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Essay: Literature review: Integrating culture in combining companies

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  • Published: 13 September 2015*
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Introduction
Companies today are combining in record numbers. Executives pursue mergers, acquisitions and joint ventures as a means to create value by: (1) acquiring technologies, products, and market access, (2) creating economies of scale, and (3) establishing global brand presence. In today’s world we are littered with integrated companies. The question that inevitably arises is: “What forces are powerful enough to counteract the value-creating energy of economies of scale or global market presence?” (Knilans, G. 2009). Culture has emerged as one of the dominant barriers to effective integrations. In one study, culture was found to be the cause of 30 percent of failed integrations. Companies with different cultures find it difficult, if not often impossible, to make decisions quickly and correctly or to operate effectively.
Human Resources is likely to be the most qualified party to understand and execute such integration-planning activities as developing employee communication strategies, programs to retain key talent and organizational and staffing plans. Another crucial Human Resources role is helping employees cope with change and maintaining productivity, reduce the loss of key talent while integration of the two cultures. Change can be particularly difficult for employees involved in a merger or an acquisition. Unanswered questions about job security, relocation and new reporting relationships even changes in benefit programs can raise anxiety, resentment and the loss of top talent who can often find jobs elsewhere. All this can lead to lower productivity.
Cultural Integration
Successfully integrating two cultures of the merging companies is an essential step towards achieving a successful partnership. Both organizations, the acquiring and the acquired, will have unique and beneficial cultural elements. Rather than adapting one organization’s cultural on the other, the best of both cultures should be integrated towards a common culture for the new organization’s make up. By letting both organizations contribute each other’s culture onto the overall business mission creates a win-win situation for both organizations. By having this newly identified combined corporate culture both sides can recognize something they have a contributed and adopt what is new. Making the employee feel comfortable first will help with the adaptation and welcome of new ideas.
Defining and promoting the new corporate culture will enable employees to work together toward achieving the business goals of the new organization. ‘Conducting a cultural audit by organizing a focus group of combined diverse jobs and people to help outline differences and similarities in work standards and practices’ (Knilans, G., Pg.72). This exercise will start to raise ‘awareness of potential difficulties and issues in the merging process, and allows the merging company to take steps to minimize culture clashes by building an effective communication structure’ (Thomas, L. L., P.36).
Thomas’s (1998) study found the following:
‘ Culture consists of the long-standing, largely implicit shared values, beliefs, and assumptions that influence behavior, attitudes, and meaning in a company (or society).
‘ This definition has several important implications:
‘ Culture is implicit. People who share in a culture find their culture challenging to recognize. The most insightful cultural observers often are outsiders, because cultural givens are not implicit to them.
‘ Culture influences how people behave and how people understand their own actions. As a result, culturally influenced beliefs and actions feel right to people, even while their implicit underpinnings make it difficult for those people to understand why they act the way they do or why other ways of acting might also be appropriate.
‘ Culture is resilient. Its elements are long-standing, not a matter of fads. The resilience of culture is supported by culture being implicit. It is difficult for people to recognize their own culture and how it exerts an influence on them. The staying power of culture is that it feels right to people; new cultural values that are imposed on people seldom replace their underlying values and beliefs in the long run. (p.36)
Employee Engagement
Managing engaged employees is detrimental to the company’s success in ways like: (1) continuing current day-to-day operations (2) acting as an ambassador to the merger (3) facilitating merger operations (4) implementing combined procedure/policies (5) help moral for others. Employee engagement does not necessarily mean that the employee is happy or even satisfied. Employee engagement is the ’emotional commitment the employee has to the organization and its goals’ (Baynham, P, P.15) meaning an engaged employee actually cares about their work and the company they work for. An engaged employee does not just work for a paycheck, instead they work on behalf of the organizational goals and are active contributors to the company’s overall growth.
When merging organizations another key function of Human Resources you instill in its managers to drive engagement are:
‘ Having a promising future
‘ Having confidence in the organization
‘ Company support of work/life balance
‘ Safety being treated as a priority
‘ Stress levels being reasonable
‘ Having the opportunity to improve one’s skills
‘ Working for a company that delivers high quality products and services
‘ Having a manager who treats one with dignity and respect
‘ Being excited about work
‘ Having confidence in the organization’s senior leaders
Both the employer and employee have to play an active role in cultivating engagement. A shared interest, understanding of context and expectations is an essential first step because engagement has to be equal from both the supervisor and employee. It is the key to retention of talent. The ever changing dynamics of the talent market have ensured that employers now compete for the top employees as well. ‘Recent surveys have reported that to attract, recruit, train and retain the best talent is possibly the single biggest predictor of corporate success’ (Baynham, P, p.15). In many studies, the single biggest contributor to employee engagement is the relationship people have with the person who manages them so managers must manage their own engagement while connecting fully with their staff to prime employees’ engagement.
Managements Role
‘Given the high cost of transacting mergers and acquisitions and their less then encouraging results, it is essential that top managers understand, prepare for, and manage those factors that potentially contribute to success or failure’ (Schweiger, p.70) A leader’s action can mean the difference between retaining a group of motivated and loyal employees and having a team whose apprehension jeopardizes their productivity or willingness to stay with the company. Leading through a merger the management team needs to create a clear vision, direction, and strategy that foster engagement and also communicates this fully to all employees while also being open to employees helping to co-create the organization’s vision and direction. Leaders need to maintain relationships and build new ones because nothing is more important to an individual then the feeling of personal and work recognition. To continue the relationship building and further improve your employee’s engagement, discussing work flow and processes will help the relationship build toward the organizations goals. Work relationships have shown to build more trust when results are woven into the setting to talk about and want at common goal. Engagements levels increase when we know our strengths, hold strength-based conversations, work with our strengths, and we move from listing strengths to fully living our strengths in the service of others and our organization. Employee engagement requires comprehensive understanding of the uniqueness of each individual and each culture within each workplace.
A manager needs to at a minimum be:
‘ Credible
‘ Provides a clear picture of company direction
‘ Displays concern for employee well-being
‘ Shows employees are important to company success
‘ Creates confidence in the future
‘ Responds quickly to marketplace changes
‘ Capable of dealing with the challenges faced by the company
To help managers be successful in their new roles while going through the merger, Human Resources will play a strategic role in mentoring our leaders in fulfilling the attributes they wish leaders to poses. With most business restructuring, there will be a mix of positives and negatives. Even if the news is generally good for the team, there may still be some uneasy feelings about what’s happening. Staff member will be fearful about change and resistance may increase if management is overly upbeat. The manager ‘must have a positive attitude, be willing to work with people as long as necessary, and see the merger as an opportunity, not a chore’ (Savings and Loan News, p.103). It’s better to be honest about obstacles and then talk about how the company and specifically your department plan to overcome them. For instance, if layoffs are planned, discuss the services that will be provided to those losing their jobs as well as what remaining employees can expect in the coming months. Try not to be specific towards any general person or position if you are not 100% sure they will be affected. Making the team understand what is ahead of the company when a merger is announced can help mentally prepare them and also provide some further motivation to seek ways to improve, grow and learn new skills to help them throughout the merger process.
Compensation
‘Depending on the circumstances of the deal-and the compensation policies of the merging companies-HR may be called on to splice disparate payment plans into a program that fits the new organization, or HR may have to discard the original plans and then create a program from scratch that complements the merged entities. Either way, old and new employees will be concerned about what is happening with their pay, so HR also must develop an effective communications plan to inform and reassure them’ (Susan, J. W, P.49).
Compensation strategies during a merger will be a project that will not happen overnight. Compensation is linked to many different tangible and intangible factors both for the employee and employer, so making a decision on how to combine all the factors that fall under compensation must be done in some methodical way, especially since ‘mergers and acquisitions cause uncertainty among employees especially if downsizing and cost cutting reasons are attached to the combination’ (David, N. H, p.15) When looking at past mergers some of the topics that fall under compensations can be made quicker than others, for example; if both companies offer a benefits plan it is fairly simple to choose which plan if any will be considered over the other. When looking at Pensions, time off programs and pay structures will take more time. To develop and merge compensation strategies involves: ‘(1) analyzing the compensation implications of the organizations business strategy. External environment and internal human resources conditions; (2) establishing the desired strategic compensation position involving; (3) detain any gap between the implications derived from the analysis and the desired strategic position; (4) designing compensation programs to close the gap and to translate the compensation strategy into practice; and (5) following through and implement’ (Strategic HR Review, p.5).
Communications
In today’s world communication has many different impacts on a merger, how it is received and perceived by all; the employees, customers and even community. ‘Research indicates that the importance of communication throughout the merger and acquisition process is crucial. Employees tend to resist some change and do not deal with stress in the same way. Effective and timely communication practices can help management dealing with these variables during a merger and acquisition process’ (Appelbaum, P.129). Depending on the size of the organizations that are merging communication can get complicated and in some cases put up road blocks. Most often a merger that fails is not because of the structure of the deal, but because of cultural conflict and poor communication. The key is strong communication from leadership that addresses the strategic aspects of the merger and ‘if there is nothing to report, then provide facts about the acquired firm or new people’ (Galosy, J. R, p.93)
In addition to the variety of communication needs when relating to staff both organizations need to include some ongoing themes that set the tone for value in our people. People need to feel:
‘ My previous career and the work and effort I have put in over many years have not been forgotten, whatever the future holds for me;
‘ The organization cares about me and my future, even if there is not a place for me in the new organization;
‘ I will be treated with respect in that I will personally be told information relating to me as soon as practicable, and I will not expect to hear from a third party;
‘ There is always someone with the time to listen to my concerns and fears.
Mergers can fail for many reasons, but it is said that the main reason is communication, especially for leadership. Human Resources must explain the value that leadership can unleash in guiding employees to embrace the change, give visual metrics, survey result to leaders for presentation tools that show how other similar organizations have adapted and how other internal departments are adapting, help them identify quick wins that work towards the merger and make sure they are celebrated and communicated to staff. Human Resources needs to place the leadership team in a position that allows communication to be understandable, can be related, instills confidence and a sense of urgency. Communication has many difficulties like employee demographics (Traditionalist, Baby Boomer, Gen X and Gen Y). Communications that work for one generation may not work for another, so by identifying all the aspects of a clear style can assist in determining the best way to go through the stages of communication.
The crucial question for merging companies is whether Human Resources are up to the task of playing a strategic role in a merger or an acquisition. If Human Resources has traditionally served as a technical expert (e.g., focusing on benefit administration and hiring programs), its leaders are not likely to be inclined or prepared to play a strategic role which can lead to lower productivity and diminution of a company’s intangible assets. In the growing world of global financial services mergers, these issues take on heightened importance.
One of the most important ways that a CEO can improve the probability of success is by getting HR involved as soon as the organization begins thinking about its acquisition criteria and possible targets and well before integration planning begins. Second, the chief executive should clarify Human Resource’s role in the merger and give the head of Human Resources a seat at the management table. The senior Human Resources executive should provide advice on such essentials as retaining key talent, communicating to employees, taking steps to combine cultures and developing processes for managing different benefit programs.
If Human Resources leadership is not strategic enough to participate early in the merger planning, the organization should consider how to transform Human Resources into a strategic player. This may entail divesting Human Resources of its more routine chores like benefits enrollment and basic administrative tasks that can be outsourced or turned into a self-service function via the Web. This would allow Human Resources to focus on providing high-level counsel to senior management on such topics as strategic staffing, long-term incentive plans and methods for developing a world-class workforce.
To meet these obligations, senior Human Resources participants must understand how the business functions, its goals, financial operations, marketing and product/service development, as well as how the business fits into the competitive landscape. Only when Human Resources is as business savvy as the rest of senior leadership and approaches its functions from a strategic perspective will it earn a seat at the management table.
Mergers provide enormous potential for growth that simply cannot be achieved as quickly through organic, incremental development. However, success rates are not very high, rendering them an expensive and very risky way to grow a business. When merging companies pay close attention to the people aspects of a merger or an acquisition, they greatly increase the chances that the deal will fulfill its promise.

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