Intercultural Aspects of Managing Corporate Mergers

Table of contents

List of figures

List of abbreviations

1. Delimitation of the paper

2. Introduction
2.1. Background and current situation
2.2. Ambition of the paper

3. The M&A process
3.1. Definition of terms
3.2. The typical M&A procedure
3.2.1. Planning process
3.2.2. The PMI process
3.2. Reasons for the failure of corporate mergers

4. Human resistance against changes and their effective treatment in the PMI process
4.1. The relevance of communication and information exchange
4.2. The significance of leadership and participation
4.3. The critical role of the integration of different corporate cultures
4.4. Further integration activities

5. Conclusion

References

Ten thesis

List of figures

Fig. 1:Strategic objectives of M&A activities

Fig. 2:The process of merging enterprises

Fig. 3: Reaction on changes

List of abbreviations

Abbildung in dieser Leseprobe nicht enthalten

1. Delimitation of the paper

The following term paper deals with the topic of managing intercultural aspects in corporate mergers and acquisitions. It focuses on the intercultural aspects of human resistance to change in the PMI phase of corporate mergers.

2. Introduction

„Those who underestimate or ignore the human factor do so at their peril.“¹

2.1. Background and current situation

Over the last two decades mergers & acquisitions are increasingly used to protect and to strengthen the market positions of companies². Due to the continuing globalization of markets, mergers and acquisitions have become a part of daily business. To survive in high competitive markets evermore companies use the possibility to merge or acquire a competitor because this is seen as a relatively fast and efficient method of expanding in new markets and of implementing new technology³. In a highly flexible market environment, as it is nowadays, organisations have to be efficient, profitable, future orientated and adaptable to the fast development of the global economy. Otherwise they would not have the option to play a dominant and leading role in their markets. Therefore companies depended on a successful M&A process which is manly influenced by the capabilities and skills of managing and implementing the change effectively, although this is a major challenge⁴. As figure 1 shows, companies are highly aware of financial objectives like the increase of sales or the reduction of costs.

Abbildung in dieser Leseprobe nicht enthalten

Fig. 1 Strategic objectives of M&A activities

It is often the case that companies’ financial prospects seem to be excessively high, which in the end leads to multiple missed objectives and even to entirely failed PMIs. Whereas some cases can be explained by financial or market based reasons, there is noticeable amount based on the neglect of human resource issues⁵. Many companies are aware of these facts and thus conduct well structured analysis to satisfy the needs of their employees and at the same time to reach their strategic and financial goals. Nevertheless, they tend to ignore the “people issues”⁶ because these soft factors are difficult to measure quantitatively⁷. As various companies gladly give lip services like “our employees are the most important resource”, divers studies prove that these deliberations play a subordinated role in reality⁸.

2.2. Ambition of the paper

The purpose of the paper is to give a brief overview of the process of merging companies, while taking this as a base for explaining the reasons of failure. Afterwards the factor of human resistance within mergers is described; major problematic aspects are shown and different solutions for these problems are given. Finally a short conclusion finalizes the paper.

3. The M&A process

Due to the fact that this paper will primarily focus on mergers rather than acquisitions, it is vital to consider the term “mergers and acquisitions” separately. Based on this a typical process can roughly be illustrated.

3.1. Definition of terms

Mergers and acquisitions (M&As) allow companies to expand in an alternative way to internal growth. The difference between the terms 'merger' and 'acquisition' is the following: In mergers, companies combine and share resources to achieve common objectives. The firms’ shareholders usually remain as joint owners of the combined entity. In acquisitions, one firm purchases the assets or shares of another company and the acquired firm's shareholders cease to be owners of that firm. In a merger a new entity may be formed by subsuming the merging firms, whereas in an acquisition, the acquired firm becomes a subsidiary of the acquirer⁹.

3.2. The typical M&A procedure

Mergers involve extensive changes within the participating companies. Due to this fact it is necessary to make a detailed plan of the process and do valid researches about the potential partners beforehand. It is important to monitor continuously the objectives of the merger and ability of the target company to reach these objectives¹⁰. Typically most of the mergers follow the process in the following scheme. It is remarkable that the organisation and the intensity of the process steps differ due to the form of the merger and industry it take place¹¹.

Abbildung in dieser Leseprobe nicht enthalten

Fig. 2 The process of merging enterprises

3.2.1. Planning process

After the identification and detailed analysis of target companies which should answer the overall purpose of an increasing enterprise value¹² the candidates are shortlisted and possible deal killers are detected. It is important to clarify if the involved people of both companies want to achieve the same goals and if they are willing to cooperate, therefore considerations within the HR environment take on greater significance¹³. Up to that point all activities occur only internal within the company which is initiating the merger. Not until the first contacting any information gets out to the public. If the targeted company is also interested in a kind of cooperation or a merger negotiations are opened. Then if both companies agree upon the main aspects of the merger a letter of intent is signed and right from that point the necessary activities are initiated¹⁴. The last step in the planning procedure is the due diligence and afterwards the contract subscription. Within the due diligence both companies make a detailed analysis of the other company to validate the statements and information of the previous process therefore both company allow inspection to all their data to the other company so that no hidden information could put the merger at a risk¹⁵. Soon after the examinations are completed and both parties are agreed about all details of the merger the contract is signed. It seems this is the end of the deal but in fact it is the real beginning because now the challenge of implementing the planed steps starts¹⁶.

The experience shows us that employees of the HR department are mostly not involved in the initiative planning process but rather consulted after the main aspects of the deal are clear and the decided things has to be implemented¹⁷. This approach could yield to serious consequences because each step of the process needs to be consulted mainly by the HR department to push it in the right direction¹⁸.

3.2.2. The PMI process

The focus within this part of the overall merger process should be the integration the employees because this is the key factor for accelerating the process of conflating into one company and to become one entity¹⁹. In the following the key activities of the PMI process are named and shortly explained.

The first point is the strategy and the vision. The management must have a clear vision and frame it to a strategy. The objective is to create new values and make 3 out of 1 plus

1 and not only 2²⁰. The strategy should give besides the shareholders and the customers but mainly the employees a clear picture what the goals are and what they are working for.²¹ To bring this strategy picture really to the employees’ minds and make themselves indentifying with that requires a clear and substantial communication²². The second aspect is the structure of the organisation and the naming of the new formed enterprise. The merger of two companies to a big one signifies for all involved that they have to say goodbye to familiar organisational concepts and known hierarchies²³. Therefore it is important to make the new structure of the organisation accessible to the employees as soon as possible. If you do not act like this it will in the worst case be possible that from this lack of knowledge frustration and fear establishing in the peoples minds which could prompt some clerks to leave the company²⁴. The naming of the company which possibly is not on the agenda at first is another aspect which should not be underestimated.

[...]

¹ (Cartwright & Cooper 2001), p. 5.

² C.t. (Schuler & Jackson 2001), p. 239.

³ C.t. (Ibid)

⁴ C.t. (Daniel & Metcalf 2001), p. 34.

⁵ C.t. (Gerds & Schewe 2009), p. 29.

⁶ (Cartwright & Cooper 2001), p. 8.

⁷ C.t. (Bouno & Bowditch 1989), p. 22.

⁸ C.t. (Habeck, Kröger & Träm 2002), p. 59.

⁹ (Sudarsanam 1995), p.1.

¹⁰ C.t. (Cartwright & Cooper 2001), p. 3.

¹¹ C.t. (Daniel 2001), p. 59.

¹² C.t. (Daniel 2001), p. 60.

¹³ C.t. (Doppler & Lauterburg 2008), p. 75.

¹⁴ C.t. (Keuper 2006), p. 372.

¹⁵ C.t. (Daniel 2001), p. 63.

¹⁶ C.t. (Daniel & Metcalf 2001), p. 64.

¹⁷ C.t. (Sudarsanam 1995), p. 60.

¹⁸ C.t. (Schuler 2001), p. 243.

¹⁹ C.t. (Ibid), p. 65.

²⁰ C.t. (Ibid), p. 59.

²¹ C.t. (Buono & Bowditch 1989), p. 202.

²² C.t. (Ibid), p. 204.

²³ C.t. (Doppler & Lauterburg 2008), p. 115.

²⁴ C.t. (Daniel & Metcalf 2001), p. 71.