The Huge Cost Savings Sometimes

The huge cost savings sometimes cited by management of two companies who are in a merger process do not necessarily present the entire picture. Cost efficiencies of combined companies are self-evident at times, what is not self-evident is the manner in which the two merging companies are combining people and cultures. These two components of a merger are oftentimes much more synergistic than the cost savings. An executive from a recent merger of two insurance companies states, "We always want to enhance shareholder value--and the current flavor is [that] diversification does seem to enhance value in terms of share price," Mr. Bryce said, responding to an analyst's question" (Scalfane, 2009, pg. 40). What Mr. Bryce does not say is that oftentimes the combination of two vastly different company cultures may also be the source of failure more often than what is generally thought of. In any type of economy the leaders of a company are the ones to bring hope. This is especially true during a merger. One recent article espoused the fact that "it is the company leader's job to make them feel hopeful. Hopeful people are more productive, and productivity means more profits. If people are worried, productivity and profits will fall" (Kamalick, 2008, pg. 1). There are two factors that leaders must take into consideration when merging two business cultures into one. Those two factors are; 1) the effect on employee morale and 2) the corporate cultures of the two companies, are they different, if so, are they so different that the merger will face a huge success barrier?

A recent study showed that "a company must establish a strategic plan to guide management through this fast-paced strategic improvement transformation, which can dramatically improve customer satisfaction, employee morale and the bottom line" (Nash, Poling, 2007, pg. 46). The article was speaking about the changes brought about when a company is faced with certain major decisions. The article showed how management improves employee morale through implementing various changes and using an approach that ensures that the employees are considered during trying times and events. This is especially important during company mergers due to the stress involved for employees who oftentimes do not know what to expect. Employees, however, are learning that they have some power when it comes to events like mergers and buyouts, and this power can sometimes lead to trouble, especially if the employees are not taken into consideration during merger events. One company learned that the hard way when employees sued them for misleading statements during a buyout. "Descendents of Charles Stewart Mott, the industrialist who created the foundation that bears his name, have been accused of cheating employees at a sugar company out of an opportunity to sell shares in their retirement plan at an attractive price, the employees allege in a class-action lawsuit" (Gose, 2008, pg. 1). In today's environment employees can bring about lawsuits against the companies they work for if they feel that they are being taken advantage of. This type of action can be quite harmful to the company.

Therefore, considering the effects of a merger, acquisition or buyout on the employees becomes very important. One expert recently stated that merging companies are in much need of a strong focus in order to achieve synergy amongst the employees, especially if the companies are traveling different paths. "That's the big issue -- focus, said Frits Bosch, director of Bureau Bosch, a specialist institutional investment consultant based in Nuenen, Netherlands. These are two very different companies currently moving in different directions and they're searching for a new focus but it's not there yet" (Hua, 2008, pg. 3). Oftentimes mergers are announced without that focus, and before the deal is consummated, the two parties realize that the synergy they thought might be there, is absent. This can be costly to one, or both, of the merging companies. An example was the merger between Huntsman's and Hexion Specialty Chemicals. A recent article reports that "it was a tough fight, the drama that was Huntsman's busted merger with Hexion Specialty Chemicals has ended...with a $1 billion settlement" (Chang, 2009, pg. 14). That's billion with a 'B'. Some companies realize that keeping employees happy, safe and content is good business. "Management at Worthington Industries, a Columbus, Ohio- based steel processing company recognizes that employees are most productive when they are working safely and in good health" (Walter, 2008, pg. 40).

Keeping the employees safe and in good health is only part of the solution when it comes to mergers, because mergers are stressful even if the employees are happy. Communication during tough times becomes an important factor, along with keeping employees happy. Communication can also help in changing a company's culture. One expert writes, "Every company has a distinct culture as well as its own idiosyncrasies. Some idiosyncrasies enhance performance while others breed dysfunction" (Haper, 2009, pg. 46). Haper states that the dysfunctional cultures portrayed in Dilbert comic strips or in television shows like The Office are far too common in many companies. He writes, "numerous factors contribute to poor corporate cultures, but with awareness and a strategy for improvement, they can be removed" (pg. 46). Haper believes that the key ingredient to a successful corporate culture is the commitment level of the employees. Haper said, "If the people are not committed, then nothing else can make up for a dysfunctional culture" (pg. 47). The question then becomes, how to get the employees committed when faced with the uncertainty of a corporate merger. One method for doing so would be for employees from both companies to meet in a social setting as well as in the workplace. Another method is to ensure that employees from both firms understand the focus of the new company. This can happen through corroboration and communication. A good example of this type of corroboration is the synergy between WalMart and Proctor & Gamble (P&G).

Though the two companies have not merged (and presumably do not plan to do so in the near future) their cooperation can be a guiding light for those firms who are in the process of merging. One recent article espoused the fact that "Their collaboration has included continuous- replenishment technology and several initiatives at the point of sale, such as an effort to boost Wal-Mart's share of cough, cold and flu remedies by jointly stressing the need for consumers to be prepared for such illnesses. The effort helped increase Wal-Mart's market share of the products by 30%" (Hamstra, 2008, pg. 21). Part of the reason behind such collaboration is that A.G. Lafley, the CEO of P&G has established a culture there that relies on workers who are committed to excellence. Hamstra writes that "Lafley refocused the company on serving the consumer and built a corporate culture around a redefined mission of product innovation" (pg. 20). Merging companies may take a page out of Lockheed's book as well. Lockheed has a number of employees who have been working there for a number of decades. "And the employees are good at what they do. Along with happy employees, Lockheed also seems to have happy customers. A corporate motto, 'We never forget who we're working for' is taken to heart" (Bangert, 2008, pg. 32). It would seem then that ensuring that employees are happy is a key ingredient in a viable company and especially in a merger situation.