A strategic imperative underlying a merger or acquisition is to create "synergy;" a strategic and operational advantage that neither firm can achieve on its own (Schweiger& Weber, 1989). Acquisitions and mergers became a major part of American business as evidenced by the 12,000 companies that changed hands during that decade (Lubatkin, 1988). "Merger mania" (Geber, 1987), a term used often by business researchers described the landscape of sheer volume of activity that permeated all parts of the economy, from defense, to food services, to automotive, to insurance (Ulrich, Cody, LaFasto&Rucci, 1989) Unfortunately, statistics have shown that, overall, acquirers have less than a 50-50 chance of being successful in a merger or acquisition (Pappanastos, 1987), and although estimates vary up to one-third fail within five years and as many as 75% are financial failures long-term (Marks, 1988).
Experts cite many reasons for the high rate of failure ranging from the wrong partner chosen, to the wrong price, to bad timing. A merger or an acquisition is a corporate event that also has the potential to create severe personal trauma and stress which can result in employees feeling psychological, behavioral, health, and survival problems leading ultimately to performance issues (Ivancevich, Schweiger& Power, 1987). An increasing number of newly merged organizations experience dysfunctional changes in employee behavior, lost productivity, leadership struggles, and various other human (employee) problems (Manzini& Gridley, 1986). One of the key reasons for these problems and also the loss of value a new acquisition experiences is the fact that senior executives tend to underestimate the difficulties involved in integrating the organizations (Solomon, 1998). Senior Management usually does not bring Human Resources into the process until it is too late.
When HR is not at the table, the due diligence process may fail to identify any additional problems not evident to those untrained in Human Resources. A skilled team, a well -defined process, and a focused integration plan can help ensure the overall success of an acquisition (Douglas, 1999). Successful mergers or acquisition have shown that (1) there was a pre-merger evaluation of the potential association from the human resource perspective, (2) a specific human resources strategy for the merged or acquired company was an element in the integration process, and (3) effective and accurate employee communications programs were conducted both during and after the deal (Schuster &Zingheim, 1990. A positive management style, good solid leadership, work rules and processes, training, constant communications, consistent compensation, benefits and incentive programs all lend themselves to a more mature blending of talents and continued successful growth. Human Resources can help employees move past any stress and resistance to change resulting from an acquisition or merger in addition to minimizing any post-deal damage if they are involved in pre-deal due diligence. As Marks (1988) reports from a senior executive recently having gone through an acquisition;
"what will make or break this acquisition's financial success will be how people are treated, not the business decisions. Business losses can be recouped, but if youtreat someone poorly early in the game you can never change the feelings thatresult."
Questions for your case:
1. Describe and analyze the senior management team dynamics. Comment on their effectiveness.
2. What strategy was the CEO employing during the acquisition due diligence process. In what situation do you think it could be effective?
3. Discuss the strategy employed by the VP of Human Resources. What would you have done?
4. Analyze what went wrong during the acquisition process and describe what should have happened if HR had been at the table
A Visit From the AcquisitionThe executive team of Scorecard became involved and salvaged what was left of a once somewhat reputable organization. The amount of money that had been pumped into Partners Manufacturing would never be made up. It was likely now more than ever, that Peter would not pursue another merger or acquisition in the future given the results of this one. As the executive team left one of its Monday morning briefings Doug turned to Gary and remarked; "so what other mess are you going to get us into now?" Then he turned to Alan as most of the other executives did and said "thanks for trying." Partners was sold less than a year later at a net loss of millions.
Questions for your case:
5. Describe and analyze the senior management team dynamics. Comment on their effectiveness.
6. What strategy was the CEO employing during the acquisition due diligence process. In what situation do you think it could be effective?
7. Discuss the strategy employed by the VP of Human Resources. What would you have done?
8. Analyze what went wrong during the acquisition process and describe what should have happened if HR had been at the table