Professional Documents
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resource management
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Mergers, acquisitions and human resource management
'there are no set rules about what makes a merger or acquisition successful'
(1989: 276).
Configurations of more and less successful tactics have been suggested,
Jemison (1987 and 1988), Buono and Bowditeh (1989), McCann and Gilkey
(1989), Hunt (1990) but these remain very broad and type determined.
Hence, the hostile acquisition, by an experienced eompany motivated by
markets and growth, of a badly managed, smaller company of inexperienced
managers implies a very different set of post acquisition behaviours by the
buyer than a merger agreed to by two friendly owner managers, but even
here behaviour has not been precisely specified. Generalities are the
inevitable outeomes. For example, Buono and Bowditch (1989) in their
survey of the diverse literature come to the conclusion that 'com-
munications from both managements appear to be important' (pp. 194-5).
But while this truism is interesting if not very helpful to the practitioner nor
is their other conclusion: 'While most experts agree that communications
should be open, honest and continuous there is disagreement as to where
the communications should come from . . . existing management or the
new parent firm' (p. 199).
Nevertheless, at a macro level, certain variables recur in the research
and these are believed to have significance for the human issues (if not the
HRM function) in the broad sense of winning commitment after
acquisition from the acquired people. These variables include the motives
of the acquiror which has led to numerous attempts to classify strategic
intentions of the acquirors (Ansoff 1965; Pritchett 1985; Haspeslagh and
Jemison 1987; Buono and Bowditch 1989). Other macro variables which
have attracted researchers include the condition of the acquired company
(Hunt et al., 1987; McCann and Gilkey, 1989), its relative size (Kitching,
1973; Hunt et al., 1987), the experience of the actors (Hunt et al., 1987;
Buono and Bowditch, 1989) and the buyer's access to audit the firm he
wishes to buy (MeCann and Gilkey, 1989). All of these variables have been
found to variously affeet the outcomes. The negotiating phase has also
attracted wide interest though most of it is speculative. The tone of the
negotiations, the price of the bid, the time pressure to complete the deal
and the need for secrecy are additional variables (see Hunt, 1988) which
might be found relevant to success or failure. It is interesting that most of
these variables tend to be researched as though no humans were involved
in the acquisition at all.
In contrast, the post aequisition or implementation phase has produced
the largest HRM related literature most of it only marginally affected by
these macro variables. One segment of this literature focuses on the
reactions of people, especially the employees (Ivancevich et al., 1987;
Buono and Bowditch, 1989). Typically, if the macro variables do rate
attention then it is the motives of the buying company and the tone
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systems. In the unsuccessful cases the sellers staff did not understand the
buyers reporting systems and felt the buyer's staff demanded excessive
amounts of information. Buyers in successful cases did not impose
unilateral control systems (accounting, personnel) on the acquired firms.
In 100 per cent of the unsuccessful cases they did.
When we considered the HRM issues, which related to success and
failure, the relevant behaviours by the acquiror were much more specific.
In the majority of the successful cases, the buyers predicted there would be
personnel problems and acted quickly to resolve them, believing that
getting the acquired people committed to the new status was essential.
They invested time in explaining their personnel systems. In contrast, in
every case of failure the behaviour of the buyers team, post acquisition,
aroused resentments about specific personnel questions. The clash of
cultures or styles, which is the most frequently cited cause of failure in the
implementation literature, was also supported by this study but this was a
local issue not a global conceptualization of culture. The acquiring
managers of very successful cases worked hard to deal with conflicting
values and beliefs. In the unsuccessful cases these issues were not tackled.
Jemison (1988) examines post acquisition behaviour in terms of strategic
capability transfer. In a grounded theory exploration of acquisitions in
related businesses he concluded that integration is characterized by it being
a long, interactive process in which four facilitating conditions may create
the conditions within which the transfer can take place. These conditions
were very similar to the situation found in the successful British and
American cases. First, the cause-effect knowledge of benefits was clear to
the people involved. Second, reciprocal organizational understanding
occurred such that the people in both firms developed an understanding of
each other. Third, there was a willingness and capacity to participate; that
is both sides had people willing and ready to participate in the transfer
capability. Finally, there were slack resources meaning that managers.had
elbow room to deal with unexpected events.
What this and our research indicates is that the behavioural processes
post acquisition are of prime importance in success and failure. However,
the generality of the results encourage a literature which is not very specific
either about these behaviourial necessities or about the role of the HRM
function. To address this problem, representatives of the forty buyers and
forty sellers were asked in face-to-face interviews to be specific about the
important HRM issues which, if handled sensitively, positively affected the
implementation of the buyers strategy post acquisition? Responses from
these eighty respondents were ranked in order of frequency. The results
were as follows:
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Targeting
Once the acquisition team has focused on the seller firm, the HRM
function may become involved in data search for detail. What is it that the
buyer intends to buy in human terms. Possible activities are:
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Access to these data will vary with the type of bid. In a hostile bid these
data are much more difficult to obtain, but not impossible through market
intelligence. The amicable bid between friendly rivals should make most of
this information readily available.
The importance of the HRM input is not only its relevance as facts but
also its affect on the negotiations stage. Provided the data collection phase
has been effective then the subsequent stages should not be burdened with
surprises (e.g. complex financial arrangements in pension funds; over-
generous employment contracts, golden parachutes etc.). In the UK study
of forty acquisitions, every case of failure was characterized by subsequent
surprises about at least one major HRM issue. For example, in one case a
£6 million debt was found, after closure, in the acquired company's
pension fund.
Negotiating
Most acquisition teams exclude the personnel professional from the
negotiating team. There are disadvantages and advantages in this practice.
First, it excludes the professional who should have skills in negotiating.
Conversely, it keeps the team small. However, if the size of the team is to
be small and the HRM specialist is excluded then his/her advice should not
be ignored.
In three cases, of the forty studied, the demand for personnel resources far
outstripped the supply. By the time external consultants were located and
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Implementation
There is a vast literature on this topic. If detail and data are the major
interests of the HRM functions pre acquisition, then detail gives way to
process post acquisition. Here the HRM function is usually centre stage.
Frequently task forces are created to link the two administrations together.
In human terms, this phase, is arguably, rich soil for human resource
management. Individuals are more ready to accept and tolerate change
now than at any other time. They expect it and wait for it. In organizational
change terminology the 'Unfreeze' will be effective if the changes are
introduced quickly and persuasively. This provides the buyer with an
unequalled opportunity to win or lose the people acquired. The time frame
of post acquisition integration is usually long (3 to 5 years), but action is
needed immediately as the sellers staff expect answers. Even where the
buyer is prepared to encourage the bought firm to maintain its own
personnel policies and practices there is a need for clarity and reassurance.
The extent to which personnel issues will be harmonized will vary widely
but there are clues from research as to which issues are most sensitive and
it is these that the HRM function might address. Buono and Bowditch
(1989) believe there are five critical issues in managing the human
resources post acquisition. These are: the competing claims between
different stakeholders; issues of secrecy versus deception; management
style questions of coercion versus participation, and finally, managing the
sense of loss and respect for employees (pp. 249-63).
A wider search of the literature suggests that these issues are reflected in
the following practical problems of integration: confusion about strategy;
problems of corporate image, unclear reporting relationships, imposed
control systems, resistance to restructuring; personnel policy clashes;
differences in culture and style; and finally in problems of motivation for
the acquired people.
Jemison (1988) takes this analysis further by looking at the facilitating
factors (already discussed) and the process constraints (determinism, cycle
of confusion and frustration, unexpected events; value destruction). All
these issues whether contextual or processural have a common theme,
communication. For both the detail (what will happen to my pension) and
the general (where will we be going in the future) refer to the importance
of communication in the interactive, preferably oral process post closure.
This is a central question for the HRM function in assisting line managers.
There is considerable consensus on how this communication may involve
the HRM functions advice. Hunt etal. (1987), McCann and Gilkey (1989),
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Jemison (1989) and Haspeslagh and Jemison (1987) confirm the truism that
acquisitions are a human proeess. As Haspeslagh and Jemison (1987)
eomment:
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and its rationale are usually necessary to manage the flow of versions of
events. The media has an important role in aiding or abetting confusion.
As most literature points to the need for a widely shared rationale for the
integration this should be co-ordinated by the buyer and not left for the
press to invent.
Communicate what?
Clarity of vision for the future appears in most studies. This is different
from clear strategy. In short, it refers to creating certainty for those
affected. In hostile bids (where the buyer may not know exactly what he
has bought) the clarity relates to providing a plan of what will be happening
over the next six months while the acquiror's team(s) audit the business. In
most other acquisitions the clarity of direction is less dependent on data
search after closure so more detailed statements may be appropriate.
The management team should be identified and publicized. Severances
should be handled quickly (some writers suggest by people outside the
implementation team) and handled generously.
The relationship between the structure and systems of the buyer and
how it will affect the seller's structure and systems needs to be
communicated. Where a name is to be changed this should be com-
municated quickly and without debate. The degree of harnionization
should be stated. For example, will personnel policies be brought into line
or will they be kept local. Key employees should be identified, recognized
and encouraged. Benefits in salary, bonuses and career terms can be used
to weaken bonds with the old order.
What appears to be relevant in these early stages of implementation is
that the buyer earns the respect of the sellers staff by behaving
professionally. Conversely, negative outcomes appear to fiow from
flooding the acquired company with head office staff who adopt the role of
the victors over the vanquished. Tight control of the buyers implementation
team and other senior managers from the buyers head office appears
essential.
How to communicate
The message and the medium also has implications for the HRM function.
Face to face communications appear to be preferred over the use of letters,
memo or videos. There appears to be an important role for 'the face' of the
buyer. Walking the shop, touring the plants, meeting employees informally
and formally, moving through the organization quickly have all been found
helpful in the interactive process of merging 'them' and 'us'. Certainty,
direction, vision may be the message; repetition, eonsistency, enthusiasm
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Yet this very involvement belies the iterative, evolutionary nature of the
integration process and often reduces the chance that people in the two
firms can interact in such a way that the facilitating conditions of
strategic capability transfer will be met. (1988: 22)
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Conclusions
There is a major role for the HRM function in mergers and acquisitions.
Yet the literature tends to ignore it. A survey of the literature suggests that
researchers concerned with success and or failure, look to contextual
variables and longer term contributions to integration rather than at the
immediate personnel issues. Yet the evidence from analysis of failure
indicates that many personnel issues (salaries, benefits, pensions) are just
the questions individuals want answered immediately. That is, researchers
looking to the processes of social interaction over time as an explanation
tend to see longer term interventions as the secret of success. In reality
winning the hearts and minds is an immediate necessity and this involves
the HRM function as soon as the closure is completed.
If we analyse successful cases of acquisition we find, contrary to the
literature that the personnel function has been busily involved from the
outset. Cross sectional research of large samples is unlikely to expose this
important contribution. Indeed, cross sectional research (our own included)
has probably contributed what it will to the debate because of the
limitations of a contingency approach. This approach blinds us to the
creative and dynamic, socially constructed processes which lead to
integration and resolution of the individuals dilemmas following take
overs.
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References
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