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Effects Of Mergers And Acquisition On Organizational Workforce Management Essay

Since the 1980s Canada has been witnessing a wave of corporate mergers and acquisitions (M&A) that has been driven by dramatic changes in the global business environment. This fundamental economic restructuring is expected to continue for some time. Mergers and acquisitions are undertaken to fulfill various corporate objectives. They may be intended to reduce the likelihood of hostile takeovers, to diversify risk, or to achieve competitive advantage through synergistic efficiencies. They may involve merely integrating accounting functions and creating a new legal entity, or, at the other extreme, they may involve integration of capital assets, functional departments, and human resources (Shrivastava 1986). Although they are undertaken for good reasons, the research shows that many high-cost mergers and acquisitions fail to provide the anticipated rewards. Shrivastava (1986, 65) suggests that onehalf to two-thirds of all mergers ‘simply do not work.’ Buono and Bowditch (1989, 20) report that 30 percent of all acquired firms are sold off within five years and that 90 percent of mergers never live up to expectations. In an attempt to understand the reasons for the high failure rate, more recent M&A research has focused on human resource activities, particularly during the integration phase. Unfortunately, empirical studies relating to this topic seldom reach consistent conclusions. Furthermore, most studies do not explicitly link the various strategies pursued in mergers and acquisitions with the degree of success that is eventually obtained. Nevertheless, it is clear that human resource issues are generally under-managed, poorly understood, and often discarded at the outset as irrelevant to the strategic planning process (Napier 1989; Buono and Bowditch 1989) and that a better understanding of human resource issues in the integration stage of mergers and acquisitions could help them succeed. This study of the strategies of forty-four Canadian companies with active M&A programs contributes to the search for successful M&A strategies by revealing a direct link between the way in which human resources are managed and the success or failure of the merger or acquisition.

INTRODUCTION

The main aim of my research is to look at the impact of mergers and acquisitions on employees or on the workforce of any organization. It will assess the overall impact these processes have had on the number of individuals employed in the sector. In doing so, it is important to distinguish between the impact of the general global restructuring process and the impact of mergers and acquisitions on the workforce. This paper seeks to highlight how these processes are interlinked. It goes on to describe how recent changes in the sector have affected the occupational and skills profile of jobs in the sector. The way in which companies in the financial services sector have affected restructuring will also be assessed and the question will be asked whether any efforts have been taken by companies to limit the impact of restructuring and mergers and acquisitions on employment. The paper seeks to establish to what extent working conditions and workers’ rights have been affected by mergers and what impact these events have had on the industrial relations climate. The role played by trade unions and employee representatives in this process, and the level of involvement of European Works Councils in transnational merger processes, which are likely to have a significant impact on the workers they represent, are of particular importance and will be analyzed in this paper. An acquisition is expected to create value and to provide a return on investment. It is only through the combined efforts of two sets of employees that these objectives will be achieved.

However, human reactions to change are often ambivalent and difficult to anticipate. Change brings uncertainty and ambiguity. Psychological and sociological factors become intermingled and behavior influenced. The buyer’s first decisions are scrutinized closely, for they give an idea of what the new working environment will be like. The merger can lead to important changes in behavior, which may help or hinder the progress of the project. According to Bruner (2005), it is already difficult to manage a group of human beings, and even more so when a merger or acquisition occurs in which two staffs with different histories, practices, and experiences are joined. The incorporation of two companies on a strategic level means coordinating their strategies, their vision, the business units and their management orientations (Jansen, 2001). In addition, personnel integration has to be achieved in terms of harmonization of management styles, and incentives, personnel development, conflict management, socialization, communication and decision making structures along with processes. According to Jansen (2001), personnel integration, cultural integration is an often forgotten crucial factor in the integration of two companies. Cultural integration means solving the question of how far corporate cultures should be maintained or absorbed, according to which norms and values the merged organization should live and work, and which messages should be transmitted to the environment. In prior research, Cartwright and Cooper (1994) showed that the human factor in many integration phases is one of the most important factors in determining success or failure of a merger or an acquisition.

The predominance of negative attitudes caused by uncertainty often leads employees to act on the worst scenario and begin updating résumés (Greenhalgh and Jick 1975). The most valuable employees those that the post-merger corporations can least afford to lose—tend to be the first to leave the organization. For example, when Fluor Corporation acquired St. Joe Mineral in 1981, in a deal costing $2.2 billion, the large-scale migration of key managers following the acquisition contributed to millions of dollars in losses at the previously profitable St. Joe (Shrivastava 1986). Estimates of unanticipated turnover suggest that 47 percent of top executives in an acquired firm leave within the first year and 75 percent within three years. Within five years 58 percent of all managers leave(Walsh 1989, 313), and it is often the managers with the best performance histories who leave early on (Walsh and Ellwood 1991, 215).If there is no planned intervention strategy to deal with negative feelings and behaviors, the long-term behavior of employees who do remain with the organization may be affected, significantly reducing the likelihood of a successful post-merger integration (Marks and Cutcliffe 1988).‘More than any other issue. A popular view is that merger and acquisition behavior inevitably leads to, and indeed is motivated by, the possibility of drastically downsizing the workforce. Within the economics literature this view has been given expression in the notion of ‘breach of trust’ which argues that an important reason for merger activity is the opportunity that it offers owners to renege on implicit and explicit labour contracts. Merger activity of this form has implications for corporate governance. Whilst shareholders may gain from such a breach of trust, other stakeholders will suffer and the net consequences are far from clear. Furthermore there may be systemic costs if the destruction of trust inhibits subsequent investment in job specific human capital by employees. Such a view has been used to argue for legislation, which would directly or indirectly restrict take-over and merger activity. It also raises issues for the development of any European Union policy towards a harmonization of merger behavior across member states. There is a considerable disparity between countries, such as the UK, which have an exit based governance system, in which the ultimate discipline over managers lies in the shareholder's ability to sell control rights to the highest bidder, and those continental countries, most notably Germany, where the voice of stakeholder groups determines corporate control. In the former case hostile take-over are commonplace in the latter they are almost unknown. Any move towards harmonization necessarily needs to be informed by empirical evidence on the actual consequences of take-over activity for the economy. The purpose of this paper is therefore to provide a systematic empirical analysis of the effects of different types of take-over and merger activity on firm employment in the UK. To this end the paper uses a unique data set which contains information on the population of UK firms for the period 1967 to 1996, with information on in excess of 400 mergers. This is the largest UK data set on merger activity so far constructed. This sample is of particular interest as it includes the merger waves of the 1980s and early 1990s which are excluded from earlier studies. It presents the results of estimating labor demand functions which, by controlling for changes in wages or output that may occur post merger, allow an assessment to be made of the efficiency inducing impact of acquisitions. It examines not just the immediate impact of mergers on employment, but also the adjustment process through time. It therefore allows some assessment to be made of the growth inducing (or otherwise) effect of merger activity. The paper finds that mergers do indeed induce efficiency in the use of labour with this effect being particularly pronounced for related and hostile acquisitions. The results are also indicative of there being substantial efficiency effect variations across the sample, with smaller acquirers tending to show greater labour demand falls than their larger counterparts. The statistical analysis also indicated significant falls in output post-merger. This is consistent with the high levels of post-merger voluntary divestment reported for large UK firms for this period.

LITERATURE

Organizations strive to develop cohesiveness and promote agreement on work environment that genders positive thinking among the employees. However, it is candidly opined that conflict among the employees remains in some form or the other. Conflict at an initial stage could easily be controlled but which could lead to complications if allowed to aggravate. Hence a strategy of conflict resolution in any organizations becomes mandatory (Stephen and Julia, 1995). It has been experienced that task conflict creates dissatisfaction among the employees. In the wake of such a situation, routine tasks are adversely affected than non routine tasks (Jehn, 1995). It is imperative that conflict emergence be addressed and vigilance is maintained in such an environment to stall its adverse effect at an early stage.

Usually dominant and avoiding approach creates conflict among the employees (Friedman and Tidd and Curral and Tsai, 2000). These conflicts become noticeable during the meetings and general discussions on organizational objectives and, goals (DiPaola et al., 2001). The phenomenon also takes palace whereby useful and important decisions are at offing stage. Task conflict is interrelated with beneficial and other events in the reorganizations (Simons et al., 2000). Task conflict becomes pronounced while decision taking place are complex in nature or highly skilled in its manifestation. It leads to negativism in the development and maintainability of the team hence performance is being marred in such like situations (De Dreu and Weingart, 2003). It may, however, be pointed out that task conflict creates simmering but it doesn’t have any relationship between performance and satisfaction of the team work. The evaluation of the past experiences and accruing benefits from the same could have positive effect on the performance.

Management of task conflict in an amicable manner becomes instrumental in the resolution of task conflict (Passos et al., 2005). Advancement in the technology, development of good management practices’ and cost effective utilization of the scarce resources, demand that organizations at large to improve their work environment in order to remain viable in the competitive market scenario. Pressing demands from the stakeholders and ever ready entry of the opportune investor forces the market segment to remain alert in all kinds of situations and to increase their profits by enhancing performance. In particular, financial institutions have a lot to do in the present situation in Pakistan. Immense competition and growth in this sector demands operating with fine practices.

This study focuses on the operation of financial institutions in Pakistan in particular the employees proverbially serving as man behind the gun. Conflict may at surface due to pressure from the market. Conflict is not bad if it produces positive results (Newstrom at al., 1993) but high level of task conflict leads to reduction in team commitment and team member’s satisfaction (e.g., Amason, 1996; Amason and Sapienza, 1997; Jehn, 1997: Jehn and Mannix, 2001; Simons at al., 2000). In the wake of competition, management strives to on adopt efficient approach in the discharge of work by the employees to accrue the desired output. Such efforts make the management go in search of advanced practices. In this pursuit, the management brings about the changes whereby conflict free environment is provided to the employees. Similarly, once the problem is identified, it is resolved in order to keep employees away from adverse situation, which arises at the time. Cognizance of the importance of conflict resolution, the researchers have embarked upon this study. It provides an opportunity to the management, to resolve the issue at the initial stages. Smooth and easy work environment would help the employee to apply his capabilities.

Workforce conflict is certainly a costly proposition for organizations all over the world. Some of the costs are obvious and other costs are implicit. Obvious cost continues to rise such as when employees react angrily instead of cooperatively. Hidden cost effects on decision making (Newstromand Davis 1993). Three different points of view are advanced to study the conflict in organizations which include traditional point of view, human relation view and international view of conflict. According to the traditional point of view, conflict must be avoided. In the human relations view, conflict is a natural and inevitable outcome in an organization. It inflicts negative affects but has the potential to be a positive force as contributory to the performance.

In the international perspective, conflict is a positive force for performing effectively. In the wake of competition, financial institutions try to improve their services and offer good products to the consumers. At large, stakeholders benefit as the transfer of human resources from one institution to the other for a better opportunity and services becomes a common practice. It puts the institutions on the toes to operate with improved performance. Merger in the Institutions creates sense of competition and a better utilization of each other’s strength. On the other hand such mergers result in a reduction of their employees through offering handsome packages in the shape of golden handshake etc. This situation sometimes creates tension for all individuals who are working in financial institutions. Moreover, they feel insecure in their jobs. After collecting preliminary data from financial institutions, conflict was witnessed in the organizations as well as employees which remain on culmination point of shifting from one Institution to the other. This study focuses on the commercial entities in respect to their employees working in certain institutions

Mergers and Acquisitions can be especially challenging to employees, ultimately impacting their performance. Whether wildly divergent or sharing commonalities, rarely do two cultures easily and smoothly merge into one. Capable, experienced employees are the foundation to any workforce. During times of uncertainty, employees are most likely to become non-productive or leave. Beyond the direct costs of employee turnover, companies can lose thousands of dollars in productivity and reduced levels of customer service, with broader implication to the bottom line business results. Further, when employees leave with years of knowledge and experience, they simply cannot be easily replaced overnight. Cultural resilience suffers when the workforce lacks confidence and stability. Investment and M&As (mergers and acquisitions) are two basic forms of investments by organization. These two forms are very different. One of their obvious distinctions is mainly their influence on employment. First of all, investment can create a lot of job opportunities as a large number of personnel need to be employed, most of which come from local areas. Furthermore, investment promotes employment to increase in domestic suppliers and distributors enterprises through linkage effect, which indirectly promotes employment of the whole industry. From a long term perspective, new profit brought by investment of organization’ has a multiplier effect. Meanwhile, efficiency of the industry will be improved by increasing competition. Domestic demand will be increased by restructuring the industry, which may result in the continuous increase in employment. Organization’ entry into industry in terms of M&As can not increase employment in a short term. On the contrary, in some cases, Organization as new owners of a certain area may dismiss original employees. Organization may make the following decisions: (1) Before M&As, the organization model of an enterprise is unreasonable and there are usually a lot of duplicating labors. Therefore, Organization have to cut those duplicating labors to operate reasonably; (2) Before M&As, the efficiency in the enterprise is low. Organization adopt measures similar to “staff efficiency” measures in governments. Through downsizing staffs, efficiency will be improved; there may be another problem of overcapacity in merged and acquired enterprise. Under this circumstance, Organization will dismiss some excessive employees. Not all of the M&As of Organization will reduce job opportunities. If an enterprise is merged by Organization when going to bankrupt, then M&As actually retain the employment as bankruptcy can create a lot of laid-off workers. In addition, if Organization succeeds in restructuring and integrating after M&As, there is no doubt that these merged and acquired enterprises will be more powerful, which can undoubtedly create employment opportunities. There are various motivations for Organization to make merges and acquisitions in China. And there are also different kinds of domestic enterprises to be merged and acquired. Therefore, the investments conducted by different types of Organization have different influences on employment. First, if M&As of Organization in industry are market-targeted, which means that their ultimate goal is to enter England market, or if they can control a good-functioning sales network through M&As, they will maintain the production of merged and acquired enterprises in a short term or even a medium term. From a long term perspective, the production in merged enterprises may be expanded because of the advanced management and technologies brought by Organization. Therefore, the direct impact of this type of M&As is positive or at least neutral. Second, if the purpose of M&As in China is to seek strategic resources, while the employees in the merged enterprises have valuable skills and abilities, Organization will generally maintain the existing employment in these enterprises. If M&As of Organization lead to synergy effect, the merged enterprises will be expanded gradually. This will improve the employment in China in a long run. Third, if the focus of M&As is to increase efficiency, and if the cost in merged and acquired enterprises is low, and there is a possibility to increase technical efficiency or synthesize purchasers, the ultimate outcomes will be different considering the status of merged and acquired enterprises, the duplicating functions between merged enterprises and other subsidiaries of Organization the market trend and global strategies of Organization. When the merged and acquired enterprises have a low technology and management level, or their market abilities are superfluous, Organization may dismiss employees in these enterprises after successful M&As. And if M&As are successful, some duplicated departments will be cut off because of the integration, which means reducing the employment in merged enterprises. This will strengthen other functions of Organization, improve efficiency, and in a long run increase employment. But because of the special situation in industry, organization cannot dismiss employees freely after M&A, which just impede M&As of Organization aiming to increase efficiency. Finally, merged and acquired enterprises face great pressure when M&A are driven by short term financial factors, and layoffs become a criterion of restructuring, especially layoffs after M&As. In other words, if Organization takes layoffs as the signal to restructure after successful M&A (unemployment is easier to be conveyed as a signal than other technology information), redundant staff in merged enterprises will be dismissed. With the gradually loosening of industry policy after the 16th Party Congress, there is a wave of privatization in traditional state-owned enterprises. Because there are more or less problems in the development of China’s domestic private enterprises, Organization become the largest purchaser of state-owned enterprises. According to the experiences of Eastern European countries in transition, after state-owned enterprises providing more than half employment were merged and acquired by half employment were merged and acquired by organization (of course, some domestic investors also participated in the acquisitions), there was a large scale of restructures among enterprises, which resulted in substantial layoffs. The decline rate of employment in those enterprises merged and acquired by organization is often lower than that of the whole countries. One reason may be that organization has more experience in securing employment; another reason may be that the enterprise merged and acquired by organization are efficient. (of course, some domestic investors also participated in the acquisitions); there was a large scale of restructures among enterprises, which resulted in substantial layoffs. The decline rate of employment in those enterprises merged and acquired by organization is often lower than that of the whole countries. One reason may be that organization has more experience in securing employment; another reason may be that the enterprise merged and acquired by organization are efficient. Employers and workers share an interest in stable and sustainable labor markets that ensure a supply of skilled and productive labor, and this needs to be combined with positive flexibility and job security. In many large commerce companies, especially those in retail, an objective of human resource management is to keep staffing levels at the adequate level required for satisfactory service to the consumer. Work in the sector lends itself to standardization and automation, and competition strategies increasingly emphasize savings on overall production costs. The introduction of new technologies to streamline the backroom work of ordering, inventory control, accounting and billing enables companies to switch administrative personnel to other positions. However, many of the workers Involved in these functions may find it difficult to adapt to the changes in the sector and to the new functions if they are not prepared for them. Training in anticipation of change and responding to change would enable workers to take advantage of such changes and to increase their employability. Mergers and acquisitions in commerce are not, in and by themselves, directly responsible for job cuts or for flexible work practices that can erode working conditions. Post-merger restructuring might nonetheless lead to such results and practices, as companies seek to increase labor flexibility, while managing wage costs. Examples of good practice exist, however, demonstrating that mergers could promote stable employment and that mergers and acquisitions can be planned and implemented in a manner that takes decent work Objectives into account. Redundancies should be a last resort in the context of staff Rationalization as a result of restructuring related to a merger or an acquisition having due regard to business and social considerations. Governments have an important role to play in facilitating and creating a climate that allows for the development of effective measures that can be incorporated in merger and acquisition-related programmes. This will deal with the consequences that result from mergers and acquisitions. This should include lifelong learning programmes to allow workers to continuously acquire transferable skills and business to benefit from a more highly competent workforce. Examples of good practice on training and human resource development which exist in many countries could be used to develop a proactive employ ability capability for workers in commerce. The development of training programmes should, where possible, be done in consultation with the social partners. Employers’ and workers’ organizations should equally be encouraged to work together to identify the issues of importance to their sector, including skills development and human resource needs and to share responsibility for addressing them in a collaborative manner. Successful enterprises are essential for continued employment, while a skilled, stable and motivated workforce is paramount to the success of any company. Decent working and employment conditions are a prerequisite for staff motivation, productivity and enterprise profitability. Mergers and acquisitions invariably involve integrating differing enterprise systems and procedures in order to harmonize various aspects of terms and conditions of employment to ensure common practice throughout the newly merged organization. All parties recognize the importance for merged companies to maintain good working and employment conditions which promote job satisfaction, minimize work-related stress and thereby safeguard enterprise productivity.

According to Dixie and Nelson (2005), in any merger or acquisition, regular communication with key stakeholders, most notably employees, is critical. Far too often key decisions regarding the merger are dragged out, destroying employee morale in the process. Low morale can gradually destroy employees’ commitment, hurt the product or service offered, and alienate the clients and customers the organization serves. Bohl (1989) stated that ―poor morale is contagious. It may begin with one dissatisfied employee and broaden into a general malaise, or spread from department to department and finally infect the entire organization. Insidious as it may be, poor morale is reversible. Turnover occurs when employees leave the organization. The fact that human capital plays such a vital role in the outcome of an organizations financial performance, the negative impact of employee turnover gets both executives and HR professionals’ ever more concerned (Deal & Kennedy, 1999). The link between high turnover and low financial performance for corporations is strong (Huselid, 1995). When employees leave, they take with them their knowledge, skills and abilities that helped contribute to goals, profit and performance of the organization. According to Munck (2001), turnover has been shown to cause a decrease in productivity and often contributes to low employee morale. It also means that the organization will have to spend more time interviewing potential candidates, preparing offers and training new employees (Dooney, 2005).

Not only are there quantitative impacts to turnover, but the quality of personnel leaving an organization is also important. According to Abrahamson (2004), turnover represents more than a monetary loss. Often those employees who leave the organization are the most valued employees. All the money the company invested in that employee walks out the door, hence profits are literally walking out the door. In addition a new employee must start the learning process at the very bottom of the quality and productivity curve,

RESEARCH QUESTION

To what extent merger and acquisition influence the work force.

RESEARCH OBJECTIVE

The objectives of the study are:

To assess the level of impact of mergers and acquisition on the organizational workforce.

To discover how mergers and acquisitions do affects organizational workforce.

RESEARCH METHODS

Various methods such as questionnaires, interviews and observations, etc. have been used by earlier studies for investigating knows the attitudes among employees after business mergers and acquisition, this study will show to what extent the employees or workforce effected by the mergers and acquisitions. For this study, a questionnaire based survey had been chosen as it allowed relatively large population easily and economically. Data will be collected from the sample population of 200 respondents

Data collected from the sample population of 200 students through questionnaire-based survey. The questionnaires will be submitted directly to the employees of those organizations who have under gone through the merger and acquisition.

The data or the samples taken from the population will be analyzed by the software call the statistical package for the social science (SPSS).

TIME SCALE

GANNT CHART

Project/

Project Lead

Project

DEC2009-MAY2010

Status Status

S Status

DEC2009

January

February

March

April

May

1. COMPLETE 2.BEHIND 3. AHEAD

This research project is base on the sixth month period of time form Dec 2009 to May 2010.According to this time scale in Dec 2009 the research proposal will be completed after the proposal it will be work on the main body of this research project, like in the first month of 2010 literature review will be gather through the libraries, visits to the different organizations who have gone through the mergers and acquisition process. Interviews will be conducted through the structured and unstructured interview questions. In the second month of 2010 questionnaire will be prepare to get the feedback from the respondents according to the methodology of the research .In the third month of 2010 responses from the respondents which will be gather which will be real time .After the questionnaire collection from the respondents, in the forth and fifth month data will be analyzed taken from the respondents and it it will be emerge some results and conclusions and recommendations will be presented on the bases of above conclusions.

RESOURSES

Convenient and economical recourses for this research will be use through out the research.Questionaires ,transport to approach the respondents, working papers computer, printer are the main contents of the recourses. These all recourses are very convenient and economical sources for any student.

ACCESS TO THE STUDY POPULATION

The large population will be access through the questionnaire base survey .a feedback will be taken from the sample among the large population and will access the population in terms of analysis the sample responses, result results will be taken from the these analysis which will be shape in form of conclusion and recommendations.

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