Essay: Mergers and acquisitions

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  • Mergers and acquisitions
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During the past two decades, the frequency and scale of M&A’s have increased continually (Seo & Hill, 2005). Even though the number of mergers is increasing, mergers aimed at achieving growth and diversification are often not successful (Shrivastava, 1986). Especially neglecting the human side of M&As tends to be a possible explanation for failures of mergers (Terry, 2001). According to Shrivastava (1986) managerial and sociocultural integration is perhaps the most difficult part of a Post- Merger Integration, and has been recognized as a critical process in determining the success of a merger (Shrivastava as cited in Terry, 2001).
M&A causes fundamental change in an organization that has a great impact on the people involved and that often times has implications for the psychological attachment to the organization, and so the employees’ organizational identification (He & Brown, 2013; Van Knippenberg, Van Knippenberg, Monden, & de Lima, 2002).
It seems to be natural that M&As happens to physical teams, but the revolution of technology has created a new unique context of a virtual work environment (He & Brown, 2013). Compared to physical teams, members of virtual teams are spread across the globe and therefore less aware of the external conditions that might change during an M&A. Leaders of these teams face unique challenges, such as effectively influencing employees while they need to rely on computer-mediated communication (Purvanova & Bono, 2009). A common problem here is that virtual work diminishes the visible and tangible aspects of an organization, but relies more on the perception of employees and others (Wiesenfeld, Raghuram, & Garud, 2001). This is problematic for employees who are active in this virtual work environment as they thereby feel less embedded in the ‘new’ organization and face issues in identifying with the new organization. A unique task is here for the leaders who in general can enable higher levels of organizational identification and eventually a successful Post- Merger Integration. Leaders can be of large value in reducing the gap between the employee in a virtual work environment and the ‘new’ organization.
Successful Post-Merger Integration is depending on leadership that empowers organizational and cultural adaptation and creates alignment between the merging entities (Zhang et al., 2014). Problems with employees connected with the management of the merging organizations are among one of the most important factors which constitute a barrier to the process of the merger (Stankiewicz-Mróz, 2015). Leadership empowers organizational and cultural adaptation and creates alignment between the merging entities (Zhang et al., 2014). Leaders’ behaviors are able to shape how employees view their relational and social identification with their organization. Able (2007) argues that when employees during the Post-Merger Integration have the feeling that their leaders are concerned about them, they will show greater commitment during the integration. Leaders can be of significant value in the employees’ process of identification with the ‘new’ organization, especially while different work environments request different needs. But, in what way leaders act towards their employees may vary upon leadership style. This study will examine to what extent the variance in leadership style, in terms of transformational versus transactional leadership have some effect on the level of organizational identification. Transformational leadership means that a leader focuses on motivation and stimulation for the good of the group (Bass, 1990) and transactional leadership, means that a leader focuses on existing structure and guidelines and not deviates from these (Bass, 1990).
What seems to be missing in the literature are findings of the combination of above discussed variables, organizational identification, work environment and leadership style in an M&A context during a Post-Merger Integration. In this research context, employees are globally dispersed and the employees working in a virtual work environment are ‘home based’, they are most of the time visiting the customer and work mainly on an individual base. They need to rely on virtual resources and therefore they seem to be less exposed to the changes that come across in a Post-Merger Integration. While working virtual is growing, organizational identification tends to be more difficult to sustain (Thatcher & Zhu, 2006). As a consequence of less exposure to changes a lower level of identification towards the ‘new’ organization is expected. Additionally, chances remain here for leaders as they are key in the motivation of their team members to commit and create organizational identification while relying on computer-mediated communication (Bell & Kozlowski, 2002). Especially transformational leadership might be crucial as this leadership style focuses on involvement and motivation towards their employees. Which in this case is of high importance in order to show and make them aware of the changes that appear but they might not physically see.
This research aims at enriching the literature by providing insight into the interaction between work environment and leadership style and organizational identification in an M&A context. This leads to the following research question:
“To what extent does the interaction between work environment (virtual/traditional) and leadership style (transformational/ transactional) influence employees’ organizational identification?”
This research will be carried out in a Post-Merger Integration of the acquired organization into a multinational organization in the Healthcare Industry. The interaction effect of work environment and leadership style on organizational identification will be researched by means of a questionnaire. In addition, interviews will be used to elaborate on the different concepts. Further, this M&A can be identified as a synergy that is associated with the strategic perspective of cross-selling complementary products and accessing more frequent or/and alternative distribution channels (Stahl, Mendenhall, Pablo, & Javidan, 2005). Cross selling means that sales employees besides their ‘standard’ products also sell other products to their existing customers. Taking the example of a car, sales employees mainly sell the car mirrors and tires, and as they need often replacement, they are on a frequent base with their customer. As they see the customer on a more frequent base, the synergizing M&A with a company selling the car gives them the possibility to anticipate on changes and introduce a new car more easily. When cross- selling is implemented in an appropriate manner, this will magnify their joint sales and eventually market share. Cross- selling is based on weak ties and requires trust, shared vision and alignment on a shared language (Bilhuber Galli, 2011). Especially shared vision seems to be an enabler of organizational identification and is of particular importance in cross- selling initiatives (Nahapiet & Ghoshal, 1998; Bilhuber Galli, 2011). Van Knippenberg et al. (2002) defines “from a social identity perspective, a merger may be defined as a formal re- categorization of two social groups as one new group” (p. 234). Therefore, the Post- Merger Integration involves an identification process which implies identifying with the ‘new’ firm (Timmers, 2010a). Bartels et al. (2006) state that “organizational identification is considered as important because it influences employees willingness to strive for organizational goals, to stay with the organization, to spread a positive image of the organization and to cooperate with other organizational members” (p. 52). Building on this, in the context of an M&A employees feel often times the need to review their (professional) identity, which initiates a decrease in organizational identification (Bartels et al., 2006; Giessner, 2011). Findings show that the problem is that employees of merged organizations act on the basis of their premerger identity instead of the basis of the identity implied by the merger (Van Knippenberg & Leeuwen, 2001). Negative responses and feelings towards the acquired organization may hazard this Post- Merger Integration phase, therefore the organizational identification tends to be important for the success of a merger (Hogg & Terry, 2000).
Conceptual model
Scientific relevance
In the past, researchers paid less attention to the soft and human elements of an M&A, still these elements are of high importance for a successful integration of an acquired company (Schweizer r& Patzelt, 2012). Organizations are not stationary. Their nature is to change according to the requested needs, like an M&A. It is indicated that an M&A has implications for the employee’s organizational identification (He & Brown, 2013; Ullrich, Wieseke, & VanDick, 2005; Van Dick, Ullrich, & Tissington, 2006; Van Knippenberg, Martin, & Tyler, 2006).
Research in organizational identification as a unique research topic is recently developing, although there are some less researched areas. The relationship between leadership and organizational identification deserves some special attention (He & Brown, 2013). Especially in an M&A context limited research is carried out (Kark, Shamir, & Chen, 2003; Epitropaki & Martin, 2005). Epitropaki & Martin (2005) suggest, that future research within organizational identification and leadership might focus on including other (organizational) variables as possible moderators. Further, previous studies focused mainly on the pre-merger identification perspective, or the correlation between the pre- and post-merger perspectives, but less focus was there specifically on the Post-Merger Integration perspectives (Bartels et al., 2006).
Next to the unique M&A context, the revolution of information-communication technology calls the need for research in a virtual work context (Fiol & O’Connor, 2005; He & Brown, 2013). Wiesenfeld et al., (2001) suggest it is relevant to compare employees who work the majority of their time physical versus virtual and evaluate in what way they vary from each other. Especially to explore whether their findings can be extended to other employees in different fields or international assignments (C. A. Bartel, Wrzesniewski, & Wiesenfeld, 2012).
Therefore, this study will address these topics by investigating the interaction of the work context (virtual/traditional) and leadership style on organizational identification. Additionally, this specific model will be carried out in a Post-Merger Integration phase of an M&A in the Healthcare Industry, something that is not yet been studied.
Practical relevance
Next to the scientific contribution, this study also has practical relevance. The employees’ Post-Merger identification tends to be an important precursor of success on the human side of the merger process (Giessner, 2011).
The main reason of this M&A is synergy, where cross-selling is highly important and will deliver an increase in sales and market share. Organizational identification in that sense is important, as employees need to sell also products from a company they are not familiar with. The fact that this cross-selling appears cross-borders, requires virtual work environments. In reality, this can cause some consequences for identification, as distance and globally distribution will weaken the relationship with the organization (Wiesenfeld et al., 1991a as cited in Fiol & O’Connor, 2005).
With the international scope of the study and the increasing virtual context, leaders come into place to enhance organizational identification of the employees. Different leadership styles can impact organizational identification in a more positive way than the other. This is important while process issues and effects can be better understood when leadership is taken into account (Pablo & Sitkin, 2004).
This study allows us to indicate what the current organizational identification state of the employees is, and what factors are requested more than others to have a high level of organizational identification. Considering several options, it will give an indication of what fit is best.
Theoretical background
In this chapter, the theoretical background of the different variables for this research are introduced. More specifically this are the variables organizational identification, work environment and leadership style. The theoretical findings lead to four hypotheses that will be tested.
Dependent variable: Organizational Identification
Individuals’ need for organizational identification seems to become more important as the social and organizational environment keeps changing (Ashforth et al., 2008). In times of change, identification is especially critical as it will help members in retaining a connection with the organization (Elstak, Bhatt, Van Riel, Pratt, & Berens, 2015).
Organizational identification stems from the framework of social identity theory (SIT) which argues that people classify themselves and others into certain social categories (Ashforth & Mael, 1989). This so-called social identification is “the perception of oneness with or belongingness to a human aggregate” (Ashforth & Mael, 1989, p. 21). While individuals are spending most of their time at work, they see their organization, department and/or workgroup as a social category, something they belong too. (Ashforth & Mael, 1989). Organizational identification is a specific form of social identification (Mael & Ashforth, 1992). According to Mael & Ashforth, (1992, p. 104) organizational identification refers to “The perception of oneness with or belongingness to an organization where the individual defines him or herself in terms of the organization(s) in which he or she is a member” and, as a consequence he or she will personalize the organization\’s successes and failures (Vora & Kostova, 2007).
Identification can affect the individuals’ cognitions, emotions, and behaviors (Van Dick, Wagner, Stellmacher, & Christ, 2004). It involves a psychological connection to a specific company (Abrams & Randsley de Moura, 2001). This psychological connection can be linked to employees’ own personal identity (Bartels et al., 2006). An important aspect of this individual identification is cognitive and depends on the how organizational membership is applicable to the individual (Ashforth & Mael, 1989; Dutton, Dukerich, & Harquail, 1994; Wiesenfeld et al., 2001). Cognitive means being part of the individual identification and in what way an individual perceives, or has the knowledge to see him/herself as member of the organization (e.g. feeling part of the organization) (Epitropaki & Martin, 2005; Riketta, 2005; Van Dick et al., 2004; Wiesenfeld et al., 2001).
Several researchers have argued some underlying motives for identification. Reid & Hogg (2005) state that self-enhancement and uncertainty reduction are “two core individual-level motivations underlying social identity processes” (p. 804). The more an organization can ensure positive employees’ self-enhancement and respond to the need for uncertainty reduction, the more an individual will identify with the organization (Bartels et al., 2006; Elstak et al., 2015). Even though these fundamental motivations can affect the identification process independently, their impact depends on the situation and context (Hogg & Terry, 2000).
However, this research will focus on how individuals define themselves in terms of the organization. The main point is that when employees experience similarities in the organizational identity and their own personal identity their identification towards the organization will be stronger (Bartels et al., 2006). Eventually, when identification occurs, employees will adopt the characteristics of the organization and define them as one of themselves (Vora & Kostova, 2007 as cited in Dutton et al., 1994, p. 242).
Organizational identification within an M&A context. Organizational identification is likely to be context dependent. Within the context of mergers, a change of identity might be necessary. Like other changes, mergers have a psychological impact on employees (Van Knippenberg et al., 2002). Research has found out that especially, during a merger, the identification with the acquiring organization and therewith the Post-Merger Integration becomes more difficult (Bartels et al., 2006; Van Dick et al., 2004). The merger, which implies the integration of two groups of people, differs in impact. It can, for example, depend on the dominance of an organization. Several studies argue that most mergers may to a certain extent be seen as takeovers (Cartwright & Cooper, 1992; Hogan & Overmeyer-Day, 1994; Van Knippenberg et al., 2002; Ullrich, Wieseke, & VanDick, 2005; Timmers, 2010), it is unlikely that merger partners are equally in status (Van Oudenhoven and de Boer 1995, as cited in Terry, 2001).
Most likely the acquiring organization is dominant, with a high status. In this way, the acquiring organization has more influence on determining the structure and shape of the merged organization. Eventually the aim is that individuals of the dominated organization feel identified with the new organization, because higher levels of organizational identification often are associated with higher probability that individuals behave towards the organizations’ perspective, norms, values and attitudes (Ashforth & Mael, 1989; Van Knippenberg 2000; Van Knippenberg et al., 2006). Besides, higher levels of organizational identification lead to increased effort, support and loyalty towards the organization (Ashforth & Mael, 1989; Mael & Ashfort, 1992; Van Knippenberg et al., 2006). High organizational identification will stimulate in working towards goals, which is closely related to work motivation and job satisfaction (Van Dick, Ullrich, & Tissington, 2006).
Independent variable: Work Environment
Organizations are becoming more complex, dynamic and globally active, therefore structures and processes need to become more adaptive (Bell & Kozlowski, 2002). As a response to this, organizations operate across greater distances and besides the traditional physical teams, virtual or geographically dispersed teams come into place (O’Leary & Cummings, 2007).
Nowadays in organizations, working in a virtual environment is a way of life. Scholars have given different definitions to virtualness; 1) amount of time of team task not spent face to face; 2) level of technical support (Griffith & Neale, 2001) and; 3) extent of face-to-face contact among team members (Fiol & O’Connor, 2005). However, in terms this study, Wiesenfeld et al., (2001) has defined a fitting description: “virtual work, whereby individuals work from home, ‘on the road’ or otherwise outside of traditional centralized offices” (p.213). In addition to that, individuals working in a virtual context can make use of computer-mediated communication technologies hence, they have a spatial distance and can work interdependently across space, time and organizational boundaries (Bell & Kozlowski, 2002). The virtual work environment enables employees such as direct salespersons to work on site with clients, or work alone from home. This distance that is created in the virtual work environment reduces the possibility of direct supervision, and the opportunity to provide the employee with direct feedback (Thatcher & Zhu, 2006).
Further, the traditional work environment, which exists of working in a physical and face-to-face environment is still very common. Here, individuals are working in an office building, work more closely to one another and have collocated supervision and feedback from their manager (Shamir, 1992 as cited in Thatcher & Zhu, 2006). Face-to-face communication is normal and Elsbach, (2003) states that several researchers argue that conversations can be strengthened by visible behavior towards others and the identification with others.
However, this study acknowledges the fact that individuals do not purely work in a virtual work environment or purely in a traditional face-to-face environment. Expecting that working the majority of time in a traditional or virtual work environment might have important implications for the employees’ organizational identification. As the literature does not make a clear distinction, this study operationalizes the employees’ work environment in two types: 1) the employees’ work location, 2) the way they have contact with their manager. Both are measured, by inquiring where they spend the majority of their work environment and contact.
Work environment and organizational identification. The research explored organizational identification with a focus on the physical traditional work environment. But especially organizational identification in the virtual setting is important, as it will differ in aspects towards the traditional settings. Mostly general responsibilities and tasks remain the same, virtuality changes the work environment and therewith the contact and engagement with the other members and the organization (C. A. Bartel et al., 2012). They are very closely related to one another, and literature does not specifically address these separately. In this research the work environment is hypothesized as one aspect, as it is operationalized in two fold; 1) work location and 2) way of contact with the manager. Work location consists of working in an office building (traditional work environment) or working from different locations, the customer, home (virtual work environment). The latter, way of contact with manager consist of having face-to-face meetings (traditional work environment) or contact via skype for business, telephone or e-mail (virtual work environment). Whereby, in both cases, is questioned towards the majority of the employees’ working time or contact.
The traditional work environment is marked by the visibility of things like organization’s logo, slogans, the design of corporate buildings and offices. This, and rituals like having lunch with co-workers, celebrations of corporate events or meeting peers at the coffee machine facilitate organizational identification in a traditional work environment (Wiesenfeld et al., 2001).
These tangible aspects and rituals are reducing when a virtual work environment occurs. Employees working from home or from customer locations, do not get exposed to these visible things and it reduces the contact with the organization, co-workers and exposure to the organizational structures and processes (Wiesenfeld et al., 2001). The face-to-face communication in this virtual work environment is less likely, employees need to rely on contact via media like e-mail, telephone and skype. Unfortunately, these mediums of contact are not as rich as face-to-face communication in their ability to transfer the social context of an individual or the organization (Wiesenfeld, Raghuram, & Garud, 1999a). The electronic messaging lacks the attachment of social baggage, and for example power and status are harder to detect (Bathelt & Turi, 2011). For example not having lunches with co-workers can hamper an employee in having a higher level of organizational identification. So, organization members, like co-workers and managers need to support via virtual communication channels the employee in personalizing themselves with the organization (Wiesenfeld et al., 2001). This might be challenging, because the informal contact with co-workers and managers may be less frequent, the development of this connectedness to the organization becomes more difficult (Cascio, 2000).
Individuals who work the majority of their working time in a virtual environment, lack the physical and social ties that normally expand feelings of membership (C. Bartel & Dutton, 2001). This does not mean that people, who are being less exposed to organizational structures do not exhibit organizational identification at all. Wiesenfeld et al., (2001, p. 216) state that “the fact that individuals identify even with groups they have had no direct contact with implies that attributes of individuals –such as their need to belong- may help drive identification in such instances”. Still working in a virtual environment makes organizational identification more difficult to sustain (Thatcher & Zhu, 2006). For this identification to occur, individuals need to be motivated and supported to belong to a group (social category). For example, co-workers which are also working in a virtual work environment. In turn, the stability and salience of this social category will strongly affect member identification (Fiol & O’Connor, 2005).
Virtual work settings that physically separate employees from their organization (physical headquarters for example), and its members endanger the individuals’ feelings of belonging to and having a high level of organizational identification (Wiesenfeld et al., 2001; Thatcher & Zhu, 2006; C. A. Bartel et al., 2012). Therefore organizational identification is essential to the sustainability of the virtual work environment. Working in a virtual work environment requires employees to rely on each other’s’ ability to phrase trustworthy expectations about others behavior and rely on each other to perform their functions in a consistent way (Wiesenfeld, Raghuram, & Garud, 1999b). Further challenges remain to limit the chances of misunderstandings and conflict escalations (Bathelt & Turi, 2011). Salespeople, for example, are the representatives of the organization, and from a competitive view, it is, therefore, important that these salespeople all represent the organization consistently. Besides, competitive intensity relates positively to the organizational identification (Wieseke, Kraus, Ahearne, & Mikolon, 2012)
A virtual work environment faces issues here. Employees are less exposed to organizational factors and results in lower levels of organizational identification compared to employees working in a traditional work environment that ensure higher levels of organizational identification.
Therefore, in this research, it is expected that employees who are working the majority of their time in a virtual work environment will have a lower level of organizational identification.
Hypothesis 1: Employees working the majority of their time in a virtual work environment compared to the ones in a traditional work environment will have a lower level of organizational identification.
Independent variable: Leadership style
Literature indicates different views on the concept of leadership style, more specifically in terms of transformational and transactional leadership.
Burns (1978) identified the two types of leadership styles, transactional and transformational leadership and views these two leadership styles as a dimensional construct being at opposite ends of one continuum. Burns (1978 as cited in Den Hartog, Van Muijen, & Koopman, 1997) argues that transactional leadership involves an exchange between leader and follower. Research shows that this leader-follower exchange is based on a series of exchanges or implicit bargains (Den Hartog et al., 1997). Leaders monitor and control employees by rational or economic means (Bono & Judge, 2004). In terms of leader-follower exchange, a transformational leader engages with one another to jointly achieve higher levels of motivation (Burns, 1978).
However, Bass’ (1985, 1990) has another view on this and argues that transformational and transactional leadership styles as separate dimensions that allow a leader to be both or neither (Bass 1985; 1998, as cited in Vera & Crossan, 2004). He developed the Multifactor Leadership Questionnaire to measure these leadership styles (Avolio, Bass, & Jung, 1999; Bass, 1985, 1990, 1997; Seltzer & Bass, 1990). Though, this study will build further upon the view of Burns’ (1978) stating that these two type of leadership styles can be seen as opposite ends of one continuum.
Transformational leaders have the capability to motivate and stimulate employees to expand their interests and go that extra mile for the good of the group (Bass, 1990; Hater & Bass, 1988). Bass (1985) identified five characteristics that describe transformational leaders. The first transformational leadership behavior is charisma, which refers to leaders that possess pride, faith and respect to the employees, and have a feeling for what is really important. The second transformational leadership behavior is inspirational motivation, in which a leader has a strong vision for the future based on values, while at the same time positively stimulating and inspiriting the employees. The third transformational leadership behavior is individualized consideration, in which a leader pays close attention to the development of the individual by providing coaching. The fourth transformational leadership behavior is intellectual stimulation, in which a leader is willing and able to challenge their employees to get other and new insights of looking at problems and doing things, by being innovative. (Bass, 1990; Bono & Judge, 2004)
Transactional leaders set clear goals towards their employees within the lines of the existing structure (e.g. system, culture), have a preference to avoidance and tend to be more effective in a stable and predictable environment (Bass, 1990; Lowe et al., 1996; Bass, 1997; Vera & Crossan, 2004; Epitropaki & Martin, 2005). Transactional leaders pay high attention to value the formal aspects of performance, like policies and procedures (Sarros, Tanewski, Winter, Santora, & Densten, 2002). Bass (1985) identified three characteristics that describe transactional leaders. The first transactional leadership behavior, contingent reward, refers to leadership behaviors that focus on the exchange of resources. Leaders support employees in what to do, provide them with tangible or intangible support in exchange for results that meet the performance according to the mutual agreement. Like for example bonuses or merit increases (Howell & Avolio, 1993). The second transactional leadership behavior – management by exception- falls in two forms, active and passive management by exception. Active management by exception refers to leadership behavior in which leaders monitor performance while letting employees follow the rules, to avoid making mistakes. The third transactional leadership behavior, passive management by exception, refers to leadership behavior in which leaders wait to take action until mistakes/problems become serious. Leaders wait till the task is completed to determine that a problem exists (Howell & Avolio, 1993).
The last dimension of transactional leadership is debated in the literature, laissez-faire the degree to which leaders avoid accepting their own responsibilities. Bass (1997) included laissez-faire under the transactional leadership, laissez-faire can be considered as the avoidance of leadership responsibilities or even as non-leadership (Bono & Judge, 2004; Den Hartog et al., 1997; Judge & Piccolo, 2004; Stewart, 2006).
Leadership style and organizational identification. “Transformational leadership has been found to be effective in influencing followers’ behavior and performance, because it enhances followers’ organizational identification” (He & Brown, 2013, p. 17). Research performed on transformational and charismatic leadership suggests that transformational leaders are likely to increase personal and social identification among their followers, by influencing their feelings of identification (Kark et al., 2003). Transformational leaders have the ability to successfully make the connection between the followers’ self-identity and the mission of the organization (Cicero & Pierro, 2007). Driving this collective level of followers’ self-identity results in an increasing probability of followers who involve in the cooperative, organizational behavior rather than focusing on their personal aims (Kark et al., 2003) .
In a changing environment, like the creation of a new or emerging organization, there is more ambiguity, anxiety and need for orientation from employees. In these situations, employees are more likely to follow charismatic leaders and agree towards how they define the organization’s identity (Shamir, House, & Arthur, 1993). Martin & Epitropaki, (2001) state that a transformational leader can get their employees to be more committed and motivated in their work and hence, will have a higher organizational identification. Epitropaki & Martin (2005) state that “transformational leaders, through empowerment, trust building, inspiration and articulation of an attractive vision for the future, are likely to increase the perceived attractiveness of the organization …” (p. 573). Additionally, transformational leaders motivate and stimulate employees in a positive way which increase their organizational identification (Zhu, Sosik, Riggio, & Yang, 2012).
Hypothesis 2a: The level of transformational leadership will have a positive effect on organizational identification.
Almost none research is done on the link between transactional leadership and organizational identification. Transactional leaders are more focused on the structure and processes and motivate the employee to meet the work standards (Bass, 1990). Martin & Epitropaki (2001) state that transactional leaders who are more focusing on extracting their tasks to what is needed and nothing more than that, it will not motivate employees to put in the extra effort. Employees are extrinsically motivated (by rewarding and management by exception) and this will reduce the investments of employees behaviors towards the organization (Moriano, Molero, Topa, & Mangin, 2014). Though, Martin & Epitropaki (2001) found also that by clarifying the employees’ position in the organization and manage performance expectations, transactional leaders were able to create some form of connection between the employee and the organization but yet not as prominent as transformational leaders could do.
Still, most literature robustly states that transactional leaders possess behavior that shows forms of passiveness to tasks and subordinates. They will not show the willingness to promote change or encourage their employees to be innovative and creative. Hence, they will drive the more conservative way to follow the organizational strategy (Eyal & Kark, 2004). So leaders who apply this aspect of leadership are likely to behave in ways that will not directly encourage employees to identify with the organization. Further, Sarros et al., (2002) found that transactional leadership stresses the feeling of anonymity associated with the isolation among group members. So employees will stay more close to their work contract standards and feel less committed to the organization and hence, they will have a lower organizational identification. In line with this, the assumption is that transactional leaders do not actively encourage employees to feel part of an organization, but rather focus on the tasks and structures of the organization. Therefore, the assumption is:
Hypothesis 2b: Transactional leadership will have a negative effect on the employees’ organizational identification.
Interaction: Work environment in combination with leadership style on organizational identification.
The work environment of employees shows significant changes compared to a few year ago. New communication technologies occur and the virtual work environment, as opposed to the traditional work environment, comes into place. Leaders may experience challenges in managing employees in this virtual work environment.
Virtual team members feel less known by others because of the physical distance created by virtual media (Purvanova & Bono, 2009). They feel left out by missing informal organizational habits, such as having lunch with co- workers or having a short chat near the coffee machine (Wiesenfeld et al., 2001). Purvanova & Bono (2009, p. 345) stated that “Due to the impoverished communication environment, virtual teams operate under conditions of challenge, confusion and uncertainty”. Especially in these weak situations, where employees have less exposure to aspects of organizational life, it is necessary to provide clear social and structural support in the employees’ behavior. This, in turn, gives opportunities for transformational leadership to anticipate to the situation and requirements (Shamir & Howell, 1999; Wiesenfeld et al., 2001).
By providing employees in this virtual work environment with social support, they feel more implied to be valued and respected within the organization (Luhtanen & Crocker, 1992; Wiesenfeld et al., 2001). Also, trust seems to be an important element for leadership in a virtual work environment (Tyran, Tyran, & Shepherd, 2004). Transformational leaders are able to provide employees support with a socially structured context and increase followers’ trust by developing and sharing expectations, common mission, and an identity (Hoyt & Blascovich, 2003; Purvanova & Bono, 2009; Avolio et al., 2009).
Therefore we assume that employees working the majority of their time in a virtual work environment, in combination with a leader who shows transformational leadership to them will result in a higher organizational identification of the employee. Further, we assume the same will apply for employees who have the majority of their time contact with their manager in a virtual way. Hence, the following assumption is made:
Hypothesis 3: The effect of transformational leadership on organizational identification will be stronger for employees working the majority of their time in a virtual work environment compared to the ones in a traditional work environment.

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