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What is Mergers and Acquisitions (M&As)?
The terms mergers and acquisitions (M&As) are habitually used together, and sometimes interchangeably, but they have different meaning.
Acquisition happens when one firm has bought another and there is a transfer of ownership. Merger happens when one firm consolidates or combines with another; the firms are usually of relatively equal size and influence that fuse together to form one new bigger firm.
Conflict Resolution Perspective
Unavoidable Conflicts from M&As?
The reasons why conflicts are almost unavoidable from M&As? Just look at the reasons for the moves: synergies, cost savings, increasing shareholder values…; also the managerial self-interest, hubris... Rarely M&As focus on your whole person development, your balance of work and life, nor even a brighter promised future! These are the reasons and these are the sources for all possible conflicts to surface. “If the first day of the merger is a big party, on day two, the cleanup begins” (Welch, 2005). We will even contend conflicts sow at the moment the two sides start imagining and conversing on the subject.
But how? If M&As give chances for businesses grow at speeds faster than organic growths, everybody should be happy. No, the shareholders finally might be; the original incumbents at the two firms might not. M&As mean changes, and changes bring about panics and insecurities; the ultimate fears are job losses and individuals’ financial tsunamis. If the incumbents are competent or lucky enough with greater job challenges or adventures rendered, they quickly realize that compensations are at the expenses of their physical or mental health!
Hence the incumbents resume to fright and fight (or flight finally). They have to compete for any opportunities that can afford and any resources that can reallocate in the new setups, hoping to secure their positions. They have to uphold their small circles of benefits or otherwise they will be robbed of. And very often, additional streams of unobvious and obscure conflicting currents flow underneath: values, beliefs, cultures… these are the other important elements that provide the reasons for even more complicated conflicts scenarios.
The Chrysler Case
Some sequential examples of Chrysler may elaborate more.
In 1987, Iacocca, CEO of Chrysler at that time, used US$1.1 billion to acquire Amercian Motors. The acquisition claimed to offer several benefits, like a profitable Renault assembly plant in
In 1998, German automaker Daimler-Benz purchased Chrysler for US$36 billion. But the merger turned out to be titanic. Cultural differences immediately caused rifts and conflicts between the two firms at various scopes and levels. Daimler supplied luxury brands for affluent customers, hardly appreciated the price-conscious US
In 2001, just when the DaimlerChrysler were still struggling to assimilate, Chrysler investor KirK Kerkorian sued DaimlerChrysler for billions based on the argument that the marriage of Daimler with Chrysler in 1998 was actually an acquisition by Daimler and not a merger. What Kerkorian’s interest was that an acquisition would result in much more money being paid to Chrysler shareholders, including Kerkorian. Conceptual or perceived conflicts can happen to any stakeholders even at investors’ level.
In 2007, with shareholders calling Chrysler an “affliction”, Daimler decided to pay Cerberus Capital Management US$650 million to let go Chrysler.
Resolving M&As Conflicts?
So how conflicts from M&As be resolved?
Be realistic at the first hand will help to set the scene and to manage the expectations. Not all conflicts are resolvable, nor they should be, the story of DaimlerChrysler has already told much.
To categorize conflicts into task, process and relational will be simple but helpful ways to start with. Useful means to work out resolutions include revisiting and repainting the missions, objectives, structures and systems for the new setups, and then do lots of communications.
A model for conflict management further gives detail reference for managing the conflict process. It starts with an analysis on the potential oppositions or incompatibilities, whether they are of communication, structure or personal variables. It follows with a cognitive recognition of the conflicting situations and then outlining the handling intentions (with reference to the Thomas-Kilmann Conflict Mode Instrument). Supposedly any intentions decisions are functions of assertiveness and competition: your interest, the others’ interest, or a balance of both. Various considerations give various intentions decisions: competing, collaborating, avoiding, accommodating or compromising. The process sees the overt conflicting behaviors which are either functional or dysfunctional and that conclusively lead to increased or decreased group performance respectively.
Given this deeply ingrained concept, there are usual tendencies to consider collaborations are the best, or at least we have to avoid competing. The former is considered as win-win, and the latter is considered as win-lose. However, the story of DaimlerChrysler just overthrows the concept.
Why?
C. Brooklyn Derr in the article “Managing Organizational Conflict” suggests that there are situations when we have to consider the cost and feasibility issues of successful conflict management implementation.
He gives three practical and workable methods to tackle the realistic constraints and complexities: collaboration, bargaining and power play.
Obviously, the DaimlerChrysler story tells that when collaboration or bargaining has failed to work out the M&As intentions, power play can be or should be the resolution: Daimler finally broke its parts-sharing agreement and let go Chrysler.
Power play is a win-lose approach and it emphasizes the strategic objective to coping with and using conflicts to better one’s power position. Man (Daimler) is viewed to act primarily for self-interest; informal or unstated contracts are even more practical types of settlements. Power play is especially practical in situations when power inequalities are the situations (like in the DaimlerChrysler case). Though there may be ineffective use of energy, it is useful when efficiency is more important to consider at the scenario (to let go Chrysler). C. Brooklyn Derr highlights the vulnerable nature for collaboration and claims that some incumbents are better trained to compete than to collaborate.
Wrap-up
To simply wrap up for this session, conflicts are unavoidable for M&As. To achieve M&As objectives on synergies, cost savings, increasing shareholder values; or managerial self-interest and hubris, conflicts may or may not be resolved. The ultimate ground is that when the conflicting behaviors are functional and lead to increased group performance, then they should be accepted.
Organizational Culture Perspective
What is Organizational Culture?
Organizational culture is a communicatively constructed, historically based system of assumptions, values, and interpretive frameworks that guide and constrain organizational members as they perform their organizational roles and confront the challenges of their environment (Lane as cited in Frank’s lecture note, 2012). This based system is a set of key characteristics that the organization values.
Seven Primary Characteristics of Organizational Culture
1. Innovation and risk taking - The degree to which employees are encouraged to be innovative and take risks;
2. Attention in detail – The degree to which employees are expected to exhibit precision, analysis and attention to detail;
3. Outcome orientation – The degree to which management emphasis on outcomes rather than skills and processes for achieving those outcomes;
4. People orientation – The degree to which management focuses on people rather than outcomes in the organization’
5. Team orientation – The degree to which employees are encouraged to perform work as a team rather than individuals;
6. Aggressiveness – The degree to which people are aggressive and competitive rather than easygoing; and
7. Stability – The degree to which organizational activities prefer to maintain status quo in contrast to growth.
Strong culture with a clear set of characteristics can enhance organizational commitment and increase the consistency of employee behavior. Conversely, it will become barriers to M&As and cannot achieve business and financial synergies in the organization.
Three Stages of Socialization
No matter the expected synergies will be achieved or not in the merging or acquiring company, the merged or acquired employees are not fully oriented in new organizational culture. As those employees have their own old beliefs, customs and behaviors, they are most likely to disturb the merging or acquiring organizational culture. The merging or acquiring company therefore wants to help such employees to adapt to its culture. This adaption process is called socialization. In general, there are 3 stages of socialization that are pre-arrival, encounter and role management in merger and acquisition.
Stages of Socialization Model
In the post-merger or acquisition, both companies are classified at the Encounter Stage. To anchor the merging or acquiring organizational culture into the merged or acquired company, they have to check the merged or acquired employee expectations about their jobs, colleagues, bosses and their organization to see whether both cultures are matching. Otherwise, the merged or acquired employees should undergo socialization to replace them with acceptable values and beliefs.
If the socialization process is completed, new members will feel comfortable with their roles and responsibilites. In this stage of role management, they have internalized the norms of the merging or acquiring company and their work group. What are the final outcome after socialization? They will enjoy their working life and continously stay to work at the merging or acquiring company. Otherwise, they will choose to leave.
AOL vs Time Warner Case
Robbins & Judge (2010) mentioned that the 2001 $183 billion merger between America Online (AOL) and Time Warner was the largest in corporate history. The merger was considered a disaster as the stock had fallen 90%. Culture clash is one of the problems for AOL and Time Warner. Someone commented that “In some ways the merger of AOL and Time Warner looked like the marriage of a teenager to a middle-aged banker. The cultures were very different. There were open collars and jeans at AOL. Time Warner was more buttoned-down.”
Wrap-up
When the merged or acquired company is well established with its dominant culture, it is difficult for merging or acquiring company to anchor its culture into such company after M&As. Usually, both companies are resistant to change especially company culture are strong. To change the culture and resolve organizational culture clash, it may take much more time in measurement of years, not weeks or months.
It looks like a marriage between Japanese man and Indian woman. There is big cultural difference between these two countries. We can say that the expectations towards family needs are different due to their own values and beliefs. It will become barriers to achieve a happy family life without the consistency of couple behavior.
To resolve cultural conflict, they should undergo socialization that is to devote themselves and adapt to the new environment. Otherwise, a happy family life cannot easily be achieved.
To resolve cultural conflict, they should undergo socialization that is to devote themselves and adapt to the new environment. Otherwise, a happy family life cannot easily be achieved.
Knowledge Management
What is Knowledge Management?
The phrase of knowledge management seems to strange to us; however, it is not a new concept at all. Knowledge, as an important resource for sustainable competitive advantage, is more and more paid attention by individuals or organizations (Bock & Kim, 2002). Knowledge management is a process to enable people to develop a set of practices to create, capture, share and use knowledge to advance organizational goals. In the other words, knowledge management comprises a range of strategies and practices used in an organization to identify, create, represent, distribute, and enable adoption of insights and experiences. Such insights and experiences comprise knowledge, either embedded in organizations or in individuals as processes or practices. All in all, knowledge management is to create and share new knowledge and to ensure the right people get the right knowledge in the right place at the right time (APQC, 2003; O’Dell & Grayson, 1998).
There are two types of it, explicit and tacit (Choo, 1995) is the most frequently used and well-known classification. Explicit knowledge is formal and systematic and can be easily communicated and shared with others (Nonaka, 1996). Examples include manuals, books, databases, and intranets. In contrast, tacit knowledge is a kind of knowledge which is highly personal, hard to formalize and thus difficult to communicate to others: it is deeply rooted in action (Nonaka, 1996). Examples include individuals’ action, experience, ideals, and value (Williams, 2006).
Barriers to M&As
Most of failures of mergers and acquisitions are related to the conflicts or clashes of the culture, strategy. Sometimes, we image that the biggest clash or conflict regarding the knowledge management and M&As is the problem of misunderstanding and lack of enough knowledge sharing during the process of M&As; however, the concepts of knowledge management should be penetrated to all the aspects of M&As.
TCL vs Alcatel Case
At the beginning of 2000s, most of the mobile devices vendors in China
Links between Knowledge Management and M&As
In order to overcome barriers, it is important to use knowledge management properly, which is an essential measure to deal with the conflict during the respective stages of the M&As. Since knowledge management has four categories that include knowledge acquisition and creation, knowledge capture and storage, knowledge dissemination and transfer, and knowledge application. In different stages of the mergers and acquisitions, the different categories of knowledge management have different importance and weight.
Stage 1: Premerger and Acquisition
In the premerger and acquisition stage, the organization begins to select the proper and possible target for merging and acquiring, so that the research on the organization and people issues is considered essential as they strongly influence the success of mergers and acquisitions. During this stage, if the merging target is wrong selected, the result of merger and acquisition would be almost failed because of the potential culture conflict and management clash. Therefore, the knowledge acquisition and creation category is much more important than others in this stage (Pimpimon, 2009). Usually, a mature organization which has adequate experiences in mergers and acquisitions will pay much attention and money on the knowledge acquiring by hiring professional consultants, such as Morgan Stanley or Golden Sachs to make sure the new organization could acquire the most profits and benefits to the organization after M&As.
Stage 2: Due Diligence
In the stage of due diligence, the organization investigates and confirms the deal with the target organization. In this stage, the organization mainly identifies the issue that could take risks for the deal of merger and acquisition. Due diligence stage is vital to help build up a well-designed organizational structure, business process and the need for systematic and redesign, and whether the corporate culture can be suited (Horwitz et al., 2002). Therefore, the knowledge capture and storage would be more important than other categories to the organization in this stage (Pimpimon, 2009).
Stage 3: Integration
The stage of integration should be the most important stage amongst all the stages of mergers and acquisitions, in that it is the systematic planned change process of combining available resources, core business processes, people, cultural values, and technology for the new entity (Giffin, 2002; Hitt et.al, 2001; Hitt & Pisano, 2004; Schmidt, 2002). The integration stage is a vital factor to determine the success of mergers and acquisitions. Therefore, the focus is on knowledge dissemination and transfer rather than any other categories in this stage (Pimpimon, 2009). In order to acquire better result of integrating, the knowledge distribution, transfer, and sharing in proper format are highly needed, in that they are the key to avoid the conflicts from multi-factors.
Stage 4: Post-merger and Acquisition
The post-merger and acquisition stage actually is the stage of ongoing process of developing organization productivity, work processes, and individual performance (Hitt & Pisano, 2004; Javidan et al., 2004; Waight, 2004). In this stage, the organization focuses more on the knowledge application process (Pimpimon, 2009), which is the well integration of two sets of cultural values, norms, philosophy, management style, assets, and human capital at the end of the process.
Appreciative Inquiry Perspective
Appreciative Inquiry is an effective instrument to help employees dealing with transitions that happened in M&As. These transitions include resolving conflicts, the differences in organizational cultures, and resolving grief issues. Appreciative Inquiry is a technique that helps quickly identify the best parts of two organizations in the times of M&As. It connects both organizations to a common point, the Positive Core. Focus on the positive core helps increasing favorable exchange, and mutually promotes relationships which are imperative in the sensitive stage right after M&As.
St. Paul’s Federal Bank vs Charter One Bank Case
When Charter One took over St. Paul Federal Bank in 1999, the acquisition purpose was reselling the company at good profit in the future. Charter One never concerned with St. Paul St. Paul
In addition, there is absolutely no indication that Charter One is interested to use any talents ofSt. Paul
In addition, there is absolutely no indication that Charter One is interested to use any talents of
In oppose to the ‘life-giving’ approach of Appreciative Inquiry, Charter One’s acquisition’s concern is how to destroy everything from the past. No discussion were made on how the two companies should work together to create a new emergent better culture. Charter One wanted to create a new identity solely for themselves without any involvement from St. Paul St Paul
In this example of acquisition, Charter One Bank should practice Appreciative Inquiry to provide employees opportunities to properly work through the transition. Staffs experienced the sense of insecurity, loss of stability and negativity associated with the uncertain future. Feelings of loss and depressed, shock and anger are common emotional responses of employees as a result of M&As. The post-merger organization is in need for a supportive culture for its new future.
Practicing Appreciative Inquiry helps to nurture a more positive and stable psychological environment for the St. Paul St. Paul
Pixar vs Disney Case
Another acquisition example which exemplified Appreciative Inquiry principles comes from the case of Disney and Pixar. The acquisition happened in 2006 when Disney took over Pixar. Compared to the aforementioned example, this acquisition brings a positive revolution in change.
The rules and policy of the newly formed Disney Pixar exemplified the Appreciative Inquiry’s Positive Principle. This positive principle based on the belief that when we feel positive, we are more likely to act in a positive way too. To ensure Pixar staffs maintain a positive outlook for the company’s future, both companies deliberate plan and create a stable organizational culture. The acquisition doesn’t make Pixar lose its identity like St. Paul Emeryville , California
Bringing the best of the past to the future is an important rule of practicing Appreciative Inquiry. Retaining the best part of Pixar’s culture to nurture its creativity is particularly crucial after the acquisition. Pixar always has their unique way of nurturing the creative brains. For example, Pixar always provide enough time and space for their creative story tellers. Pixar doesn’t want their creative story tellers thinking about how to make money or their money making executives thinking about how to tell a story. Therefore Pixar have an implicit management rule that executives won’t join story meetings. After the acquisition, this management practice still remain unchanged, and Disney also voluntarily held back forcing its culture upon Pixar.
Appreciative Inquiry’s Constructionist principles’ emphasis on the importance of communication is shown when Pixar’s staffs are allowed to participate and voice their opinions in the new system. Pixar was asked to propose a list of guidelines for the rules and policy of the newly formed Disney Pixar that would help protecting their ‘creative culture.’ These included HR policies remain unchanged which allows Pixar employees to keep their health benefits, and not having to sign employment contracts with Disney. Also Pixar was allowed to keep their email system, and Pixar executives did not have to work shifts at Walt Disney World.
Lastly, M&As’ success is not automatically generated. At the core of a successful acquisition there must be a common unity. Appreciative Inquiry connects both organizations to a common point, the Positive Core. These two cases have demonstrated that managers must pay important attention to the acquisition integration process, especially all human aspects related to transformations followed by acquisition are of highest importance. When everyone is invited to participate in the transformation, enthusiastic energy is released. The level of personal commitment is enhanced in all levels of the new organization. Therefore Appreciative Inquiry in M&As help transforming both companies into a stronger and better company.
Conclusion
It is a general tendency to perceive that conflicts from M&As are unavoidable. In this way, we tempt to look for them, identify them as problems and struggle to resolve them with various means. However then, conflicts are natural with M&As, some are actually unresolvable, or they should not be either. To capitalize on conflicts and to safeguard productive performance may be the ultimate resolution we can consider.
Same applied to organizational culture. We tempt to force the two entities to fuse together and to put on a brand new culture for the new setup. We are reluctant to appreciate that the two entities have their own distinctiveness. But the reality is that it takes time and space for the merged entity to massage and to distill a new culture from previous characteristics. Organizational culture can be developed, but never be forced to merge.
M&As give rise to lots of successful and unsuccessful attempts during the courses. It is constructive to apply knowledge management concepts and skills and to record the findings. Systematized and documented knowledge provides tremendous resources to facilitate any learning and development purposes that provide intelligence on M&As practices, pluses or minuses.
Above all, newer attempt on appreciative inquiry helps us to shift to a new paradigm when looking into conflicts. Instead of seeing conflicts as problems and negatively managing them, applying appreciative inquiry measures may be the true direction to goals. Focusing on the dreams, the best scenarios, and positively encourage and empower incumbents to walk through the course. Appreciate inquiry, in this manner, acts as a powerful mean to resolve even deep rooted conflicts, as in the subconscious level of human nature, they are being pampered.
It’s my place, please...
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