Organizational Issues of Mergers and Acquisitions - Part 1

Most enterprises don't consciously create a corporate culture; it is something that evolves as a result of the company's policies and procedures and is most often a reflection of top management's values and beliefs. Regardless of whether the culture is deliberately formulated from inception or has grown and developed over the lifespan of the organization, it is vitally important that the values and beliefs embraced by corporate management are clearly stated and communicated. Culture has a definite effect on the success of a corporation. "Organizations that have strong and unique cultures generally experience excellent performance" (Gayeski, 1998, p. 1).

While establishing a corporate culture is of considerable importance from an organizational perspective, care should be taken not to undervalue the role it plays in the arena of individual contribution. Whether one subscribes to Maslow's widely accepted needs hierarchy theory, or Alderfer's alternative ERG theory (for existence, relatedness and growth), a corporate culture must be designed to meet the basic human needs for physical security and psychological well-being. (Greenberg & Baron, 1997).

Corporate culture is a phenomenon that should be viewed from a holistic perspective, and as an artificial construct that requires constant maintenance and adjustment.

Organizational Perspective and Analysis

"One of the biggest misconceptions about corporate culture is that good cultures just happen-that some companies luck out. " (Duffy, 1999, p. 1).

Corporations that are interested in long-term success must adopt an attitude of introspection in order to maintain a healthy organization that is capable of sustaining its competitive edge. Most companies tend to focus their attention on external forces: changing market conditions, what their competitors are doing to address those changes, new technologies, etc., without realizing the importance of examining how those changes affect the mundane activities of the organization. Management must be willing and able to realign functional business units in their organizations, and to ensure that the resulting groups share common goals and objectives with the rest of the corporation.

Management's job is to live every business minute complying with the organization's basic beliefs. This is the first obligation of every manager. No employee should accept a management position unless they have already lived up to these basic beliefs, and no manager should be left in a management role unless he or she lives up to these basic beliefs. (Harrington, 1995, p. 108)

Unless those beliefs are clearly defined and stated, no manager can be held accountable for compliance. As the corporation evolves and its mission changes as a result of external forces, those beliefs must necessarily evolve and change in conjunction with the organization as a whole. Periodic assessment and evaluation of an organization's culture is the only way to ensure that the individuals that comprise the organization are aligned with the strategic goals as understood by the executive staff. This is by no means an easy task. "To do a complete assessment is very time consuming and expensive, but when you take a look at the alternatives it is usually less expensive in the long run." (Harrington, 1995, p. 108).

The connection between corporate culture and organizational structure is undeniable. Attempting to establish cultural ideals in an organization that is not designed to live up to those ideals will be difficult, if not impossible.

The subject of organizational structure and how it relates to corporate culture in a post M & A environment is one that demands serious attention if the resulting organization is to succeed. Neglecting the issue will result in confusion, inefficiencies, and eventual dissatisfaction among the employees. Executive management should be aware of, and actively address this very important topic as an integral part of the planned fusion of multiple organizations into one.

Managing Cultural Integration

"Every age, every culture, every custom and tradition has its own character, its own weakness and its own strength, its beauties and ugliness; accepts certain sufferings as matters of course, puts up patiently with certain evils." (Hesse, 1929/1927, p. 22).

The most interesting part of the above quote deals with the concept of accepting the lack of perfection. Should an organization expect cultural perfection? Perhaps not, but neither should it tolerate gross inadequacies within the culture to address the needs of the individuals that comprise the organization, or the entity that is created as a result of the organizational structure. Close examination of the organizations will reveal existing, as well as potential need for adjustments to the components of corporate culture.

In a post M & A environment there is a natural tendency for the larger (stronger) of the two organizations to impose its culture on the smaller (weaker), but care must be taken not to seriously disrupt the daily business routines of an enterprise that is expected to retain (or regain) profitability.

While evaluating existing cultures, keep in mind that it is not wise to automatically assume the culture of the dominant company. The strengths of both company cultures need to be explored so the best of both can contribute to the success of the new organization. And, remember, that different cultures do not necessarily mean a bad fit. When properly integrated, diverse perspectives can dovetail, bringing new-found energy and vitality to the newly-formed entity. (Turknett, et al., 2003, p. 1)

Corporate culture is the instrument of harmonization by which each individual contributes to the common goal of the organization. Failure to adequately define and communicate what that culture entails will most assuredly result in failure to complete the corporation's stated mission. Nowhere is this concept more important than in a post M & A environment. Cultural integration may be the single most important factor determining whether profits can be sustained and grown in companies that acquire or merge.

One study shows, in fact, that of 150 deals worth more than $500 million only 17% created substantial returns, 33% created marginal returns and 50% eroded some-to-substantial shareholder returns. Many experts say this lack of success is due in large part to overlooking the details of implementation, especially the human resource issues of personnel and corporate culture. (Turknett, Turknett, & Anderson, 2003, p. 1).

Cultural integration involves change; effectively managing cultural integration must revolve around conscious and deliberate change management. Only by addressing the changing roles of groups and individuals within the organization can the enterprise realistically expect to thrive and grow.

Molding the New Corporate Society

The most unpredictable, and therefore the most interesting aspect of merging two large organizations into one is the human factor. The coalition of diverse cultural entities invariably results in the emergence of a unique entity that not only shares characteristics with the previous organizations, but develops a personality of its own.

An organization, after all, is nothing more than a collection of human objectives, expectations, and obligations. It is, in other words, a structure of roles filled by humans. And when reorganization sharply alters this structure by redefining or redistributing these roles, we can say that the old organization has died and a new one has sprung up to take its place. (Toffler, 1970, p. 114-115)

The structure of an organization in a post M & A environment inevitably results in duplication of roles in a variety of areas, most notably in services and general administration. In order to achieve operational (and financial) efficiencies it will be necessary to make adjustments to the quantity of personnel that the combined functional groups employ, and to redefine many of the roles that are played by individuals within those groups. These changes will have a definite negative effect when viewed from the perspective of need hierarchy theory (Greenberg & Baron, 1997); it is management's responsibility to minimize the impact those changes have on the specific groups involved, and on the organization as a whole.

It is critical that managers view this particular situation from both a microcosmic and macrocosmic standpoint. "Events in human systems are seldom, if ever, of a singular cause-effect nature but are more clearly represented by dynamic interaction and multideterminism." (Pace & Faules, 1994, p. 57). While this concept may seem overly fatalistic in nature, assuming that a reorganization of any one department will have no effect outside of that functional group is an invitation to disaster.

Orchestrating major structural and organizational changes in a manner that causes the least amount of disruption to groups and the individuals that comprise them requires a degree of finesse that most managers do not possess. It is exceedingly difficult to balance the needs of individuals with the goals of a commercial enterprise whose primary purpose is the generation of profits for their shareholders. The key to success in this arena is to establish credible and palatable processes for change that are communicated effectively.

A concern about responding to both personal and organizational needs has been a significant consequence of the groundwork laid by early behavioral theorists. An important distinction is made currently between developing good human relations and developing the human resources of an organization. Organizational communication seeks to provide the background for developing the quality of human resources in an organization, rather than just developing the quality of human relations, as important as they may appear. (Pace & Faules, 1994, p. 41)

Mergers and acquisitions bring about great changes to the organizations involved. In order to manage those changes effectively, the executive staff must first have a clear understanding of the importance of culture to the enterprise's objective, be willing to conduct a realistic analysis and evaluation of the status quo, and formulate a framework for transitioning the resulting organization into a cohesive unit that is geared toward achieving the objectives.

References:

Gayeski, D. M. (1998, April 11). How to Create Learning Systems that Sustain Strong Organizational Cultures. In Innovative approach to communication and learning in organizations. Retrieved June 12, 2004, from http://www.dgayeski.com/culture.html

Greenberg, J., & Baron, R. A. (1997). Behavior in organizations (6). New Jersey: Prentice-Hall.

Duffy, D.. (1999, January 15). Cultural Evolution. CIO, p. 1. Retrieved 16 6, 2004, from http://www.cio.com/archive/enterprise/011599_rah.html

Harrington, H. J. (1995). Total improvement management:The next generation in performance improvement. New York: McGraw-Hill.

Hesse, H. (1929). Steppenwolf. (Henry Holt & Co., Trans.). Berlin: Fischer Verlag A.G.. (Original Work Published 1927).

Turknett, R. L., Turknett, C. N., & Anderson, J. L. (2003, January 2). Culture Is Critical. In Don't Forget About the "Little" Things. Retrieved June 13, 2004, from http://www.turknett.com/sectionR/critical.html

Toffler, A. (1970). Future shock. New York: Random House.

Pace, W. R., & Faules, D. F. (1994). Organizational communication (3rd ed.). Englewood Cliffs, NJ: Prentic-Hall.