Effects of Post Merger Integration on Employee Commitment’
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Published: Wed, 14 Mar 2018
This paper researches on the effects of post-merger integration on employee commitment in an organization. The research paper will critically analyze the effects of the post merger integration on the lives of employees in an organization and the case study of a Nigerian bank following the integration process with its merger with other banks will be the basis of the research.
Most often than not, researchers have been interested on how to maintain employee’s sincere commitment, most especially after a merger so that employees can carry on the legacy of the organisation (O’Reilly and Caldwell, 1981). Some of these interests have been generated by the observation that turnover during the early years of employment is often very high especially amongst newly employed or employees who have new roles to play in an organization (Wanous 1977, O’Reilly and Caldwell 1981, Allen and Meyer, 1987); As it has been hypothesised by numerous authors, employees who are strongly committed to their organizations are the least likely to leave after a merger (Allen and Meyer, 1990). However, the issue of maintaining both new and old employees’ commitment still seems a hard nut to crack. Different suggestions and questions have come up as to why employees especially the new employees leave one organisation to another in search of greener pastures. While most reasons have been that they are just assumed not to be committed set of people, however, it would not be right to conclude that these employees are not committed else, we would not have tenured employees in the long run. Other factors such as the inability of new employees to socialize in their new environment coupled with their prior expectations about their organisation, being cut short in terms of rewards, the work environment, job involvement e.t.c, are some of the factors that have affected their commitment so far (O’Reilly and Caldwell, 1981).
Also, studies have shown that the type of commitment employees have towards their organization determines how effective or productive they would be and how long they end up staying with the organization. Meyer and Allen (1990) have extensively researched three types of commitment namely Affective, Continuance and Normative commitment.
While affective commitment is defined as an emotional attachment to the organization, such that the strongly committed individual identifies with, is involved in, and enjoys membership in the organization (Allen & Meyer 1990, p. 2). Employees who are affectively commitment to their organization have also been discovered to have made the organization their preferred choice while they were job seeking. Also, these same sets of employees are those that share similar goals, values, objectives and interest as the organisation they eventually work for. Because the choice of the job was individual and personal, there is a greater probability that they would learn to cope with the challenges they eventually meet there.
Continuance commitment according to Becker (1960:33) is a tendency to be involved in a consistent lines of activity which is based on the individual’s recognition of the costs associated with discontinuing the activities (this can be seen in employees staying with their organisation for the fear of not getting a better job opportunity, loss of attractive benefits and seniority and disruption of personal relations
Finally, it was proposed that normative commitment is the type of commitment where employees have believed from experience either prior to (familiar or cultural socialization) and following (organizational socialization) entry into the organization that there is a value attached with staying in just one organization for a long period or even for the rest of their career. While comparing employees with affective, continuance and normative commitment, employees with strong affective commitment stay in the organization because they want to, those with continuance commitment stay in the organization because they have to, while those with normative commitment stay because they are obliged to, or are just simply being loyal to the organization. Although, most literature have looked at these types of commitment in relation to all the employees in an organization, but for the purpose of this study, employees with short tenure (0-2years) of experience would be focused on.
Prior literature have also establish a negative relations among tenure (and age) and organizational commitment (Wright and Bonnet, 1997). Commitment performance was not found to be strong in early careers. According to (Cohen, A1991, and 1993b) continued employment is presumed to have a strong influence on the development of commitment especially during mergers where organizations have new identity. However other researchers have disputed this hypothesis by saying that new employees get into an organization with higher initial commitment and subsequently develop a performance-engaging behaviour on the job. Also, it was proposed that employees with limited level of tenure, who often feel initially uncertain about their ability to perform well on the job, would increase their commitment to the organisation if they are able to perform well. New employees could develop a “continual” kind of commitment to their organization, not because they already enjoy benefits, but because they have been promised them (e.g. promotion, tenure based benefits).Lastly, they could also be loyal to their organization, and not intend to leave as it is common with majority of new comers.
Mergers and acquisitions is a strategic means by which organizations use to gain profitability so that they can survive the fierce competition the global market. When organizations merge, they bring together their structures, identities, staff and systems to form an entity so as to have synergic advantages. Mergers can affect the lives of people not only as regards their financial gains but in terms of job security. The importance of the treating employees’ right, especially after a merger an organization has a substantial effect on their behaviours and attitudes towards their jobs and the organization itself (Buchanan, 1974; Hall, 1976). Most especially the socialization experiences provided to them in other to be effectively inducted into the new organization (Feldman, 1976). Van Maanen and Schein (1979)’s institutionalised versus individualised dimension of socialization explains two different tactics by which new comers can be socialized and inducted into their respective organization. While institutionalized tactics of socialization is characterized by common initiatory and learning experiences which is often formal and occurs outside an employee’s work setting. There are often also explicit guidelines about the sequence and timing of progression in an organization (Allen and Meyer, 1990). Individualised socialization in contrast is characterised by individual and on the job-learning where employees learn from their mistakes and other colleagues. Also little information is provided about the sequence and timing of progression in an organization. According to Van Maanen and Schein (1979), new comers experiencing institutionalized tactics of socialization are more committed than those experiencing individualized model of commitment.
Also, exploration between employee’s perception of the rewards and support they receive from the organization is also of considerable interest. Employees, who perceive their pay not to be commensurable with the effort they exert into work, might not be as committed as they ought to. Those that perceive the procedures determining their increase in pay (e.g. Appraisal systems, supervisors appraisal) to be unfair are even more likely to be less committed than those who perceive unfairness in their pay level (Folger and Konovsky, 1989).
This study would be carried out in partial fulfilment of an award of a Master degree in International business management at the University of East London. The paper includes an introduction chapter that gives an overview of the employee commitment and highlights problems which the study tends to address. The chapter concludes with giving an outline of the research questions, objectives of the study and hypothesis. The second chapter gives a literature review of all the relevant theories which would be used in the analysis section of the paper. The third chapter is the research design chapter that explains the philosophy and mode of research which is being undertaken. The fourth chapter reports the data analysis from data collection and the fifth chapter is the final chapter of this paper provides recommendations based on the analysis of the research and also gives a conclusion.
For the purpose of this study, the effect of two factors would be assessed in its determining the type commitment displayed by employees.
The effect of individualized and institutionalized form of socialization tactics on commitment.
The effect of pay perception in determining the type of commitment displayed by employees.
The present study was designed to:
Investigate the type (s) of commitment associated with employees (those with two and below years of experience) after a merger by using Allen and Meyer’s (1990) Affective, Continuance and Normative models for measuring commitment.
To determine if individuals displays more than one of these attitudinal components of commitment at the same time. (i.e. If employees with an affective commitment to their organisation, can also have a continuance or normative commitment.)
This chapter is the literature review chapter that reviews mergers and acquisitions, types of mergers, motives for merger and post-merger integration. This chapter also reviews organizational commitment, the three types of commitment and its relation to employees including pay perceptions where two types of pay perceptions will be discussed. Finally, this chapter will discuss organizational commitment and socialization under which institutionalized and individualized tactic of socialization will be discussed.
2.1 MERGERS AND ACQUISITIONS
Haberberg and Rieple (2001) states that a merger is the creation of a new organization that brings two or more previously independent organizations together while Gaughan (2002) defines a merger as the combination of two organizations where only one organization survives and the merged organization goes out of existence. When there is a merger, the main organization assumes responsibility for the assets and liabilities of the other organization. Pivot (2002) states that the concept of a merger comprises the field of concentration of undertakings. Gaughan(2002) states that a statutory merger is where the acquiring organization acquires a company and takes over all its business while a subsidiary merger is a situation where the target company becomes a subsidiary or a part of a subsidiary of the parent organization.
According to Gaughan (2002) mergers can be categorised into three types of models; Vertical Merger is the amalgamation of two organizations that have a buy-seller relationship. The two organizations are merged along the Michael Porter’s value-chain, such as a manufacturer merging with a supplier. Vertical mergers are used to gain competitive advantage within the marketplace while Conglomerate Merger is the amalgamation of two organizations that are not competitors and they do not have a buyer-seller relationship (organizations in two different industries). Conglomerates are used by organizations to smooth out wide fluctuations in earnings and to provide more consistency in long-term growth. Organizations in mature industries with poor prospects for growth will seek to diversify their businesses through mergers and acquisitions.
Horizontal Mergers is the amalgamation of two organizations that are direct rivals or two competing organizations. i.e. Organizations that sell exchangeable products within the same geographical region. Horizontal mergers are used as a way for an organization to increase its market share by merging with a competing organization.
Mergers and acquisitions are seen as rational financial and strategic alliances made in the best interest of the organization and its shareholders (Cartwright & Cooper, 1992). Synergy is one of the common motives behind mergers, the merging and acquisition of an organization provides synergic benefits for the acquirer where two lines of business complement one another (Gaughan, 2002). Seth et al (2000) states that acquisitions and mergers take place when the value of the combined firm is greater than the sum of the values of the individual firms. Synergy values can take 3 forms namely revenue, expenses and cost of capital. Market Power is another reason why organizations merger. According to DePamphilis(2005), the theory of market power between the merged organizations will improve their monopoly power in order to set their product prices at levels not sustainable in a more competitive market. Diversification is used by organizations where they buy or merge with organization outside their primary line of business while acquiring foreign organizations in different markets can give an organization quick Access to Emerging Global Markets. Lastly, Hubris Hypothesis states that managers depend on their own valuation of the target organization as against markets valuation of the same organization. Roll (1986), states that when organizations merge they pay more to acquire a target company because of over optimism in evaluating potential synergies.
Mergers and acquisitions is a strategic tool used by most organizations for growth, to acquire great synergy value and to diversify and in order to achieve these motives, Picot (2002) states that there is need for an effective post-merger integration (PMI). Post-merger integration is another strategic move that must be done such that the original socio-technical systems of each merging organization must synchronize into one system and these steps must be done consciously and professionally. Herndon and Gaplin (1999), proposed three types of integration an organization may choose in the process of a merger.
Full Integration is an integration stage where all key functional areas or processes will be merged and consolidated into one new company where best practices will be used between both organizations. Moderate Integration is an integration stage where certain key functional areas or processes such as production will be merged and consolidated but operations will remain autonomous while Minimal Integration is an integration stage where selected staff functions will be merged and consolidated in order to reduce redundancies.
Kleiner and Nguyen (2003) says that the post merger period is a period that experiences a lot of problems because mergers change in nature, orientation and character, so organizations need five to seven years to fully merge into one entity. There are factors that help to achieve success in a post-merger integration depending on the type of merger but these factors apply to a wide range of circumstances which include the retention of main focus of the merged organization which results in better outcomes. Early planning of integrating the new human and physical assets will yield great success while fast paced integration and early pursuit of available cost savings improves outcomes. Managers must identify cultural differences between the organizations, avoid conflicts and work on communication between employees, customers and stakeholders. There must be retention of talent with good knowledge management especially mergers involving technology and human capital. Most times a merger creates a major disruption in the life of an organization and if organizations can plan the post-merger integration effectively, manage it and communicate it to those directly involved, uncertainty will be reduced such that there will be a greater chance of achieving a smooth integration as it is important to move forward from the merger as soon as possible so as to build a new future for the organization.
2.2 ORGANIZATIONAL COMMITMENT
There have been various literatures both from the past and recent that has studied extensively on organizational commitment (Porters, Steers, Mowdays 1974, Allen and Meyer, 1990). Porter (1974) describes commitment as the strength of an individual’s identification with, and involvement in an organization. Another definition of organizational commitment is that of Becker (1960:33) who described commitment as the tendency of an individual to engage in consistency lines of activities because of the perceived cost of doing otherwise. Boulian (1974) also identified three components of commitment as; A strong belief in an organization’s values and goals, A willingness to expend considerable effort for it, and A strong intent or desire to remain employed by the organization. When comparing the various definitions of commitment, and linking it to an organization, one could deduce that individuals have different motives to want to be committed to their organization, and since individuals no matter their motives make up the organization, then their kind of commitment would also mean the organization’s commitment. Some employees are simply attached to the organization because they believe in its goals and objectives, are willing to identify with it, loyal to it, or they just simply want to stay there others might just be committed because of its cost benefit e.g. an individual who has spent a considerable period of time in an organization, might just want to continue in other not to lose out on benefits accrued.
Although progress has been made in clarifying the meaning of organizational commitment, but it has been difficult given it just one definition .This is because no given view is inclusive of all that commitment means (Reichers 1985), and that one view or perspective is not likely to emerge as absolutely correct (Meyer, Allen, Gellately1990). Much of the long standing confusion of commitment however has not only been its definition, but of its measurement problems (Somers, M 1993).
Recently, it has been recognised that different forms of commitment have implications for different behaviours (Meyer, O’Reilly and Chatman, Goffin and Jackson, 1989). For an organization to improve commitment and reduce absenteeism and turnover, they need to know if their employees are committed at all (Salancik 1977). If they are, the organization’s priority would be to know what type of commitment they have, which is often discovered by checking out the behaviours and attitudes towards the organization, and also how this type of commitment develops and what can be done to foster the appropriate commitment that would benefit both the organization and the individual (Meyer et al 1991). In other to gain a complete understanding of commitment, and its processes three widely views of commitment relevant to work systems have been developed.
2.2.1 AFFECTIVE COMMITMENT
Affective commitment is defined as emotional attachment to the organization characterised by strong affective ties to and psychological identification with an organiszation (Mowdays, Steers and Porters). Affective commitment happens to be the most widely discussed as it appears to be the ideal type of commitment most organisations aspire to have from their employees. This type of commitment was further buttressed by Buchanan who conceptualised commitment as a “Partisan, affective commitment to the goals and values of an organisation to ones role in relation to the goals and values, and to the organisation for its own sake apart from its purely instrumental worth (p533). Employees who often develop affective commitment to their organisation do so because they want to, not necessarily because of any cost associated with doing so. According to a research done to investigate the commitment of newly employed staff, it was found out that employees who made their current organization their first or preferred choice, and whose choice was not made to satisfy the demands of others or for extrinsic purposes, but genuinely believes in the organization’s goals and objectives as it being synonymous to theirs are most affectively committed to the organisation (O’Reilly and Caldwell 1981).
2.2.2 CONTINUANCE COMMITMENT
Contrary to the definition of affective commitment, continuance commitment is the tendency of an employee to be involved in consistent lines of activities based on the individual recognition of the loss-side bets if he or she discontinues these activities (Becker 1960:33). In explaining continuance attachment of an individual, it could be understood under three basic headings; Attachment based on the recognition of the profit associated with continued participation, Attachment based on cost associated with discontinuing participation, Lack of opportunities outside the organization. In explaining the above headings, employees are often reluctant to leave the organization because of the fear of losing the accrued benefits which they are already enjoying or those they would enjoy if they do not leave the organization. Benefits such as promotion, increase in pay, status, freedom, pensions are some of the reasons employees seek a continuance commitment with an organization, because discontinuing would mean efforts being wasted. While explaining attachment based on the cost associated with discontinuing organizational membership, McGee and Ford (1987), found out that one of the distinct dimensions of continuance commitment is the limited employment opportunities an individual in an organization has outside that organisation.
Also another major reason for continuance commitment as explained by Stebbins (1970) is the awareness of the impossibility of choosing a social identity, because of the immense penalties in making the switch from one organization to the other. In explaining this, employees would often want to remain with the system, work practices, and social networks they have developed and have been used to. Having knowing that continuance commitment is likely to be dependent on the cost associated with staying or leaving, one might be sceptical about this type of commitment as to its having a positive influence on an organisation or being the ideal type of commitment, since it cuts across as “a give and take” type of commitment. However, research has often showed that continuance commitment is related with affective commitment and that both commitment types actually support each other (Meyer 1990). An individual’s cost-based ties to the organization are often being justified cognitively by increased level of affective attachment, and also with the perception that the relationship is volitional, and not as a result of lack of alternatives.
2.2.3 NORMATIVE COMMITMENT
This third type of commitment, though less discussed in the literature as compared to the other two, is equally very viable when viewing commitment. Employees who have normative commitment with the organization often have the feeling of obligation towards their organization, and believes that being loyal to their organization is just the “right” and “moral” thing to do. According to Wiener (1982, p.471), commitment is the totality of internalized normative pressures to act in a way which meets organization’s goals and interest. Although, most employees who exhibit this kind of behaviour do not refer to it as commitment, they often just feel it’s the right thing to do. An example is seen when an employee’s starts and end their career in a particular organization or spends a considerable number of years working in a particular organization (Prestholdt et al.1987). Studies have shown some sort of relationship between normative, affective and continuance commitment. These three are viewed best as distinguishable components, rather than types, of attitudinal components (Allen and Meyer, 1990) for example, employees might experience and exhibit some components of this commitment types at one time or the other. An employee might feel the need to be loyal to an organization, but not have the desire to, or an employee might see the need to be in an organization but does not have the desire to do so. An employee’s overall commitment to and its organization therefore reflects a bit of all these three psychological states. Studies on commitment have provided strong evidence that affective and normative commitment is positively related and continuance commitment is negatively connected with organizational outcomes such as performance and citizenship behaviour (Hackett, Bycio, and Handsdoff, 1994; Shore and Wayne, 1993).
ORGANIZATIONAL COMMITMENT AND EMPLOYEES
While analyzing the commitment amongst new employees and those in their mid careers in an organization, Mowday (1979) analyzed three stages in the development of commitment, pre-entry (anticipation), early employment (initiation) and middle to late career. It has been argued that commitment especially affective commitment is often been influenced at the first two stages e.g. the pre-entry stages and the early employment stages. Studies have also shown that the type of commitment that employees have at the pre-entry stage can have an influence on the early stage of their career. According to (Mowday, Steers and Porters 1979), employees would have affective commitment to the organization that they are confident they have made a good choice about. Prior literature has also established negative relations among tenure and organizational commitment (Wright and Bonnet, 1997). Although in most of the cases commitment has been measured based on the performance of individuals. Commitment- performance was found to be poor amongst newly employed and strong in late career stage (Wright and Bonett, 2002). According to (Cohen, A. 1991, and 1993b) employees commitment development is time-dependent, and as a result of this, an employee could only be seen as being committed if they have stayed long enough in a particular organization. However other researchers have disputed this hypothesis by saying that new employees get into an organization with higher initial commitment and subsequently engage in performance-engaging behaviour on the job. Because they are inexperienced their commitment is often enhanced by motivation and effort. By motivation, this means the encouragement they get by the organization, their job role, good work environment, socialization, rewards, career development etc.
For an organization like Intercontinental Bank who recruited new employees after the merger because some older employees of Intercontinental, Global and Equity bank (the 3 merging banks) were retired or laid off but well compensated. The method of recruitment of the organization is usually very intensive (employees go thorough series of tests, assessment and interview to go through), the best set of graduates are often the lucky ones. By this method, Intercontinental Bank tries to employ those employees with very high goals, and whose objectives are close to theirs. It could be assumed however by the bank’s effort of employing the new employees with mutual goals and objectives that they would probably end up with the affectively attached set of employees while they still had some old employees who are very attached and committed to the bank. We might not however conclude on this, as commitment can still decline. This s because combined research has often demonstrated that new employees going through the honey moon stage of their career especially those with 3-6 months experience are typically very enthusiastic, exhibit increased job satisfaction and are committed to work situation (Veninga and Spradley, 1981). According to a research on commitment done by Stumpf and Hartman (1984), a large commitment correlation of .62 for a sample of 85 employees was found with an average tenure of 3 months. In addition, correlations in the .40 range were obtained in two studies by Bauer and Green (1998) and Mowday, Steers, and Porter (1979), both involving employee samples with 6 months average tenure. Further research however showed that the commitment–performance correlations do show a marked decline after the initial honeymoon. According to Wright and Bonett (2002) employees who have passed the initial stages in an organization, and do not leave the organization, might later be withdrawing their commitment to work and ‘retiring’ on the job” (p. 498). As a result, Wright and Bonett proposed that more tenured workers may increasingly become more burned out and less motivated. We cannot however conclude this to be true for all new comers since Wright and Bonnet measurement of commitment was through measuring employee’s performance. New employees’ commitment is likely to continue if they have the motivation they need to pull though.
While relating continuance commitment to new comers, one could have concluded that since this kind of commitment has to do with cost-benefits, then employees might not have this kind of commitment if they have not invested so much into the organization that would cost them great loss if they leave. For example a tenured worker of 5 years would have more to lose if he leaves an organization than that with 2 years of experience. Finally the perceptions about the availability of alternate employment opportunities are likely to be shaped during job search process and to influence continuance commitment during the first two years of employment (Meyer et al, 1991). This can be explained especially in a country like Nigeria, where job opportunities are low and where there is few or no temporary employment. Employees are often left with the option of staying in an organization to gain more experience so that they can have more opportunities outside their organization.
Also, employees who find themselves having a continual attachment to their organization often do that because of prospective benefits which they have been promised, and it’s usually tenure based. Although one might say again that, the new set of employees employed by Intercontinental bank are more of the young, (average age of about 26-27), agile, adventurous and innovative types of employees which most organizations might sought after. While relating normative commitment to newly employed, normative commitment have been found to have a positive relationship with affective commitment (Hackett, Bycio, and Handsdoff, 1994; Shore and Wayne, 1993). Going by this we might expect the new employees in Intercontinental bank who have affective commitment to be loyal to the organization, since both commitment types seem to have the same motive (staying with an organization because of non-ulterior motives).
Finally, there is also the greater possibility of finding more than one of the types of commitment associated with employees (Somers,M 1993) e.g. it is possible for employees to have some components of the three commitment types towards their respective organization. This is because the types of commitment may be related, and one view of commitment may influence the other (Meyer et al 1990). Meyer hypothesized that ones with cost-based ties to an organization are being justified cognitively by increased levels of affective commitment, with the related perception that such ties are volitional and are not as a result of lack of alternatives.
ORGANIZATIONAL COMMITMENT AND PAY PERCEPTIONS.
While dealing with employee satisfaction, organization commitment and even productivity, the issue of pay and employees perception of how fair their pay is, cannot be overemphasised. Mcfarlin and Sweeney(1992) have argued that the rewards given by an organization can have an effect on their attitudes and behaviour towards their organization. According to him, he explained that extrinsic rewards, (which pay falls under)would determine more of a continuance commitment to an organization than affective or normative. (This can be explained from the cost benefit effect of this kind of commitment). However other authors have argued that it is possib
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