Essay
Introduction
Organizational change is a fundamental idea to explore and understand in the growingly intricate corporate world. Thus this essay analyzes a horizontal merger between two medium-sized beverage companies. Horizontal merger occurs when two businesses providing the same, or related, products and/or services to a given market merge under the same ownership (Cawsey et al., 2015). The two companies decided to merge because of similar needs to expand their market share and attain organizational growth. All the stages of the intervention, from the due diligence process to the evaluation of the intervention's outcomes, are thoroughly examined. The consistency of these stages with the established theories of planned change is also examined.
Background to the intervention
The horizontal merger is carried out for two main reasons-- (1) to increase market share, and (2) to achieve organizational growth. The two companies agree to join forces in order to gain a strong competitive advantage in the saturated beverage market. The objective of this horizontal merger is to build a new, bigger organization with greater market share or a more dominant position in the market. Since the business operations of the two companies are quite alike, the merger intends to bring together or consolidate its manufacturing, and thus lower its costs. Increasing market share demands capturing existing customer bases from a competitor and afterward expanding it to boost the company's market share. Apparently, one of the most successful approaches to increasing market share is acquiring or merging with a competitor (Cartwright & Cooper, 2012). Through merging, the two companies will be able to to take advantage of each other's established customer bases, and it cuts down the number of companies competing in the market. Because both companies are in a growth mode, a horizontal merger is one of the most attractive interventions. However, a merger does not guarantee success in the long-term, or even in the short-term. According to Cartwright and Cooper (2012), carrying out an analysis of market due diligence to pinpoint the competitive domains-- which still depends on successful integration-- will boost the company's chances of gaining a substantial market share.
Second, the merger is carried out to promote organizational growth. The companies recognize the chance of expanding their competitive advantage and scope essentially by becoming larger. This normally enhances access to resources and liquidity and builds up brand recognition or popularity in other markets. By itself, pursuing and achieving the strategic leverage of size can raise the company's profitability by means of controlling economies of scale (Chmiel, 2008). However, the leverage of size, when merged with other strategic tools, can work as the bedrock and a way to expand product differentiation and market share, and penetrate other markets that can, consequently, result in a clear-cut competitive advantage.
How was the organizational need for this intervention identified and clarified?
The first step requires the identification and clarification of the organizational need for this intervention through the conduct of due diligence. Due diligence can largely be defined as “a process of enquiry and investigation made by a prospective purchaser in order to confirm that it is buying what it thinks it is buying” (Howson, 2003, 4). When assessing the organizational need for a merger, companies usually concentrate on a variety of distinct forms of due diligence inquiries like legal or financial due diligence. Although both are highly crucial in evaluating the workability and profitability of a merger, studies demonstrate that cultural factors are the most typical explanation for the failure of mergers to achieve symbiotic goals (Goksoy, 2015; Karmann, 2013). Thus it is essential to evaluate the company's organizational culture before going through with a merger. However, the issue here is that the company focused almost entirely on financial due diligence.
The company being targeted for the merger is examined and validated in terms of preciseness of annual reports and financial performance shown in the balance sheet, including analysis of prospective alliances, and also in terms of tax-related and legal factors, with the intention of evaluating its status and identifying the possible operational and business risks of the company. One of the steps in the due diligence process carried out by the company is examination of its market position, its micro- and macro-environment, including finding out the threats associated with these.
The financial due diligence is comprised of comprehensive evaluation and scrutiny of ledgers so as to conclusively and accurately uncover the present situation of the company and provide investors a more straightforward and simpler picture of the operational and financial status of the company (Cartwright & Cooper, 2014). Thus the experts carrying out the procedure examined the cash flow reports and balance sheet of the company. The financial due diligence conducted in accordance with the evaluation of available information also attempts at identifying the financial status of the company and anticipated outcomes, as well as evaluating its plans and projections, determining its primary growth factors in the future. Moreover, the analysis includes the framework of future expenses and revenues and the price setting technique.
How was the change or new design implemented?
The merger builds integration teams that consist of a middleperson from each operational domain in the company, a human resource (HR) representative, and a corporate-level advocate. Representatives from the other company are also made part of the teams. These teams are formed to facilitate the process of integration, make sure that open, effective communication is in place, deal with issues as they surface, and modify policies or procedures as needed. A hierarchical structure has been adopted thus teams are organized in terms of levels of responsibility. Various integration techniques have been used to ensure the successful passage of important members to the new company. These integration techniques, as explained by Risberg and colleagues (2015), may involve trainings that pair off new employees and managers with their counterparts in the other company; integrating opportunities that could be offered by community service programs and organizational support networks; and, formal discussions, seminars, or meetings that help clarify and balance the organizational culture and practice of the company.
An evaluation of the ongoing process of integration is also established. Evaluation is not a procedure carried out at the conclusion of the whole merger, alongside a proclamation of successful or unsuccessful integration; instead, it is a continuous mechanism intended to produce actual, prompt feedback (Myers et al., 2012). Such feedback can afterward be employed to bolster and improve procedures that have been verified to be effective in building a collective or mutual corporate culture. One of the evaluation tools implemented is formal monitoring sessions. The objective is to create mechanisms for monitoring and investigating process and talk about issues as well as opportunities (Jabri, 2015). Systematically checking the major objectives and goals that are formulated and established in the pre-merger process is one method of monitoring progress.
In a nutshell, these key methods are used to implement the new design: formulation of an employee integration guidelines; completion of a due diligence analysis-- this includes a thorough HR profiling of the merger (e.g. unions, incentive plans); analysis of discrepancies in value and comparison of benefits-- basically, this implies comparing and contrasting the benefits or opportunities for both companies; determination of leadership tasks; elimination of identical functions-- it is highly probable that several employees will fulfill tasks being repeated by a staff in the other company, and thus leadership must accurately identify those employees that would not be of further use to the company (Grieves, 2010); and, development and implementation of communications strategy-- important communications are handed over to employees through various means, such as e-mails, letters, meetings, and so on.
How consistent was the intervention with relevant theory and literature on this subject (i.e. was it designed and implemented in a manner consistent with theory)?
The planned change of model of Bullock and Batten (1985 as cited in Cameron & Green, 2015, 104) provides an integrative framework identifying the processes of change and temporal circumstances related to planned change. According to this model, there are four stages of planned change-- exploration, planning, action, and integration. In the exploration stage, the company examines whether it is ready for a given intervention and whether it has the necessary resources to accomplish this planned change (Harigopal, 2006). Some of the leaders of company A and company B initiated the merger because they have identified the need of their company to expand its market share and attain organizational growth. With this an exploration procedure commences wherein the policies and resources of the company are pursued and verified by development scholars within the organization. In this stage both the members and the development consultants agreed about the costs, expectations, and work terms.
The second stage-- planning-- involves technical specialists and major decision makers. An investigation is accomplished and actions are structured in a change proposal. The proposal must be approved by the management before proceeding into the next stage-- action (Cameron & Green, 2015). The merger completed this planning phase, but not in a manner that is consistent with the planned change model. The merger should have gathered important information in order to evaluate the company's status, but it disproportionately focused on financial data. Thus the roots of problems and issues that are outside the company's financial position are not clearly identified. In addition, bulk of the planning task is dominated by the management, not by the members and consultants who should have mainly formulated the goals and guidelines for the successful completion of the intervention.
In the action stage, the goals for change established in the planning stage are actualized and the procedures needed for the changeover are carried out. This phase concentrates on the organization's transition from the existing status to a desired, target status (Harigopal, 2006). The merger has comprehensively monitored and assessed the change operations in order to evaluate the progress and possible weaknesses that must be dealt with. However, this supposedly thorough monitoring and evaluation process should have identified weak points in the due diligence process (e.g. excessive focus on financial analysis), in the communication system (e.g. employees are not integrated well into the new system), and in job satisfaction. And, lastly, the integration stage focuses on the synthesis and unification of the intervention in organizational operations (Cameron & Green, 2015). This has been accomplished by the merger through a variety of integration tools, like regular, proper feedback. However, the merger failed to guarantee that the new behavior needed is encouraged and sustained.
Kotter's eight-step model can also be used to assess the consistency of the planned intervention with change theories. The model discusses several of the power aspects in the successful completion of planned change, underlines the value of a 'perceived need' for change within the organization, and stresses the importance of communicating the plan and goals and keeping an open and effective communication system (Daft, 2012). Under Kotter's model, the inadequacies of the merger are brought to light. The first step-- promoting a sense of urgency (Daft, 2012) -- is duly accomplished by the merger by enhancing the 'perceived need' for the proposed intervention. Second, the merger has created an effective and competent guiding team whose members can work productively with one another. Third, the merger has established a clear vision and strategies to accomplish this.
However, the merger has failed from the fourth to the eight steps. The fourth step requires a clear communication of the vision (Kotter & Cohen, 2015). The merger inadequately communicated to the members the vision and associated strategies, as well as new behaviors, required to successfully implement the intervention. In fact, the employees are uncertain about their future in the company once the merging takes place. Fifth, the merger failed to motivate the members to committedly pursue the vision. It did not effectively eliminate hindrances to change (e.g. inefficient communication system). Sixth, the merger did not take into consideration short-term gains. It failed to develop an incentive system for short-term actual accomplishments. Seventh, the merger should have strengthened improvements and facilitated greater change by empowering and rewarding those capable of successfully pursuing the vision. It did not stimulate the change process with new catalysts of change, resources, and projects; and, eighth, the merger should have internalized and assimilated new strategies. It should have guaranteed that all the members accurately understand the need for new behaviors.
Psychologist Kurt Lewin believes that organizations usually involve a combination of change forces (motivating force for change) and resistant forces (barriers to change). When these forces are balanced, the organization is steady and secure and not bound to change (Simms, 2005). Lewin explained that effective change intervention occurs in three stages-- unfreezing, change, and refreezing. Unfreezing implies undermining the current stability of forces that provide security to the company. Lewin explained that this mechanism hinders or resolves resistance to change (Partridge & Sinclair-Hunt, 2005). The merger did unsatisfactorily in this area because it failed to reduce resistance to change by adequately or promptly updating employees about the most important aspects of the intervention.
On the other hand, change requires pushing the unstable system to the target goal. The merger also did incompetently in promoting and motivating new behavioral patterns and establishing new feedback or communication practices. And, ultimately, the objective of refreezing is to strengthen and institutionalize the new balance achieved through the change process (Partridge & Sinclair-Hunt, 2005). However, because the merger failed to establish an efficient communication system between the management and employees, and facilitate a successful cultural integration between the two merging companies, the refreezing process remains underway.
What was the impact of this intervention on various stakeholders? Why?
The merger troubled main stakeholders, particularly the senior management and employees. The senior management is worried that the merger may result in large-scale changes like modifications in existing practices or policies or the curtailing of jobs. Since there is an absence of cooperation, the merger may encounter issues in operations as the members, especially those at the top, may not be willing to reach a compromise or agree on critical issues. In case that the new company is operationally efficient, it would need a smaller workforce to carry out the tasks (Oreg et al., 2013). On these terms, the company would decide to cut back the workforce.
This brings about uncertainty among employees because they are worried about the potential consequences of the 'new' labor pool, work hours, and compensation packages, as well as the risk of losing their jobs (Jabri, 2015). This also causes worries among the management regarding the company's future because of the reorganizing of the management positions in comparison to former positions occupied. It also brings about disagreements between the managerial policies and practices of the two companies as the management may reject a proposed process for the new venture.
How was the impact of the intervention evaluated? What were the consequences of this?
An all-inclusive evaluation tool used in assessing the impact of the intervention is the Institutional and Organizational Assessment Model (IOA Model). This framework sees the organizational performance as a multifaceted concept or, more specifically, as the equilibrium between the efficiency, relevance, effectiveness, and financial vitality of the company (Stufflebeam & Coryn, 2014). The approach also claims that the performance of a company must be evaluated with regard to the company's external environment, capacity, and motivation.
*image taken from Rojas, 2016, http://betterevaluation.org/theme/organizational_performance
All of these factors written in the diagram above are evaluated in order to have an overall picture of the impact of the merger on both the internal and external environment. In terms of the external environment, the merger has a somewhat positive impact because of the comprehensive due diligence process it conducted. The same is true for its organizational performance, particularly, financial viability, since the identification and clarification process largely focused on financial analysis of available financial data. However, the merger's impact on organizational motivation (e.g. culture, incentives) and organizational capacity (e.g. human resources, strategic leadership) is quite unfavorable. More particularly, the merger did not take into full account the concept of culture in its due diligence process; it failed to consider the employees' wants and needs; it failed to establish an efficient communication of the changes needed to successfully implement the intervention; and, it fell short in integrating the two sets of workforce from different cultural backgrounds.
Recommendations and Conclusions
The merger should have performed a more comprehensive due diligence process. Those involved in the process should have initially identified the threats or risks that could have a large-scale effect on the business rationales validating the intervention. This form of analysis necessitates the participation of almost all corporate departments, especially the employees. A thoroughly planned and expertly administered deliberation with the involvement of all key stakeholders is a solid groundwork that could result in mutual commitment, dedication, and understanding.
The merger should have chosen team members and leaders who can commit adequate time and effort on the task. But, most importantly, the intervention should have prioritized how the members or key stakeholders are treated. The value of an efficient communication system cannot be taken for granted. Because of the diversity and speed of the contemporary media, this proposed communication system demands a highly thorough planning and involvement of communication specialists. Indeed, the absence of an effective communication system is frequently mentioned as one of the primary causes of the failure of some mergers.
In general, from the discussion herein and the module lectures, it is apparent that how people are treated and informed in each stage of the merger determines the successful planning, implementation, and evaluation of an organizational change. Having an accurate knowledge of financial information is, obviously, crucial in assessing the prospects of a potential intervention. Nevertheless, accurate planning and effective implementation of an intervention is also shaped by the value and focus wherein the right people are chosen and engaged.
References
Cameron, E. & Green, M. (2015). Making sense of change management: a complete guide to the models, tools and techniques of organizational change. UK: Kogan Page Publishers.
Cartwright, S. & Cooper, C. (2012). Managing mergers acquisitions and strategic alliances. London: Routledge.
Cartwright, S. & Cooper, C. (2014). Mergers and acquisitions: the human factor. Oxford, UK: Butterworth-Heinemann.
Cawsey, T. et al. (2015). Organizational change: an action-oriented toolkit. Thousand Oaks, CA: SAGE Publications.
Chmiel, N. (2008). An introduction to work and organizational psychology: a European perspective. UK: John Wiley & Sons.
Daft, R. (2012). Organization theory and design. Mason, OH: Cengage Learning.
Goksoy, A. (2015). Organizational change management strategies in modern business. Bulgaria: IGI Global.
Grieves, J. (2010). Themes and issues. Oxford, UK: OUP Oxford.
Harigopal, K. (2006). Management of organizational change: leveraging transformation. Thousand Oaks, CA: SAGE Publications.
Howson, P. (2003). Due diligence: the critical stage in mergers and acquisitions. England: Gower Publishing, Ltd.
Jabri, M. (2015). Rethinking organizational change: the role of dialogue, dialectic & polyphony in the organization. London: Routledge.
Karmann, M. (2013). Cultural dimensions of mergers & acquisitions. Berlin, Germany: GRIN Verlag.
Kotter, J. & Cohen, D. (2015). Successful organizational change: the Kotter-Cohen collection. New York: Harvard Business Review Press.
Myers, P. et al. (2012). Organizational change: perspectives on theory and practice. Oxford, UK: OUP Oxford.
Oreg, S. et al. (2013). The psychology of organizational change: viewing change from the employee's perspective. Cambridge, UK: Cambridge University Press.
Partridge, L. & Sinclair-Hunt, M. (2005). Strategic management. Cambridge, UK: Select Knowledge.
Risberg, A. et al. (2015). The Routledge companion to mergers and acquisitions. London: Routledge.
Rojas, K. (2016). Evaluating the performance of an organization. Retrieved from http://betterevaluation.org/theme/organizational_performance
Simms, H. (2005). Organizational behavior and change management. Cambridge, UK: Select Knowledge Limited.
Stufflebeam, C. & Coryn, C. (2014). Evaluation theory, models, and applications. UK: John Wiley & Sons.
