Impact Of Acquisitions On Organisational Attributes: A Case Study Analysis

You will be presented with a ‘Hot Topic’ of contemporary relevance to leading and managing organisational resources.  This is related to a live project in a contemporary organisation, Company A. The ‘Hot Topic’ for Company A is the recent acquisition and here we are concerned with the main factors for consideration in the acquisition.

1.You are required to critically analyse the “hot topic” in theory or practice from the perspective of leadership, operations, information systems and finance, as relevant to the topic.
2.Your analysis must be informed and supported by quality academic sources from influential contributors in these areas.
3.This will be discussed during the block schedule sessions where you will work in small groups.

Acquisition process followed by companies

Acquisitions bring about changes in the organisational attributes of the acquired companies. These acquisitions create issues pertaining to strategic areas like employees, information system and financial structure of the acquired companies. The paper would delve into a case study which mentions about two hypothetical heavy engineering companies, Co A and Co B where the second acquires the first. The paper analyses the acquisitions and its impact on the employees of Co A in the aforementioned areas. The first section delves into the acquisition process which companies follow while acquiring subsidiary companies. The second section studies the 360 degree congruence model which companies can adopt to bring about integration within their operations. The next section studies the theory of strategic fit followed by the theory of organisational fit. These two theories after discussion of their initial aspects would be explained from the view point of Co A and Co B mentioned in the case study. The stakeholder theory in the fifth section would point out how the two companies utilise the theory while conducting business. The fifth section would delve into leadership theories considering two types of leadership namely, transformational and autocratic leadership theories. The study would end with recommendations for Co B regarding application of these theories.

The acquiring companies at this step identify and analyses the benefits like enhancement of goodwill they can enjoy by acquiring the prospective target companies. The companies acquiring other companies identify the future growth opportunities like strong market position and product innovation they can enjoy in the post acquisition phase (Zheng and Sheng, 2015, p.13).

The acquiring and the target companies negotiate on the business terms like profit sharing ratios between the two companies at this stage. This stage involves the apex management of the acquiring companies making final decisions regarding the acquisition based on the negotiation outcomes. For example, the apex management of Co B negotiated with Co A and took over the former owing to positive outcome (Giuliani et al., 2014).

Once the negotiation is finalised between the acquirer company and the target company, the operations of the target company are integrated with the acquirer company (Rahman and Lambkin, 2015, p.24-35). The acquirer company may takeover or sell the assets of the target company. The management of the acquiring company may employ the employees of the target company or maintain them as outsource employees.

The acquiring company measures the business results and operational outcomes of the acquisition. For example, Co B took over Co B. The management of Co B would measure the business growth it would experience like increase in revenue as from the acquisition.  They also make and monitor strategies according to the business results concerning the newly acquired subsidiaries (Braguinsky et al., 2015, p.2086-2119).

360 degree congruence model in integrating operations

The 360 degree congruence model takes into account four factors as the basis of organisational performance namely, tasks, people, structure and culture (Newton and Mazur, 2016, p. 1013-1033). The case study shows that Co A followed 360 degree congruence model because its culture and structure were aligned to bring about development of human resources. Co B regarded employees as resources and not as stakeholders; hence its culture and structure were not aligned to employee development. One can infer that this lack of employee development would hit the productivity of Co B in the long run due to lack of employee support (Wong, Ivtza and Lomas, 2017, p.13).

The theory of strategic fit refers to the extent to which business organisations, both the acquiring and the target organisations are able to enhance their resources and capabilities to the macroeconomic environment. The apex management bodies of the organisations match their resources and capabilities with their strategies. The strategic fit is a crucial tool which companies consider while applying the strategy of acquisitions and mergers (Bauer and Matzler, 2014, p.269-291).

The case study presents two companies Co A and Co B where the former underwent acquisition by the latter. The strategic fit attributes of Co A as pointed out in the case study consisted of an able apex management and modern structure owing to the organisational restructuring which the company had gone through in the past. Co A had its human resources aligned to its projects which enabled it to produce innovative products and services. The next strategically fit attribute of Co A was the leadership style prevailing within the organisation (O'Boyle and Hassan, 2015). It is clear that Co B considered these factors as strategic fit while acquiring Co A.

As far as Co B is considered, it is clear it the company is financially more powerful and has a strong shareholder base. However, it had a very low human resource development and maintenance capability. Thus, financially Co B is strategically fit but was unfit in terms of human resource management. This was evident from the large number of acquired employees which the company rendered redundant (Sarala et al., 2016, p.1230-1249). This was even more evident from the employee policy of Co B which referred acquisitions as ‘buying a group of employees’.

The theory of organisational fit stresses on the compatibility between acquiring organisations and their target organisations. This theory is based on the attraction-selection-attrition theory (ASA) which states that companies are attracted to work for organisations having same values as them. Abdalla et al. (2017), state that this organisation fitness between business organisations and their target can be judged from three important outcomes. They are work attitudes, turnover and job performance.

Theory of strategic and organisational fit

Organisational acquisitions have profound impact on the human resource operations which ultimately affects employee morale and motivation. As far as application of organisational fit theory in the case study is concerned, one can point out that Co A and Co B do not show organisational fit. Co A aligned its employees to its projects which encouraged innovation in products and services of the company (Ryu, 2017, p. 351-368). There is no history of redundancy mentioned in case of Co A unlike Co B. Thus, the HR operations in Co A were favourable to employees which integrated organisational fit theory, stakeholder theory and 360 degree congruence model.

The case study mentioned clearly that Co B considered employees acquired from subsidiaries as resources and not as stakeholders. It also mentioned that Co B rendered 500 employees redundant after September 2017. One can point out taking into account the negative employee policy of Co B, there might have been chances that the company had rendered its employees redundant without giving them notice period or redundant pay as per the UK Labour Law (gov.uk 2018). Thus, the two organisations were not organisationally fit.

Organisational acquisitions have deep impacts on the information systems, especially in the acquired companies. The case study does not mention about any information system explicitly in case of Co A but mentions that the apex management encouraged employee development and participation of employees. There is also clear mention about smooth organisational change and restructuring of operations of the company in the past. This all point out to a strong information system which connected the employees and the employer, thus making each transparent to the other (Chang, Bai and Li, 2015, p. 18-29). This strong information system prevailing in Co A resulted in low employee turnover.

The HR policies of Co B were not employee favourable which resulted in lack communication gap between the employees of Co A which it acquired. As pointed out in the organisational fit theory, this poor information system led to high employee turnover in Co B (Abdalla et al., 2017).

The financial structures of organisations change when they are acquired by other organisations. The financial structure of Co A was less shareholder-driven and more aligned towards generation of revenue by high performance of employees. The financial strength of Co B was higher than Co A. The financial strength of Co B was owing to the investments of the equity shareholders who played active role in the business strategies of the company (Bloom, Sadun and Van, 2015, p. 442-46). Thus, the financial structure of Co A was driven by revenue which is evident from the high level of innovation in products and employee participation, thus organisationally fit. The financial structure of Co B is more capital driven and less organisationally fit owing to lower importance of employees (Mwangi and Murigu, 2015).

Stakeholder theory

The stakeholder theory is a management theory which states that business organisations must function ethically to benefit its stakeholders. Business organisations categorise their stakeholders into two broad categories namely, internal and external (Chang, Bai and Li, 2015, p.18-29). The internal stakeholders are the apex management and employees who make and executive the business strategies respectively. The customers, governments, suppliers and shareholders are external stakeholders who do not form a part of the company but can impact the business operations of the company by their decisions (Hörisch, Freeman and Schaltegger, 2014, p.328-346). Co A in the case study considered its employees as important internal stakeholders and aligned them strategically with its innovation projects.  The innovation and high product quality were important to Co A, which means that the company sought to benefit the customers and hence generated high revenue (Bridoux and Stoelhorst, 2014, p. 107-125). The case study mentioned that the company underwent dynamic organisational changes and brought about innovation in product lines. This clearly shows that the Co A enjoys strong shareholder and customer support which rendered it its strong financial base (Di and Kostovetsky, 2014, p.158-180).

As far as Co B is concerned, it gave more preference to shareholders’ theory compared to stakeholders’ theory, thus exhibiting poor corporate governance. The case study clearly mentions that it was the profit maximisation motive of the shareholders which was instrumental behind Co B acquiring Co A. This lack of Co B’s motive to retain and manage employees was more evident by the redundancy of 500 employees. Thus, it can be summarised from the discussion that Co B though richer than Co A did not operate to bring about benefits of all the stakeholders (Takacs, Campbell and Hitt, 2017, p. 555-584).

The transformational leadership theory emphasises on the leadership where leaders work along with the followers. The leaders here recognise the need to embrace changes within the organisation to adapt to the changing macroeconomic scenario. The transformational leaders motivate their followers to take responsibility and onus for their work, thus empowering them in the process (Banks et al., 2016, p. 634-652).

The case study clearly mentions that Co A underwent a great deal of change to make its production capacity and operational capability robust. This great adaptability of the employees to embrace the changes can be attributed to the transformational leadership of the apex management. The management of Co A was very employee focussed and laid great stress on the development of the employees (Antonakis and House, 2014, p.746-771).

Leadership theories

The autocratic leadership theory refers to a leadership style where the leaders exercises absolute powers and the group has little or no input at all in decision making. The leaders following this style take entire onus and credit of the achievements of the group and leave very limited scope for the followers to develop their decision making skills. This kind of leadership gradually erodes the development of the subordinates which ultimately leads them to leave the group like resignation of 500 employees in Co A. The autocratic leadership style prevailing in Co B showed that it did not consider its employees, one of its internal stakeholders of strategic importance (Smith and Rönnegard, 2016).

Conclusion:

The case study and the subsequent discussion reveal that Co A was more employee centric, stakeholder beneficial and encouraged innovation. Co B is more profit centric and driven by the motive to bring about maximisation of shareholders’ investment. The company does not consider employees as stakeholders but as mere resources acquired either through recruitment or from acquisition of companies. The discussion clearly points out that leadership styles prevalent within organisations have deep impact on the organisational culture. Transformational leadership in companies motivate employees to participate in the operations which boosts their performances. The companies should align their leadership strategies with their organisational culture to attain market growth. Although Co B is financially stronger than Co A it is weak in stakeholder satisfaction.  The company is also experiencing low employee retention which would ultimately impair its operations. It also differentiates between its own and acquired employees. These are the areas which Co B needs to consider and bring about changes in the ways it views it employees in order to sustain in the long run.

The following are the recommendations which can be done in case of Co B:

1. Co B must view its employees, including its acquired employees as stakeholders and not as resources. This would motivate the employees to perform higher which would ultimately bring about improvement in the performance of the organisation.
2. Co B must encourage employees to participate in the operations of the company which would motivate them, thus boosting the productivity. This would in fact boost product innovation, gain customer satisfaction and high revenue. The company instead of terminating the employees of Co A should adopt the system of integrating and co-evolving them as its own strategic partners and aligning them to its business plans.
3. Co A should install information system infrastructure (IS infrastructure)to integrate both its own and acquired employees to its business processes. This would also boost productivity and revenue generation, thus increasing shareholder support.

References:

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Bauer, F. and Matzler, K. (2014) ‘Antecedents of M&A success: The role of strategic complementarity, cultural fit, and degree and speed of integration’. Strategic management journal, 35(2), pp.269-291.

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