Change Process and Organization Development

Organization Development and Change Process

Merger and acquisitions refer to the combinations of two or more companies forming a new company. In other words, mergers and acquisitions (M&A) are the strategic move of corporate organizations dealing with an aspect of dividing, buying and selling of different companies of similar entities to assist the enterprises to grow. One of the examples of the major merger was the merging of Uniphase Corp. And JDS Fitel Inc. In 1999 where the two companies formed JDS Uniphase. A major example of acquisition is an acquisition of John Hancock Financial Services Inc. By Manulife Financial Corporation's in 2004. Typically, merger and acquisitions make a big news in the business world because millions or billions of dollars are generally involved. In the United States, Wall Street bankers and analysts arrange M&A transactions daily bringing separate companies forming single larger companies. Major goals of embarking in M&A is to create shareholders' values, enhance more competitive market advantages and form cost efficient company. Some companies implements the M & A initiatives with the goals of gaining greater market shares. Despite the benefits to be derived from merger and acquisition business scenario, M&A is a very risky investment, some companies have lost millions or billions of dollars from the investment.

Since 1980s, the United States has witnessed a wave of corporate M & A (merger and acquisitions) driven by the dramatic changes in the global business environment, and the goal of M&A is to achieve competitive market advantages. Although, M&A are undertaking for good reasons, however, almost two-third of the M&A operations do not work. Love (2000) points out 30% of the M&A are sold off within 5 years, and 90 of these 30% never live up to their expectations. Many M&A fail because the management do not integrate effective and efficient HR (human resources) roles in the M&A process. In the contemporary business environment, human resources plays critical roles in the successful outcomes of M&A in the United States and other part of the business world.

Objective of this paper is to evaluate the role of HR in the successful implementation of M&A in the business world.

Identification of Major Mergers within the past 20 Years

This section identifies different mergers that have taken place within the past 20 years while some of the mergers are successful, some mergers end up in failure. Their failures show that merger is inherently risky and need a proper strategic planning.

The lists below are the major mergers that have been carried out in the last 20 years:

1.Tokyo Electron (TOELY) and Applied Materials (AMAT)

Transaction Value: $10 billion

2. Spectra Energy Partners (SEP) and Spectra Energy Corp.'s (SE)

Transaction Value: $9.8 billion

3. American Airlines (AAMRQ) and U.S. Airways (LCC)

Transaction Value: $11 billion

4. Thermo Fisher Scientific (TMO) and Life Technologies (LIFE)

Transaction Value: $13 billion

5.Liberty Global (LBTYA) and Virgin Media

Transaction Value: $16 billion

6.Publicis Groupe (PUBGY) and Omnicom Group (OMC)

Transaction Value: $17 billion

7.Comcast (CMCSA) and NBCUniversal Media

Transaction Value: $17 billion

8.Michael Dell and Dell

Transaction Value: $25 billion

9.3G Partners and Berkshire Hathaway (BRK.B) and H.J. Heinz

Transaction Value: $23 billion

10.Verizon (VZ) and Vodafone (VOD)

Transaction Value: $130 billion

11.Exxon and Mobil

Transaction value: $81 Billion

12.Disney and Pixar

Transaction value: $7.6

13. Sirius and XM radio

Transaction value: $1.6 Billion

14.Mattel and The Learning Company

Transaction Value: $3.5 Billion

15.Sprint and Nextel

Transaction Value: $35 Billion

16.Boston Scientific Corp and Guidant

Transaction Value: $27 billion

17.AOL and Time Warner

Transaction Value: $111 Billion

18.Quaker and Snapple

Transaction Value: $1.7 Billion

19. Vodafone and Hutch

Transaction Value: $13.3Billion

Identification of Successful Merger and the Role Played HR

Organizations involving in merger and acquisition often pay a great attention on operational element of M&A that include legal and financial aspects. However, executives are to realize that successful merger require managing the human side to maximize the real value of the transactions. (Armour, 2000).

The merger between Vodafone and Hutch is one of the most successful mergers in the business world with the value of the transaction of $13.3 Billion. At the pre-merger stage, both parties agree they need to change their corporate cultures and integrate their culture forming a new culture. At this phase, HR played important role in the integration process. At pre-merger stage, the role of HR was to align the organizational intangible assets that comprised HR culture and issue. Thus, the organization formed an informal task force comprising of the HR leaders and business leaders. The task force composed of 40 members that consisted of senior members of both parties. At this stage, due diligent was carried out to achieve the talent profiling to understand the available skill set.

At the post-merger phase, the organizational changes were met with feeling of doubt and anxiety, and the feeling was positive when the organization implemented a layoff and redundancy of employees. At this stage, HR took care of employee feeling through series of stress workshops. The company also used the online communication to facilitate communication and diffuse visual and audio information. HR also communicates with employee through the internet. Face-to-face communication was also carried out to employees aware about the company activities. HR also performed the functional expertise role to assist in talent acquisition, and talent retention.

The HR also performed the role of human capital development using the technical training, softskills training, orientation programme, team intervention and career pathway. Typically, orientation programme was used to enhance knowledge of employees about new changes that had taken place within the organization since

Vodafone had developed a new organization culture and values that occurred through cultural integration, and human resources carried out the role of career management for the employees' promotion. The outcome of the merger makes Vodafone to be one of the leading operators of Indian mobile market making the company becoming a leading operator in telecommunication sector .

The merger between Exxon and Mobil is one of the most successful merger that has ever occurred in the business world with the value of the transaction is $81 Billion. Typically, the transaction makes Exxon Mobil to acquire the status of becoming the largest company in the world. The merger was so big, and forced the FTC (Federal Trade Commission) to restructure some of the gas stations of the Exxon & Mobil's to prevent monopolization despite that FCT 40 approved the merger. The outcome of the merger makes ExxonMobil to become one of the largest oil company in the world with a hold in the international market, which makes the company to enjoy dramatic earnings. In essence, ExxonMobil remains largest publicly traded company in the world.

Other successful mergers are:

Merger of Citicorp and Travellert forming Citigroup.

J.P. Morgan and Chase forming JPMorganChase.

Disney and Pixar merger was also other successful merger and deal was $7.6 Billion. The merger allows the company to exploit both organizational and financial synergies. Typically, the merger has made the company to increase their stock prices, which assists the company to achieve growth rate.

The merger between Sirius and XM radio merger is another successful merger with the value of the merger worth $1.6 Billion. The merger between the two companies assists them to deliver broader offering to customers. Moreover, retailers such as Circuit City, Best Buy, RadioShack, Wal-Mart and other retailers are able to benefit from the product offered by the company. The merger has also made the companies to achieve financial performances and assist them to manage the costs of operations effectively. The merger has also assisted the companies to achieve competitive market advantages in the audio entertainment.

Love, (2000) argues that human resources play a diligent role in the successful merger outcome. Typically, the ExxonMobil has been able to derive success from the merger because of the diligent strategy that the organization employs to manage its HR process at both pre and post -- merger stages. Typically, ExxonMobil uses a seven-step model developed by the McCann & Gilkey (1988) to define the role of HR in the merger process. McCann & Gilkey (1988) developed a useful framework that assists the ExxonMobil to manage the human resources through the M&A process.

Typically, the human resources played a critical role at the pre-merger process because the ExxonMobil involved employees who were knowledgeable in the negotiation process in the pre-merger process. Moreover, the companies created an effective team to manage the M&A process. It is essential to realize that some mergers fail because corporate executives do not integrate human resources who are familiar with change process. (Marks and Cutcliffe, 1988).To avoid the pitfall associated with the merger, the ExxonMobil used a group of personnel who were highly skilled in the change management to implement the pre-merger process.

Bramson, (2000) discusses the key role of human resources in the merger between Shaw supermarket and Star supermarket, and the transaction value worth $500 Billion. In the merger and acquisition process, human resources of both companies play critical roles in the integration process. Schuler, Jackson (2001) support this argument by pointing out that large firms are relatively successful in the integration process because they are able to implement systematic approach in dealing with human capital through all stages of merger from pre-integration to post-integration.

During the integration process between the Citicorp and Travellert, there were differences in the culture of the two companies and incompatibility in corporate culture and gaps were likely to occur that could affect the integration process. Citigroup was successful in its integration because the company identified the HR issues as one of the major reasons for the integration. In essence, the company retained the key talented personnel by combining the key important personnel from both Citicorp and Travellert, who would be responsible to run the company.

Moreover, the companies created the dedicated senior executive who were skilled and dedicated to run the new company. Hence, the Citigroup and ExxonMobil were successful in their merger process because the companies created a pool of talented employees redeployed to the new company. More importantly, Citigroup conducted a preliminary implication of the M&A process on HR. The company also conducted analysis on how the integration process was likely to affect all the personnel within the organization. At the pre-stage merger stage, Citigroup also evaluate their values and philosophy that include leadership style, and team work procedure vs. individual work procedure.

At the post-merger integration, ExxonMobil and Citigroup standardized the work procedures to improve productivity. Moreover, ExxonMobil and Citigroup provided a support for the affected employee since some employee were affected at post-merger stage. It is revealed that structuring of workforce was carried out immediately after the merger was finalized. Thus, the company organized the stress management workshops to assist surviving employee to cope with stress associated to the M & A process.

Lotz, & Donald, (2006) argue that lack of success in the merger and acquisition is because employees do not receive adequate attention during pre and post-merger process.

Typically, "the stress that they experience during the process. This oversight exists despite the fact that employee problems have been blamed as being responsible for a third to one half of all merger failures." (Lotz, & Donald, 2006 p 2).

Since these companies have identified that stress as one of the factors that leads to a failure of M&A, the companies organized the stress management workshop for their workers.

Identification of Mergers that were not Successful

This section identifies some examples of mergers that are not successful. The paper also discusses the roles that HR would have played to make the merger to be successful. Some of the examples of failed mergers are:

Sprint and Nextel Communication

In 2005, the Sprint and Nextel Communication merged to form one company. The goal of the integration was to gain market advantages in the cell phone sector . While the transaction value of merger was $35 billion, however, the merger did not stay long because of the clash of corporate culture of the two companies. Moreover, competitions from Verizon and AT & T. drove sales of the newly formed company. Lack of sales made the Sprint and Nextel to lay off some workers. Typically, the merger failed because the stocks fell down.

The merger of Quaker and Snapple was another failed integration. The transaction of the merger was $1.7 Billion. However, the merger failed miserably because some months after the merger process, there was a drastic drop in the market shares. 27 months after the merger process, the Quaker sold Snapple for $300 and lost $1.6 Billion worth of merger transaction. The reputation of the CEO William Smithsburg's was tarnished and several executives were fired.

A merger of Boston Scientific Corp and Guidant was another failed merger in the United States. The deal between Boston and Guidant was $27 billion. After years of mismanagement, the stock of the new company depressed drastically and its shares only worth $7.2 billion. The company recorded more debt than its physical assets.

Human resources can carry out important roles in ensuring that mergers of these companies become successful. First, the human resources can assist in integrating the corporate culture of the two companies and sort out the differences that have arisen in the culture of the companies. At pre-merger period, the two companies should have chosen the personnel specializing in corporate change to study the corporate culture of the two companies and recommends the strategic changes that can assist in integrating the culture of the companies.

The merger of the Sprint and Nextel Communication failed because of the incompatibility in their corporate culture. Bramson, (2000) argues organization is required to study the similarities and differences in the culture of the companies at pre-merger stage. Buiter, & Harris, (2007) believe that merger can have harmful effect on employees behavior, performance, stress, and satisfaction. Moreover, mergers is associated with increased layoffs and employee turnover.

"Social exchange relationships are an exchange of socio-emotional benefits, mutual trust, and open-ended commitments and high-quality social exchange relationships encourage employees to form attitudes and exhibit behaviors that have favorable consequences ." (Buiter, & Harris, 2007 p 1) .

In essence, human resources at pre and post merger can be used to achieve better performances. For example, organizations are required to carry out extensive training and development for employee at post-merger to make employee acquire necessary skills to carry out their new tasks at post-merger stage. (Boselie et al., 2005).

Weber, & Rachman-Moore, (2011) believe that human resources should assist in managing cultural conflict since inter-cultural conflict is one of the major factors leading to the failure of merger in a contemporary business environment. Conflict can arise when there is an incompatibility of goals. For example, a structural problem can arise if there is a difference between parties' perception, positions, strategies and techniques in resolving issues. During the merger process, conflict can arise where there is a different between organizational cultures where each party perceives others as having negative intention to the successful outcome of post-merger phase. Thus, human resources should play a critical role in managing cultural conflict during the post-merger process. For example, it is the responsible of human resources leaders to study the cultures of both organizations, identify the cultural difference and design strategy to integrate both cultures to enhance organizational efficiency. Training and development is an effective strategy that can be employed in managing conflict. Thus, training of employee across the organization will make all employees to understand the application of the new corporate culture.

Best HR practices in the Organizational Change

In the contemporary business environment, businesses of all sizes have one time or the other undergone organizational changes. However, an effective HR practice is very critical when organizations are carrying out an organizational change to derive maximum benefits from the change process. Typically, fair treatment of employees and effective communication with employees are decisive factors that can enhance success of any change initiative. Within an organization, HR Director has the primary responsibility of managing of employee during the change process. The primary goal of HR leaders is to motivated employees during the change process, and when employees are unmotivated, they may resist changes rather embracing the change process. A survey of 1,000 companies carried out by the Watson Wyatt reveals that 30% of these companies failed to attain their profit goals and objectives after a merger. A report carried out by the KPMG also reveals that 83% of the corporate mergers failed to enhance values of shareholders. Essentially, poor communication during the change process is one of major factors responsible for failure of change process. The issue is particular common in government agencies. For example, attempts of dozens of agencies such as the Secret Service, U.S. Customs, FBI, the Coast Guard, and other agencies to merge in other to enhance performances has been plagued by inefficiency and poor performances. During the change process, leadership fails to communicate a vision to employee, which should be used to unite all employees. (KPMG, 2014).

Typically, leaders need to communicate a clear vision and clear guidelines on the strategy to implement effective jobs after merger operations.

"Such communication from leadership also increases employee perceptions that the organization is trustworthy, honest, and caring. For example, a realistic merger preview can reduce employee uncertainty and workshops that communicate the logic and rationale for the merger have been found to reduce negative feeling." (Buiter, & Harris, 2007 p 2) .

During the change process, communicating the vision to the subordinates is one of the best strategies to manage change process. When a clear vision is communicated, misinterpretation and misconception among employees will be removed. Branson, (2008) support this argument by pointing out that successful change planning involves communicating a clear vision to the subordinates. If a leader does not provide a clear vision about the change process, the change efforts will not be permanent and may be short-lived. Thus, a leader should provide a clear vision that provides the direction that employee must follow. Moreover, the vision should be compatible to the mission statements that should articulate desire behaviors to make employee articulate an ideal culture that will enhance effective organizational changes.

A report by the American Management Association (2014) supports the argument of previous authors by pointing out that a clear vision communicated to employees is very critical in eliminating misconception during change process. Moreover, organizations should communicate forthcoming changes to employees and this assists in addressing the questions that employees may attempt to ask. More importantly, designing communication plan naturally reinforces vision that delivers overall benefits for the changes process. It is also very important to communicate the change process to employees because of the important roles of talented staff. In any organization, talented staff plays a critical role to the success of an organization, and they are the first category of employee to leave an organization if their future prospects are unclear during the change process.

Siegenthaler, (2011) contribute to the argument by pointing out that some mergers often fail because people to carry out the change process do not have required and necessary skills and experience to plan the project. Organizations are required to redefine their new values, new vision, as well as redesigning the way that employee will work when carrying out the change process. Siegenthaler (2011) recommends different human resources practices that should be implemented during the change process.

First, organizations carrying out the change process should make the vision tangible. For example, the human resources should translate the vision into visible manifestation by coaching the senior and middle-level management the strategy to comply and adopt the new rules. Implementing the strategy will make new way of working and new values becoming tangible, which will be gradually emulated by the entire organization.

Moreover, human resources should play a critical role in selecting appropriate individuals, who will carry out the integration process. Typically, organizations should involve the HR in the change initiatives and should not leave the process only to departmental and functional heads to minimize business disruption.

Siegenthaler, (2011) also suggests that effective communication with the human resources is the cornerstone of the change initiatives.

"Communication plays a crucial role in developing knowledge and capabilities, and is essential in teaching, training, and learning, especially in cross-cultural management. Knowledge transfer situations are communication intensive, often involving several months of heavy interaction between transmitting and receiving parties." (Weber, Rachman-Moore, Tarba, 2011 p 80).

Typically, knowledge is effectively developed when there is an effective coordination between different units through a communication between employees and managers of both companies. It is essential to realize that lack of effective communication with employees can lead to tension, and heightens cultural differences.

Essentially, organizations are required to pass relevant message about the change process to relevant groups in the organization to clarify the overall change process. Typically, HR plays a critical role in identifying the target audience that the organizations will direct the communication. Moreover, human resources should be in charge of training of relevant individuals, who are required to deliver presentations in order to secure support of overall employees. It is critical to understand the not all managers are excellent communicator, especially team leaders and middle-level managers. Thus, human resource are required to carefully craft effective message that will be disseminated across the entire organization to derive support from overall change process.

Yasmeen (2010) contributes to the argument by pointing out that human resources should assist managers and employees to manage their low morale, and stress through educational seminars, which should focus on issues that affect employees. Moreover, human resources should reinforce a new culture by merging the two different cultures of the both parties together.

When organizations with different cultures merge, HR management should preserve the "best aspects of the old company and to carry them into the new company. What cultural characteristics and values senior executives want to preserve from their respective companies should be understood along with understanding what they don't want to keep and what new characteristics they want to introduce in the new organization." (Yasmeen, 2010, p 19).