Company Analysis - Bancolombia - Essay Example

? Company Analysis – Bancolombia Executive Summary Developing a successful merger can be a quite challenging task, even for managers who are highly experienced in such plans. On the other hand, the success of a merger may not be clear immediately; often, it is required for a specific period of time, even up to a year, in order for the first signs for the merger’s success to appear. The case of Bancolombia is an indicative example of this trend. The firm’s recent financial results can be characterized as quite satisfactory even if initially the merger that led to the formation of Bancolombia seemed to be a mistake. Indeed, during the merger process and for a rather long period afterwards the firm’s managers had to face a series of problems related, mostly, to the management of HR. The different culture and characteristics of the three banks participated in the merger were not easy to be managed. The recent retirement of the firm’s CEO would set the future of Bancolombia in risk, if the new CEO would not be able to understand the firm’s culture but also the employees’ needs. Table of contents Executive Summary 2 Problem Statement 4 Supporting Evidence 4 Key decision criteria 7 Recommendations 8 References 11 Appendices 12 Problem Statement The development of the problem statement in regard to this study requires the reference to a series of events that led to the formation of Bancolombia, as in its current form. Bancolombia is an organization resulted from two mergers. In its initial form, Bancolombia resulted by the merge between the Banco Industrial Colombiano (BIC) and the Banco de Colombia. The above merger took place in 1998 and led to the establishment of Colombia’s most powerful firm in the banking industry (case study, p.3). Bancolombia, the firm resulted by the above merger, reached a market share of 11.5% (case study, p.3). At this point, the strategic managers in Bancolombia had to face the following problem: the two firms had a different background and structure; the first of the firms, BIC, was a well established bank in the country’s bank sector focusing on high investments. The second firm, i.e. the Banco de Colombia was privatized just in 1991 and had a history of strong conflicts with trade unions (case study, p.3). The identification of effective HR management practices was of critical importance in Bancolombia, as a business entity established in 1998. In the context of the second merger, a similar issue has appeared. The second merger took place between three firms of the Colombian banking industry: Bancolombia, Conavi and Corfinsura. These firms used different approaches in regard to the management of their HR: a) in Bancolombia, emphasis was given on cooperation for ensuring that organizational targets in regard to profitability are met; the ‘Added Value System, (ADV), a customer profiting strategy’ (case study p.4) was used in Bancolombia to achieve this target. In addition, managers in Bancolombia have promoted a scheme called ‘Cultural Transformation Workshops’ (case study p.3) for ensuring that employees in Bancolombia are fully aware of the culture of the firm; b) in Conavi, employees’ needs were highly valued; in fact, ‘high job stability and continuous interaction between employees and managers’ (case study p.5) have been the key characteristics of the firm’s HR strategy; c) in Corfinsura employees had to deal mostly with ‘large corporate clients’ (case study p.5); therefore, most of the firm’s employees were experts in investment banking services (case study p.5); Bancolombia, in its final form, had to deal not only with investment banking services but also to retail services. This problem has been highlighted by managers in Bancolombia, after the firm’s merger with Corfinsura. According to the above, this study’s research problem could be described as follows: would Bancolombia be able to secure high employee performance taking into consideration the important differences in the HR strategies of the three firms participated in the merger? In this context, the measures that the firm’s new CEO should take for facing this challenge should be also discussed. Supporting Evidence The literature published in regard to the development of mergers would be used for supporting the solutions suggested in regard to the study’s research problem, as presented above. Particular emphasis should be primarily given on the effective management of changes which are present in all mergers. Then the potential use of HR policies for securing the success of a merger should be also discussed, at the level that the findings would be valuable for answering this study’s research problem. The effective management of changes related to mergers can be secured in the following way: before beginning the merger process, managers in the firms involved should set ‘the vision of the merger, the change management objectives and a plan for achieving these objectives’ (Ventris 2004, p.33). At the same time, the fact that a merger is completed should not lead to the assumption that the efforts for securing cultural integration should stop (Carleton and Lineberry 2004). Keeping the efforts for achieving cultural integration during the post-merger period is a critical requirement for ensuring the stabilization of organizational performance, meaning the firm resulted from the merger, in the future (Carleton and Lineberry 2004). Another important characteristic of change management, in regard to a merger process, is the following one: when the change management strategies used in the context of a merger need to be supported by all parties involved (Galpin and Herndon 2010). If only one party promotes change, then the failures during the merger process cannot be avoided. Still, the needs for changes during mergers may be limited when the firms merged operate in the same industry, a trend that seems to be expanded the last two decades (Kusstatscher and Cooper 2005). In the literature it has been proved that mergers are necessarily related to changes (Buono and Bowditch 2003). However, the level at which these changes will be developed and the deadline for their completion are issues that concern managers who participate in mergers (Buono and Bowditch 2003). Completing changes quite fast may be an appropriate solution for avoiding high costs in the post-merger period. Still, such practice could lead to severe problems, the consequences of which on the firm may be more critical than the funds required for supporting a long-term change management plan (Daniel and Metcalf 2001). It should be noted that change management plans need to be supported by appropriately experienced managers (Williams, Woodward and Dobson 2002); otherwise the risk for unexpected failures can be high. The stress that usually appears in all mergers can threaten the efforts of managers to develop effective change management plans (Stahl and Mendenhall 2005). When the mergers refer to firms with different operational characteristics, the efforts ‘to bring together employees with different expertise’ (Williams, Woodward and Dobson 2002, p.157) can secure the provision ‘to the customers of greater value-added services’ (Williams, Woodward and Dobson 2002, p.157). This approach could be suitable for the merger under evaluation, under the terms that the three firms responded to different customer needs, as analyzed earlier. At this point, reference should be made to HRM, as an organizational sector that can highly influence the success of a merger. In practice, it has been proved that before attempting a merger a firm’s strategic managers need to decide which would be the role of employees in the merger: would be supporters of the specific process or they should be rather considered as ‘part of the excess overhead that needs to be reduced’ (Daniel and Metcalf 2001, p.9). It is widely accepted that the success of a merger is depended on the ability of managers ‘to align their firm’s HR strategy with the merger’s strategy’ (Dowling, Festing and Engle 2008, p.56). In addition, it has been proved that a merger has more chances to be successfully completed if it has the consent and the support of employees of the firms involved (Stahl and Mendenhall 2005). At the same time, the HR strategy chosen in organizations that have been resulted by merger needs to be different from HR strategies of firms that have not been involved in such processes (Amos et al. 2009). The reason is that in the first case, HR strategy should be followed by a strategy for ‘securing cultural fit’ (Amos et al. 2009, p.93), while in the second case no such need would exist. It should be noted that when entering a merger process the managers of firms tend to focus on ‘the financial aspects of the process and not on its HR aspects’ (Giffin and Schmidt 2002, p.6). Moreover, not all firms have the capabilities required for participating in a merger process, as revealed through Graph 1 (Appendices). In any case, the critical role of HR in mergers cannot be doubted, as also verified through the figures presented in Graph 2 (Appendices). On the other hand, because oppositions to mergers cannot be avoided, it would be necessary for plans to enhance integration to be developed in advance. An example of such plan is presented in Graph 3 (Appendices) where the methods used for achieving cultural and HR integration are presented. Key decision criteria The key decision criteria for the solutions recommended for Bancolombia, in regard to this study’s research problem would be the following ones: a) the firm’s current HR background, meaning the HR strategies implemented in the firms that have participated in the particular merger, b) the conditions in the internal organizational environment, at the level that these conditions would affect the performance of any HR strategy that could be introduced in Bancolombia in the post-merger period and c) the resources available, meaning the resources required for the implementation of the plans suggested through this study. Recommendations According to the issues discussed above, managers in Bancolombia should introduce a series of measures for securing HR integration so that employee performance is kept at high levels. Keeping the efforts for promoting cultural integration, as these efforts were started by the ex CEO of Bancolombia, would be critical so that conflicts in the internal organizational environment are eliminated and for employees’ motivation to be further enhanced, a fact that would help to the standardization of organizational growth in the long term. The measures suggested for Bancolombia, in its current form, i.e. in the post – merger period, are the following ones: a) a) even if the merger has been completed, the development of a new vision statement and the introduction of change management objectives/ plan would be feasible and could help towards the introduction of effective change management practices; b) the efforts for HR integration should be necessarily supported by plans for cultural integration; c) employees in all firms should be asked to participate in meetings where they could state their view for the merger process; in this way, employees’ concerns, as related to the merger would be revealed; HR managers in Bancolombia would be able to introduce HR policies that would be aligned with employees’ needs. Of course, these policies should be also aligned with the merger strategy; when having to set these needs in hierarchical order, employees’ needs should be at the basis of the hierarchy; indeed, without addressing employees’ needs managers in Bancolombia could not expect for the merger to succeed; d) Bancolombia, in its current form, covers a wider area of operations, compared to the firms participated in the merger; reference can be made, as an example to the employees of Corfinsura who are experienced almost exclusively on investment services; seminars would be arranged in Bancolombia so that employees with a different background to be able to respond to the current needs of the organization. Supporting the HR integration of the firms participated in the merger would help Bancolombia to have a more solid internal environment, so that threats from external turbulences would be easier confronted. In its current form, Bancolombia has not major problems in regard to the management of its HR or the management of cultural conflicts, as related to the different cultures of the firms participated in the merger. For this reason, at this level, the development of the above measures would be feasible especially since the firm’s ex CEO has managed to face effectively cultural and HR differences between the firms that constitute Bancolombia, in its current form. References Amos, T., Ristow, A., Pearse, N., and Ristow, L., 2009. Human Resource Management. Cape Town: Juta and Company Ltd. Buono, A. and Bowditch, J., 2003. The human side of mergers and acquisitions. Washington: Beard Books. Carleton, R. and Lineberry, C., 2004. Achieving Post-Merger Success: A Stakeholder's Guide to Cultural Due Diligence, Assessment, and Integration. Hoboken: John Wiley & Sons. Daniel, T. and Metcalf, G., 2001. The management of people in mergers and acquisitions. Westport: Greenwood Publishing Group. Danny A Davis and Sven Ringling, The role of HR in successful M&A integration. DEVELOPING HR STRATEGY, November 2010, pp.5-8 Available at http://integrationandseparation.com/downloads/Thoughts/DD%20Consulting_Role%20of%20HR%20in%20MA%20Integration.pdf.pdf [Accessed 11 April 2013] Dowling, P., Festing, M. and Engle, A., 2008. International Human Resource Management: Managing People in a Multinational Context. Belmont: Cengage Learning EMEA. Galpin, T. and Herndon, M., 2010. The Complete Guide to Mergers and Acquisitions: Process Tools to Support M&A Integration at Every Level. Hoboken: John Wiley & Sons. Giffin, A. and Schmidt, J., 2002. “Why HR Can Make or Break Your M&A.” EMPHSIS, Vol 2, pp.6-9. Available at http://www.imaa-institute.org/docs/m%26a/towersperrin_04_why%20hr%20can%20make%20or%20break%20your%20M%26A.pdf [Accessed 11 April 2013] Kusstatscher, V. and Cooper, C. , 2005. Managing Emotions in Mergers And Acquisitions. Cheltenham: Edward Elgar Publishing. PERRIN TOWERS, 2009. “Positioning for M&A Success: Putting People Into the Equation.” TOWERS WATSON. Available at http://www.towersperrin.com/tp/getwebcachedoc?webc=USA/2009/200912/M-A_Pulse_Survey_12-21-09.pdf [Accessed 11 April 2013] Stahl, G. and Mendenhall, M., 2005. Mergers And Acquisitions: Managing Culture And Human Resources. Stanford: Stanford University Press. Ventris, G., 2004. Successful Change Management: The Fifty Key Facts. London: Continuum International Publishing Group. Williams, A., Woodward, S. and Dobson, P., 2002. Managing change successfully: using theory and experience to implement change. Belmont: Cengage Learning. Appendices Graph 1 – Results of a survey in regard to the capabilities of companies to proceed to a merger (source: Giffin and Schmidt 2002, p.8) Graph 2 – Level at which HR supports successful and less-successful mergers (source: Perrin 2009, p.4) Graph 3 – Methods for promoting cultural and HR integration in firms participated in a merger (source: Davis and Ringling 2010, p.7) Case Analysis: Bancolombia case study Executive Summary Bancolombia, or else Grupo Bancolombia, is one of the most powerful competitors of the Colombian banking industry. The firm has been created through the merger, in 2004, of three Colombian banks. The merger has been considered as quite successful, mostly because of the delays in completing the various phases of the particular process. The firm’s CEO has tried to emphasize on cultural integration but the results of his efforts are, still, not clear. In 2010 the firm’s CEO had to retire. The ability of the new CEO to respond to the needs of the firm’s strategy in regard to culture integration should be set under examination, especially since the particular person does not have a sound experience in the banking industry. Problem statement In order to secure its growth Bancolombia needs to focus on cultural integration. Before the merger, the three firms of Grupo Bancolombia had different cultures, emphasizing on the achievement of different goals. How these forces could be managed so that the balance in the firm’s internal environment is guaranteed? The identification of an effective framework for promoting cultural integration could help Bancolombia to manage effectively all potentials turbulences in its internal environment and to further strengthen its competitiveness. Evidence – Relevant literature, empirical data & culture of Bancolombia The structure and the content of the cultural framework that would be appropriate for Bancolombia can be decided by reviewing primarily the literature published in this field. The relevant findings should be analyzed using the cultural characteristics of the firms that created Bancolombia. In this way, an effective cultural framework could be created for helping Bancolombia to secure its cultural integration. In order to understand the needs of Bancolombia in terms of cultural integration it is necessary to refer primarily to the reasons for which a merger process can fail. In any case, gaps in a merger plan can lead to the plan’s failure, even in the long term. However, it has been proved that the chances for the failure of a merger are decreasing as the distance from the time point when the merger was completed is increased (Nikandrou and Papalexandris 2007). At the same time, it has been revealed that when referring to a merger particular emphasis should be given on the ‘characteristics of integration’ (Nikandrou and Papalexandris 2007, p.156); the above term is used for describing two different aspects of integration: ‘the level (progress) of integration and the rate at which changes related to integration are developed’ (Nikandrou and Papalexandris 2007, p.156). In order to realize the power of culture to influence a merger it would be necessary to refer to the definition of culture, as developed in relevant literature. According to Straub (2007) culture can be described as ‘a set of frequently unspoken essential assumptions that members of a group share in common’ (Sathe 1985, in Straub 2007, 99). The important role of cultural integration in mergers and acquisitions (M&A) is verified through the findings of a research developed in 2011 by the organization Aon Hewitt. About 123 organizations were surveyed in order to state their view on the role of cultural integration in the success of M&A (AON Hewitt 2011). The failures related to cultural integration ‘ranked second as a driver for a deal failure’ (AON Hewitt 2011). The position of cultural integration compared to other factors that can also negatively affect such deals is made clear through Figure 1 (Exhibits). In the above survey, the participants were also asked to state their view in regard to the potential effects of ‘cultural integration failures’ (AON Hewitt 2011, 5). The responses of participants on this issue are presented in Figure 2 (Exhibits). It is clear that the reduction of organizational productivity and the loss of high skilled employees are the key consequences of cultural integration failures as part of M&A plans. An important finding of the survey developed by AON Hewitt is the following: a high percentage, about 58%, of the companies/ participants accepted that they are aware of the importance of cultural integration in business deals; still, each time they had to face such issues they could not identify an effective method for enhancing cultural integration (AON Hewitt 2011, 8). The specific survey also revealed the factors which can most contribute in cultural integration failures, either in the short or the long firms. The responses of participants, as presented in Figure 3 (Exhibits) lead to the result that leadership failures can lead to in cultural integration failure. The power of cultural integration to affect the success of a merger deal is also discussed in the study of Stahl and Voigt (2005). The above researchers tried to check previous studies in regard to the role of culture in the success of M&A. The findings of their research reveal a controversy: the power of culture to affect such deals is not as high as initially thought (Stahl and Voigt 2005). The results of the research developed by Stahl and Voigt (2005) in regard to culture and its role in M&A have been integrated in a diagram, presenting in Figure 4 (Exhibits). Through this diagram Stahl and Voigt (2005) try to explain the differentiation between the standards effects and the moderation effects of culture, as part of a M&A deal. It should be noted that moderation effects are not standardized. In firms operating in social environments where culture affects all aspects of social life the power of culture to influence business deals can be significantly higher compared to societies with different social and cultural characteristics (Stahl and Voigt 2005). The study of Carretta, Farina and Schwizer (2008) focuses on the role of culture in M&A developed within the banking industry. The particular study is therefore critical to understand the response of Bancolombia to the cultural integration needs of the merger. In general, Carretta, Farina and Schwizer (2008) note that in the context of the banking industry the failures of mergers should not be related so much to the preparation made before the merger but rather ‘to mistakes made in the implementation and the integration phases’ (Carretta, Farina and Schwizer 2008, 2). In order to help towards the minimization of risks for the industry’s firms that are involved in M&A, Carretta, Farina and Schwizer (2008) propose a model for ‘assessing the cultural compatibility of banks participating in such deals’ (Carretta, Farina and Schwizer 2008, 2). This model , see Figure 5 (Exhibits) could be also used in Bancolombia, even if the merger has been completed, for identifying the points at which the cultures of the firms participated in the merger are differentiated; then, measures could be introduced for minimizing these differences so that cultural integration to proceed fast. One of the key problems in regard to cultural integration as part of M&A is the following: usually, the cultural characteristics of organizations entering such deal are ignored in the design and the implementation phase of M&A (Gertsen, Soderberg and Torp 1998); instead, emphasis is given on the culture of the parties of such deals in the post-merger period, during the integration process (Gertsen, Soderberg and Torp 1998). Moreover, it has been proved that the more the cultural differences between the firms participating in a merger the higher the final cost of the merger (Finkelstein and Cooper, 2010). Also, it seems that increased cultural differences can severely affect the success of such deal, an issue that has been also discussed above (Finkelstein and Cooper, 2010). Ulijn, Duysters and Meijer (2010) have tried to identify the potential effects of national culture on M&A. They came to the conclusion that national culture can highly affect the success of M&A (Ulijn, Duysters and Meijer 2010). Indeed, in mergers developed between firms based on different countries important cultural barriers tend to appear (Ulijn, Duysters and Meijer 2010). This phenomenon can be explained since employees in each firm have different social and cultural background, a fact influencing their perceptions on ethics and on rules of work (Ulijn, Duysters and Meijer 2010). Despite the importance of culture as a factor influencing the success of M&A the use of culture as a key criterion for deciding a merger is limited (Harrison and Carroll 2006). In fact, managers in most organizations consider mergers as strategies for ‘increasing the efficiency of their organizations’ (Harrison and Carroll 2006, 185). The cultural characteristics of the organizations that will participate in a merger are not fully reviewed in the pre-merger period, a fact that has been related to the high rate of merger failures worldwide (Harrison and Carroll 2006). The role of culture in M&A is further analyzed in the study of Kyvik (2011). The above researcher claims that culture can influence the success of a merger in two ways: a) firms with different corporate cultures would have to face difficulties if attempting to proceed to a merger (Kyvik 2011) and b) the merger of firms based in countries with important cultural differences would have limited chances to succeed (Kyvik 2011). Also, differences in culture, meaning both the corporate culture and the national culture, could increase conflicts between employees of the organizations participated in the merger (Kyvik 2011). Decision criteria As explained earlier, this study’s key problem is the identification of a strategy that could help Bancolombia to secure cultural integration, a fact that would increase the organization’s efficiency. The criteria used for designing such strategy should be related to: a) the cultural background of the firms incorporated in Bancolombia and b) the skills/ experience of Bancolombia’s new CEO to support the particular framework. Recommendation The old Bancolombia, as resulted from the merger of BIC and the Banco de Colombia, in 1998, focused on ‘efficient service and profitable growth’ (1st page of case study). Still, at that period, Bancolombia had to face strong cultural conflicts, resulted from the different culture of the firms involved: BIC focused on investment banking while Banco de Colombia focused on retail services (3rd page of case study). In the first of the above firms HR management was highly valued. In the second firm, the Banco de Colombia, emphasis was given on the completion of tasks without focusing on employees’ needs (3rd page of case study). The particular organization was privatized in 1991 so its low performance in HRM can be justified. The cultural diagnostic tests developed for identifying the two firms’ cultural differences can be considered as quite important, for supporting cultural integration in regard to the particular merger (3rd page of case study). Up to this point, the control over cultural differences in Bancolombia has been effective. Problems appeared when the further expansion of Bancolombia, through the merger with two local banks, was decided. The first of these firms, Conavi promoted the moto ‘Conavi likes people and people like Conavi’ (5th page of case study). As for the second firm, the bank Corfinsura, the following problem existed: the specific bank focused on investment banking that represented the high percentage of its operations and profits (5th page of case study). The appointment of a leader of the merger process and the introduction of Cultural Transformation Workshops (14th page of case study) cannot be considered as sufficient measures for securing cultural integration in the new Bancolombia. The new CEO in Bancolombia could promote the introduction of a framework for measuring cultural compatibility between the three firms. Such framework could be similar with that presented in Figure 5. Through this framework the firm’s CEO could identify the gaps in the firm’s existing cultural integration strategy; also, this framework would help CEO to develop an effective cultural integration strategy, as such strategy should be aligned with the cultural characteristics of all the merger’s participants. Bibliography AON Hewitt. Culture Integration in M&A. Global Survey Findings. 2011. http://www.aon.com/attachments/thought-leadership/M_A_Survey.pdf Carretta, Alessandro, Farina, Vincenzo and Schwizer, Paola. M&A and post merger integration in banking industry: the missing link of corporate culture. MPRA Paper No. 8300, April 2008 http://mpra.ub.uni-muenchen.de/8300/1/MPRA_paper_8300.pdf Finkelstein, S. and Cooper, G. Advances in mergers and acquisitions, Bingley: Emerald Group Publishing, 2010. Gertsen, M., Soderberg, A. and Torp, J. Cultural dimensions of international mergers and acquisitions, Copenhagen: Walter de Gruyter, 1998. Gunter K. Stahl and Andreas Voigt. IMPACT OF CULTURAL DIFFERENCES ON MERGER AND ACQUISITION PERFORMANCE: A CRITICAL RESEARCH REVIEW AND AN INTEGRATIVE MODEL. Advances in Mergers and Acquisitions, 2005, Volume 4, 51–82. http://karhen.home.xs4all.nl/Papers/4/IMPACT%20OF%20CULTURAL%20DIFFERENCES%20ON%20MERGER%20AND%20ACQUISITION%20PERFORMANCE%20-%20A%20CRITICAL%20RESEARCH%20REVIEW%20AND%20AN%20INTEGRATIVE%20MODEL.pdf Harrison, R., Carroll, G. Culture and demography in organizations, New Jersey: Princeton University Press, 2006. Irene Nikandrou and Nancy Papalexandris.The impact of M&A experience on strategic HRM practices and organizational effectiveness: evidence from Greek firms. Human Resource Management Journal, Vol 17, no 2, 2007, pages 155–177. ftp://ftp.sapco.ir/eBooks/j.1748-8583.2007.00031.x.pdf Kyvik, O. Cultural Complexities in Cross Border Mergers & Acquisitions, Norderstedt: GRIN Verlag, 2011. Straub, T. Reasons for Frequent Failure in Mergers and Acquisitions: A Comprehensive Analysis, New York: Springer DE, 2007. Ulijn, J., Duysters, G. and Meijer, E. Strategic Alliances, Mergers and Acquisitions: The Influence of Culture on Successful Cooperation, Cheltenham: Edward Elgar Publishing, 2010. Weber, Y. Handbook of Research on Mergers and Acquisitions, Cheltenham: Edward Elgar Publishing, 2013. Exhibits Figure 1 – 10 most critical drivers of deal failure (AON Hewitt 2001, 5) Figure 2 – Effects of failures related to cultural integration (AON Hewitt, 6) Figure 3 – Causes of unsuccessful cultural integration (AON Hewitt 2011, 8) Figure 4 – The role of culture in M&A – dotted arrows are used for showing moderating effects (Stahl and Voigt 2005, 71) Figure 5 – A model for checking culture compatibility of banks participating in M&A (Carretta and Farina and Schwizer 2008, 8) Read More