Role of Organizational Culture in Mergers and Acquisition - Research Proposal Example

Name: Professor: Course: Date of Submission: An Examination of the Role of Organizational Culture in Mergers and Acquisition INTRODUCTION Background of the Study While the effectiveness and efficiency of production and manufacturing processes bolster the performance elements assumed to anchor success in mergers and acquisitions, neglecting the competencies underpinned by the human aspects of the stakeholders requires a reproach. Edd (2004:1) recognizes the inevitable role of organizational culture in mergers and acquisitions, arguing that research on the business models is increasingly delving to explain the factors influencing their success. The rationale appears to revolve around the rhetoric that like other businesses, the long term success of mergers is not merely accomplished through effectiveness and efficiency of the conventional competencies but through strategic integration of the human capital from the partnering entities. The background of this study is underpinned by the emerging precedence formed by the recognition that corporate mergers are crucial drivers of contemporary corporate and economic growth. However, the final deals often fail to deliver expected value for the shareholders of acquiring or end partnerships. Though out the merger or acquisition, the human capital in the acquired company is plunged into a pool of uncertainty especially about the unfolding of events, the stakes of their jobs and their morale is derailed as they discern their contributions to the future. As provided by Edd (2004:1), failures being witnessed in business deals with otherwise progressive strategic and financial fit are essentially weakened by the irretrievable, immeasurable, and difficulty to manage human resources that forms any company’s most valued asset. The concepts of mergers or acquisitions were established on the enlargement of key corporate resources: financial, physical, intangible and other tradable endowments (Sherman 2006). The future oriented integration strategies in mergers and acquisitions also capture elusive competencies: knowledge bases, skills, organization’s best production and manufacturing practices and schedules. However, typically ignored but critically essential are the anchoring assets that hold the real prospects of the future of the resulting business from a merger or acquisition. These foundational assets that buttress the root success strategies include collaborative leadership, skills and knowledge retention, and working cultural cohesion. The Rationale As aforementioned, the effectiveness of production or products and services promotion does not conclude the success features of a resultant merger or acquisition. The root strategic asset is the cohesiveness of the inherent corporate cultures of the partnering organizations. Although success and market achievements of an organization make it attractive for potential acquires or merger partners, the custom corporate culture forms the nerve of important strategies and may not necessarily be modeled for long range. If the leadership of an organization drives a cultural stature established on the desire for approval without candid ownership of the job and the resulting outcomes, the essence of saving the face crumbles upon mingling with rather long-term oriented corporate culture. In concurrence with (Van den Steen 2010b: 1720), many organizations have defined competencies that are measured against 360-degree assessments, peer reviews, and feedbacks from customers. This culture masks the crucial practice of discerning the realistic assumptions and the mental operating systems that shape organizational culture. This classical anomaly is the “bug” eating into the nerve of mergers and acquisitions that drives exclusive strategies calling leaders to reshape their culture, delegate more effectively, without duly putting into account the assumptions that created the old culture. In nutshell, organizational culture though sophisticated and complex is the root strategic asset that any potential merging organizations should audit exhaustively before conclusion of the business union. Problem Statement Mergers and acquisitions are increasingly becoming the critical drivers of growth and development in corporate and economic fronts. Human resource and its inherent dynamics underpin the successes witnessed in any corporate achievements, which positions it as the most valued asset in the corporate world. However, mergers and acquisitions are established mainly in round table meetings based on company’s audited numbers primarily authenticating financial, physical, brand or other tradable assets. The most ignored but inevitably basic on the success of any business model is the corporate culture, which the stakeholders in the unions fail to measure and account for as well. The apparent “bug” that has inflicted invisible weaknesses leading to failures of mergers and acquisitions as exemplified by Cramer-Chrysler deal is the mis-integration of corporate cultural fabric. Organizational culture holds the key to the success of the merging or acquiring business realms. Objectives The primary objective of this study is to unravel the role of organizational culture in the emerging realm of mergers and acquisitions: the purpose of social and human issues in success or failure of the business model. Justification of the Study As the knowledge based global economy shapes up to optimize emerging technology, innovation increasingly occupies the core of strategic planning and business modeling. However, if the pattern continues with managers doing the job by themselves without developing the “big picture” cues: job delegation, the innovation wave will trounce over their organizations. Mergers and acquisitions may achieve success in the short-term, but sustainable growth and development is underpinned by identifying, understanding, and addressing the self-limiting assumptions and mindsets. Success in mergers and acquisitions is strewn within the human capital mental and psychological systems that breed the overall corporate cultures, which is inevitably a core ingredient of desired excellence. This study is warranted to explore and detail the role of organizational culture in mergers and acquisitions. Significance It cannot be overemphasized that the outcomes of this study will go a long way in revealing trends remediable failures witnessed in ventures of these business models. The resulting information will be instrumental in the remediation of errors routinely committed by merging or acquiring parties, which would be helpful in moving the crucial corporate and economic growers a notch higher. The study will as well be pivotal for improvement of the dimensions of leadership dimensions in that top organizational managers will be able to put the bigger picture sediment whenever strategizing for the future. Understanding the role of organizational culture and its influential factors underscores research of this nature as the globe looks forward to improve corporate and economy enhancing tools and instruments. Limitations of the Study The doctrine of organizational culture is utter broad and dynamic, and is primarily based on independent organizations rather than business marriages witnessed in the contemporary business world. Most researchers and literature about mergers and acquisitions revolve around efficiency and effectiveness in the production and manufacturing, financials, and other tangible business elements, which leaves organizational culture a less covered subject in the extant literature. Relying on extant literature to build an infallible thesis about the role of organizational culture within emerging business models, without empirical data limits the scope of reliability of the study. Review of Related Literature Extant literature regarding the role of organizational culture in mergers and acquisitions delves to answer the concerns of whether the business models really attain the expected synergies. This question and the search for crucial drivers in merger or acquisition processes have drawn tremendous attention from studies in the finance and economy realms. Researches by Marks (1988: 18) and Hunt (1988: 4) reported success rates of mergers and acquisitions in scales of pessimistic (twenty three percent) in the United States to more optimistic (fifty percent) in Great Britain. Owing to the sizeable failure by mergers and acquisitions, research in the past decade has focused more on the core factors that potentially determine the realization or failure of expected synergies. Cartwright and Cooper 1993: 58) demonstrated that the overemphasis of the wealth creation mantra by mergers, many of the companies resulting from the unions fail to critically consider the role of the marriage brokers. This context reveals ostensible exclusion of issues involving organizational culture. This course of thinking emphasizes the importance of the human element in the processes of synergy realization in mergers, which implies that most of merger failures witnessed today can be traced to underrated human touch, and the important cultural fabric resulting from established culture. Important to explore in order to fully conceptualize the role of organizational culture in mergers and acquisitions is the fact that the events immediately impart varying impacts on the uniting firms particularly with the change of ownership, cultural ideology, and in practice. Cultureal cohesion is the most important for the eventual success or failure of the merger or acquisition, and it is the one that influences the extent to which qualitative talent retention can be achieved. Although it is increasingly becoming a standard for organizations to publish their cultural traits or core values, what is reported often differs with the actual organizational culture. According to Moran and Panasian (2005: 4), anthropological researches imply that the task of listing an organization’s cultural fabric does not start by interviewing members of the human resource. Therefore, gaining a deep understanding of a company’s culture requires comprehensive reflective observations over time and the formation of crucial planning substance: beliefs and disciplines that are helpful for mergers in establishing functional culture for the resulting organization. Apart from the surge in consciousness about the value of organizational culture in merger or acquisition success, there has been an increase in the business realm as regards executive literature and guideline proposals about sustainable management of mergers and acquisitions. However, continual review of emerging literature to reveal the published gains of these developments has lagged because of disagreements for lack of empirical scientific evidence. In particular, although literature details plausible explanations of the role of human attributes in the failure or success of mergers and acquisitions, the discourse is hard to sell because proving that organization that have poor corporate culture perform poorly (Van den Steen 2010b: 1720) Discerning an organization’s cultural cohesion is largely a function of the extent of understanding the foundation of the company’s culture that forms the structure of the union in a merger. The practice of the cultural cohesion as the main strategic asset in a merger or acquisition involves prior synthesis of the forming components and should especially extract as part of the negotiation processes. Worthy noting though is that unaware of the power of an established culture of an organization, it can be inadequate for the acquiring organization to identify and describe the acquired culture. Human facets within an organization being the core drivers of productivity, growth and development, should be given priority especially to be able to develop workable human capital management and control strategy. Culture has been a factor in the failures of mergers because even when inherent traits are properly identified, the process forming common organizational culture aligned with the new institutional goals and values entirely new set of challenges present. The ill equipment of successive managers in mergers or acquisitions plays a role in derailing the establishment of cultural cohesion. Schuler and Jackson (2001: 239) observes that organizational culture plays a role in the slow growth of mergers because the inherent traits do not offer satisfactory information to determine where particular structural components are located in the new organization. At the micro-level front, mergers and acquisitions have increasingly been associated with cultureal detractors: reduced morale, poor task management, unproductive culture, and other employee dissatisfaction attributes that contravene the expected synergy realization. Davy et al. (1988: 58) estimate that human resource problems stemming from poor organizational culture integration form one third to half of merger or acquisition failures. This implies that the role or organizational culture tremendously influences the stature of an organization resulting from the events. For instance, cultural misalignment may precipitate employee resistance that impairs the potential for merger success. Negative employee reactions because of misconstrued company values have chronically been phased the “poison” that ruins success potential for mergers and acquisitions. A company culture established on redundancy of acquired employees greatly influences the firm’s performance. Extant literature suggests that employee layoffs for accommodation of a merger or an acquisition transmit negative impacts on the survivors that form the next human resource (Brockner 1992: 10). The important question arising from this premise is whether mergers, amid the negative impacts of layoffs on organizations across the world have considered the human element of the company as an essential ingredient of valuable negotiations during deal sealing. The issue of the compatibility of organizations’ cultures has apparently surfaced as an important determinant of the success of failure or a merger or an acquisition. The settlement of cultural turbulence after a merger or an acquisition greatly determines the time the resulting organization may take to attain sustainable profitability. Krug and Hegarty (1997: 667) argue that cultural incompatibility within a merger or after an acquisition influences the retention of executives with their high turnover resulting from poor integration. Important to note is that top leadership forms the center of information that shapes and aids transmit culture across the organization, which implies that cultural differences at the top management level are crucially influential on the survivorship of the merger. More merger synergy realization ability is greatly shaped by the cultural compatibility and the capacity of the executives to influence the newly required cultures because of their superior knowledge of integration. Theoretical Framework The theoretical analogy proposed by Levinson (1970: 143) appears to have been an early pointer at the crucial role played by organizational culture for any form of corporate structure. However, despite the intuitive appeal of the cultural reconciliatory hypothesis the matter did not attract widespread empirical research thus leaving future business unions in the darkness they are sailing through today. As presented in Cartwright and Cooper (1995: 60) a lot of literary explanations leveled for the role of organizational culture in the context of mergers and acquisitions are based on explorations from individual compared with empirical analysis of the impacts at the corporate level. Buono et al. (1985: 480) demonstrated the most influential cultural collisions in the contexts of merger and acquisitions failures. The research conclusions were based on savings banks in the early 1980s that studies on culture and the working environment based on pre and post merger data. Although the researched institutions in this context served different market niches, the cultural incompatibilities appeared apparent in the failure cases. It is therefore clear that in a business marriage as discussed in this context, one side of the merger may dominate the other thus causing the feeling that its human resource of the dominated partner has been subdued. Though seldom specific to mergers and acquisitions, theories delving the concepts of organizational culture increasingly appear to pursue answers as to what the effects of culture are on performance. To diffuse the convergent analogy that cultural heterogeneity presents complex and sophisticated challenges to mergers and acquisitions, few theorists have offered insights on the important questions. Theoretical orientations by Cremer (1993: 353) that corporate culture reflective from the established culture need to be nurtured and not be disturbed too often. This is because organizational culture connotes a stock of accumulated information that is invaluable and difficult to harness. Additionally, the coding and rules or human action should be consistent within the organization’s other functions to bolster desired synergy. Integrated organizational functions are sewn together to form a solid unit called the organization, whose bedrock is the corporate culture. This implies that determining how to change culture based on particular component of the whole bears cultural implication that translates into positive or negative effects on the merger or acquisition. An imperative of assessing the influence of corporate culture on the performance of a merger, it is pivotal that the underlying cultural proxies are determined. Cronqvist, Low, and Nilsson (2009) theorized a context of two approaches hypothesized as potential indicators of influences of culture on mergers. Culture was questioned in this context as causing fixed effects on the organization, implying a situation where culture remain unchanged even after formation of new company as a result of merger union. The theoretical literatures within the discourse of organizational culture suggest that organizational culture is sophisticated and dynamic, and that it evolves as the structure of an organization changes (Krug and Hegarty 1997: 667). Therefore, for as far a major merger or acquisition treats culture as a fixed parameter, comprehensive fixed effects concomitantly influences other aspects of the firm such as corporate governance. Cronqvist, Low, and Nilsson’s (2009) theoretical perspectives builds on the views that employee relations are the most explicit of an organization’s culture. Bargeron, Smith and Lehn (2012) delving on the strength of corporate culture as an important driver of performance. Though this theoretical perspective lacks the continuity element, it is imperative that strong culture is often a continual organizational component. This implies that sustenance of the integrity established by a particular culture can equally improve and maintain corporate performance even after a merger. This premise implies that organizations should critically assess the cultural fabric or a potential merger partner for some time to establish similarities that can be capitalized on to establish continual competency dimensions post merger. To understand the role of organizational culture on mergers and acquisitions particularly on performance, compatibility and management approaches are important features to track. Conceptual Framework Although mergers and acquisitions appear to have increasingly dominated the twenty first business realm as the best drivers of growth in corporate and economic fronts, they are traceable to the history of capitalism. The investment and human resource internationalization is at the center of the increased focus on corporate culture because of the inherent importance attached to human capital as a crucial function in mergers and acquisitions (Datta 1991: 284). The ideology that human capital jolts the success of failure of a merger is closely linked with the wave of information technology that was the prior determinant of competency. The differentiating factor is that companies are capitalizing on cost reduction and profit maximization, and increase corporate social responsibility that requires readily availability. This implies that people and their dynamics are crucial for sustenance of any corporate areas. Reviewed literature shows the crucial need for organizations to critique organizational culture and underlying culture before entering into a merger or acquisition. Important to note is that culture is dynamic outcome of a set of pre-estimated values that the human element of an organization develops in the process of acquiring skills for dealing and adapting to work challenges. This alone implies that considering that human resources underpin all that a company can achieve: performance or failure, any strategies affecting their performance is a function of the corporate culture. The basic elements forming the fabric or organizational culture include the level in which the employees are seasoned to innovation and risk taking. Differentials in the ability of employees to attend to details are bolstered by necessary cultural scheming, the result orientation and the sensitivity to corporate change issues that affect them. Stability, completion, and group dynamics are some of the crucial components of an organizational culture of importance to success or failure of a merger or an acquisition. Although detailed explanations have been put forward trough comprehensive interdisciplinary studies as painted in the literature that span beyond the scope of this paper, it is important to emphasize continual critical reviews to integrate newer understanding of what empirical researches may be adding to this discourse. The motivation of this paper is to comprehensively review and evaluate the plausible evidences that relate organizational culture with successes in mergers and acquisitions. Organization of the Research Paper The research will be organized into: Introduction section that gives the conceptual understanding of the basis of the subject, and underscores the justification and significance of studying the subject. The section plots the thesis motivating the review while appreciating the inherent limitations. The primary focus is the exploration and detailing of the role of organizational culture on mergers and acquisitions. In the Literature review section, extant literature is explored to chronicle available information about what other researchers of the discourse have documented. This section provides the theoretical and conceptual perspectives of the subject. In the methodology section the research gives a detail of the information gathering methods and subsequent analysis techniques. The Discussion section of the research will integrate credible conclusions inferred from the extensive literature reviewed and qualitative inferences forming from the case studies on mergers and acquisitions. Conclusive recommendations section will underline potential areas of further research in future that may unveil more information about the subject. A list of referred sources will be included at the bottom of the paper. Methodology This research will be developed with qualitative data. Data will mainly comprise secondary sources: print and e-books, online data bases and case studies. Information will be sought by searching secondary sources related with mergers and acquisitions, and the role or organizational culture on them. Personal observations will be deduced from discussions with managers and consultants that have experienced the cultural dynamic in the context of mergers and acquisitions. Important questions during the focused discussions will include how cultural integration and differences influence success or failure of a merger or acquisition. The researcher will select five multinational organizations from which the questions of competency in managing organizational culture will be discussed with the human resource department. The purpose of this approach will be to understand some of the viable tools that human departments of resultant mergers and acquisitions deploy to contain the organizational culture challenges. The choice of these research approaches was informed by simplicity in application, and the wide use in extant researches in this context. The data will be qualitatively analyzed and case studies included communicating a clearer picture of the role of organizational culture in mergers and acquisitions. Time Schedule PARTICULARS 2013 Proposal Writing March April Data Collection April May Analysis June Report Writing July Finalization and Submission August References Bargeron, L, Jared, S and Kenneth L 2012, ‘Corporate culture and M&A activity’, working paper.  Brockner, J 1992, ‘Managing the effects of layoffs on survivors’, California Management Review Vol.34, pp. 9-28. Buono, A, Bowditch, J and Lewis, J 1985, ‘When cultures collide: The anatomy of a merger’, Human Relations, Vol. 38, No.1, pp. 477-500. Cartwright, S and Cooper, CL 1993, ‘The role of culture compatibility in successful organizational marriage’, Academy of Management Executive, Vol. 7, pp. 57‐70. Change, Vol. 2, pp.351‐386.  Cremer,  J 1993, ‘Corporate culture  and  shared  knowledge’, Industrial  and  Corporate  Cronqvist, H, Low, A and Nilsson 2009, ‘Persistence in firm policies, firm origin and corporate culture: Evidence from corporate spin‐offs’, working paper.  Datta,  DK 1991, ‘Organizational fit and acquisition performance: effects of post‐ acquisition integration, Strategic Management Journal, Vol.12, pp.281‐297.  Davy, JA, Kinicki, A, Kilroy, J and Scheck, C 1988, After the merger: dealing with people’s Uncertainty. Training and Development Journal, pp. 57-61. Edd, KR 2004, ‘The importance of understanding organizational culture in mergers and acquisitions’, Graziadio Business Review, Vol. 7. No. 1. Hunt, J 1988, ‘Managing the successful acquisition: a people question’, London Business School Journal, pp.2-15. Krug, J and Hegarty, H 1997, ‘Post acquisition turnover among U.S. top management teams: an analysis of the effects of foreign vs. domestic acquisitions of U.S. targets’, Strategic Management Journal, Vol.18 No.8, pp.667-675. Levinson, H 1970, ‘A Psychologist diagnoses merger failure’, Harvard Business Review, Vol.48 No.2, pp.139-147. Marks, M 1988, ‘The merger syndrome: the human side of corporate combinations’, Journal of Buyouts and Acquisitions, pp.18-23. Moran, P and Panasian, C 2005, ‘The human side of mergers and acquisitions: a look at the evidence’, Enero, Vol. 1, No. 3, pp. 1-22. Schuler, R, Jackson, S 2001, HR issues and activities in mergers and acquisitions, European Management Journal, Vol. 19, No.3, pp.239-253. Sherman, AJ 2006, ‘Preventing post-M&A problems’, The Journal of Corporate Accounting and Finance. Van den Steen, E 2010b, ‘Culture clash: the costs and benefits of homogeneity’, Management Science, Vol. 56, pp.1718‐1738. 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