Merger and Acquisition-A case Study
ACKNOWLEDGEMENT
I would like to take this opportunity
to briefly express my thankful acknowledgement to a number of people who have
been importantly involved in some way or the other in my writing of this
dissertation.
Firstly, Tata Steel for generously giving
me permission to use a selection of their internal documents, data and the
opportunity to pursue interviews and survey within their employees.
Secondly, I would sincerely thank my
supervisor, Mrs. Jane Wang, for her guidance, support and motivation throughout
the past few months. It has been a pleasure embarking with her on this study
with her positive feedbacks and inspiration.
I wish to express my gratitude to all
the personnel at Colchester Avenue Library for their competent advice and help.
I thank my family who were not
physically present to support and guide me while I was accomplishing my
dissertation. I also owe a special thanks to all my friends for their
continuing interest and healthy criticism during the development of this work
of research.
Finally I would like to thank my God
who gave me courage to do things in time.
TABLE OF CONTENTS
Appendix A-2……………………………………………………………………….100
ABSTRACT
Tata-Corus, Arcelor-Mittal, Daimler-Chrysler,
America online- Time Warner…. The phenomenon of Merger and Acquisition has
proved to be a very popular means for organizations to achieve growth and
promote strategic change, especially during the last two decades. The reason
that the concern within organizations has increased lately is because the
failure rate for such deals has reached 50% or higher.
There have been several researches
done on mergers and acquisitions from many different angles. One aspect that
has not been deeply researched is the human resource aspect. Thus the issues of
uncertainty, stress management, distrust, and employee turnover have become
very serious issues that often arise in such turbulent times of organizational
change. People have become the hidden factor in the merger success. This
dissertation highlights this important factor. This study aims to identify the
role played by human resource department before, during and after the merger
and acquisition process.
Signed on 31, January 2007,to become
the fifth largest steel producer in the world, the marriage between Indian and
British steel company Tata and Corus steel is indeed one of the most remarkable
and recent examples of an Indian firm acquiring a British firm. The 6.7 billion
Corus takeover is almost 10 times larger than any previous acquisition made by
the group or by any Indian company.
This dissertation highlights the
issues that concern the human side of merger and acquisition and investigates
the role played by human factor and how they can be enhanced to bring
successful result in merger and acquisition with reference to the Tata and
Corus companies.
Chapter 1: INTRODUCTION
1.1Background –
Over the past two decades, mergers and acquisitions have become
increasingly commonplace as the means of international expansion for companies
seeking global reach. (Teerikangas and Very, 2006)
Both in profit and non-profit organizations mergers and acquisitions seem
to be the order of the day. Merging is one of the common strategies used by
organizations to increase market shares, reduce costs or create synergy. They
provide access to competence and a local intelligence base without carrying a
burden of starting up a subsidiary from zero. (Cartwright and Cooper, 1996)
Mergers are often
described as marriage. It can be complex to realize since it involves two or
more partners more or less equal in strength that have decided to combine their
managerial and operational functions. (Ollie, 1990)
Soderberg and
Bjorkman (2006) further claims that mergers are cooperative agreements between
equal partners, but in practice power is not automatically shared by two
partners.
According to
Buckley and Ghauri (2002) mergers are different than acquisitions where in a
merger, two separate companies unite their assets to establish a new
organization, where as in an acquisition the power of assets in general shifts
from one company to another. Schareder and Self (2003) argue that mergers are
characterized as the consolidation of two companies to form one group with
shared resources and vision. Where as acquisitions are often viewed as a
purchase of a single company from another company where the acquiring company
maintains control over the other company.
The complex phenomenon that mergers and acquisitions represent has
attracted the interest and research attention of a broad range of management
disciplines encompassing the financial, behavioral and strategic aspect of this
high risk activity. (Cartwright and Schoenberg, 2006)
Mergers and acquisitions have always been considered the domain of
financial due diligence and strategic issues, with human resource management
being an afterthought that becomes relevant only in the integration stage of
the deal. However mergers and acquisitions are something, which happen to
people in organization rather than to the organization in any abstract sense.
(Aguilera and Dencer, 2004) Companies do pay considerable attention to financial and
strategic issues during mergers and acquisitions, but they neglect human
issues. The role of people and the organizational culture is often neglected
and underestimated as most of the importance is given to the financial
planning.
(Cartwright and Cooper, 1992)
At DaimlerChrysler, which was formed
in 1998 when Germany's Daimler-Benz purchased the US's Chrysler, differences in
reward systems and decision-making processes caused rift between senior
management, while lower- level employees fought over issues such as dress code,
working hours and smoking on the job. Language also became a major obstacle.
(Financial times, October, 2006)
The process of Merger and Acquisition
can be considered as a marriage where the compatibility of the partners is of
crucial importance. As Senge (1990), rightly mentions, “Merging two organizations is like mating two elephants and hoping to produce
a gazelle”.
“The
corporate graveyard is littered with companies that believed a Merger or
Acquisition would help them win in their market place, but experienced
something else altogether- FAILURE.”
(Deloitte Consulting, 2001)
Cartwright and Cooper (1992), argue
that high failure and disappointment rates in mergers and acquisitions are
often related to negative employee reactions. The problem involving the human
side of merger and acquisition can be classified in two types that of cultural
conflicts and lack on an integration plan paying attention to people issues.
They further continue by saying that even though hr issues are important
feature of some mergers, but they are not effectively dealt in most of the
merger dealings. Most organizations are ill prepared for the scale of problems
that they invariably have to face. In absence of any formulated human merger
integration plan, most organizations mess up through the merger process, moving
from one organizational crisis to another.
"A
merger is like an erupting volcano. Everything turns to lava, and lava is
fluid. You can mould it and shape it and turn it into new things, but
eventually it solidifies. In the period when the lava is molten you have an
incredible opportunity to do things differently - take advantage of that
situation."
(Financial Times, October, 2006, P: 3)
Because financial and strategic
factors dominate the merger and acquisition selection decisions, the analysis
and findings of acquisition failure has traditionally tended to adopt a similar
focus. Many mergers and acquisitions are considered to fail because of
financial, economic or strategic reasons. However
Employee’s problems are held
responsible for between one –third and a half of Merger and Acquisition
failures. A discussion paper done by British Institute of Management identified
sixteen factors responsible for the failure of mergers and acquisitions. Of
these sixteen factors at least half were directly related to people and people
management issues. These factors are following:
Ø
Understanding
the difficulty of two merging cultures.
Ø
Underestimating
the problem of skills transfer.
Ø
De-motivation
of employees of acquired company.
Ø
Departure
of key people in acquired company.
Ø
Too
much energy devoted to “doing the deal”, not enough to the post-acquisition
planning and integration.
Ø
Decision
making delayed by unclear responsibilities and post-acquisition conflicts.
Ø
Neglecting
the existing business due to the amount of attention going into merger and
acquisitions.
Ø
Insufficient
research about the target company.
(Cartwright and Cooper, 1996)
1.2 Case Company:
The terms
‘Acquisitions’ and ‘Merger’ still have unwelcome Connotations in Indian
business circles in which businesses are not subjected to scale. However the
changing structure of India’s domestic business, no longer permits the Indian
companies to confine their activities within India. (Chubb, 2008)
British
business has been beating a path to India for the past 400 years. But in a
reversal of this centuries-old tradition, the former colonial power has now
become a magnet for Indian capital. The trend began after the Indian government
lifted restrictions on overseas investment in the early 1990s.Companies
belonging to the vast Tata Empire have been at the forefront of this passage
from India. Tata bought the Tetley group in 2000 before proceeding to acquire
the Anglo-Dutch steelmaker Corus and Fords UK based Jaguar and Land Rover
brands. (Arkin, 2008)
Mr Ratan Tata, Chairman of Tata Steel and
Corus, mentioned in the press release after Corus acquisition “Today marks the end
of a journey that commenced quite sometime ago when we made our first bid to
acquire the company, many thought it was an audacious move because an Indian
company making a bid for a European steel company much larger in tonnage size
which is something that had not happened before”. He further continues by saying
“The completion of this acquisition of Corus
by Tata Steel is a major step forward in the Company’s global strategy and
represents an exciting future for both businesses. I firmly believe that both
Tata Steel and Corus, two companies with long, proud histories,
share a common
business culture and a global vision for the business”. (Web1)
The
combination of Tata Steel, a vertically integrated steel producer and one of
the world’s most profitable steel companies, with an established and growing
presence in India, South East Asia countries, and Corus, Europe’s second
largest steel producer, with a high value added product range and strong
positions in automotive, construction and packaging, will create the world’s
second most global steel producer with a combined presence in 45 countries. (Web2)
1.3 Research Question
Based on the
discussion above, the purpose of this thesis is:
To investigate the role played by
Human Resources and their contribution in the success of Merger and
Acquisitions. Case study: Tata -Corus
To be able
to answer the main research question, sub-problem questions have to be analyzed
and answered to reach good conclusion and to the main problem of my
dissertation. These sub-problems are:
- Need to
define and explore the concepts of
merger and acquisition, the motives behind them, reasons for failure,
strategic fit between merger and acquisition and human resources and
impact on employees.
- Develop
a theoretical framework to analyze the practical case.
- Describe
the Tata – Corus case study
- Analyze
the case study with theoretical framework in order to answer the research
question of my dissertation.
- Finally
assess and analyze the human resource influences on mergers and
acquisition before, during and after the deal.
1.4 Outlines of the following chapters
Chapter 2: Literature Review
This chapter gives an overview of the
literature on the studied topic. It begins with highlighting the recent trends
in mergers and acquisition activity worldwide and how human resources can play
a pivotal role in both success and failure of merger and acquisitions. Further
the chapter discusses the changing role of the Human Resources (HR) over the
past few years and its connection with mergers and acquisitions. The impact
that mergers and acquisitions have on the employees of both the organizations
and the problems they face during these times are highlighted.
Chapter 3: Research Methodology
This chapter outlines the research
methodology adopted for the execution of the dissertation. The research
approaches adopted are investigated and the choice of specific research
strategy is justified, including their merits and demerits. The researcher
discusses the methods he chose to collect primary data to carry his research.
The researcher summarizes by explaining the choice of the case company taken
for research and problems faced.
Chapter 4: Background to the Case
Company
This chapter will present the case
company that will be analyzed in this dissertation. First, a brief history of
two companies has been presented to identify their individual situations before
the acquisition. Secondly the researcher has studied the motives for alliance.
Chapter 5: Data Presentation and Analysis
This chapter presents the information
obtained from the primary research methods of interviews and questionnaires
asked to the HR personnel and employees of both Tata and Corus groups. Finally,
the responses gathered from the interviews and questionnaires are critically
analyzed.
Chapter 6: Conclusion and
Recommendation
In the final section of this research
work, the researcher reviews the aims and objectives and presents his
concluding comments after analyzing the results obtained from the primary data
as well as secondary data. The researcher points out some recommendations based
on his findings, which can enhance the outcome of future merger and acquisition
activities.
Chapter 2: LITERATURE REVIEW
2.1 Recent trends in Merger & Acquisition Activity
In 1992, the Hong Kong and Shanghai
Banking Corporation successfully took over Midland bank Plc following a
non-hostile bid. It also represented the culmination of a long -term strategy
on the part of HSBC Holdings. The result was the creation of the second largest
non-Japanese bank in the world and the largest in the UK, measured by 1992
market capitalization. However the bid was strongly contested by Lloyds Bank in
a counter bid in the spring of 1992.
(Stoneham, 1994)
Newspapers, Journals, Magazines are
filled with such extracts. Mergers and acquisitions are now relatively
commonplace throughout the various industry sectors, (from Banking to
Telecommunication and Hotels to Supermarket), where the rapid amassing of
intellectual property, new technology, and even better products are defining
the winners in what has become a hyper competitive market.
From 1992 to 2000, the pace of merger
activity rose to unprecedented levels. The volume of transactions rose from
$322 billion in 1992 to $ 6.2 trillion in 2000. The clearest reflection of this
trend is the $180 billion Vodafone Air touch Mannesmann the largest in the
history by far. With the 10 largest mergers in history having taken place since
1999, this appears to be the era of mega merger. (Weston and Weaver, 2002)
“A
billion dollar deal used to be remarkable, but there were almost 200 mergers of
this size or greater last year in the US alone”. (Black, 2007, P: 813)
By the end of 2007, worldwide merger
and acquisition activity had reached $4.5 trillion from 42491 cross-border
transactions compared to $3.6 trillion generated in 2006. In terms of sectors
finance proved to be the most targeted ones globally in 2007, with deals in
this industry up 27% from 2006. (Cust and Gibbon, 2008)
Many of today’s most successful
companies including Walt Disney Co. use mergers and acquisitions very
effectively to improve their skills. Deals between Arcelor and Mittal have
fundamentally altered the shape of the steel industry. Daimler’s merger with
Chrysler and the America Online acquisition of Time Warner have created whole
new industries. (Agarwal and Jaffe, 2000; King et al., 2004)
2.2 Motives behind Merger and Acquisitions
“The reason why mergers
are so seductive, because it’s the White Knight theory. Everyone hopes that if
we merger with those other guys, they will be energetic enough and I’ll be able
to cruise. But unfortunately, the other guy is thinking the same way.” (Maister, cited in Kahan 1997, P:
39-45)
According to Granell (2000)
globalization has become a worldwide pressure for companies to change and it is
one of the most frequent and significant trends for the companies. All around the
world the trend for companies is to attract foreign investment and still
increase exports and develop international alliances. Mergers and acquisitions
has essentially become a chosen strategy for companies to maintain competitive
advantage. (Granell 2000; Schraeder & Self-2003)
Organizations use mergers and
acquisitions as a part of their business strategy to achieve various
objectives. Acquisitions are mostly used as a tool to enter into new markets,
new business area, gain technical expertise and allocate capital.
In order to survive and grow most of
the business organizations use Mergers and Acquisitions. (Buckley and Ghauri,
2002). Being acquired is often a long-term growth strategy for a company.
Acquisitions can also expand customer bases, providing a more solid overall
corporate business base to the firms. (Kautz, 2000)
Regardless of industry, it seems
companies cannot compete without growing through mergers or acquisitions.
The majority of acquisitions fail when
companies try to diversify and decide to buy a company operating in an industry
with which they are not familiar. Acquisition of British Leyland by British
Aerospace in 1998 is one of such examples where the company decided to acquire
another company operating in a different business and failed. The closer the
acquired company’s activities are to those of the existing company; the greater
are the chances of success for the acquisition. (Dewhurst, 1999)
There are several motives behind the
constant rise in the worldwide merger and acquisition activity. Mergers are
considered to be financial and strategic alliances made in the best interest of
the organization and shareholders. (Cartwright and Cooper, 1996)
Buckley and Ghauri (2002) believe that
there are four different motives for mergers: strategic, economic, market and
personal. However there are times when the decision to merge is initiated to
please the needs of an individual rather than any interest from the
organization. On the other aspect few people see mergers as a means of amusement
where the “big boys” see it as an interesting and exciting game to be less
bored, and to keep their manager on their toes.
Most mergers and acquisitions kick off
with a financial or value-maximizing motive behind them where the main
objective is to increase shareholder capital through economies of scale,
transfer of knowledge and increase control.
“Just
as most of us believe that we would be happier if only we were a little richer,
so every manager seems to believe that his or her firm would be more competitive
if only it were just a little bigger” (Brealey and Myers, 2006, P:45)
Some CEOs believe that a business has
to be big to survive in the race towards globalization. This argument is often
used to justify Mergers and Acquisitions motives. Thirty of the 100 largest US
companies that were polled by Fortune in 1990 are now defunct. It is hard for a
company to be big and healthy at the same time. (Cote, 2001)
2.3 Why Mergers and Acquisitions fail?
The $230 billion mega-merger of
America online and publishing empire Time Warner was supposed to be the best
thing since sliced bread and a sure fire for the investors and the U.S.
economy. Now the marriage is over and the newly separated companies are trying
to reestablish their worth and customer base. (Kavanagh and Ashkansay, 2006)
Mergers and acquisitions are highly
complex events with infinite number of factors that can lead to its success or
failure. Because they influence so many parts of the participating
organizations in such fundamental ways, mergers represent a very difficult
organizational change process. In fact, in most cases mergers and acquisitions
do not seem to lead to higher performance. (Agarwal and Jaffe, 2000; King et
al., 2004)
Many things can go wrong in a
Merger/acquisition. Expectations may be unrealistic; strategy hastily
constructed and poorly planned or executed. Talent may be lost if few key
employees decide to leave the company following the merger or they may be
neglected and mismanaged. Success may require an impossible degree of synergy
and transition costs may be underestimated. Culture clashes between the
entities could also be left unnoticed by the companies. The merger may distract
the focus of executives from the core business at a crucial time. (Financial
times, October, 2001)
Every merger or acquisition promises
to create value from some kind of synergy. Yet statistics show that the
benefits that look so good on paper often do not materialize. (Financial times,
October, 2006)
Mr. Lafely a veteran CEO of P&G
believes that four out of five mergers don’t work out and big deals fail more
often than small ones. He admits that the $57 billion purchase of a company
known for serving men rather than women: Gillette, was a risk that paid off
after some initial struggle. According to him strategy, company’s culture and
bosses are the main reasons for the failure of mergers. It takes strong
management and a lot of luck to make a corporate merger work successfully. (The
Economist, August, 2007)
Wharton management professor Harbir
Singh believes that the crucial distinguishing factor between success and
failure in a merger is a realistic outlook on the part of top-level executives
that needs to be maintained through the entire integration process. Often
acquisitions fail when executives and Directors are too obsessed with the
acquisition, wanting it to work at any cost. (Singh, 2007)
According to Bekier, Bogardus and
Oldham (2001) failure to focus on revenue may be one of the major reasons for
the failure of many mergers. Some companies merge on the hope that there will
be synergies that result in cost savings, but history has shown that they often
aren’t achievable.
Organizations involved in mergers and
acquisitions are usually preoccupied in cutting costs but ultimately it is the
revenue that determines the outcome of a successful merger.
According to Appelbaum et al., (2000) ignoring
the customer during the merger process may also be one of the possibilities for
the failure. He cites an example of merger between two technical firms in Silicon
Valley both of who had IBM as the leading customer. When the merger was
announced they both lost IBM’s business as they failed to inform IBM of the
change. Organizations should always communicate with customers during merger
and acquisition times informing them about the benefits they will be able get
post-merger and how this merger would be helpful for them.
Another aspect that is often
neglected is the people aspect. Effective mergers and acquisitions claim poor
handling of people during merger leads to the loss of key employee’s
restructured responsibilities and derailed careers. Kavanagh and Ashkanasy
(2006) estimate that ‘employee problems’ are responsible for between a third
and half of all mergers failures.
Chris Watkins at Hay Management
Consultants has a similar view about the role and importance of human resources
during Mergers and Acquisitions. According to him 70 percent of mergers and
acquisitions fail to live up their promises, not through any failure in
economic terms but because the integration of people is unsuccessful. (Sunday
Telegraph, June 2001)
Broad (2001) believes that most
mergers fail to achieve their potential because senior managers lack a clear
strategy and mismanage people issues. Poor handling of employees during merger
often leads to their absenteeism, poor performance and derailed careers.
Many acquired businesses lose
key employees soon after the acquisition and this is a major factor leading to
the failure of acquisitions. High rate of executive turnover following a merger
and acquisition also gives the newly formed company a setback. (Ruysseveldt and
Harzing, 2004) Lack of a proper integration plan paying attention to people and
human resources would result in the failure of the mergers. Gersten et al ;(
1998) claim that the high failure and disappointment rates in mergers are often
related to the negative reactions by the employees.
It has been estimated that most
companies spend only about $10 per employee per year on internal
communications, less than what is spent on many Christmas parties. However when
an employee leaves a company, an average of $8300 is incurred by business in
replacement costs. When one considers the additional cost to a business of
unhappy employees who are unproductive, poor internal communications can be
substantial expense for a business; keeping in mind the billions of dollars
spent on the merging exercise, just in anticipation that it will succeed.
(Kautz, 2000)
The degree of HR’s participation is
therefore directly linked to the success of mergers and acquisitions. Schmidt (2001) is of the view that the
earlier the HR department in involved in the merger process; the greater are
the chances of success. The role of HR department in mergers and acquisitions
shall be detailed in the following chapter.
2.4 Factors for successful Mergers and Acquisitions-
According to Mark and Mirvis, (2001)
to achieve merger success it requires accomplishment in four factors and if
companies are failing in anyone of the four factors they can fail to achieve
the goals of the merger. He further continues by saying that some of the four
factors can be controlled simply through careful implementation and design
while others are more challenging because of various external factors involved.
These factors are:
Ø
Partner:
Mark and Mirvis, (2001) are of the view that companies should be very sure what
it wants and conduct a research to ensure that they get what they want. He
further continues by saying that Companies selection criteria of the target
should include financial, strategic, and human as well as cultural aspects to
ensure the effectiveness of the deal. Effective due diligence should assess the
strategic positioning, management capability, competitive advantage and even
the technology infrastructure of the target organization.
Ø
Purpose:
According to Mark and Mirvis, (2001) the acquiring company should be very clear
what they are looking for in their partner. The companies should be very clear
about their aims and purpose for which the merger or acquisition is being made.
The more unified both the sides are among themselves about what is being
sought, the more focused they can stay in achieving their objectives. If
conflict and confusion occurs concerning their mutual aims and objectives and
are not sorted out early on then it could result in the failure of the deal.
Ø
Parameters:
Mark and Mirvis, (2001) believe that partners in a successful combinations have
a common vision, but in several cases of corporate marriage the lack of
awareness regarding the end state of the deal can bring lot of confusion and
misunderstanding leading to a distasteful divorce. Thus planning by senior
executives in the deal along with its implementation that involves lot of
people should be done carefully.
Ø
Prepare
people psychologically: according to Mark and Mirvis, (2001) both the companies
involved in merger and acquisition have different psychological perspectives
about the deal. Psychological factors can also influence the outcome of the
deal if the roles of the employees are not well designed. Employees are the
most affected from the merger trauma, both personally and in regards to job
security and their career that often leads to their retention.
Thus both the companies should do
assessment of the key employees early in the deal that will make sure that
these employees stay with the company and contribute efficiently.
Epstein (2004) has outlines six
factors for successful mergers and acquisitions. He believes that organization
should follow these six factors that will make sure that the merger or
acquisition will work. These factors are:
- Pre
merger planning: According to
Epstein (2004) the preparation leading up to the period of merger
announcement is crucial for success as under this period the integration
process is formulated and key decisions are made in the areas of
structure, leadership and timeline of the process. If the planning period
of pre-merger is not completed effectively, it will affect the potential
outcome.
- Evaluation
of own corporate strengths and weakness: Epstein (2004) is of the view
that acquirers should assess their own strengths and weakness before
considering target companies. This analysis enables the acquirer to know
exactly what they can contribute to target companies and what they should
expect from them.
- Develop
a corporate plan: Management should carefully consider its objectives, if
acquisitions form the part of the corporate plan. The company should draw
up a corporate plan for both short and long term and should be able to
find out how the merger or acquisition will help it in achieving these
objectives.
- Due
Diligence: Epstein (2004) is of the view that effective due diligence
should assess the strategic positioning, operational performance,
management capability of the target organization.
- Selection
and Evaluation of promising candidates: Epstein (2004) believes that most
companies should follow ‘everything for sale’ approach and do selection of
the promising candidates of both the companies and then selection should
be made. It is important that the employees should be assigned
organizational roles and responsibilities early on to avoid duplication of
work and roles.
- Post-Merger
Integration: the integration of the
acquisition is a delicate operation that may take a number of years to
complete. According to Epstein (2004) an adequate management information
system must be created and integrated to monitor the operations. Human
resource department should work in tandem with the top management in
integrating the employees.
Cartwright and Cooper (1996) believe
that successful organizational marriages are not made in heaven or a matter of
luck but are the outcome of the cultural dynamics of the combination. According
to them for a merger or acquisition to be successful, members of both sides
must recognize and accept terms of marriage contract.
2.5 Changing role of HR in Organizations-
“Are
we there yet?” is the question HR professionals have been asking for the
past 30 years. Managing payroll, administering benefits, coordinating company
events, negotiating employee contracts, ensuring legal compliance and
monitoring training classes have historically been the focus of HR work. (Christensen, 2006)
The role of Human Resource Department
has undergone a drastic change over the past 10 years. Modern day Human
Resource Management (HRM) plays a totally different role in companies today
when compared with its role when the concept first evolved in the mid
nineteenth century. With the information age making knowledge readily available
to everyone and the ability to quickly imitate the technology, the true
competitive advantage of firms comes from the employees. People are the core of
company’s competitive success over its competitors. This is where the human
resource department becomes critical to a firm’s success. (Buhler, 1999)
Human Resource is concerned with the
people of the company. These people set the strategy and goals for the company,
produce the goods and services, allocate and generate finances, have control
and shape the future of the company, thus becoming the ‘human capital’. The
human resource system plays an integral part of the organizational strategy
implementation and can play a crucial role on organizational performance. Human
resource management is often a neglected area of a long-term corporate
strategy. (Graetz, Rimmer, 2002)
HRM is a critical but often neglected
area of management, providing slight but effective control by which an
acquiring company can influence its subsidiary. HRM also helps in smooth
integration of the new subsidiary with the acquiring firm by creating an
appropriate identity for it and communicating the acquiring firm’s culture and
financial goals among the employees of the new company.
(Child et al, 2003)
The work of HR cannot be distinguished
from the real work of the firm, but should be integrated with the work of the
firm to achieve business objectives. Most organizations have recognized the
increasing importance of human resources and thus have included the top human
resource executives in important business decisions of the firm. (Buhler, 1999)
As human resource management issues
tend to get attention during the last stage of implementation, the overall
influence that HR has on during the whole acquisition process becomes very
patchy. In addition many companies have neither the resources nor are aware of
the importance of this HR area and the priority it needs. (Ruysseveldt and
Harzing, 2004)
2.6 Role of HR in Mergers and Acquisitions:
“If
IBM acquires Microsoft and Bill Gates decided to join another company, is IBM
buying the full value of Microsoft?” (Kim
and Oslen, 1999, P: 288)
Awareness of human resources in
acquisitions is important because human resource practices have influence on
the outcomes of mergers and acquisitions.
Kavanagh and Ashanasy (2006) estimate
that employee problems are responsible for between a third and half of all
merger failures. They further state that the acquiring firm gains not only the
targets land, buildings and operations but also its people. Thus they should
manage the human resources properly to enhance results in merger and
acquisitions. Proper management of the
acquired people has a tremendous impact in creating the value for the acquirers.
According to Cartwright and Cooper, (1992) although people are a difficult
asset to quantify at the pre-acquisition stage, the underperformance of this
asset post acquisition has a noticeable effect on the balance sheet.
“I
remember the day before the press conferences where the new merger between
MeritaNordbanken and Unidanmark should be announced. HR was simply nowhere at
the organization chart. And I thought how can you set up an organization with
40,000 employees and claim that and HR organization is not needed. And I said
to the CEO: You are sending a signal to the employees that they are secondary
to the merger. They do not exist in your mind if you do not establish a
separate HR function.” recalls one of the senior HR managers at
MeritaNordbanken. (Soderberg and Bjorkman, 2006, P: 656)
The Johnson & Johnson study found
that many acquired businesses lose essential people. Yet retaining these people
is crucial to achieving goals through the transition period and the long-term
competitive advantage associated with specialized knowledge. Uncertainty caused
by unclear strategy, no HR assessment and insufficient communication can drive
away staff. Selection needs to be aligned closely with incentives for employees
to stay. (Financial Times, October 2001)
One HR professional at
MeritaNordbanken admits “I could have
hindered people from leaving the company, if my own role would have been well
defined. I could have persuaded them to calm down. Often the importance of HR
is forgotten”.
(Soderberg and Bjorkman, 2006, P: 659)
Aguilera and Dencker (2004) believe
that HRM plays an important role in merger and acquisition process by managing
the employees in the turbulent times of change, reinforcing the new culture and
providing leadership and communication to reduce employee turnover. Thus HRM
can have an influence on the success of mergers and acquisitions in each stage
of the process.
2.7 Impact of M&A on employees:
“People
issues are the most difficult and important aspect of a successful merger and
acquisition.” (Corwin, 2001) Mergers and Acquisitions involve changes in
organizational structure, value-creation and in the culture of both the
organization. They often have a strong impact on the employees and if these
changes are not handled properly then it leads to high absenteeism, lack of
motivation, high turnover that affect employee performance and eventually
organizational performance. (Rusu et.al, 2006)
Employees are usually apprehensive and
overreact when they hear that their company is getting merged or acquired. “I
once worked with a blue-chip car manufacturer that got acquired,” Mark
recalls. “ The first rumour hit within a day: three thousand people were
going to be laid off at headquarters- which was strange, since only 1000 people
worked in the headquarter. People just assume the worst. ” (Cartwright and
Cooper, 1992, P: 28)
Employees are interested in obtaining
information about the consequences of the merger and acquisition that will
affect them directly in terms of job security, career prospects, and new
working environment. Therefore HR department should communicate with the
employees during and after the merger assuring them about their continuity and
future in the organization that would motivate them to be loyal with the
organization focus on their work. Honest and realistic communication can help
employees to cope with the changes of merger and acquisition and thus reduce
the negative impact that merger/acquisition has on organizational
effectiveness. (Rusu et.al, 2006)
When the corporate marriage between Daimler
Chrysler came to an end, there was a strong rumor amongst employees that over
10000 jobs are to be cut in what insiders were calling as the ‘Saint Valentines
Day Massacre’. The true figure turned out to be 13000, about 16% of the
workforce. (Financial Times, 2000)
Cartwright and cooper (1992) highlight
another area of concern that affects the employees of the merging organization
that is the amount of stress that they go through during merger process in
unimaginable. Many employees do not have the resources or knowledge to
effectively eliminate the merger produced stress. They further continue by
saying that “Merger-produced stress has
nor been on the must do or must consider agenda of the management and human
resource professionals”. Management thus should consider eliminating their
stress during the merger by involving them in the process and communicating
with them in an honest and sincere manner about the merger.
Another concern which employees
normally have following a merger/ acquisition is of remuneration. Hunt and
Downing (1990) are of the view that remuneration plays an important role in job
satisfaction and thus in turn employees performance following a merger. Job
satisfaction is a key factor guiding the employee’s performance and having a
impact on organization performance.
However during the merger processes
employees are more concerned about their job security as mergers and
acquisitions involve a large amount of employee turnover. Therefore it is
expected that after the merger employees will be concerned about their position
and performance in the organization.
(Schweiger et.al, 1991)
If the employees are confident about
their position in the new organization, their concern shifts from job security
to career prospects. To maintain their position in the company post-merger they
work hard to be acknowledged as a good performer and are often interested in
getting feedback about their work.
Empson’s (2000) research on mergers
and employee behavior suggest that M&A also have some positive influences
on the employees. According to him M&A could be seen as an opportunity for
new responsibilities, increased job security and varied work tasks. As now days
most of the mergers take place between different countries M&A also serves
as a gateway for the employees to start their career internationally.
Nigel Perks senior HR Director at
LogicaCMG believes that Mergers and Acquisitions allow talented staff to take
their careers to an international level without leaving the company. He further
says, “We try to mix the management team
at the front end and use coaching to bring key people over. Our competitors
want to hire the same people so we have o make them feel this is the best place
to work.” (Johnson, 2007, P: 37)
This clearly explains the successful acquisitions that the company has
been making in the International level and a presence in 41 countries of the
world.
2.8 Organizational identification and communication
during merger:
Mergers are perceived as a threat to
the stability and continuation of employee’s current identities. In merger
processes employees of both the organization often loose their psychological
commitment to identification with an organization because they often feel
threatened by new identities and groups in which they have to work after
mergers and thus in some cases employees often intend to leave the organization. The stronger the bonding with the existing
department or organization it will be more difficult for the employees to
identify with their new roles in the merged organization. (Bartels.et.al, 2006)
Organization identification can be
described as the perception of oneness with the organization where the
employees relate themselves in terms of organization they are a member.
Employees will identify more closely with an organization when they experience
similarities between the organizational identity and their own personal
identity. Organizational identification influences the employee’s willingness
to work hard to achieve organizational goals and to stay with the organization
to achieve their own personal goals. (Ashforth and Mael, 1992)
In many realistic merger situations
employees may identify with the pre- merger organization more closely as they
have been working there and can easily identify with their work roles and
workgroup. Employees who are directly involved in the merger processes may find
some major changes in their pre-merger and post-merger work roles and thus they
would find it difficult to identify with their new roles after the merger.
Jetten, O’ Brien and Trindall (2002)
are of the view that sense of continuity plays a very important role in the employee’s
feelings about the merger. In their study they mention if the employees are
uncertain about the merger during the pre-merger stage, then they would be more
unclear and uncertain about their own roles and job security after the merger.
Sense of continuity often arises among
employees during the pre-merger stage especially when they are not directly
involved in the merger process. Majority of the employees often are threatened
about their continuity in the organization after mergers and acquisitions,
others are worried about their nature of job, salary levels and other
consequences. Thus sense of continuity plays a crucial factor affecting the
employees post merger identification and their performance. The stronger sense
of continuity is among the employees during the merger and acquisition process
the more easily they would be able to identify with the new organization
post-merger. Employees would thus be able to easily identify with the
post-merger organization if they don’t feel any job insecurity and there is
proper communication before and after the merger.
(Van Knippenberg and Sleebos, 2005)
Employees should be communicated
throughout the merger process from the HR department as well as their managers
about the merger process that would reduce the doubts in their mind about their
continuity in the organization and would make it easier to identify with the
post-merger organization. Kitchen and Daly (2002) go even as far to state that
supportive communication is the most crucial factor for the success of an
organization.
According to Jimmieson, Terry and
Callan (2004) the information supply about organizational changes may help to
reduce the feelings of uncertainty and threat caused among the employees due to
these changes in the organization. It would thus help the employees to easily
identify with the post-merger organization and thus would be crucial success
factor for organizational changes. They further continued that the amount of
communication about a merger reduced employee’s perception about the outcomes
of the merger and contributed to their commitment and close post-merger
identification with the organization.
Werhane (1988) believes that employees
have the right to information that affects their job, company or career and to
participate in decisions that affect their employment. Thus it seems that
communication is the most important tool that should be used properly by the HR
people during the merger process to convey the sense of continuity so that the
employees can easily identify with the post-merger organization and their new
role.
2.9 Role of HR Directors and Top Management:
Top management team play a vital role
in enhancing the post-acquisition performance as they are the people who
possess knowledge critical to ongoing business operations and their departure
may heighten the level of disruption and uncertainty in the firm following
acquisition. Their major work is to make a fix between human resources and
strategy of the firm. They are the ones who motivate and lead the employees and
thus their retention may directly affect the employee’s performance in mergers
and acquisitions. (Harvey and Kiessling, 2006)
HR directors along with top management
play a very critical role in selecting and planning appropriate change management
approaches. Their main work is to select and retain the most suitable employees
so that they get into their new role and start performing as soon as possible.
Through their constant counseling and support for employees and proactive
actions they try to ensure employee commitment during mergers. (Cooke, 2006)
HR directors are the ones who work out
how the combined organization’s top level and middle level managers will work
together as a unified team especially when duplication of responsibility exists
between the two companies. Another important role of HR directors in merger and
acquisition is to influence the expectations employees have of the merger, both
on a personal and organizational level.
Corwin and are of the view that if the HR directors are able to properly
communicate with the employees during the merger then it would give the
employees a sense of continuity and would be easier for them to identify with
the new organization and their new work roles after the merger process. (Corwin.
et.al.2001)
Nigel Perks, HR director at LogicaCMG,
is convinced that HR is central both to success in mergers and acquisitions and
to binding together a global business, particularly in a people-intensive
industry such as IT. He further say’s that “When
we do acquisitions it has to be ‘friendly’’. If you do it aggressively, people
will walk out and you are left with nothing. Plus, we only combine with
like-minded firms where there is good fit”. (Johnson, 2007, P: 36)
Senior human resource management
should use the organizations human resources to contribute to its competitive
advantage by creating an organizational climate and culture that is compatible
with both of the merging organizations.
(Graetz et.al, 2002)
2.10 Managing the cultural differences:
Studies have shown that in
cross-border Mergers and Acquisitions, cultural differences can enhance the
combined company's competitive advantage in a series of ways: by providing
access to unique and potentially valuable capabilities that are embedded in a
different cultural environment; by helping the company to develop richer
knowledge structures; by overcoming rigidities and organizational inertia; and
by fostering learning and innovation. Other studies indicate that cultural
differences, which are more salient in cross-border Merger and Acquisitions,
lead the managers involved to pay greater attention to the less tangible, but
critical, sociocultural and people factors that are often overlooked in
domestic M&As. Collectively; these findings suggest that the cultural
issues inherent in cross-border M&As may not represent a daunting hazard.
The same applies to international alliances and joint ventures
Daimler's chief of passenger cars,
Juergen Hubbert, was quoted in The Economist: "We have a clear understanding: one company, one vision, one
chairman, two cultures." (Financial Times, October, 2001, P: 02)Thus
differences of culture at Daimler and Chrysler made its merger more difficult.
It was supposed to be the merger of equals but has turned out to be just another
disastrous car-industry takeover. This explains that organization culture also
plays an important role in deciding the fate of the corporate marriage.
The failure of a Merger or Acquisition
is frequently blamed on a clash of cultures between the merging companies that
resulted in major integration problems and undermined the success of the deal.
The cultural and communication challenges are even greater when the merger is
between a western company and one from an emerging market. An internal study conducted
by Siebel Systems (which was recently acquired by Oracle) revealed that all of
the company's acquisitions had failed because of "cultural
conflicts". The cultural and communication challenges
are even greater when the merger is
between two different countries. (Financial Times, October 2006)
Research carried out by Susan Cartwright of
Manchester Business School and Cary Cooper of Lancaster University Management
School on a wide range of industries across Europe suggests that in mergers of
equals sized companies, the cultures of the combining organizations must be
similar because the success of the merger depends on the ability to create a
coherent "third culture" which combines elements of both cultures.
Since organizations normally strive to retain their own culture, merger between
companies with dissimilar cultures will result in major integration problems.
(Cartwright and Cooper, 1996)
The alliance of Renault-Nissan, which
is widely considered successful, is a case in point. As Carlos Ghosn, now president
and CEO of both Nissan and Renault, has pointed out, "Cultural differences can be viewed as either a handicap or a powerful
seed for something new." Indeed, in recent weeks, Mr. Ghosn has spoken
of a potential three-way alliance between Renault-Nissan and GM.
(Financial times, October 2006)
There is no easy formula for
neutralizing culture difference and misunderstanding that are caused by mergers
and acquisitions. But putting a name to this phenomenon can be the first step.
“Post alliance culture shock” is now recognized by an increasing number of
executives. (Cartwright and Cooper, 1992)
When Lenovo, the leading Chinese PC
maker, announced in December 2004 that it was acquiring IBM's PC business, most
observers were skeptical that a company that grew in a communist system, and
until recently sold exclusively in China, could succeed in managing a global
business. Merging two companies with vastly different business models and
cultures, while staying competitive in the fast-paced PC industry, seemed too
daunting a challenge.
(Financial Times, October 2006)
According to Appelbaum et al., (2000),
it is important that CEOs and human resource departments work together to plan
the actions in consideration that culture can be a factor that could either make
or break the corporate marriage.
Employees should believe that the
changes in organizational culture would work and are valuable and would enhance
their performance otherwise they would resist the change and it would impact
the organizational performance.
Cartwright and Cooper (1996) are of
the view that the degree of constraint placed on employees when a change from
one culture to another is in progress, will depend on the types of culture
being merged. Employees become aware that the measuring tools for performance
and loyalty have changed. They will resent the change and will have difficulty
in accepting the new culture if their corporate values and organizational
lifestyles are threatened.
Chapter 3: RESEARCH METHODOLOGY
3.1 Introduction-
Having reviewed literature on Merger
and Acquisitions and Human Resource Management it has to be stressed that
research design is of great importance to any piece of research. Indeed the
strategy that a researcher selects to answer the research questions and to examine
a specific topic can influence the quality of the results. Therefore the
current chapter will focus on the specific research design, i.e. case study and
the methods that were chosen to carry out the research. The aim of this chapter is to explain to the reader the way this
dissertation will be completed. In fact it gives the reader a clear view on how
this dissertation will be achieved.
3.2 Research Methods-
Research
Methodology involves a compromise between ‘options’ and ‘choices’ because of
the numerous approaches to the management research. (Gill and Johnson, 1997)
Saunders et al., (2003) are of the view that research methodology refers to the
theory of how research is undertaken. He further states that a research method
refers to the tools and techniques used to obtain and analyze data.
According to Ghauri and Gronhaug
(2002), the purpose with a research is to state what is to be accomplished by
conducting research and how the results can be used. Saunders et al., (2003)
claim that it is also possible to have more than one purpose.
The Descriptive research study is
guided by an initial hypothesis and is designed to portray an accurate profile
of persons, events or situations. It is crucial to have a clear picture of the
phenomena on which the researcher wants to conduct the research prior to data
collection.
3.3 Research Strategy-
According to Yin (2003) there are
three conditions that decide which research strategy to choose, namely, the
type of research questions created, the control a researcher has over actual
behavioral events and the focus on modern in contrast to historical phenomenon.
Corbetta (2003) is of the view that
when considering the logic of the research process there are two different
approaches to research: deductive study and inductive study.
Deductive approach is a movement from
the general to the particular and then the process of gathering data is driven
by the hypothesis to test the worth of the theory. In contrast in Inductive
approach the research begins with observations and uses inductive reasoning to
derive a theory from these observations. The deductive approach is usually
associated with quantitative data and inductive approach is associated with
qualitative data. (Saunders et al., 2003)
Although the two different research
approaches have opposite logic casualty and are often presented as alternative
research modes, they can be combined to form one ongoing research process.
(Saunders et al., 2003)
The researcher has used a mix of both
inductive and deductive approaches as both of them are appropriate for this
research and its objectives.
Saunders et al., (2003) has put
forward namely 8 different strategies that can be used by the researcher to
carry out his research objective. They are:
Experiment, survey, case study, grounded
theory, ethnography, action research, longitudinal,
exploratory-descriptive-explanatory studies. He further states that each
strategy can be used in any of the studies, but it is the form of the research
questions that determines the choice of application. (Saunders et al., 2003)
In this research the researcher has
used a mix of both survey and case study research strategy to answer the
research question and to achieve the objective of the research.
3.3.1 Case study-
The research strategy used in this research
was that of a case study strategy. This strategy, as employed by the
researcher, was intended to obtain in-depth information and a clear
understanding about the case companies and Merger and Acquisitions.
Yin (2003) states a case study as “an
investigation of a contemporary phenomenon within its real-life context,
especially when the boundaries between phenomenon and context are not clearly
evident”. He is of the view that a case study approach is more suitable to
answering ‘how’ and ‘why’ questions and where the researcher has little control
over the events or subjects.
With the case, the research programme
seeks to understand that unit as a whole, informed by the context within which
it is found. The case might be an organization, an individual, a person, an
event or a decision making process.
The selection of single or multiple
cases is made according to the objectives of the research, the research
questions to be answered and the availability of resources in conducting a case
study. In relation to this research, the case study design employed was of
multiple cases. Two companies were involved in this study. The researcher
believes that multiple cases represented a more robust approach to the
qualitative study in relation to merger and acquisitions. (Yin, 2003)
The case
company for the research, Tata Steel has been chosen to exemplify the role
played by human resources in success of mergers and acquisitions. The choice
among Indian companies was severely limited by the fact that, very few of them
are involved in Cross Border Acquisitions.
Tata group
is the only Indian group that has a history in Acquiring firms outside India.
The company has made news with its acquisition journey that started from Tetley
tea. Since then the group has acquired 3 British firms during the past 5 years
that includes Tetley tea, Corus Steel, Jaguar and Land Rover brands. Land
rover and Jaguar being the latest acquired company, which was previously owned
by the Ford.
The Tata - Corus merger was officially
announced on 31st January 2007. During that time, especially in
India, specialized newspapers investigated and discussed much about this
alliance. I started to get a strong interest in this alliance by reading many
documents and investigations about it. Thus I was quite curios about the
alliance between the Indian and British firm which was first of its kind and
about the fact how these two companies will manage their combined workforce of
over 80,000 people spread all across the globe.
3.3.2 Survey Method
Surveys are one of the methods
employed in this study. According to Ghauri and Gronhaug (2002), the survey is
an effective tool for obtaining opinions, attitudes and descriptions as well as
for identifying cause and effect relationships. Saunders et.al., (2003) are of
the view that survey methods have more control on the research process as they
are collected from a sizeable population and also are more economical. Some of
the Advantages of survey method as pointed by Saunders et. al., (2003) are:
- It is
an inexpensive mode of data collection and processing.
- Able
to reach respondent who are widely dispersed geographically.
- It
enables the researcher to draw generalizations even though the sample size
is low.
- It is
able to avoid interviewer bias.
However the data collected by the
survey method may not be as wide-ranging as those collected by qualitative
research methods. There is also a limit to the number of questions, which any
questionnaire can contain and there is often no opportunity to correct any
misunderstanding. (Saunders et. al., 2003)
3.4 Triangulation-
“Triangulation refers to the
attempt to get a true fix on the situation by combining different ways of
looking at it or different findings”.
Hamersley (1992)
Ghauri and Gronhaug (2002) are of the
view that triangulation is the combination of methodologies or the use of
different research approaches in the study of the same phenomena so as to
improve the reliability of results. Saunders et al. (2003) suggest that there
are two major advantages to employing multi-methods in the same study. Firstly,
the researcher can employ different methods for different purposes and
secondly, the data can be triangulated to ensure that it tells what is supposed
to be told. According to Denzin et al.
(2000) the use of different methods by a number of researchers with the same
conclusion leads to greater validity and reliability compared to the single
methodological approach.
The decision
to use multi-methods for this research was based on the expectation that this
approach would be likely to provide better results, even though it might be
time consuming.
3.5 Qualitative and Quantitative research-
There are two categories that studies
can be divided in, qualitative and quantitative research. Quantitative research
involves numerical data or limited data that usually can be quantified and can
vary from simple counts to more complex data such as test scores and prices.
(Saunders et al., 2003)
According to Creswell (2003)
qualitative research means being emergent, flexible, interpretive and conducted
in its natural setting. Qualitative research is described as the opportunity to
investigate a subject as real as possible. It is the conclusions of a
qualitative research that are based on non-quantifiable data, such as
attributes, values and perceptions. (Saunders
et al. 2003)
According to Lee (1999) qualitative
research may be the best choice when the identification of new theoretical
proposition of managerial actions is deemed necessary.
In contrast, quantitave data is more
useful for generalizing when the data is measurable on a scale. This is not
always possible with economic concepts that may use numbers to describe
particular phenomena or characteristics, but the exact relationship of the
measurements may not be exactly known. For example,
Manager A may state that production is
efficient at output 1X while Manager B at another firm may give output 2X;
although 2X is double of output 1X, the efficiency difference may not be
precisely quantifiable on the same scale.
The main strength of qualitative
research is the validity of the data obtained; individuals are interviewed in
sufficient detail for the results to be taken as true, correct and believable.
Qualitative research also provides a holistic view, through the participants
own words and perceptions, of how they understand, account for and act within
these situations. (Miles and Huberman, 1994)
The distinction between qualitative
research and quantitative research are often blurred because both qualitative
and quantitative techniques are usually applied within given studies (Lee,
1999). Qualitative and quantitative methods should be viewed as complementary
rather than as rival camps.
Based on the purpose and research
questions the researcher has chosen a mix of both quantitative and qualitative
approach, as it was the most suitable approach for this thesis. Thus by
studying a relatively small sample the researcher would be able to do a deeper
investigation of several issues concerning the research question. Two methods
are used to identify the role of human factor in success of merger and
acquisitions are Survey Questionnaires and semi-structured Interviews. The
information obtained from the survey is further presented in the form of tables
and bar diagrams for a better understanding of the results.
3.6Collection of Data
Data collection can be done by both
secondary data and primary data. The researcher must keep in mind issues of
reliability and validity while conducting his research.
3.6.1 Secondary Data
The secondary data is the data that already
exists. This data has been preciously collected for other purposes. Secondary
data can be both qualitative and quantitative data and can be used for both
descriptive and explanatory research. Indeed data can come from internal or
external sources. The researcher should try and use the recently published
data, as it will be more applicable to the present day scenario. Business
researchers use other’s experience and data, when these are available, as
secondary data. The major advantage of is that secondary data can be obtained
in a less expensive way than the primary data. In addition, secondary data can
usually be obtained rapidly (Saunders et al. 2003).
For internal data I have mainly
resorted to Tata’s Internet site (www.tatasteel.com)
and Corus Internet site (www.corus.com)
that is very well structured and contains lots of important and current
information. For the collection of external secondary data my sources have mainly
been electronic journals, websites, books, business reports, newspapers and the
research journals. This secondary data has been used to analyze the findings
from the primary research.
3.6.2 Primary Data
Primary data is the data collected by
the researcher himself. These data can be collected from different sources:
interviews, observation, and survey. The main advantage of primary data is that
it allows the researcher to find out people’s view of what they think, believe
or feel in order to find out his research objectives.
(Saunders et. al., 2003)
To collection of the primary data has
been done by conducting semi-structured interviews with the HR managers of the
Tata steel and survey questionnaires among Tata and Corus employees.
3.6.2.1Interviews
Hussey and
Hussey (2003, p.156), defines Interview as “Interview is a method of collecting
data in which selected participants are asked questions in order to find out
what they do, think or feel”.
According to
Burgess (1984), interviews provide the researcher with the opportunity to
explore new perspectives or dimensions of a problem and to secure vivid,
accurate accounts bases on personal experience. Interviewing comes in a variety
of forms and uses; the most common forms of interviewing include structured, semi-structured
and unstructured interviews. (Saunders et al., 2003)
Semi
structured interview is more flexible compared to the structured interview and
allow an in depth understanding of the research subject and exploration of new
interesting avenues. (Burgess, 1984)
In this
research, the researcher has used semi-structured interview to answer the
research question of “To identify the role played by Human Factor in Success of
Merger and Acquisitions”. The questions were addressed to the assistant HR
managers of Tata group. The feedback from the interviews provided the
researcher with an initial understanding of the role played by human resources
in pre - during - post merger. The interview questions consisted of 7 open-ended questions that
were easy to answer and were helpful in collecting required data. The interview
questions are attached in Appendix-A.1.
3.6.2.2 Questionnaire
The
questionnaire is the most widely used survey type data because each respondent
is asked to answer the same set of questions. (Saunders et al, 2003)
According to
Hussey and Hussey (2003) questionnaire is a list of questions that has been
carefully designed and tested with the aim of obtaining responses from a chosen
sample.
According to Malhotra (1996), questionnaires are
formalized set of questions for obtaining information from respondents. Relevancy and accuracy are the two
basic criteria to be met if the questionnaire is to achieve the researcher’s
purposes. A questionnaire is relevant if no unnecessary information is
collected and if the information that is needed to solve the business problem
is obtained and accuracy of the questionnaire means that the information is
reliable and valid.
Saunders et
al. (2003) have pointed out some of the common issues before making
questionnaires so that they are able to achieve the researcher’s purposes. They
are:
- Avoid long and ambiguous questions.
- Avoid double-barreled questions so that each
question deals with one dimension
- Questions should not direct the respondent
towards an answer.
- Questions should be specific and general
questions should be avoided.
The survey questionnaires
consisted of 14 simple, multiple-choice questions that were straightforward to
find the aims of the research. The
questions used in this survey questionnaire were based on and drawn from the
extensive literature review and were addressed to the employees of both Tata
steel and Corus steel to find out about their side of story during mergers and
acquisitions. The questionnaires were filled by 30 employees from Tata Steel. The survey questionnaire is attached
in Appendix-A.2.
3.7.1Validity
Saunders et
al. (2003) state that
validity is defined as measuring instruments ability to determine what it is
supposed to assess. Validity is concerned with whether the findings are really
what they appear to be about.
There are three tactics that are
available to the researcher to increase the validity and they are; researcher
can use multiple sources of evidence, establish a chain of evidence during data
collection and let the key information’s review a draft of the case study
report. (Yin, 2003)
Robson (2002) identified threats to
validity as:
·
History
·
Testing
·
Instrumentation
·
Mortality
·
Maturation
Ambiguity about causal direction
(Robson, 2002)
To achieve validity in this research,
the researcher has send an e-mail to the respondents, before the interviews, an
introduction where the subject of my dissertation was briefly described and was
made to avoid eventual misunderstanding and to prepare the respondents for the
interview.
3.7.2 Reliability
According to Yin (2003) the aim of
reliability is to be sure that if a future researcher followed the same
procedures as described by an earlier researcher and conducted the same case
study, this researcher would arrive at the same findings and conclusions. The
goal of reliability is to decrease the errors and biases in a study.
Reliability is one of the most
critical elements in assessing the quality of the construct measures, and it is
a necessary condition for scale validity. There are several ways to test
reliability, such as the test re-tests method, the split- halves method and the
internal consistency method. (Hussey and Hussey, 2003)
According to Robson (2002) there are
four threats to reliability:
·
Participant
bias
·
Participant
error
·
Observer
error
·
Observer
bias (Robson. C, 2002)
3.8 Summary
This chapter
charted the progress of the research, outlining the problems and the strategies
for overcoming them. The researcher has used both survey and case study method
and therefore this research can be called as multi-method strategy or
Triangulation. This chapter also detailed the reasons for selecting the case
study company, Tata steel and Corus steel. A qualitative approach rather than
quantitative approach has been used by the researcher which includes
semi-structured interviews and survey questionnaires to achieve the research
objective. The next chapter will focus on the results and analysis of data
coming from the survey questionnaires and semi-structured interviews.
Chapter 4: BACKGROUND TO THE CASE STUDY
This
part of dissertation is mainly devoted to the acquiring a clear and holistic
view of both Tata and Corus groups and to the description of the development of
the alliance and its motives. It is mainly taken from the official websites of
both the companies.
4.1 Tata Company-
Established
by Jamsetji Tata in the second half of the 19th century, the Group has grown
into one of India's biggest and most respected business organizations.
The
Tata Group is one of India's largest and most respected business conglomerates,
with revenues in 2006-07 of $28.8 billion (Rs129, 994 crore), the equivalent of
about 3.2 per cent of the country's GDP, and a market capitalization of $60.56
billion as on April 3, 2008. Tata companies together employ some 289,500
people. The Tata Group has operations in more than 80 countries across six
continents, and its companies export products and services to 85 countries.
(Web 3)
Having
begun well, Tata Steel strove hard to fuel its growth aspirations, despite
working in an era of severe controls and tight regulations until 1990. Its
efforts were enhanced by a four-phase modernization programme — in 1979, 1985,
1990 and 1996 — which helped upgrade the company’s facilities, enabling it to
gear up to face international competition. Tata Steel has come a long way since
its inception, when it started with steel production of 1, 00,000 tonnes a
year.
B.Muthuraman, the managing
director of Tata Steel mentions “In the
last 100 years, Tata Steel has changed its identity from a dominant domestic
player to a regional player to an upcoming global company, ranking sixth in the
world in steel production”. There have been many more milestones along the
way. Tata Steel has been an EVA-positive company since 2003. It was declared
the ‘lowest cost producer of steel in the world’ in 2001 and the ‘world’s best
steel plant’ in 2005 by World Steel Dynamics. (Web 3)
4.2 Tata Steel and Mergers
and Acquisitions-
Merger
and Acquisitions was word that was never used in Tata Steel, but now the company
is sending its top management to places like Wharton to learn on how to acquire
companies and it has also become an important subject in the company’s internal
training. This is because Tata Steel is aspiring to produce 15 million tonne of
steel by 2015 and some new capacities will come through the mergers and
acquisitions route. (Web 6)
Chairman
Ratan Tata mentioned in Financial Express that Tata Steel is going to do in the
next five years what it has not done in the last 97 years of its corporate history.
It will be almost doubling production to 7.4 million tonne by 2008 and 15
million tonne by 2015. Tata Steel will be investing Rs 8,000 crore in the next
five years on its expansion. (Financial Express, 2004)
The
Tata group spans seven key sectors and has 80-odd companies in businesses as
diverse as chemicals, engineering, steel, telecommunications and IT services.
"In all the areas we are in, we will see growth through acquisitions
rather than organic growth only. In steel also, we are looking at expanding
capacity through acquisitions," group chairman Ratan Tata mentioned in
Business Standard. (Business Standard, 2002)
In the
last six years alone Tata group has acquired six beverage companies including
Tetley Tea of UK, three in the IT and consulting service sector; two in
telecommunications; three steel companies; two in the motor industry including
Daewoo; two in the chemical companies: IMACID Morocco and Brunner Mond.
The
group has started looking at locations around the world that will enable group
companies to become competitive. (WEB 3)
4.3 Making Global Imprints
Tata
Steels acquisition journey started with the investment in Nat Steel Asia;
followed by bagging Thai steel major Millennium Steel by the end of 2005.
The
successful conclusion of these two deals marked an effective transition for
Tata Steel from being a leading domestic player to a strong regional player in
the East and South East Asian markets. (Web 5)
The
acquisition of Nat Steel was a major breakthrough for Tata Steel, in more ways
than one. This was the company's first experience of doing a large,
multi-country, multi-location M&A, and there were rich lessons to be learnt
from this experience. As a brand, Nat Steel’s strong equity in seven countries
across the region, namely Singapore, Thailand, China, Malaysia, Vietnam, the
Philippines and Australia provided Tata Steel with a customer base for close to
two million tonnes of steel. As a brand, Nat Steel’s strong equity in the
region was yet another strategic gain for Tata Steel. The company's strong
human resources and management effectiveness is also an inheritance of immense
value. (Web 5)
The
acquisition of Millennium Steel, Thailand's dominant steel producer
consolidated Tata Steel's gains from the Nat Steel deal. The acquired companies
have been impeccably integrated into the Tata Steel family. The similarity in
the acquired companies’ work ethics, as also Tata Steel’s stress on constant
and seamless communication between the top management of both companies and the
operating units, has enhanced the process of integration. (Web 5)
4.4Corus Company-
Corus
steel was established in 1999, following the merger of British Steel and the
Dutch Hoogovens. However ever since the foundation of Corus it was in the net
of some or the other conflict or chaos. Corus is Europe’s second largest steel
producer with revenues in 2005 of £9.2 billion (US$18 billion and crude steel
production of 18.2 million tonnes, primarily in the UK and the Netherlands. The new company, which located its headquarters in London, had 66,000
employees and annual sales of $14.8 billion. (Web 2)
Not only did the merger make Corus the largest steelmaker in Europe, it
also made it a multi-metals company--with Hoogovens strong aluminum units added
to the business mix. This positioned the new company to provide a wider range
of products and services. (Web 4)
The company manufactures, processes, and distributes metals products to
the construction, automotive, mechanical engineering, packaging, and other
markets--primarily in Europe. The bulk of its production facilities are in the
United Kingdom, but it also has a presence in The Netherlands, Germany, France,
Belgium, the United States, and Canada. (Web 4)
Within its first year of operation, the steel giant had cut production
deeply, eliminating more than 4,000 jobs. But even with such drastic cuts,
Corus was unable to compensate for external problems in the market. Demand for
steel was weak, and an oversupply on the world market, consequently, had pushed
prices down. As a result of these adverse factors, Corus posted a £1.05 billion
loss for 2000. (Moffit, 2001)
Corus continued to lose money in the early part of the new century,
posting a net loss of £385 million in 2001. In March 2002, the company
announced that it was looking for a buyer for its three aluminum businesses. As
the aluminum industry continued to consolidate, Corus was finding it harder to
compete against ever larger players. Selling its aluminum business indicated
that the company had given up its stated goal of being a multi-metals supplier
and, instead, was planning a return to a single focus on steel. (Moffit, 2001)
4.5 Motives behind the alliance
Tata
Steel acquired British steel maker Corus at 608 pence a share, in one of the
most remarkable takeovers of the times, to move from the world’s 56th largest
steel maker to the fifth largest. Sinha (2007) believes that there are several
strategic reasons that made Tata group pay a hefty amount of 630 pence per
share to acquire Corus steel. He is of the view that the main reason behind the
Corus acquisition by Tata steel is to ship iron ore and low cost crude steel to
Corus plants in Europe, which would use their technological know how to turn
the raw steel into finished products and sell them to their customers. Corus
steel being the second largest steel producer in Europe would provide Tata
steel access to some of the largest steel buyers. The acquisition would also
open new markets and product segments for Tata Steel, which would help the
company to reduce its risks through a wider geographical reach. (Web 8)
For
Tata buying a much larger company could be seen as a safeguard against being
acquired itself. While for Corus exposure to low- cost production sites in high
developing markets is necessary to ensure its long tem viability.
Tata
has been expanding its international expansions in the south-east Asia, with
the acquisition of Nat steel and millennium steel. Tata’s steel reach outside
this region is small, but the Corus acquisition will advance the company’s strategic
aims by providing access to new markets in Western Europe. As Corus has 50% of the UK market and 155 of
the European market for auto-grade steel. This illustrates another synergy as
Tata which is a low-output domestic steel producer will need Corus research and
development facilities and resources to fulfill its global ambitions. (Web 9)
Tata
group’s vice-president HR, Satish Pradhan says “we particularly look at the culture and values, their commitment to
communities, to the environment, to customers and to people”. (Web 3)
Jim
Leng, retiring chairman of Corus said “Corus
had twin objectives from the outset. One was to secure the vest value for our
shareholders and the other was to ensure the best strategic future for the
business. With Tata steel, we have delivered the both. The Corus and Tata steel
combination will enable us to build on complentary skills in the new
market.” (web7)
What does Corus bring to Tata Steel? Was one of the
most frequent questions in the newsroom and among critics? The answer is that
it brings the capacity of nearly 19 million tonne per annum. Secondly, it gives Tata access to very matured and
developed markets of Europe which is a very mature market with the customers
demanding very high quality service. (Web8)
One of the key attractions of Corus to Tata Steel is its renowned
technical skills and a very highly developed R&D
capability, which India in general lags. (Web3)
4.6 Role of Human Resource Management
Satish Pradhan,
executive vice-president HR at Tata steel says that “Leadership is about taking that people capabilities are a source of
competitive advantage. In mergers and acquisitions this is reflected in a
business perspective that thinks post merger integration before due diligence”
(Chubb, 2008). He further continues by saying “HR must ensure the marriage of two companies is effective”.
Frances
Wilson CIPD manager, mentions in the article of people management that HR would
be at the forefront of resolving what being a Tata employee would mean for
people. (Chubb, 2008)
Kripanlani
(2008) believes that Tata’s Indian background has given it plenty experience in
managing a diverse workforce of 333,000 worldwide out of which 26% of them are
outside India. Its employees in India come from various castes, religions and
ethnic origins.
In its
all deals, Tata has been careful to signal its respect for workers. While it
chooses its targets carefully, it also hasn’t laid off any workers following
its overseas acquisitions. (Kripanlani, 2008)
When
asked in the press conference about the new executive team of the alliance Mr. Ratan Tata, Chairman of Tata
Steel and Corus, said: “Corus’ top management will remain
with the enlarged Group and the bringing together of both management teams is
an expression of the strong confidence and trust that exists between the two
organisations, which will ensure the successful integration of the
combined business.” (Web 1)
With
its Corus acquisition, Tata not only quadrupled its revenue and gained a
powerful brand name, but also doubled the size of its workforce with a
worldwide network of highly skilled professionals across 5 continents. The
acquisition signaled that corporations from the developing nations are ready to
troll the world for the biggest business opportunities and the best employees
along with their advanced- nation counterpart.
The
human resource department of both companies released a 59 point question and
answer memo to employees of both groups, informing them about their
compensation and benefits would remain the same. The memo covered everything
from the salaries and bonuses. Although the acquisition involved two companies
from radically different cultures and employees scattered across six
continents, the workforce transition was a nonmovement. (Web 6)
To
smooth the transition, HR department of both firms also launched an extensive
communications program that included bi-weekly e-mail updates to every
employee, seminars to help employees with financial planning as they moved into
the new organization.
TAS (Tata Administrative Service), the famous leadership development
programme of the Tata Group, is being rolled out in Corus. Entry to TAS has
been open to all the employees of Tata group including the ones from acquired
companies. Also, the UK company's managers have been asked to participate in
the group's student connect programmes for guest lectures, workshops and panel
discussions at institutes as well as to mentor young TAS managers.
(Web 9)
Chapter 5: DATA PRESENTATION AND ANALYSIS
5.1 Introduction-
The previous chapter discussed, in
detail the strategy and methodologies designed for this research. The structure
included data collection through survey questionnaire and interviews. This
chapter will present the findings from the survey questionnaire that was
distributed to the employees of Corus and Tata group and semi-structured
interviews that were taken from the HR personnel of both the companies.
The aim of data analysis is to
determine and examine patterns and explore relationships among variables. (May,
1997)
In case of qualitative data, Miles and
Huberman (1994) have suggested three steps necessary for analysis:
- Data
reduction: the data that appears in the writing up of field notes are
selected, focused, simplified and transformed.
- Data
display: information is organized, compressed and assembled to permit
conclusions to be drawn and action to be taken.
- Conclusion
drawing and verification: the researcher is able to explain the actual
phenomenon and verify it.
4.2Sample:
The sample size for questionnaires
taken by author consists of 30 employees from both Tata and Corus groups. The
aim of the survey questionnaires was to get an understanding about the impact
of merger and acquisition on employees and the problems they faced during such
turbulent times. Further to portray a strong picture of the findings
semi-structured interviews have also been taken with both the assistant HR
managers of Tata and Corus steel.
4.3 INTERVIEWS
To
find about the role of human resources in merger and acquisitions the researcher
carried out two semi-structured interviews. The researcher interviewed the
assistant HR managers of Tata group and Corus groups. The researcher has made
an attempt to identify the role played by human resources in mergers and
acquisitions by interviewing the HR managers. The names of the respondents have
been kept anonymous. The interview questions asked and their interpretations
are as follows:
- Respondent 1- Assistant HR
Manager of Tata steel
- Respondent 2- Assistant HR
Manager of the new Tata (Corus) group.
Question1.
It is argued that the Human Resource Department (HRD) of companies
engaged in Merger and Acquisition are not involved in the planning and
negotiation stage and are remembered after the deal. Do you agree? Comment.
Respondent1: HRD must ensure that the marriage of
two companies is effective.HR
department has definitely been involved in the planning and negotiation stages,
as this acquisition had the impact on over 80,000 employees of both
organizations and was the first of its size by the group. HR was at the forefront of resolving what
being a Tata employee would mean for people.
Respondent2: HRD
must communicate well throughout the process of Merger and Acquisition;
otherwise people will make up their own minds and spread gossip, which creates
unrest.
Summary- Analyzing the above statements the
researcher found that human resource department has a potential role to play
during mergers and acquisitions. The solution to all the employee problems can
be minimized by involving HR department in the planning and negotiation stages
and not after the deal.
Question2. How
important do you think that the integration of people is to success of merger
and acquisition?
Respondent1: It is of great importance because
people are those key components who help the company to make money. For success
in
Mergers and Acquisitions you need a
motivated workforce with a shared vision. The acquisition was carried out very
smoothly as a lot of time had been spent on the explanation and planning of the
merger so that the employees of both companies are not against each other which
are usually the case in most Mergers and Acquisitions.
Respondent2:
The people would normally not be regarded as key determinants for the
actual decision making process of mergers and Acquisitions. However they would
be very important factor to deal in order to maintain smooth functioning of the
alliance and stable employee relations.
Summary-
Looking at the above
responses from both of the respondents, the researcher can conclude that employees
are one of the crucial determinants of a company’s success as they help the
company to make company and therefore rightly can be called as human capital.
Both the respondents agreed that the companies need to manage their employees
psychologically before the merger so that they don’t act as a hindrance in the
smooth functioning of the alliance.
Question3.
Do you think that
leadership capability, compensation and benefit programs are important before
the merger or acquisition?
Respondent
1: Leadership is about taking the view that
people capabilities are a source of competitive advantage. In mergers and
acquisitions this is reflected in a business perspective that thinks
post-merger integration before due-diligence. Compensation and incentive programs
are important to keep up the morale and motivation of the employees.
Respondent2:
General employees are often worried about compensation and benefit
packages while the top and middle management are worried about their future
position before the merger/acquisition announcement.
Summary-
Analyzing the view of
the respondents the researcher finds that compensation and incentive programs
are very important during mergers and acquisitions as they can prevent the
retention of the key employees and also affect their performance. After the
merger and acquisition financial incentives prevent the loss of key employees
and training and leadership programs would further enhance their skills and
make them blend to the new managerial style and culture.
Question4. In
particular, what did you have to do once the announcement of the acquisition
was made?
Respondent1:
The role played by HR
department was a crucial one and it began during the negotiation stages. We had
to grab the best in both organizations as we were creating something new and
stronger, not just bigger. Thus talent assessment began quite early to retain
the key employees and getting right people in the right positions.
Respondent2: Human
resource managers have now to speak in financial terms and provide metrics so
that their voice is heard. We had to unlock the power of talents within our
organization. HR’s role in creating a synergy between companies was crucial.
Summary-
From the above
responses the researcher concludes that
HR managers play a very important role
in creating harmony between the alliance companies. Their work starts usually
in the planning and negotiation stages where they make assessment of the
employee talents and selects the suitable candidates to ensure that the new
organization has a bunch of talented people. A part of the role of HR managers
is also to ensure that there is no duplicity of roles and responsibities and
the employees have a clear understanding of their roles in the new
organization.
Question5. Has the Tata group’s recent
acquisition of Tetley tea of UK helped in the integration of human and cultural
aspects in a better way?
Respondent1:
Tata group normally
leaves executives in place in their overseas acquisitions and not concern
themselves with local employee relations issues or the way other company
brought people. It’s this policy prevented any cultural and people issues in
its acquisition of Tetley Tea and other firms.
Respondent2: Tata
has done its homework in everything needed to do business here. The success of
its previous acquisition of Tetley Tea another British firm can be seen as a
positive sign that it knows how to integrate with people and culture here.
Summary- From the above data the researcher
summarizes that Tata group has previously successfully integrated human and
cultural issues in its previous acquisition of UKs Tetley Tea and has learnt
the trick for successful integration of human and cultural issues. Both the
respondents agree that the successful acquisition of Tetley Tea would be a
role-model for this alliance and the bidding group will use its experience of
dealing with the people and cultural issues.
Question6.
What measures are
taken to ensure the cultural compatibility of the combining organizations?
Respondent1:
The cultural
compatibility should be the prima facie of the policies for the combining
organization. Time and resources must be allocated to manage cultural
differences. The integration plan needs to be both timely and thorough, with
frequent communication to the employees.
Respondent2:
It is often seen when
organizations merge or one is acquired by another, there are a lot of cultural
differences and these can be alleviated by proper training, communication and
well-defined job functions. There should be no room for ambiguity that may have
scope for cultural differences to exist.
Summary-
Analyzing the answers
of the respondents the researcher finds that cultural differences are one of
the common problems in cases of mergers and acquisitions especially involving
two different countries. Both the respondents agreed communication and proper
defined functions often reduce the cultural gap between the alliance partners
and thus the employees of both organization blend in to the new culture of the
new organization with shared vision and objectives.
Question7.
What are the main
challenges HR has to face during mergers and acquisitions?
Respondent1:
The main challenge to
any HR team in a merger or acquisition of this magnitude is retention of key
employees. As in such mergers employees generally have a feeling of job
insecurity. Employees were communicated much in advance about the merger so
there was no scope for ambiguity.
Respondent2:
HR was involved right
from the planning stages in this acquisition, so there were considerable amount
of challenges it had to face in each stage of the deal. However the main
challenge was to retain the key employees and to give opportunities to new
talent.
Summary
- Analyzing the
findings from the above, the researcher concludes that as the acquisitions was
done on the large scale, both the groups paid attention on the key issue
retention of the key employees. As the two companies were forming a bigger and
better firm, so they needed that all the key people do stay in the company and
do not leave because of misunderstanding and insufficient communication.
4.4
Survey Questionnaires- Questionnaire
were prepared and distributed in order to get a large amount of opinions and
responses from the employees of both Tata and Corus groups. The main reason to
carry survey questionnaires among employees was to know the problem they faced
during mergers and acquisitions and to find about their side of story. Data
collected through questionnaire were analyzed and interpreted inform of bar
graphs and pie charts. A number of key findings emerged from the survey:
4.4.1 Survey Results:
Respondents were asked a number of questions
concerning their involvement in mergers and acquisitions and the problem they
faced.
Q1).
What do you think is the extent of HR implications on the deal?
|
HR
implications on the deal
|
No.
of Respondents
|
Percentage
|
|
Very
significant
|
12
|
40%
|
|
Imperative
|
9
|
30%
|
|
Significant
|
5
|
17%
|
|
Some
|
3
|
10%
|
|
Little
|
1
|
3%
|
|
Total
|
30
|
100%
|
Inference
– Perhaps
unsurprisingly, the respondents were virtually unanimous in saying that the
most recent deal they had been involved had definite personnel implications.
70% respondents felt that these were important, either ‘imperative’ (30%) or
‘very significant’ (40%). It shows that human resources do have a profound
impact on mergers and acquisitions. As the organizations are not only buying
the assets of other company but also the employees who are considered as human
capital. Only 13% of the respondents believed that HR was not significant in
the deal, either ‘some’ (10%) or little (3%). Thus the researcher concludes
that HR played a crucial impact on the viability of the deal.
Q2).
Which stage was HR involved in the transaction?
|
Stage
at which HR was involved
|
No.
of Respondents
|
Percentage
|
|
During negotiations
|
15
|
50%
|
|
During planning
|
12
|
40%
|
|
Announcement time
|
2
|
7%
|
|
After completion
|
1
|
3%
|
|
Total
|
30
|
100%
|
Inference
– Interpreting the responses from the survey the researcher
finds that the bulk of respondents (50% of 30 responses) reported HR
involvement in mergers and acquisitions, and a further 40% said during planning
of implementation. However, a very small number (10%) reported HR involvement
either at the time of public announcement (2 out of 30 responses), or after
after completion of the deal (1 out of 30 responses). The researcher thus
concludes that both the organizations have given HR its due importance in the
deal by involving it right from the beginning, to avoid people related issues
later on. The researcher finds that both of the organizations have previously
involved in mergers and acquisitions and thus they know the importance of HR
during the deal and so they have taken suitable measures to avoid people
related problem later on.
Q3). Which organization understood and gave the
HR issues due importance?
|
Organization
which gave HR importance
|
No.
of Respondents
|
Percentage
|
|
Bidder organization
|
16
|
53%
|
|
Target organization
|
14
|
47%
|
|
Total
|
30
|
100%
|
Inference-
As the above table
shows that the respondents were quite divided in choosing the organization that
gave HR issues more importance. 53% of respondents thought that the bidding
organization gave HR issues more importance. On the other hand a close 47 %( 14
out of 30 responses) believed that the target organization gave HR issues its
due importance. The researcher feels that majority of respondents have chosen
the bidding organization because of its experience in merger and acquisition.
Researcher concludes that both the organization have given HR issues due
importance before-during and after the deal.
Q4).
Are you expecting a positive change in reward system and advancement
opportunities after the acquisition?
|
Reward
system & Pay increment
|
No.
of Respondents
|
Percentage
|
|
Yes
|
16
|
53%
|
|
No
|
4
|
14%
|
|
To some extent
|
6
|
20%
|
|
Don’t know
|
4
|
13%
|
|
Total
|
30
|
100%
|
Inference-
The researcher
analyses that most of the employees do think mergers and acquisitions often
lead to an increase in pay, monetary or some kind of benefits. A majority of
53% respondents were expecting a positive change in the reward system just
after the merger/acquisition. A further 20% people were also changes to some
extent. Only 13% of people were not sure about changes in reward system and
advancement opportunities. The researcher analyzes that during the merger,
management of both organizations try to retain their key employees to ensure
that they contribute effectively in the new organizations make changes in
reward system and benefits.
Q5).
Are you willing to cooperate and share your knowledge with the alliance partner
Employees?
|
Willingness
to cooperate with alliance employees
|
No.
of Respondents
|
Percentage
|
|
Yes
|
23
|
77%
|
|
No
|
2
|
7%
|
|
Yes, to some extent
|
4
|
13%
|
|
Don’t know
|
1
|
3%
|
|
Total
|
30
|
100%
|
Inference-
The answers from the
table show a very interesting picture of how the human related issues were
handled during the deal. The respondents were unanimous in saying that they
were ready to cooperate and share knowledge with their new partner. 77% (23 out
of 30 people) said that they are willing to cooperate with the employees of
their alliance partner, while only 7% were not willing to cooperate with them.
This picture shows that both the groups have communicated with their employees
relatively well about the deal. Therefore the employees are united and have a
common vision for their fourth largest steel producing company in the world.
Q6). Do you think Corus group will loose its
identity after its acquisition?
|
Will
Corus group loose its identity?
|
No.
of Respondents
|
Percentage
|
|
Drastically
|
6
|
20%
|
|
To a Certain Extent
|
14
|
47%
|
|
Not at all
|
10
|
33%
|
|
Total
|
30
|
100%
|
Inference-
The above table shows
that 20% respondents felt that Corus group will loose its identity drastically
after the acquisition. While majority of employees (14 out of 30 responses)
felt that Corus group will loose its identity to a certain extent. However 33%
people still felt that its acquisition would have no impact on the identity of
Corus group and it would continue to operate similarly. Analyzing the above
data, researcher finds that in most acquisitions the target group do looses its
identity in some way or other. It depends on the acquiring company how it
operates and integrates its target into its objectives.
Q7). Do you fear to loose your own identity as a
Corus employee after the acquisition?
|
Do
you fear to loose your identity
|
No.
of Respondents
|
Percentage
|
|
To a great extent
|
4
|
13%
|
|
To some extent
|
14
|
47%
|
|
Not at all
|
9
|
30%
|
|
Don’t know
|
3
|
10%
|
|
Total
|
30
|
100%
|
Inference-
Interpreting the
results from the above table the researcher finds that the employees have a
similar opinion about loosing their own identity as the way they thought about
the target firm loosing its identity. Majority of the respondents (14 out of 30
responses) believed that they would loose their own personal identity to some
extent. However 30% respondents were sure that the acquisition would have no
impact on their personal identity as a Corus employee, and further 10%
respondents were not sure to comment. The researcher concludes that in most
acquisitions the employees do feel loosing their personal identity as the
policies of the bidding group prevail on the target group.
Q8). Did any information campaign taken place in
order to inform about the alliance between Tata and Corus groups and its
objectives?
|
Information
about alliance
|
No.
of Respondents
|
Percentage
|
|
Yes
|
26
|
87%
|
|
No
|
4
|
13%
|
|
Total
|
30
|
100%
|
Inference-
the above table shows
that the respondents were unanimous in saying that they were informed by their
respective companies about the alliance and its objectives. A vast majority of
them (26 out of 30 responses) said that they have been informed by the
organization about the alliance. Only a small 13% of responses said they were
not informed about the alliance. From the above results the researcher finds
that both the organization have informed their employees well in advance about
the alliance and its objectives so it doesn’t comes as a shock to them and they
are well prepared to cooperate with their partners.
Q9). Do you think there exists a big difference
between the Indian and British organizational culture?
|
Cultural
differences
|
No.
of Respondents
|
Percentage
|
|
Yes
|
14
|
47%
|
|
No
|
4
|
13%
|
|
To some extent
|
7
|
23%
|
|
Don’t know
|
5
|
17%
|
|
Total
|
30
|
100%
|
Inference- As the above table shows that
majority of respondents (14 out of 30 responses) do believe that there are
cultural differences between Indian and British organizational culture. On the
other hand, 13% respondents observe that there are no major cultural
differences between Indian and British organizational culture. After analyzing
the responses the researcher concludes that although organizational cultural differences
do exists between two different countries, but they can be managed to enhance
the outcome of the deal.
Q10). Since the takeover do you personally feel
more stressed or anxious?
|
Do
you feel stressed since the takeover
|
No.
of Respondents
|
Percentage
|
|
To a great extent
|
4
|
13%
|
|
To some extent
|
6
|
20%
|
|
Not at all
|
18
|
60%
|
|
Don’t know
|
2
|
7%
|
|
Total
|
30
|
100%
|
Inference-
From the above table,
the researcher concludes that 33% of responses feel that following the takeover
they were stressed to a great extent (13%) or to some extent (20%). However
majority (60%) of respondents were of the view that they were not affected by
any stress or anxiety during the deal. After analyzing the results from the
above table, the researcher feels that only those people are more anxious and
stress during the deal that either fear loosing their jobs or are have many
responsibilities under their shoulder. The researcher further says that if the
employees do not feel stressed during such turbulent times this can be believed
that the management has communicated well with the employees.
Q11). Since the date of alliance has your role or
work contribution changed or modified?
|
Change
in work role
|
No.
of Respondents
|
Percentage
|
|
Very significantly
|
2
|
7%
|
|
Significantly
|
7
|
23%
|
|
Little
|
3
|
10%
|
|
Remained the same
|
18
|
60%
|
|
Total
|
2
|
100%
|
Inference-
From the above table
the researcher concludes that, no big shift has been made to the work
contribution of employees within the organization. 60% respondents (18 out of
30 responses) said that there has been no change in their work roles since the
deal and their work contribution has remained the same. However, 33% of the
respondents do feel that there has been little (10%) or significant (23%)
changes in their work roles and contribution post-acquisition. Indeed, the
employees designed to work in common project between the two companies have
seen their roles changed, in a sense of giving a meaning to the alliance to
work, coordinate and cooperate.
Q12). Which HR issues can impact on the viability
of the deal?
|
HR
issues that impact the deal
|
No.
of respondents
|
Percentage
|
|
HR strategy
|
6
|
20%
|
|
Reward strategy
|
7
|
23%
|
|
International issues
|
5
|
17%
|
|
Culture
|
6
|
20%
|
|
Employment relations
|
4
|
13%
|
|
Pensions
|
2
|
7%
|
|
Total
|
30
|
100%
|
Inference-
The majority of the
respondents said that HR issues impacted the viability of the deal. To probe
this issue in greater depth, they were then asked about the importance of six
personnel issues to this viability. Around one in four respondents considered
reward strategy (23%), hr strategy (20%) and culture (20%) as critical to the
viability of the deal. A further one in three said this for employment
relations (13%) and international issues (17%). It is very difficult through
this kind of data to ascertain the meanings of the respondents in terms of
exactly how these issues were important to the deals. However, the data do
reveal the importance of certain areas of human resource management, like
reward strategy, culture, employment relations.
Q13). Do you see cultural differences between India
and Britain as being a major obstacle when it comes to the success of the
alliance?
|
Do you see culture as a
difference
|
No. of Respondents
|
Percentage
|
|
Strongly agree
|
3
|
10%
|
|
Agree
|
9
|
30%
|
|
Strongly disagree
|
6
|
20%
|
|
Disagree
|
12
|
40%
|
|
Total
|
30
|
100%
|
Inference-
Looking at the result
from Q9) of the survey, where majority (47%) of the respondents observed that
there exists, a difference between British and Indian organizational cultures.
When asked about whether the same cultural differences can impact the success
of the alliance, a majority (60%) of respondents disagreed to it. 40% of
respondents were strongly against the notion that cultural differences will
become an obstacle in the way of alliance, and a further of 20% disagreed to it
as well. As the above table shows, 30 %
(9 out of 30 respondents) do agree that culture can become an obstacle
in the way of alliance outcome. Analyzing the above data, the researcher
concludes that cultural differences do exist in deals between two different
countries, but a strong leadership and proper communication with the employees,
clear allocation of roles and responsibilities can negate the effect of
cultural differences.
Q14). Finally do you feel like being forced or
pressed against your will by the top
management to work with your alliance partner?
|
Forced
to work by the top management
|
No.
of respondents
|
Percentage
|
|
Yes
|
1
|
3%
|
|
Yes to certain extent
|
5
|
17%
|
|
No
|
24
|
80%
|
|
Total
|
30
|
100%
|
Inference-
When it comes to
working under pressure by top management most of the employees responded by
saying that they were not forced to work with other group by the top
management. 80% of respondents said they were not forced by the top management
to work against their wish. However 17% people do felt that they were forced to
some extent by the top management to work with the other company. The
researcher concludes that the opportunities and perspectives that were created
by the union of both the companies to form the fourth largest steel producer in
the world were quite interesting and exciting that made the employees see the
alliance not as an opportunity and not constraint. However regards to some
people being forced by the top management, the researcher feels that for the
success of any deal, it is important that the company retains some of their key
employees which are crucial for the success of the alliance.
Chapter 6: CONCLUSION AND RECOMMENDATIONS
6.1 Introduction:
When going through Merger & Acquisitions
organizations usually focus primarily on the financial, economic and commercial
aspects of the deal, and often only as an afterthought on people. Contradictory
really, as most senior executives recognize that people are their greatest
asset, but they just seem to overlook this mantra in the heat of a deal. (Arkin,
2008)
This dissertation started with the aim to
identify the role played by human resources in mergers and acquisitions and how
these factors if well managed can influence the outcome of such deal. The
researcher has chosen the case company of Tata and Corus steel as a case study.
In order to carry out the research objective, researcher has used both primary
and secondary data. This chapter now presents the overall findings and answers
to the research question. Finally the author gives some recommendations to
tackle the people related issues during such turbulent times.
6.2
Research Findings:
In this dissertation, the researcher has examined the roles enacted by the
HR function in the processes following the acquisition of Corus by Tata steel.
Based on the above findings the researcher comes to conclusion that
organizational roles played by HR function influence how the workforces are
managed in cross-border mergers and acquisitions. By establishing an alliance
and joining their strengths and capabilities both Tata and Corus have created
potential synergies. The fit between the two companies is apparently good. The
fit is good in terms of market, geographical presence and products. However,
several challenges are left to be accepted; especially the one of integration
of human resources of both the companies that are doing business in managerial
environments and economic contexts that is quite far from one another. After
analyzing the data from the previous chapter the researcher concludes that both
Tata and Corus have given HR functions its due importance by involving it from
the beginning of the deal and addressing some ok the key issues like reward,
cultural compatibility to ensure a smooth sailing in their alliance so far. The
findings from the primary and secondary data have given the researcher the
answer to his research question “To
investigate the role played by human resources and their contribution in the
success of merger and acquisitions”? Case study: Tata –Corus. Some of the important findings that have risen from the results of
interviews and survey questionnaires that were carried out with the staff are
as follows:
Ø
Reward system and incentives- One of the most
striking results that came out from the survey questionnaires and interviews
addressed to the staff of Tata group was about incentives. Majority of the
employees participated in the survey were expecting a positive change in the
reward system and incentives after the acquisition. Even the HR managers, when
asked about incentives were unanimous in saying that following
merger/acquisitions general employees are worried about incentives and benefit
packages. Incentives and benefit programs are important to keep the motivation
and morale of the employees. Both the managers agreed that incentives and
benefits play an important role in retaining the key individuals in the
organization.
Ø
Communication -
When asked in
questionnaires about communication 87% respondents strongly said that they were
communicated and informed about the alliance. Even the managers interviewed agreed
that communication is necessary to avoid misunderstandings which further leads
to poor performance and retention. Thus we find that an open an honest
communication plays an important role in the success of acquisitions as it
prevents ambiguity and misunderstandings. As mentioned earlier in (chapter 2),
according to Kitchen and Daly (2002), supportive communication is the most
crucial factor for the success of an organization. Analyzing the respondent’s answers from
chapter 5, we find that the HR managers have communicated well in advance about
the acquisition of Corus to employees and even employees accepted it.
Ø
Retention of key talent- Another important finding from
(chapter5) is that both the HR managers have paid attention to retain the key
employees of both the organization. They agreed that a part of their job during
the acquisition process was to assess the talent of the employees and to make
sure that these important people do not leave the company after the
acquisition.
Ø
Organizational
identification post- merger- When asked whether they would loose their identity
as a Corus employee, majority of them were of the view that they would loose
their identity as a Corus employee. 47% of the respondents of the
questionnaires also felt that Corus Company would also loose its identity
following its acquisitions. According to Bartels.et.al, (2006) organizational
identification influences the employee’s willingness to work hard and achieve
organizational goals.
Ø
Cultural
compatibility- One of the noticeable findings from the data
collected through interviews was the manager’s view about cultural
compatibility of both the groups. Both the respondents agreed that cultural
compatibility plays a crucial role in determining the success of the alliance,
especially when it involves two different countries. On the other employees do
expressed that there exists cultural difference between two organizations. 70%
of the respondents were of the view that there is vast difference between
British and Indian organizational cultures. However when asked how willing they
are to cooperate with employees of other group a vast majority 77% of them said
yes. The researcher concludes that although on ground level there exists
cultural differences between two companies but the communication about the
acquisitions have made sure that employees of both the companies are not
against each other.
Recommendations:
In Mergers and Acquisitions the companies should involve the human resource
department right in the planning stages, especially in cases of International
Mergers and Acquisitions. The companies should unite the human resources of
both the companies to make sure that the new company has the best of both to
compete with other companies and achieve the benefits of acquisition. Moreover
the management should inform and prepare the employees already in the
pre-merger stage phase, as this reduces stress and possibility of conflict
among the employees of both the companies.
Finally,
the researcher gives his recommendations to Tata Company on handling some of
the important HR issues in its future decisions and actions concerning with the
alliance with Corus.
Ø
Reward system and benefits- As found out from the
survey and Questionnaires, majority of the employees are expecting a positive
change in the reward system after the acquisition. Thus the researcher feels
that Tata should continue the same reward and incentive schemes for the
employees and if possible increase on the basis on talent and loyalty so that
employees will feel motivated and continue to work under the new management. In
India the managers and employees are assessed on the time they have spent in
the company, thus Tata should implement the same policy with Corus, to ensure
that the employees stay loyal under the new ownership and management.
Ø
Training and Management- I Recommend Tata group to use safe British
managerial practices, while enforcing its management style. I believe that Tata
should implement management training programs at Corus in order to teach its
own method to the British employees. Indeed the Britishers are not used to
Eastern ways of management. Thus to avoid confusion among Corus employee’s it
should training should be given to its managers and they should be familiarized
to Tata’s management style. In order for the training to function well, the
trainers from Corus have to be well aware of Tata’s culture and management
systems. The subordinates have to learn how to make personal initiatives and
develop direct contacts with the top management. On the other hand top
management should be more open- minded and communicative.
Ø
Acculturation- Acculturation is considered as the
development of jointly shared meaning fostering cooperation between the two
companies. As founded through the survey questionnaires most employees were of
the opinion that there exists a vast cultural differences between the two
companies. Tata should thus blend both Indian and British Organizational
cultures in order for the smooth functioning of the alliance. It is also highly
important that the employees of Corus understand and are aware of the culture
of their Indian counterpart.
Ø
Outsourcing- Thanks to the alliance, Tata will now have
the opportunity to use Corus’s technologies and methods, especially in terms of
cost saving and management. Yet Tata may find it difficult to understand the
logic of these methods that can be specific to Corus or to western companies.
Therefore I recommend Tata to train its managers and engineers so that they
obtain the right knowledge. Tata should implement a structure that will not
only help it to copy Corus’s technologies but also understand its style of
functioning. For this purpose the researcher recommends that Tata should send
its employees to visit the plants and offices of Corus to understand the
functioning of the company. British managers and engineers have also to be sent
more often to India to train their Indian counterparts.
Ø
Organizational Identification- I recommend Tata group,
to do not make any significant changes in terms of values or culture which the
employees of Corus are not able to identify with. Thus it should make sure that
the employees of Corus identify themselves the same way they used to identify
with Corus. In this way they would not feel a significant change in their daily
work and would not have difficulty to adjust in the new company. As found out
in survey majority of the employees were worried that they would loose their
identity as a Corus employee after its acquisitions. As we have mentioned in
(chapter2), according to Ashforth
and Mael, (1992) Organizational identification influences the employee’s
willingness to work hard to achieve organizational goals and to stay with the
organization to achieve their own personal goals. Thus Tata should make sure that the employees
of Corus identify with aims and objectives of Tata.
6.4
Limitations of the Study:
The
choice of analyzing only one case is mainly due to the time limitation. Indeed,
studying more than one acquisitions case would have taken much more time for
gathering information and the analysis. Moreover, the conclusions and
recommendations that would be given in the end of this dissertation could be
generalized to other cases of merger and acquisition as well.
Given the purpose the dissertation that is on
human resource impact on mergers and acquisitions, the limitation of my study
is by not including the financial and economic sides of Mergers and
Acquisitions in the theoretical framework. Finally, due to the limitation of
time and lack of relations with the alliance, the researcher managed to get
only semi-structured interviews from only 2 assistant HR managers and sample
from only 30 employees of the firm.
In relation to the above findings it can be
agreed that mergers and acquisitions do signify a very stressful time for the
managers and especially the employees of an organization.
6.5
Suggestions for further Research:
This
piece of research should be read as an attempt at exploring and analyzing the
organizational roles played by HR during mergers and acquisitions. The purpose
of my dissertation was to learn lessons from Tata in its way of handling human
related issues with its alliance partner Corus.
It would be interesting to analyze same case study in a few years to see
the development of the alliance. The analysis would show if the alliance has
proved to be a success in terms of managing human related issues.
The main purpose of this dissertation was to
develop a better understanding of the human side of Mergers& Acquisitions
especially between British and Indian company. Thus it would be interesting to
analyze other companies by using the same theories in order to confirm if these
theories can be generalized for other case studies. Moreover it would be
interesting to see if other companies would act in similar way by giving human
resource department its strategic importance and involving it from the
negotiation and planning stages of the deal like Tata did in its acquisition of
Corus.
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P. (1994), “The HSBC Holdings/Midland Bank Takeover Part One: Strategy, Tactics
and Logic”, European management journal, Vol. 12(1).
Ø Teerikangas, S. and Very, P. (2006). “The culture- Performance
Relationship in M & A: from Yes/No to How”, British Journal of Management,
Vol. 17(1) P: 31-48
Ø Van
Knippenberg, D. and E. Sleebos (2005), “Organizational identification versus
Organizational Commitment: Self-definition, Social exchange and Job attitudes”,
Journal of Organizational Behaviour, Vol. 26, P: 1-14.
Ø Werhane,
P.H., (1988), “Two Ethical Issues in Mergers and Acquisitions”, Journal of
Business Ethics, Vol. 7, P: 14-45.
NEWSPAPERS:
Ø Schuller,
R., and Jackson, S., “Seeking and edge in Mergers”, Financial Times, London,
October 22, 2001, P: 2.
Ø Stahl,
G.K., “Every merger or acquisition promises to create value from some kind of
synergy”, Financial Times, London, October 6, 2006, P: 3.
Ø Taylor,
P., “Will she, won’t she? - Procter &Gamble; Procter &Gamble”, The
Economist, U.K., August, 11, 2007, P: 59.
Websites
:
Ø web
1-http://www.tatasteel.com/newsroom/corus-transcripts.asp
Ø Web2
http://www.corusgroup.com/en/news/news/2007/2007_tata_steel_acquisition_complete
Ø Web3 http://www.tata.com/0_about_us/group_profile.htm
Ø WEB 4 http://www.referenceforbusiness.com/history2/74/Corus-Group-Plc.html
Ø WEB 5 (http://www.tata.com/tata_steel/articles/20060512_metal_makers.htm)
Ø WEB 6 http://www.tata.com/tata_steel/media/20041109.htm
Ø WEB 7 http://www.corusgroup.com/en/news/news/2007/2007_tata_steel_acquisition_complete.
Ø WEB 8 http://www.tatasteel.com/newsroom/corus-transcripts.asp
cited on 16/04/2008.
Ø WEB 9 http://www.tata.com/tata_sons/media/20080107.htm
Appendix A-1
Interview Questions
Question1.
It is argued that the Human Resource Department of companies engaged in
Merger and Acquisition are not involved in the planning and negotiation stage
and are remembered after the deal. Do you agree? Comment.
Question2. How
important do you think that the integration of people is to success of merger
and acquisition?
Question3.
Do you think that
leadership capability, compensation and benefit programs are important before
the merger or acquisition?
Question4. In
particular, what did you have to do once the announcement of the acquisition
was made?
Question5. Has the Tata group’s recent
acquisition of Tetley tea of UK helped in the integration of human and cultural
aspects in a better way?
Question6.
What measures were
taken to ensure the cultural compatibility of the combining organizations?
Question7. What are the main challenges HR has
to face during mergers and acquisitions?
Appendix
2 –Questionnaires used for the survey
1)
What
do you think is the extent of HR implications on the deal?
[A] Very
significant
[B] Imperative
[C]
Significant
[D] Some
[E] Little
2) Which stage was HR involved in the
transaction?
[A] During negotiations
[B] During
planning
[C]
Announcement time
[D] After completion
3) Which organization
understood and gave the HR issues due importance?
[A] Bidder management
[B] Targets
management
4) Are you expecting a positive change in reward
system and advancement opportunities after the acquisition?
[A] Yes
[B] No
[C] To some extent
[D] Don’t know
5) Are you willing to cooperate and share your
knowledge with the alliance partner Employees?
[A] Yes
[B] No
[C] Yes, to some extent
[D] Don’t know
6)
Do you think Corus group will loose its identity after its acquisition?
[A] Drastically
[B] Limitedly
[C] To a certain extent
7) Do you fear to loose your own identity as a Corus employee after the
acquisition?
[A] To a great extent
[B] To some extent
[C] Not at all
[D] Don’t know
8) Did any information campaign taken place in order to inform about the
alliance between Tata and Corus groups and its objectives?
[A] Yes
[B] No
9)
Do you think there exists a big difference between the Indian and British
organizational culture?
[A] Yes
[B] No
[C] To some extent
[D] Don’t know
10)
Since the takeover do you personally feel more stressed or anxious?
[A] To a great extent
[B] To some extent
[C] Not at all
[D] Don’t know
11)
Since the date of alliance has your role or work contribution changed or
modified?
[A] Very significantly
[B] Significantly
[C] little
[D] Remained the same
12)
Which HR issues can impact on the viability of the deal?
[A] HR
strategy
[B] Reward
strategy
[C] International issues
[D] Culture
[E] Employment relations
[F] Pensions
13)
Do you see cultural differences between India and Britain as being a major
obstacle when it comes to the success of the alliance?
[A] Strongly agree
[B] Agree
[C] Strongly disagree
[D] Disagree
14)
Finally do you feel like being forced or pressed against your will by the top
management to work with your alliance partner?
[A] Yes
[B] Yes to
certain extent
[C] No
Due Diligence reports provide a detailed summary of the key financials and financial ratios of a company. A financial due diligence report can help a potential investor or business owner make a decision about whether it is a good match for a financial investment.
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