by ensuring that employees and other stakeholders are actively involved in the change management process irrespective of their position within the firm. In this culture, employees will become agents of change instead of being its recipient. They will be allowed to detect the need for change in their respective areas of work and make a proposal to their supervisors. This way, they will always be in control of the new environmental forces. A culture of flexibility will also need to be embraced by the top management unit. The top managers must be ready to embrace change when it is necessary.
Change model to follow
To develop a culture of change, it will be necessary to develop a model that will guide the stakeholders in managing change in this new firm. I strongly propose the use of Kurt Lewin’s Change Model that follows three steps. The following figure shows the steps that should be followed when using this model of change.
The first step is to unfreeze. It involves informing the relevant stakeholders about the need to change from one system to another early enough so that they can be prepared for what is to come. To unfreeze in this context means to let go of the policies and practices that were in use before, and be ready to use new approaches based on the emerging trends. The next step is to employ the change itself. After involving everyone and preparing them for change, the actual changes can then be made because they will be fully prepared for it. The final stage of refreezing involves making the stakeholders accustomed to the new systems and processes introduced. This model will be very useful in this new firm.
How to achieve each phase of the model
This model is simple to use and can be applied in this new firm without facing challenges. To achieve the first face, all the team members will need to be informed of the impending change and their views taken into consideration. The management will ensure that everyone within the organization is ready for the impending change. In the second phase, the actual change will be introduced. If it is a new culture, the entire team will be introduced to it so that they can live the experience. As Marwah (2011) states, this is often the challenging face is the team members were not adequately prepared. The last stage of refreezing is where everyone will be expected to master the new systems and structures.
Maintaining Change to Achieve Sustainability
As a firm expands in size, one of the primary areas of concern is always the need to achieve sustainability. The growth of Al Bawadi-Shurooq Islamic Bank should be sustainable for it to have a bright future. However, Harrington (2006) argues that a firm that is incapable of managing change cannot achieve sustainability.
For this bank, change management will have to be maintained even after the merger. The three pillars of sustainability (natural environment, social environment, and economic environment) will define the approach that this firm will need to take when managing change. Change may occur in any of the three environments that may demand a significant change in the firm’s operations. When that happens, the management should be ready to adjust its strategies in order to streamline itself with the environmental changes. The above model and the proposed change culture will help in ensuring that employees are always ready to embrace change.
Conclusion and Recommendations
The merger between Al Bawadi Islamic Bank and Al Shurooq Bank will create a new firm that will be appealing to clients interested in the traditional banking system and those who want the emerging online banking products. The new firm (Al Bawadi-Shurooq Islamic Bank) will have a greater competitive edge over its rivals in the market. However, the discussion above indicates that there are a number of challenges that this new entity will need to deal with. Integrating the two firms into a single entity will be very challenging because it will involve restructuring, rightsizing, and a change in organizational culture. As a consultant, I propose that the new firm should consider the following recommendations.
- The board of directors of the two firms should meet and form a new board that will run the new firm.
- The new board should then select the top management unit for this firm from the existing executives at the two firms based on their skills, experiences, and records.
- The new management unit should involve all the stakeholders in creating a new culture at the new organization.
- A committee should be set up to guide in the integration of employees in the newly created firm.
Reference List
Franklin, M 2014, Agile Change Management: A Practical Framework for Successful Change Planning and Implementation, Cangage, New York. Web.
Harrington, J 2006, Change Management Excellence: The Art of Excelling in Change Management, Paton Press, Chico. Web.
Levasseur, R 2010, ‘People Skills: Ensuring Project Success: Change Management Perspective’, Interfaces, vol. 40, no. 2, pp. 159–162. Web.
MacLeod, I 2015, Change Management in Materials Conservation: Combining Analytic Approaches with Street Wisdom, ANU Press, New Delhi. Web.
Marwah, G 2011, Change Management: Exploring the Understanding of an Organization’s Capacity to Change in, Grin Verlag Ohg, Berlin. Web.
Suchy, S 2004, Leading with Passion: Change Management in the 21st-Century Museum, AltaMira Press, Walnut Creek. Web.