H. J Heinz Company and Kraft Foods Merger Proposal

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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