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Datasil, a Canadian distribution firm specializing in sale of computer and electronic equipments was apparently bought by the US firm with a carefully planned strategy to access the Canadian Market. According to experts firms that plan expansion in other countries must thoroughly evaluate the external and internal factors of the M&A before establishing an operation in a new country (East 1). The expansion plan must address all these issues before initiating the process in order to achieve a smooth transfer of operations. According to East, the first and foremost issue is the financial soundness of the target company (2).The issues that must be dealt with may be legal, political, cultural, social and economic in nature. The external issues may be the existing competition and regulations concerning environmental policies etc. The US firm considered acquisition of Datasil as the best strategy to gain entry into the Canadian market because many of these issues can be bypassed in joint ventures as the domestic firm has taken care of these issues before. The aspects where farsightedness in planning is evident are described in detail in the following paragraphs
The US company’s systematic implementation of the acquisition process reflects the fact that it had given considerable attention towards facilitation of smooth integration of both the firms’ operations. Planning is the process of defining the organizational goal and devising means of achieving them (Williams, Kondra & Vibert 9) and acquisitions can fail if they do not fit into the core business. The areas in which the firm displayed a well thought of plan can be described under the following heads
Operations. The US firm wanted to expand its operations to Canada; however instead of beginning from scratch and setting up its own subsidiary, it opted to take over a firm who already had a well established distribution network. This reflects the US firm’s pragmatism in planning an acquisition because establishing an entirely new unit would require it to complete the necessary legal formalities, incur cost in setting up a facility and sales promotion. By buying an already functional unit it would not only get an access to its market share but also to its resources. East (3) observes that market share can be increased by grabbing already established customer loyalty through M&A and then working on it to further increase it. Also it planned to achieve economies of scale by merging the operations of both the companies and increasing the size of the organization (East 3). In the long run it intended to directly deal with the customers by supplying them directly from the US distribution outlet ensuring that the US firm’s revenues are increased.
Employee Support. The US Company seemed to be well aware of the fact that without obtaining cooperation of work force, the acquisition may fail miserably. The actual effort of aligning the cultures of two companies’ depends upon a thoughtful and complete analysis of the work force being acquired (East 4). From investigations it would have been clear that there was a dissatisfaction of the employees due to the autocratic treatment it suffered in the hands of existing management. Therefore, it made efforts to ensure employee support by promising them more autonomy, compensation and participation in decision making. Also it offered them up gradation of working conditions and providing them a more comfortable working facility. The job contents would be revised to incorporate enrichment and motivation to the employees as a strategy to enlist employee support. The management showed a friendlier disposition towards the work force which was a welcome change from the previous management’s autocratic behavior.
Organization Structure. The management planned to restructure the organization in such a way that the line of communication would be oriented laterally instead of vertically with a view to introduce team work within the organization. A top to bottom line of communication usually does not work in joint ventures because employees of the two organizations may dislike taking orders from bosses of the other firm. To address this issue the plan facilitated the appointment of a Canadian Operations Manager who could interact better with the local staff. The general style of leadership transformed from autocratic to democratic which is necessary for the smooth blending of the two merged cultures where participation of staff in decision making process develops mutual trust and cooperation.
Administration. The US firm had planned gradual integration of administration of the two organizations, after building good employee relations. With this in mind they introduced an online coordination with the head office, where all orders would be processed at the head office and the distribution system would be finalized. This reflects the Management’s plan of introducing changes step by step after gaining employee confidence. A systematic step by step integration of functions minimizes internal resistance.
WEAKNESSES OF THE PLAN
Although the acquisition move reflects a well planned strategy, it was not without weaknesses. Some of the weaknesses in the plan have been described below
Supply Chain Management. The US firm had overlooked the management of the supply chain network after integration of operations of both the firm. Although it had introduced a common centre for order processing and distribution at the US Warehousing unit, it did not plan an effective documentation or codes for the orders which decided the lead time for delivery. As a result there were instances of mismanagement and customer dissatisfaction. The new distribution system did not address issues regarding mode of transportation, proper communication between all the components of the supply chain network and training of the staff about codes etc.
Internal Communication. There was an obvious lack of communication between divisions regarding shipments and distribution which resulted in confusion or repetition. Custom duties were not levied correctly because of lack of information. The departments involved in supply chain network failed to work as a team. All these issues must have been foreseen before and addressed to achieve a smooth distribution system.
Management Information System. Another key area that was neglected was the development of a well planned MIS. Although the online system of order processing and distribution was introduced, an electronic platform for common access was not designed. Therefore orders could not be tracked and were delivered late and with erroneous duties.
Customer Satisfaction. During an acquisition move, all stakeholders must be kept informed of the new developments. The US firm formulated a well planned strategy to win the confidence of employees and investors but failed to keep the customers informed about the new developments. As a result the customers were ignorant of the new billing procedures and dissatisfied with the new distribution and billing system.
EXTERNAL ENVIRONMENT
For a JV to be successful the external environment surrounding the organization plays a significant role. The external environment comprises of the competition, Economic sustainability, availability of resources as well as the geographical, political, legal and economic conditions of the destination country. The political and geographical conditions of US and Canada are almost the same and are adaptable easily. The legislations related to acquisition are not very strict and facilitate easy entry for multinationals. Therefore the US firm would not have entry problems in Canada, moreover by the acquisition of a Canadian organization many of the legal procedures for setting up a new subsidiary is bypassed. Economic environment like recession often influence expansion strategies. (Petsa 112) has advised that during economic recession, companies may use mergers and acquisitions strategically to buy weaker competitors, integrate markets, gain share, build competitive advantage, and get ready to move ahead of competition as economy improves.
The JV has to confront the competition posed by domestic and international distributors and manufacturers of Computer equipments. Unless it comes up with an effective system with the least lead time for delivery and addresses customer grievances about billing, it faces the threat of losing them to its competitors.
CHANGES RECOMMENDED FOR DATASIL’S PERFORMANCE
After the introduction of online operations with the head office with all orders being processed and shipped from the US warehouse, there seemed to be noticeable disillusionment among the employees about the new distribution system. They feared that customer dissatisfaction because of additional freight charges and lateness in delivery owing to the origination of the shipment from the US warehousing.
Also there seemed to be lack of communication between the custom’s department, purchasing and sales department resulting in confusion, further adding to the customer dissatisfaction. In order to deal with the internal performance and staff dissatisfaction the following steps are recommended.
Proper Coordination between the divisions. It appeared that there was a lack of coordination and information sharing between the two divisions, the employees did not enter correct codes for order and shipment method. As a result the processing of orders took time. Moreover not using fast carriers resulted in delayed delivery which irked the customers. Hence the divisions should share necessary information regarding codes etc. to facilitate prompt delivery.
Restructuring the Organization. Although a lateral line of communication was promised by the head office, it is observed that there is a lack of communication between the functions. At present the organization structure is purely functional, which is not very effective in distribution business. An interactive functional structure is more useful in distribution business. Therefore the organization should be restructured to a matrix line of communication where orders are processed in a formalized system through purchase – sales – dispatch network.
Training concerned staff about order and Carrier Codes. Since delay in distribution was due to entry of wrong order codes, proper training should be provided to the staff about data entry and understanding the specification of orders. Also the sales staff must be trained to address customer dissatisfaction by keeping them informed about the new system.
Using Logistics to track shipments and predict delivery. The organization should use software that scan codes and use computerized tracking systems to predict exact date of receiving shipments. This would enable the Canadian Warehouse to arrange timely distribution of shipment instead of waiting in the warehouse.
Using Efficient Carriers. Since much of the delay occurred due to slow carriers , the US head office should consider hiring fast carriers for delivering the goods to international customers. Using air freight to deliver urgent items can result in considerable reduction of lead time. Since the management of Datasil solicits employee suggestions for improving performance, the managers must provide feedback and suggestions to overcome the barriers in effective handling of distribution.
Billing and Accounts. It has been concluded that customers are dissatisfied because of the additional freight charges payable owing to material being shipped from US warehouse. It has been suggested that the freight charges be included in the total sales as done previously. Also the system should generate alternate bills for Canadian customers in Canadian Currency. Easy online payments must be facilitated so that the customer does not have to incur extra charges in commissions or conversion charges.
Effective coordination between departments. Many of the problems were attributed to lack of interdepartmental coordination and communication. Sharing of information is very important between departments for smooth and efficient delivery. Concerned departments should work as a team to enhance performance. Confusions in custom duties often lead to erroneous billing a source of customer dissatisfaction.
Respecting Autonomy. It could be inferred that the Customs and Traffic department employees were dissatisfied because of being over burdened by responsibilities that did not fit with their job description. Moreover they were often held responsible for delays, wrong billing and extra expenses in transportation. Since the new management had granted more autonomy to managers and supervisors, they were also accorded more accountability which was not the case with the previous management. The head office should give the department more credit for doing their jobs efficiently. Autonomy to make decisions should not be just a formality. The decisions taken by the managers should be respected and upheld. Criticisms or blaming results in demoralizing them and affect performance negatively.
Promoting Teamwork. It is obvious that the departments involved in the supply chain are not working as a team; rather they function as individual centers often contradicting specifications and creating mismanagement. If the departments function as a team where information is exchanged both formally and informally with the objective of improving performance and thereby customer satisfaction, it would result in efficiency in service. (Hitt., et al. 526) suggests that the acquiring firm must also learn the new and valuable knowledge inventories held by the acquired firm. The acquiring firm can increase its capabilities further by consolidating the knowledge gained from acquired firms. Thus, the learning that occurs from team work in the acquisition venture and the integration thereafter is critical to its sustainability.
Using Motivational Tools. The Customs and Traffic department staff displayed their dissatisfaction and felt that they were over burdened, blamed for inefficiency and not given due credits for their performance. Without proper incentives, the staff presented disinclination to continue in their jobs. The management should take steps to design a motivational policy where good performance and commitment to the job would be acknowledged through rewards, monetary incentives and positive feedback from customers. Rewards may be in form of promotions, more autonomy and responsibility.
Building Management Information System. The organization must build a common database for all departments constituting the supply chain integrating both divisions where they can access codes and custom duties for regular and special orders, codes for ordinary and premium carriers and the progress of orders. This would be effective in expediting orders, responding to customer queries, eliminating confusion and errors and implementing a proactive distribution facility.
Maintaining an Inventory system. Instead of delivering all orders from US warehouse, orders directly delivered from Canadian warehouse may reduce lead time in delivery considerably. This would require maintenance of inventory at the warehouse and arrangement of supplies directly to and from warehouse, although orders may be processed centrally at the head office.
Works Cited
East, Tom. "5 Drivers of Successful Mergers, Acquisitions".HVACR Business. 2012.Web. Accessed 15 June 2016 at<http://www.hvacrbusiness.com/5-drivers-successful-mergers-acquisitions.html
Hitt, Michael A., et al. "Mergers and acquisitions: Overcoming pitfalls, building synergy, and
creating value." Business Horizons 52.6 (2009): 523-529.
Petsa-Papanicolaou, Lena. "Success factors in mergers and acquisitions: complexity theory and
content analysis perspectives." (2007).
Williams, Chuck., Kondra, Alex., and Vibert, Conor. Management. Canada: Nelson, 2008. Print
