Mergers and Acquisitions - Its Implications on Employee Engagement - Literature review Example

Mergers and Acquisitions – Its Implications on Employee Engagement

Table of Contents

1.0 Introduction3

2.0 Merger Literature – Human Side of Mergers and Acquisitions3

3.0 Previous Key Findings4

4.0 Research Gap6

5.0 Conclusions8

6.0 Reference List9

• 1.0 Introduction

The two common forms of business restructuring are Mergers and Acquisitions (M&A). Merger is the combination of two business entities to form a new business, where both the entities retain their original identity and operate together (Gaughan, 2011). Acquisition is the complete take-over or purchase of one company by another, where the acquiring company retains its original identity while the acquired company fails to do so. However, these two terms are used interchangeably in the business world (Gaughan, 2011). M&A are popular forms of business expansion and internationalisation in today’s business world that adds to the market shares and value of the business. However, its implications on employee engagement is hardly discussed or noticed. Employee Engagement refers to the level of involvement of employees in the success of business. It shows how far employees of the organisation are concerned about the progress of its business in real terms (Bridger, 2015).

This paper is a Literature Review which studies the various implications of M&A on employee engagement. The review in this paper is not limited to descriptive study of the relationship between M&A and Employee Engagement. It emphasizes on previous researches done on this topic and attempts to identify the gaps in earlier studies as well as scopes for further research.

• 2.0 Merger Literature – Human Side of Mergers and Acquisitions

According to Brito and Lopes (2006), there may be variety of effects that might result from M&A. The organisation’s primary motive of entering into a merger is gaining synergy and economies of scale. Bosecke (2009) states financial synergies are outcomes of lower capital costs. The author opines, managerial synergies result from mergers where one of the two merging companies has superior managerial capability which eventually benefits the other company. Mendenhall and Stahl (2005) assert, M&A has become another way of global socio-cultural integration since, in cross-border M&A, when business firms from different nations combine, cultural aspects also get integrated. This is because after merger, the companies perform on a global-base, which have different cultural background. However, cultural integration has several impacts on the work-force of companies and influences organisational behaviour at large. Martin (2014) opines that, cultural diversity in the workplace is growing with increasing trend in global business expansion. According to him, cultural diversity within the organisation paves a way for organisational conflicts between the staffs and employees, since people from different cultural background will have diverse opinions, thoughts, beliefs, values, norms and traditions. This will threaten the organisational peace and cooperation. Further, if there is lack of cooperation and coordination among the employees, it will be difficult for the employees to deliver maximum output. This is a negative impact of cultural integration on the human resources of a company. Bach and Edwards (2013) argues, human resources are most valuable and unique resources of an organisation since they are needed to convert every other resource into a finished output. Therefore, their interests need to be protected in order to attain organisational goals and objectives. Oberg, Tarba and Weber (2014) propound that, increased M&A have important consequences on human resources such as, ethnic diversity, turnover of top-management representatives, and altered psychological connections between employers and employees. This leads to deterioration of workers’ performance.

• 3.0 Previous Key Findings

Morresi and Pezzi (2014) states that, there are several theories of M&A amongst which Wave Theories are most prominent. The authors argue that, the Neo-Classical theory of M&A which assumes value-maximisation and market efficiency fails to provide an explanation as to why there is lowering in the shareholders value in the post-merger period. This is perhaps the most famous puzzle in the world of Corporate Finance. According to Moeller (2009), employees may react favourably or adversely to M&A announcement, since these business deals bring about changes in organisational culture and structure. During the periods of significant organisational changes, leaders play an important role in shaping the mentality of the employees. Employees depend on their leaders for suggestions as to how to react to the merger plan. Therefore, having employees who will react positively to these events is critical to the success of merger deals. Employees mostly face difficulties during business integrations because it is they who are directly impacted by organisational changes. Whitaker (2016) asserts, after M&A, business firms sign new business deals and significant changes occur in the pattern of business operations. Consequently, the employees are required to adapt to the new pattern of workings which is sometimes difficult. All the employees may not be necessarily flexible enough to adjust to new situations. This is why, the role of the leaders is crucial for retaining the employees’ confidence.

As per Finance Maps of World (2016), after M&A, immense pressure is created on the employees of both the organisations since they are suddenly faced with new business dimensions, tough challenges ranging from increased responsibilities, tight work-schedule and dynamic work culture. This also threatens the job-security of employees, since in a global business environment under-performance often leads to termination of the particular employee. However, according to Bockerman and Lehto (2008), employees are more adversely affected in cross-border M&A than in domestic M&A. In domestic M&A, work pressure increases but cultural problems do not arise since people from the same country are expected to have more or less the same cultural background. According to Huda, et al. (2015), most of the employees express lack of job-security in the post-merger period. They fear that, they would be hardly able to keep up with the increased level of work pressure that arises as a result of merger. Further, competition in a global business entity is quite tremendous. Therefore, job satisfaction gets decreased which results in resignation by the employee or termination by the employer, thus creating unemployment. University of Twente (2013) opines, due to merger, often employees are made to work in different job roles or dynamic working hours in which they might not be comfortable. This reduces their dedication towards the particular job which results in their eventual separation from the organisation.

However, in a particular study, Lee and Park (2013) found that, employers of some notable companies exhibit successful records of employee retention in the post-merger period. These employers enter into a post-merger retention contract with their loyal and old employees which give them a feeling of job-security after mergers. On the other hand, Cooper and Kusstatscher, (2005) argues, due to M&A, the management of the companies get changed and consequently, there are changes in managerial decisions as well. This affects the performance of the employees as they were used to a different managerial structure. Therefore, the employees may perform at a retarded rate which again threatens their very existence in the organisation.

• 4.0 Research Gap

The previous findings and existing literatures have given emphasis on the implications of M&A on employee engagement. It has put forward all the adverse impacts of M&A on the employees of an organisation.

However, the present literature has a gap in intricately identifying the various HR challenges in M&A. Firstly, in cross-border M&A, language and cultural problems affect the human resources to a great extent. Further, as the organisation merges, it starts to grow at a rapid pace which provides a threat to the employees’ survival, as it may not be possible for them to keep up with this increased work pressure (Businessgyan, 2016). The present literature is devoid of solutions to employees’ post-merger job dissatisfaction. Often in the post-merger period, employees loose job satisfaction because their job roles get changed and they do not feel comfortable with their new job profile. Employees should be engaged in that particular job in which he/she is most efficient and comfortable (Managing Your HR, 2016). This problem had been discussed in the earlier studies but solutions to such problems had hardly been suggested. There can be several technological changes in the organisation after merger with which the older employees may not be comfortable. However, the new employees who did not work in the company before merger will be able to adapt to the new technology (Faulkner and Horn, 2010). The older employees who were used to a different technology should have to be trained up for their technological improvement so that they can compete with the new ones. This fact had not been addressed to in the existing literature. The merged company should strictly follow an employee-retention scheme to retain its old and trusted employees even after merger. After merger companies aim at talent-acquisition to meet the new requirements but fails to address talent-retention (Lai and Tsui, 2009). This research, however, suggests multiple solutions to various issues bothering the HR during M&A which were not discussed in the previous literature.

• 5.0 Conclusions

This literature review critically analyses the previous literatures on M&A and its implications on human resources. The previous findings by various scholars reveal that the past researches were aimed at identifying the HR challenges in M&A. However, they did not speak about the possible ways to combat the turmoil faced by the employees in the post-merger period. Researches were done on identifying the impacts of M&A on the employees but not on the matter as to how those problems can be minimised so that the employees do not suffer from job-insecurity or job-dissatisfaction after merger.

It is concluded that, employees face a great deal of pressure during corporate restructuring and reorganising as a result of technological changes, increased work-load, dynamic job-role, leading to job-dissatisfaction and organisational conflicts arising from changes in organisational culture.

However, researches have hardly been done to find solutions to these problems faced by the employees. Therefore, it will be interesting to conduct further research on the aspect of delivering solutions to employee grievances in the post-merger period. Thus, there remains scope for future research on retention of key employees after materialisation of merger plans.

• 6.0 Reference List

Bach, S. and Edwards, M.R., 2013. Managing Human Resources. Chichester: John Wiley & Sons Ltd.

Bockerman, P. and Lehto, E., 2008. Analysing the Employment Effects of Mergers and Acquisitions. Journal of Economic Behaviour & Organisation, 68, p. 122

Bosecke, K., 2009. Value Creations in Mergers, Acquisitions and Alliances. Wiesbaden: Gabler

Bridger, E., 2015. HR Fundamentals: Employee Engagement. London: Kogan Page Limited

Brito, D. and Lopes, M.C., 2006. Mergers and Acquisitions: The Industrial Organization Perspective. London: Kluwer Law International

Businessgyan, 2016. HR Challenges in Mergers and Acquisitions. [online] Available at: <http://www.businessgyan.com/hr-challenges-mergers-and-acquisitions> [Accessed 15 July 2016]

Cooper, C.L. and Kusstatscher, V., 2005. Managing Emotions in Mergers and Acquisitions: New Horizons in Management. Cheltenham: Edward Elgar Publishing Limited

Faulkner, D. and Horn, S.S., 2010. Understanding Global Strategy. Boston: South-Western Cengage Learning

Finance Maps of World, 2016. Impact of Mergers and Acquisitions. [online] Available at: <http://finance.mapsofworld.com/merger-acquisition/impact.html> [Accessed 15 July 2016]

Gaughan, P.A., 2011. Mergers, Acquisitions and Corporate Restructurings, 5th ed. Hoboken: John Wiley & Sons, Inc.

Huda, S.U., Khan, M.I., Latif, K., Rafiq, T., Raza, M.Y. and Sultan, T., 2015. The Impact Merger and Acquisition on Job Satisfaction, Job Motivation and Job Security of Employees Working in Financial Organisations: An Environmental Study from Pakistani Organisations. Middle-East Journal of Scientific Research, 23(8), p. 1804

Lai, K.T. and Tsui, A.P.Y., 2009. Professional Practices of Human Resource Management in Hong Kong: Linking HRM to Organisational Success. Hong Kong: Hong Kong University Press

Lee, E. and Park, H.J. (2013). What are Best Practices for Retaining Employees during Mergers and Acquisitions? New York: Cornell University ILR School

Managing Your HR, 2016. Four Factors to Consider In Resolving Job Dissatisfaction. [online] Available at: <http://www.managingyourhr.com/Four-Factors-to-Resolving-Job-Dissatisfaction> [Accessed 15 July 2016]

Martin, G.C., 2014. The Effects of Cultural Diversity in the Workplace. Journal of Diversity Management, 9(2), p. 89

Mendenhall, M.E. and Stahl, G.K., 2005. Mergers and Acquisitions: Managing Culture and Human Resources. Stanford: Stanford Business Books

Moeller, S., 2009. Surviving M&A: Make the Most of your Company being Acquired. Chichester: John Wiley & Sons Ltd.

Morresi, O. and Pezzi, A., 2014. Cross-Border Mergers and Acquisitions: Theory and Empirical Evidence. New York: Palgrave MacMillan

Oberg, C., Tarba, S.Y. and Weber, Y., 2014. A Comprehensive Guide to Mergers & Acquisitions: Managing the Critical Factors across Every Stage of the M&A Process. New Jersey: FT Press

University of Twente, 2013. The Effect of Mergers and Acquisitions on Voluntary Turnover. [PDF] Available at: <http://essay.utwente.nl/64339/1/The%20Effect%20of%20Mergers%20and%20Acquisitions%20on%20Voluntary%20Turnover.pdf> [Accessed 15 July 2016]

Whitaker, S.C., 2016. Cross-Border Mergers and Acquisitions. Hoboken: John Wiley & Sons, Inc.