Employee Related Issues Following a Merger - Coursework Example

In Modern Business INTRODUCTION The economic activity undertaken with the purpose of generating income by exchange of goods or services is referred to as trade or business. There are many factors which determine the way a business runs and its effectiveness is subject to the atmosphere it operates in, which is known as the business environment. In contemporary times, the business environment cannot operate in solitude, the concept of independence has long become obsolete in this sphere, and businesses have taken the form of social and economic apparatus, and therefore it must work in the interest of the society and endeavor to fulfill the societal requirements by cooperating with the environmental factors (Pushparaj, 2010). MODERN BUSINESS ENVIRONMENT Three Factors affecting the Business Environment In contemporary times there are three factors which have led to the evolution of the new economy from the traditional one. These factors comprise of: Knowledge- which are a mixture of concepts and understandings employed by various individuals to reach and execute a decision which are important for a company; Globalization- the tremendous growth in technology and communication has resulted in increased interaction between people and nations around the world leading to a dynamic form of hyper-competition in virtually all fields of business; Change- the continuous uncertainty associated with the modern business environment resulting from increased globalization and knowledge has led to drastic changes in the factors which define the business environment have made the change process more rapid and complex and has hence made the modern business environment extremely unpredictable. Therefore, in this transitory face from an old to a new business era, the success of businesses is determined by the level of their flexibility and the pace of adapting to the fickle demands of the consumers which can switch to the rival product by the courtesy of a single television commercial, therefore depicting the immense importance of changing with the changing environment (Kotelnikov, 2010) Continuous Changes in the Business Environment The ever increasing competition in the business world has instigated the firms to look for newer, more effective methods of production, in order to increase their productivity. Furthermore, the affects of the implementation of information technology and better means of communication has resulted in a technology driven environment which requires continuous changes, and to cope up with the demand the firms tend to change their production methods, become technologically advanced, improve workforce, improvise and create new ideas and products, differentiate from competitors etc., and hence widening the dimensions of business space to navigate successfully in the new business environment (Kotelnikov, 2010). As according to the Director of Business Operations at University of Cincinnati, Kathy Qualls states: “In today’s business environment we need to be fast, fluid and flexible.” (IT Works, 2010) EXTERNAL AND INTERNAL ENVIRONMENT EFFECTS There are certain factors which affect the smooth running of a business, these factors can be classified into two categories: internal and external. The major business functions are planning, controlling, organizing and leading in the environment it operates in. The internal factors are created by the resources available to a business to achieve its goals and aims; these can vary from being human, technological, financial and physical resources. The management of a firm is faced with the task of utilizing these resources in the most efficient manner possible, and in order to fulfill this task, the management does not operate in isolation, but suffers competition from businesses around the globe. The organizational resources are limited, and fit the definition of scarcity, and therefore it is incumbent upon the management to successfully acquire and use resources to spell success for the firm (Montana and Charnov, 2000). The human resource of a firm is one major internal factor which can prove to be detrimental for an organization if not handled properly, as employees are a crucial part of the organization, and the productivity of a firm are dependant upon them, therefore they ca internally affect a business. A satisfied workforce would translate into a healthy business environment, whereas a gloomy workforce would result in an uncongenial working atmosphere, and can hamper the progress of a firm, for instance, a major issue with employees is concerned with justice at work, McDonalds corporation is one of the world’s most equal opportunity employer, they make sure that candidates for job get a fair shot at the vacancy, and while recruitment and selection, the HR department refrains from resorting to discrimination on the basis of sexual orientation, race, cast, creed, gender, religion, nationality etc., and hence portraying a positive image of the organization and developing a culturally diverse and healthy business environment, as these employees feel they are being treated fairly, they tend to cooperate with the organization to achieve its goals (McDonalds, 2010). External factors which lead to continuous changes and thus affect a business’s environment can be analyzed with the help of the Pestle analysis, which helps a firm to discover many external factors which are potentially relevant when considering the influence on the business environment and activities. Namely these determinants are: Political, economic, social, technological, legal and environmental factors, thus making up the word PESTLE (Senter and Edmonds, 2003, 39). PESTLE ANALYSIS Political Factors A business does not operate in isolation; it is a part of a nation, whose economy revolves around the wider political setup currently in power, which is subject to the global political power, and as power transfers from one party to another in the political sphere it leads to dramatic changes in the policies resulting in drastic changes in the business environment simultaneously. The openness of a nation’s economy and its global reputation widely determines the attitude of foreign traders towards the companies of a particular nation under consideration (Institute of Leadership and Management, 2007, 24). Economic Factors The economic conditions prevalent in an economy spare no business; macroeconomic agents such as inflation rate affecting the price of the products, interest rate affecting the savings pattern of the consumers and the borrowing pattern of the investors, the unemployment rate would determine the wage level and the labor demand and eventually the costs of producing a product, and the exchange rate can influence the foreign trade of a business, therefore illustrating that economic factors have major impacts on the business operations, and this external factor is constantly revolves and changes, therefore businesses in the contemporary world have to be fast and flexible to avoid devastating results (Gregory, 2000, 50) Social Factors The affect of the society on a business is inevitable, for instance the attitudes of the domestic people towards a particular product in the area of its location, in addition, the work-leisure trade off patterns can affect the wage rate and the labor demand and supply for a firm, therefore directing its effectiveness. The skill and the qualifications of the workers available have to match up the business’s requirements or it might result in huge salaries for scarce professional workers. Therefore, a PESTLE analysis can greatly help in defining a particular region, such as Guangdong in China, where PESTLE analysis was initiated in light of the State Owned Enterprises (SOEs) (Peng and Nunes, 2007, 229-236). Technological Factors Technology is considered fundamental to innovation, which is the prerequisite for adapting to a rapidly changing environment characterized by ever growing competition and increased consumer empowerment. Technology is the tool which defines the reliability and validity of the Research and Development carried out by an organization, it influences the advancement and effectiveness of a firm in the communication sphere as well. It can affect the internal factors via rapid changes in the type of machinery being currently used; advancement in technology can render the equipment used by a firm as useless overnight, such as Pentium technology has now given way to the iCore Processors which are more efficient and effective. Therefore, the significance of this external factor cannot be ignored while analyzing the affects on a business due to the continuous changes in the business environment (Zhou et al., 2005, 42-60). Legal Factors Laws and Regulations in a nation are a subject of the socio-cultural setup of the country in particular, and as a business operates therein, it must adhere to these legal rules. Apart from the domestic legislations, certain laws are universally applicable, such as imparting due recognition to copyrights, and also Intellectual Property Rights. The jurisdiction of an area can influence the working conditions, the wage rates, the trading terms, the incorporation standards etc., and can therefore widely affect the business environment, and any changes in the laws of the area where the business operates can result in changes in the business environment. In contemporary times, the legislations have given increased consideration to European Union Directives, and have thus derived laws on a supranational level (Elearn Limited, 2005, 31). Environmental Factors The growing recognition of environmental degradation phenomenon, and the increased emphasis on the conversion of production methods to adapt a sustainable development approach has resulted in a drastic change in the ways a business operates and the machinery it uses (Basu, 2004, 99) , also affecting its policies and approach towards polluting the environment for private benefit. Global warming, pollution emission, natural resource depletion and efficient use of power and energy conservation has evolved the business sector into becoming more environmentally friendly or suffer a bad publicity through organizations working for the betterment of the world, such as Greenpeace (Greenpeace, 2010). MERGERS AND ACQUISITIONS The world has witnessed a rise in businesses undergoing mergers and acquisitions since 1992, and till 2000 it reached unprecedented levels. The term Merger and Acquisitions (M&A) constitutes different forms of relationships created between two or more firms, such as Joint ventures, Licensing, Spin-Offs, Restructuring, Integrations, Alliances etc., and also network links, the term M&A essentially refers to the act of the combination of two or more organizations/companies under a common ownership, enabling the two to operate as one (Reed et al., 2007, 646). The basic purpose of M&A practices is to equip firms with the capability of adapting to the continuously changing business environment, and react efficiently to new challenges in the industry and reap benefits from the opportunities available. If successful, M&As can result in increased revenues, growth in market share, rising profitability levels, and overall increase the business’s worth (Weston and Weaver, 2001, Preface). The activity of M&A is not the end of the story, there are subsequent factors which lead to the result of the relationship, apart from success, and it can also spell failure for the merging companies, in 1980 in Massachusetts, 13 acute health care institutions closed down following a merger (Kaplan, 2000, 23). According to research, most CEOs and CFOs state that employee or ‘people’ issues are the major factor behind a failed merger (Galin and Herndon, 2000, 77). EMPLOYEE RELATED ISSUES Motivation One of the most slippery problems proposed to a manger is the motivation of the employees under him. It is in the natural defensive nature of man that are resistant to restructuring as it might result in job loss, this induction of fear in the employees leads to a reduced morale, and a diminishing productivity level for the organization (Nohria et al., 2008, 81). Hence, to keep the workforce motivated at the time of M&A is crucial to a firm’s success, a well motivated workforce would be willing to withstand any structural changes in the working patterns, will readily adapt to new technology and welcome retraining. Winning back the morale of employees following the merger of the Giant Food with Stop & Shop in 2003, though the restructuring would have resulted in only the dismissal of 600 employees from a total of 25000 man workforce, it sent a jolt throughout the organization, sharply creating a defenseless feeling in employees, which is a major driver of reducing motivation, and this resulted in the non-achievement of the goals attached with the merger (Barbaro, 2004, E01). Job Jumping or Job Hopping Increased globalization and strategic changes that require businesses to flexibly adapt to changes occurring in the business environment, and thus the desire for power to modify workforce with just a notice has led to the abolition of employee contracts (Miller, 2010), which ensure the retention of the workers in an organization for a certain time period, this has however also resulted in a negative implication for firms in case of mergers. The 1990s have drastically changed the way employees respond to jobs, and Federal Labor Statistics have shown that virtually workers of every age group stick to their jobs for a shorter period of time as compared to workers in the 1980s (DeBare, 2010). Therefore, managers should focus on retention of employees following a merger, because at this crucial step the key to success is business continuity which might suffer if employees walk out, and secondly it would be a large financial constraint on the merging business to undertake hiring and recruitment from the initial steps. Job Jumping at this stage would also result in lost human capital, and loss of trained personnel, knowledge and experience (Fernandes et al., 2009). Job Enrichment and Job Enlargement The psychological shock waves that an individual undergoes due to M&A activities of the business which employs him could result in uncertainty, ambiguity, mistrust and finally a lost morale to work to utmost capability. Therefore it is the responsibility of the management to ensure that the employees are well motivated to perform required tasks and meet the objectives of the newly formed merged organization. The managers can provide opportunities which modify the job design of the employees; job design is an essential motivation driver. A merger provides the opportunity for the addition of extra tasks to an existing employee’s job, which might give him more sense of ownership, and therefore boost his self-actualization level as he makes use of his capabilities, rewarding the employees simultaneously, would prove fruitful. Furthermore, the Job design could be extended to add more levels of tasks in his job, therefore undertaking job enlargement, this would give empowerment to the employee and uplift his morale (Markiewicz, 2000). Job enrichment and enlargement are a form of job redesigning which radically improves the job’s intrinsic quality and therefore results in the employee’s self-efficacy (Ugboro, 2006, 234). According to a study conducted by Cresap, a Tower Perrin Company, seventy five percent mergers result in the increasing workload on the remaining employees who shared the tasks which were initially performed by the managers and other professionals (Gutknecht and Keys, 1993). The resistance towards this increased workload could also be an issue for the merged company, and non-cooperation from the employees could result in failure. Culture Issues Organizational culture is an extremely important phenomenon for employees, because it determines the way they operate and perform duties, their approach towards the hierarchy of power and empowerment is determined by the culture of the organization they work in. Therefore, despite the presence of the right mix of all ingredients necessary for a merger, the deal could easily break due to cultural clashes between the employees of the merging entities, or the employees could undergo culture shock. It is necessary for the employees to work together cohesively, and build a congenial working atmosphere in order to keep job satisfaction up to mark. Business International has come up with the statement that lack of communication and cultural differences are the two major causes that fail a merger. Unresolved cultural issues affect decision making, communication, productivity and could eventually lead to high employee churn rate (Rodgers, 1999). The Daimler-Chrysler merger faced post-merger difficulties owing to cultural differences; the commitment to cooperate could not materialize due to dramatic differences in the culture of both organizations (Schuler and Jackson, 2001). Therefore substantiating that cultural differences are one of the underlying reasons why mergers and acquisitions fail financially and operationally despite positive pre-merger feasibility reports presented by executives (Buono and Bowditch, 2003, 134). Lack of Communication In accordance with a HR role assessing survey, 73% respondents stated that lack of proper communication was one of the major factors behind failing M&A activities (The News, 1999). When employees do not learn of the merger from their superiors, but come to hear the news from an external source, then it results in confusion, uncertainty, mistrust, and a loss of loyalty in the customers, which could be devastating for the merger, as mentioned earlier, as according to a survey by the The Conference Board, 30% companies withhold merger information and news from the employees who learn it from elsewhere, resulting in the lost morale of workforce (The Conference Board, 2000). Peter Dixon is a merger expert working at Braxton Associates, he states (Salame, 2006, 5): “Lack of information, no clear direction and confusing messages all boil down to uncertainty, which is destructive.” Lack of Training Training is an essential component of achieving a successful post-merger state, however, according to an HR survey only 48% respondents stated that they took part in post-merger training activities (Salame, 2006, 8). This is the likely result of lack of involvement of the HR department in the merger process because senior officials keep them sidelined, in numerous cases the senior managers are themselves incapable of coping with the responsibilities and tasks following a M&A. This would not meet the aim of setting up an integrated workforce, which is capable enough of directing a merger towards success and as productivity reduces due to untrained staff, resulting in diminishing revenues. Therefore, employee retraining is an essential requirement of an M&A activity, and lack of training is an employee related issue which could fail the merger entirely. Loss of Customers It must not be ignored that it is the people working in an organization who produce profits, represent the company, develop its reputation and attract customers towards the firm, and eventually it is these employees who will make the company succeed in its goals. Due to job jumping, a loss of key personnel, who are one of the most talented ones, as according to American Management Association, one out of every four top employees leave a firm within four months since the M&A activity is announced, these most talented people take along their most loyal customers with them, resulting in loss of revenue for the organization, as the shift of customer-trusted personnel may portray the image of a weakening organization. Therefore, this is another major employee related issue which could fail an M&A activity. CONCLUSION On one side, the recognition of employee related issues following a merger have emphasized on the importance of tackling these issues carefully for a successful merger, yet on the contrary side, senior officials are adamant to adapting changes their approach towards HR involvement in addressing these issues properly. Such a contrast in knowledge and practice is baffling, and results in detrimental losses for the merger, therefore it is essential for the senior management to demolish the barriers setting up the resistance in resolving these issues, and hence work for the betterment of the organization by integrating and uniting with the employees, for the company could only successfully cross this tidal wave if united in one boat. References Barbaro. M (2004) Giant’s Merger hurt morale, Executive says. Available from http://www.washingtonpost.com/wp-dyn/articles/A20645-2004Nov29.html Accessed June 17th 2010 Basu. R (2004) Implementing Quality- 1st Edition. Great Britain. 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