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The Impact of Cultural Management on Mergers and Acquisitions

Lall, Natasha (2010) The Impact of Cultural Management on Mergers and Acquisitions. Undergraduate thesis, Dublin, National College of Ireland.

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Abstract

I started this project investigating change management techniques used in
organisations to effect organisational change recognizing the constant change that
organisations of which I have recently been a member seemed to go through. In
most cases these changes created turmoil and tension in the workplace. I had
undergone ERP implementations, attempts at organisational cultural change and a
merger and acquisition. On beginning to investigate the theory I quickly became
aware that, in order to make recommendations, I would need to focus on one
particular type of context. Although there are some general precepts regarding
implementation of any type of change such as Kotter's eight steps (2008 p. 10) or
Lewin's model of change (2006 p. 487), I would need to focus on a particular type of
change in order to limit the context to one where the issues being faced would be
similar across various case studies and review of the theory. This led me to think
about which type of context I should choose. I began reviewing general change
management literature about implementation of new systems or processes and
cultural change to effect organisation wide change due to a changing business
environment or enhancing competitive advantage. Further reflection about my
experiences led me to the realisation that the event which had caused the most
stress was the post M&A integration. Although the organisation had a history of
undergoing MU'S this did not appear to reduce the level of chaos that ensued. I
remembered well confusion experienced during the post M&A integration as a result
of changing role demands, increased workloads, customer dissatisfaction,
uncertainty about the future, cultural differences due to opposing managerial styles
and lack of communication. While through further theory investigation I realised that
many others had undergone similar experiences following an acquisition and became
aware of the complexities involved in managing these processes (Allred, B.B; Boal,
K.B. and Holstein, W.K., 2005 pp. 23-24). I also realised that each M&A was unique,
that no two contexts were exactly the same. For this reason I felt that my own
experience would enable me to contribute to or support in some way the body of
existent knowledge. However, I was concerned that focusing my research project on
this particular subject area would involve a huge amount of background work for
which time constraints would not allow. Although I had direct experience of an MU,
I knew nothing about the subject matter on a broader level. I was also concerned
about access to primary data that would be relevant to the research. After
discussions with some personal contacts whom I felt might be of assistance I
decided to focus my research project on the role that management of cultural
integration plays in overall merger and acquisition (hereafter MU) performance. It
is a complex issue to address due to the many variables to be taken into account
when attempting to explain M&A performance. To give but some examples of these
variables: purchase price, performance within the industry, long-term impact on the
competitive environment and how the M&A affects the organisations position within
that environment might all have a place in the descriptive narrative about whether a
particular M&A in hindsight was a good idea or not. Therefore, it is problematic to
define the success or failure of an M&A as organisations decide to proceed with an
acquisition for so many different reasons and long term results can look quite
different from short term ones. Some writers such as Porter (1988, pp. 39-42)
consider failure as being the divestment of the acquired firm within a certain number
of years, although this again is not necessarily the case depending on what the
organisation set out to achieve through the acquisition in the first place and whether
spin offs are total or not. It is, in my view, problematic to really determine failure,
even if longer term analysis is attempted as Porter (1988 p. 35) has done through
studies of organisations over a period from 1950 to 1986. He admits himself that it
would be impossible to compare what an organisation is with what it "might have
been" (Porter, 1988 p. 42). For example an organisation within the pharmaceutical
sector may decide to acquire another for specific FDA approvals or products but may
wish to spin off large parts of the business which are seen not to have a long term
future. One of the reasons M&A's fail is that the acquired company has been
overvalued in the first place (Shaked, Orelowitz and Marcus, 2010 pp. 40-42).
However, the importance of a search for accurate and detailed information prior to
signing up to a deal would seem essential. It is at this stage, called due diligence,
that information can be requested so that as much 21s possible is known about the
target firm in terms of it's potential liabilities, risks and operations. In order to
prevent unforeseen difficulties in achieving the business strategy, attention should
be paid to obtaining information which might indicate whether planned synergies
can really be achieved and/ or cultures combined if that is necessary.
Cultural change issues are challenging to deliver and take years to orchestrate if this
is even at all possible. Although there is general recognition that culture does
change there appears to be confusion about what exactly causes it to do so and
what causes the so called clashes when different cultures collide. Which leads us to
the question of how culture does actually change, there is some evidence as
discussed in the literature review that external events which cause shifts in the
macro environment are a significant factor (Eriksen, 2007 pp. 135-138). In other
words times of change may be the best time to implement change. In my literature
review and subsequently through my primary research results I set out to
investigate this issue in order to then examine how two different cultures interact.
What are the elements that will influence this interaction to produce either positive
results or destructive ones.
When difficulties caused by the differences in cultural identities do arise the question
becomes "what impact does this have on achieving M&A targets?". Again we are
faced with the difficulty of how to measure success or failure. It is possible to
compare share prices pre and post acquisition although these are driven by analysts'
assessments and are not necessarily the most accurate manner in which to measure
an organisations value, they can often be affected by widespread speculation which
may later turn out to have been erroneous. While the issue of increased shareholder
value is obviously significant it is also difficult to attribute value decreases to an
acquisition alone (Moeller, Schlingemann and Stulz, 2005 pp. 778-781). Another way
in which to measure performance might be to compare financial targets with results
achieved, although here again I believe there is scope for a significant margin of
error as targets set may have been unrealistic in the first place or may become
unrealistic due to changing external circumstances such as the recent global
recession or the loss of the biggest customer for no other reason than a re-tender
resulting in a new contractor being selected. In my view the coming about of any of
these factors, which indelibly change results, are not reflective of a failed M&A in
proper terms but rather the effect of elements outside of the scope of the M&A. In
the case of targets having been unrealistic the fact that they haven't been met
would not necessarily indicate failure, for example if the venture is nonetheless
profitable its occurrence may be rightly celebrated as having been justified.
Mergers and acquisitions are increasingly used by businesses to diversify, increase
market share or geographical reach yet the management of these is extremely
complex and I believe that each new reflective account of experience will undoubted
have something to add to the body of knowledge.
The first section of my dissertation is an introduction section which addresses a
background overview leading to the choice of topic, the research question itself, as
well as it's scope, limitations and significance. The literature review which provides
an overview of recent research is the basis for a theoretical framework around which
I have begun my work. I have included elements of writings which are in some
contradiction to each other so that a broad understanding of the issues at question
is achieved. I have also focused on M&A performance, cultural change and
managing socio-cultural integration during the post-merger phase. A description of
the main methodologies I have used to undertake primary research data collection
and analysis, as well as my philosophical approaches to the research is outlined.
Finally, section four, five and six relate to my research findings and my
recommendations.

Item Type: Thesis (Undergraduate)
Subjects: H Social Sciences > HD Industries. Land use. Labor > Large Industry. Corporations. > Consolidation and Merger of Corporations
H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management > Organisational Behaviour > Organisational Culture
Divisions: School of Business > BA (Honours) in Human Resource Management
Depositing User: Tim Lawless
Date Deposited: 29 Jul 2011 11:09
Last Modified: 27 Apr 2012 11:23
URI: http://trap.ncirl.ie/id/eprint/551

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