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Mergers & Acquisitions in Two Corporate Scenarios Essay


Executive Summary

The process of acquisition is associated with some complexities, and the primary goal of this paper is to develop action plans that can be used as responses to two situations. The first case scenario focuses on the fact that rumors in organizations spread information about no possibility of a takeover in the recent future while leading to a high degree of absenteeism and low levels of productivity. In this instance, the executive of the company has to organize a meeting to discuss this problem, conduct risk assessment, and propose changes concerning the mission statement and the function of HRM.

Highlighting the significance of integrity, innovation, productivity, and transparency in the company’s values will guide the HR department and help organize interesting corporate events and present rewards for outstanding performance.

As for the second situation, the employees of two companies are not eager to collaborate due to the lack of managerial initiative and substantial differences in corporate cultures. A combination of these factors also results in a low level of productivity and a lack of motivation. Apart from the need to develop the Acquisition Committee, give more power to the HR department, and monitor progress, it is vital to inform the employees, conduct a SWOT analysis of business cultures, and utilize these findings to ensure the integrity of the companies and design an effective organizational structure.

Subsequently, it is rational to use the structure of the acquiring company and introduce separate units responsible for strategy and different types of the audit while adapting a leadership style of the enterprise with the governmental structure will help reach a balance. In the end, despite the differences in these situations, they help understand that transparency and constant communication with the employees have to be prioritized during the process of acquisition, as they are the major definers of corporate success and superior financial performance.

Introduction

Today, many companies consider takeovers as one of the instruments for expansion and sources of innovative growth (Bena & Li, 2014). For example, one of the benefits is a well-balanced expenditure on R&D and patent development (Bena & Li, 2014). Nonetheless, they are also associated with a plethora of challenges and difficulties. In this instance, apart from the inability to calculate a sufficient value of takeover leading to under or overpayment, the most common problems include the lack of competences of executives during the implementation process, insufficient integration, drastic differences in organizational cultures and structures, and loss of market share (Singh, 2012).

Based on the factors and trends reflected above, it could be stated that the management of the acquiring companies has to design an effective action plan to take advantage of the described benefits and diminish the effect of negative consequences.

Consequently, the primary goal of this paper is to design effective action plans that will have a favorable impact on the disruptive implementation of a merger. In this instance, hypothetical situations are simulated, and detailed aspects of contingency plans are provided to ensure the sufficient flow of the decision-making process while avoiding failures of a takeover. In the end, the conclusions are drawn to summarize the main findings of the paper to understand the rationale for the described enterprise-wide actions of a top executive.

Response to Situation 1

Summary

To begin with, it is essential to provide a general overview of the situation. In the first case scenario, noise and rumors could be considered as the main sources of dissonance in the organization. Meanwhile, its major outcomes could be described as a continuously escalating degree of absenteeism, loss of productivity, and absence of motivation. It remains apparent that a combination of these factors hurts the quality of the products provided to the final consumers while adversely affecting the financial stability and performance of the enterprise. Consequently, resolving it and avoiding similar cases in the future could be discovered of paramount importance.

Action Plan

Situation 1 implies that the core of the problem is a high level of uncertainty among the employees about the actual implementation of the acquisition or takeover. In this case, the main phases will cover discussion and evaluation of issues and risks, analysis of challenges and opportunities, contingency planning, implementing changes concerning integrity and mission, growing importance of Human Resource Management (HRM), and monitoring changes of the proposed actions with the help of KPIs (Key Performance Indicators) and KPIs (Key Financial Indicators). The subsequent sections will describe each phase in detail and provide logical reasoning for the suggested actions.

Step 1: Organizing managerial meeting about issues

Initially, it has to be mentioned that the Acquisition or Change Committee was designed previously while covering the representatives of different departments to support the understanding of the problem from different angles. Apart from that, it is vital to include shareholders in the process. The primary reason for this matter is the fact that any changes in the value of the company or modifications in assets have a direct impact on their financial wealth and effectiveness as decision-makers (Li, 2015).

They play a pivotal role in stimulating the company’s growth and innovation and can be considered as vital actors of the Acquisition Committee. Consequently, discovering them as critical participants of the meeting is of paramount importance since, otherwise, the solution may not cover their viewpoint.

After gathering all important members of the decision-making team, a series of meetings will be organized, as they have to cover a plethora of questions such as employees’ attitude, motivation and levels of absenteeism, and implementation of changes associated with the acquisition. Due to the need to resolve these problems rapidly, the meetings will be organized once a week, and each session will cover one of the themes described above. Using this strategy and simultaneous brainstorming of different corporate players will assist in resolving the issues indicated above promptly while reviewing the situation from dissimilar angles.

Step 2: Risk assessment and development of an action plan

Another step implies that it is vital to review the beneficial features of risk evaluation during the process of acquisition. The critical impact of this method cannot be underestimated, as it can help discover dissimilar situations that may incur during the implementation and cultivation of organizational changes. At the same time, it is one of the essential tools to assess different internal and external threats, and, in this case, reviewing opportunities of the labor market, working environment, and atmosphere in the organization is critical.

Understanding the essentiality of these features can help resolve different types of conflicts while increasing the productivity and efficiency of various departments. The overall process of the risk assessment will be rather simple, as it will include gathering information about risks (internal and external), assessing potential and existent case scenarios, and proposing diverse solutions to boost organizational productivity.

The outcomes of the previous discussion of the current issues and risk assessment can be regarded as a basis for constructing an effective action plan that will increase the effectiveness of the acquisition. It remains apparent that a combination of these evaluations underlines that the core of the problem that lies within the mission statement has to be discovered in detail, as this aspect forms a profound image of an actual situation in the organization (see Step 3). The following phases imply modifying the involvement of HRM in the decision-making process, but the detailed action plan will be provided in the subsequent sections (see Step 3). Nonetheless, generally speaking, the main steps will include

  • Proposing changes to mission statement based on risk assessment;
  • Discussing the role of HRM within an entirely new framework;
  • Introducing and implementing changes related to mission statement;
  • Actions of the HRM department;
  • Using different qualitative and quantitative measures to evaluate progress.

Step 3: Introducing changes to the mission statement and increasing the involvement of HRM

As a consequence of Step 2, the next step will include two major modifications that are redesigning the mission statement and increasing the importance of HRM in the implementation process. Speaking of internal value proposition, it has to expand its features and, apart from productivity and integrity, foster the growth of transparency and innovation (see Figure 1). Innovation, a higher level of integrity, and escalating production capacity are common benefits associated with the acquisition (Bena & Li, 2014).

Meanwhile, transparency and disclosure have to be viewed as vital components of new corporate culture, as they will improve the overall effectiveness and accountability of the leadership framework and support the sufficient integration of companies while avoiding conflicts (Fung, 2014). In the case of Situation 1, focusing on these matters will be beneficial since these principles will be used to develop goals and objectives for different levels of subordination and be addressed in HRM actions such as rewards and recognition (Step 4).

Revised mission statement.
Figure 1. Revised mission statement.

Another aspect of this step will focus on the growing role of HRM in the decision-making and coordination processes. A plethora of studies conducted in the past claims that successful integration is highly dependent on the actions of the HR manager (Correia, Cuhna, & Scholten, 2013). For example, HRM’s centrality has an advantageous impact on the organizational performance while contributing to the effective integration of policies and values of the acquired and acquiring companies (Correia et al., 2013).

Consequently, the involvement of HRM has to be increased substantially, and it has to take an active part in the development of mission statements, KPIs (Step 5), and communication with the employees. Its major activities will be described in the subsequent section in detail.

Step 4: HRM and other actions

As was stated earlier, one cannot underrate the critical importance of HRM, as the management of this department plays the role of the mediator between the executives of the company and employees. In the first place, the HR entity has to focus on motivating the workforce, as it is one of the main functions of HR and problems in the case organization. Motivation is often associated with training, professional growth, and recognition for outstanding performance and commitment (John Wiley & Sons, 2015).

Meanwhile, Figure 2 portrays that a combination of the factors indicated above is a vital part of the “maintenance phase” of the employment cycle (John Wiley & Sons, 2015). At the same time, Figure 2 displays that aspects such as induction have to be viewed as significant as other matters since the employees have to be successfully integrated into an entirely new corporate structure and environment (John Wiley & Sons, 2015).

It could be stated that diminishing absenteeism is also linked to the matter of commitment and inspiration, as its degree can be decreased with the help of either stimulating employee motivation or introducing an influential mechanism of sanctions and punishments. In this case, a detailed action plan covering the matters concerning employee motivation will be mentioned below in detail.

Employment cycle: motivation and maintenance phase
Figure 2. Employment cycle: motivation and maintenance phase (John Wiley & Sons, 2015).

Unfortunately, apart from direct interactions with the workforce, and the HR function is more complex during the process of acquisition, as it pertains not only to informing and motivating the employees but also reorganizing the flow of information in the organization along with allocating human resources effectively. The previous sections present the actions that have to be taken from the theoretical perspective while the practical action plan will be described below. It will cover the following steps:

  • Participation of the HR department in the meetings during Step 1;
  • Evaluating structural changes that have to be made and proposing a strategy to allocate resources sufficiently;
  • Using acquired information to design relevant solutions and propose a detailed action plan for HR department;
  • Discussing the changes with the Acquisition Committee;
  • Along with the phases mentioned above, informing employees about the process of acquisition by organizing meetings once or twice in two weeks;
  • After the approval of the Acquisition Committee, starting allocating the resources and organizing training sessions;
  • Using employee satisfaction survey and interviews to evaluate their attitudes based on their performance and responses;
  • Assessing the results and introducing the most appropriate goals, performance appraisal system, motivation strategies (such as pay per hour), rewards for outstanding performance, and development programs;
  • Introducing different corporate events to restore organizational spirit (see Figure 3).
Corporate events.
Figure 3. Corporate events.

Step 5: Monitoring changes in employee attitudes

Lastly, to control any progress in a positive direction related to the introduced HRM practices, it is vital to develop different types of KPIs, KPIs, and other qualitative and quantitative instruments. In the context of the presented situation, they have to cover modifications in employee attitudes, motivation, and productivity. In the context of this paper, they may refer to

  • Quantitative measures
    • KPIs (Quick ratio, ROI, ROE, and Gross Profit Margin)
    • Employee productivity (Actual Revenue/Expected Revenue, Manufactured Products per Person/Expected Goals)
    • Employee motivation (Likert scale);
    • Employee satisfaction (Likert scale, multi-dimension evaluation).
  • Qualitative measures
    • Interviews with the employees;
    • Interviews with the management;
    • Notes during meetings with the Acquisition Committee.

Using a combination of these measures will have a beneficial impact on understanding the company’s performance quarterly. This complicated set of measures is a necessity since any changes in employee motivation have a direct impact on sales, performance, and financial productivity of the enterprise. Lastly, applying qualitative and quantitative information and statistics instruments will provide deep insights into the topic and help redesign the strategy if any negative or positive changes incur.

Response to Situation 2

Summary

On the contrary to the first situation, the employees are aware of the acquisition, but they do not actively support this idea of integration since it implies an organizational restructuring of the companies. It could be assumed that the major trigger of this situation is the lack of initiative of top management in merging diverse departments due to the entirely different corporate cultures of business entities, as one supports entrepreneurial spirit while another one is governmental. It is vital to resolve this situation promptly, as it hurts the productivity and size of the market share.

Action Plan

To diminish the consequences indicated above, it is vital to address the issues from dissimilar angles and viewpoints of various stakeholder groups. In this instance, it has to cover the creation of the Acquisition Committee, development of the action plan, informing the employees, implementation of structural changes, resolving issues with the workforce, ensuring the integrity of different business cultures, and continuous monitoring of various stages. Each phase will be described briefly while introducing a universal framework that can be used in similar situations.

Step 1: Development/Expansion of the Acquisition Committee

It could be assumed that the Acquisition Committee responsible for the implementation of change was previously developed. Thus, in this case, it is vital to ensure that the representatives of different departments are included in the decision-making team. Figure 4 provides the assumed structure of the company that is interested and responsible for acquisition or takeover. In this case, as it was indicated in the solution to the previous case, shareholders tended to play a critical role in the decision-making process, and including representatives of this stakeholder group was vital (Li, 2015).

Simultaneously, due to the complexity of the acquisition process, it is critical to consider the managers of different business units and departments, as the expected changes will affect the entire structure. Consequently, the main members will include the CEO (Chief Executive Officer), CFO (Chief Financial Officer), COO (Chief Operating Officer), and Heads of Manufacturing, Marketing, and Project Management.

Assumed organizational structure of the acquiring company.
Figure 4. Assumed organizational structure of the acquiring company.

Step 2: Actions of the Acquisition Committee

After the establishment of the Acquisition Committee, it will be essential to organize several meetings to determine the overall flow of the acquisition process and suggest the most relevant restructuring approach while considering the differences of business cultures. The need to modify the company’s structure is often discovered as a positive sign, as it implies the company’s growth, innovation, and development (Ramdas & Kumar, 2014).

In the context of the presented situation, this process will be more complicated than usual, as integrated companies have entirely different corporate cultures. Nonetheless, any organization has to start with redesigning mission statements and corporate values to comply with a completely new perspective of doing business. All actions mentioned above have to be applied in practice after discussing with shareholders, as they are discovered as the company’s investors.

The theoretical information provided above can be used to develop a detailed action plan that the Acquisition Committee has to follow in the context of this case. In this instance, the main steps will include

  • Comparing business cultures of the companies (see Step 6);
  • Evaluating the current company’s organization and a mission statement (the framework of the mission statement from Situation 1 can also be applied in this case);
  • Organizing a meeting with Shareholders about the changes (structure and leadership style);
  • Informing employees;
  • Implementing changes concerning mission statement and structure including appropriate monitoring tools;
  • Introducing different supporting activities of the HR department;
  • Measuring progress with the help of KPIs and other instruments.

Step 3: Informing the employees about the implementation of the merger

Step 2 displays that despite evaluating the company’s performance and implementing changes, it is vital to have meetings with the employees concerning the actual process of acquisition. Many scholars refer to the fact that this step is important since it defines the ability of the enterprise to cultivate change successfully and ensure the successful integration of the organizations (Kansal & Chandani, 2014).

In this instance, the employees become highly adaptive and responsive to system dynamics, and this matter allows the acquiring organization to introduce sufficient monitoring and control mechanisms that comply with changes (Kansal & Chandani, 2014). Figure 5 presents a framework that can be used to inform the workforce. Utilizing this strategy will help the workers understand that the takeover is in progress, and the company considers them as valuable resources by informing them about the changes weekly and quarterly.

Informing employees: Framework.
Figure 5. Informing employees: Framework.

Step 4: Implementing structural changes

Apart from introducing changes related to the mission statement (the framework of the mission statement from Situation 1 can also be used in Situation 2), it is vital to propose organizational modifications, as they will be necessary during this process due to escalating corporate needs and continuous development (Kansal & Chandani, 2014). For example, along with the increasing importance of HRM and integrity, it will be essential to introduce separate internal and external audit departments and the unit responsible for strategy (see Figure 6).

Establishing a distinct auditing department will assist in continuously assessing and monitoring the needs of the acquired company. It will become an essential part of the Acquisition Committee since it will help suggest valuable modifications to the existent corporate culture and strategy.

As for Strategy, this unit is essential since having a separate department responsible for business strategy and corporate culture will decrease the levels of pressure put on executives and contribute to well-balanced and weighted decisions leading to a high return on investment. Nonetheless, before implementing these changes, the company has to evaluate the cost-effectiveness of these alterations and distribute financial resources effectively according to the needs of the departments.

Redesigned organizational framework.
Figure 6. Redesigned organizational framework.

It remains evident that the overall concept of Figure 6 is entirely copied from Figure 4, and this fact implies that it will be rational and cost-effective to adjust the entrepreneurial way of organizing the business. Nonetheless, to ensure the cultural integrity of both organizations, some events and techniques can be borrowed from the governmental approach. At the same time, it is vital to underline the importance of the employees and explain the need for changes and the significance of their contribution, but these actions will be presented in detail in Step 5. The overall process of Step 4 can be summarized as:

  • Discussing the proposed changes and evaluating financial capacity with the Acquisition Committee;
  • Informing employees and explaining the need for changes (see Step 3 and Step 5);
  • Implementing changes including the modifications of leadership style.

Step 5: Actions of HRM

This phase will focus on describing the actions of HRM, and it could be said that due to the similarities of Situation 2 with the first one, the majority of the approaches indicated in Situation 1: Step 4 can be implemented in this case. Nonetheless, some matters will be added, and they will include designing different collaborative events and team-building activities since these elements will contribute to the effective integration of two completely different business cultures. In this case, the main steps can be summarized as

  • Informing employees about the process, the changes, and their allocation (Step 3);
  • Providing the required training and allocating the employees;
  • Introducing award and recognition systems based on changes;
  • Organizing different team building events and training sessions to ensure the understanding of a new mission statement, goals, and integrity (see Step 6).

Step 6: Integration of diverse business cultures

The described case scenario mentions that one of the critical problems is the necessity to combine different business approaches, as one of the companies relies on entrepreneurial business style while another one emphasizes the significance of its functioning as a governmental entity. In this case, these matters have to be clearly described in the mission statement of the company and underline the paramount importance of shared values, initiatives, and goals. This process is complex, and it will include an extended range of steps, and they are

  • Addressing the importance of culture in Step 1;
  • Collecting reports about the corporate cultures of acquiring and acquired companies by consulting HRM departments (Deloitte, 2009);
  • Discussing critical challenges with specific cases that may incur in both firms;
  • Conducting a SWOT analysis of both cultures and using this evaluation to design an entirely new model that will address the needs of both entities;
  • Assessing the decision-making style of each company and its reference to culture;
  • Creating equal employment opportunities for both acquiring and acquired companies while focusing on the creation of internal brand (organizing different corporate events such as lunches, parties, and sports venues) (Deloitte, 2009);
  • Ensuring that organizational environment, leadership, and teams support cultural change and development.

Step 7: Continuous monitoring and control

The last phase implies using different KPIs and measurements that address the productivity of the employees, their motivation and satisfaction, and financial performance. The evaluation has to be conducted monthly during the process of merger. The measures may include

  • Finance (ROE, ROA, ROI, and Gross Profit Margin);
  • Motivation and satisfaction (Likert-scale to measure job satisfaction and absenteeism);
  • Productivity (Actual Revenue/Expected Revenue and Costs/Designed Budget).

Overall, it could be said that the introduced KPIs have to be applied simultaneously, as they provide a multi-faceted image of the organizational performance. At the same time, using them as a combination is a necessity due to the interdependence of these elements and their mutual impact on financial productivity. Applying them effectively can enhance organizational performance and support successful change implementation while controlling the stages stated above.

Conclusion

Overall, the situations mentioned above are the most common ones in the context of mergers and acquisitions. Both of them cover the issues of integration that majorly focus on the lack of the desire of the employees to adapt and accept changes leading to smooth and slow implementation. Due to this matter, action plans tend to have some similarities. For example, both of them underline the significance of HRM and its connection with the success of the acquisition and emphasize the need to expand the coverage of its activities. At the same time, Situation 1 and 2 clearly state that the company should not underestimate the importance of its employees and cherish transparency of the acquisition process.

Nonetheless, apart from the similarities, Situation 2 tends to be more complicated, and when resolving it, the company has to focus on differences in corporate cultures and introduce structural changes. It will be rational to maintain the original organization of the acquiring enterprise while adding Audit and Strategy and using some concepts of the leadership style of the acquired firm. This matter will help reach the successful integration of the business cultures and support financial prosperity.

References

Bena, J., & Li, K. (2014). Corporate innovations and mergers and acquisitions. The Journal of Finance, 69(5), 1923-1960.

Correia, M., Cuhna, R., & Scholten, M. (2013). Impact of M&A on organizational performance: The moderating role of HRM centrality. European Management Journal, 31(1), 323-332.

Deloitte. (2009). . Web.

Fung, B. (2014). The demand and need for transparency and disclosure in corporate governance. Universal Journal of Management, 2(2), 72-80.

John Wiley & Sons. (2015). . Web.

Kansal, S., & Chandani, A. (2014). Effective management of change during merger and acquisition. Procedia: Economics and Finance, 11(1), 208-217.

Li, T. (2015). A study of the impact of mergers & acquisitions on shareholders’ wealth and efficiency. SHS Web of Conferences, 25(1), 1-5.

Ramdas, R., & Kumar, J. (2014). Effect of corporate restructuring on shareholder’s value in the information technology sector. International Review of Research in Emerging Markets and the Global Economy: An Online International Monthly Journal, 1(1), 33-40.

Singh, P. (2012). Mergers and acquisitions: Some issues & trends. International Journal in Innovations in Engineering and Technology, 1(1), 1-9.

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