Case Study: Mergers In Pharmaceutical Companies

Disuss about the Case Study Of Pharmaceutical Companies.

Merger refers to the joining of companies and their assets. The merger involves different terms such as acquisitions, management acquisitions, purchase of assets and payment of liabilities and consolidations (Malik, 2014). This report reflects the case study ‘who goes, who stays’ which is related to the merger of two well-known pharmaceutical companies. The two companies were BioHealth Labs and DeWaal Pharmaceutical based in New York City and Netherlands. The main people involved in this analysis are CEO Karspar Van De Velde and Steve Lindeel. Mergers are initiated with the objective of becoming more successful by the organizations involved. This merger also had the same objective. The report describes various issues faced by the management of both the companies. Further, it also describes the process and methods followed by both the companies in formulating a new successful company. This report also includes some recommendations which could be applied by people involved in the merger process to make it easier and fruitful (Stunda, 2014).

In this case study, it can be seen that merger of two powerful pharmaceutical companies proved very beneficial at initial stages but both the companies had to face a lot of managerial problems in operating its business at latter stages. The main problems faced by the organizations were related to managing their human resources. Chief Executive Officers of both the companies were facing the problematic situations that which executive should be placed to which designation. It was difficult to decide the  top management level team because there were 65 positions and 120 top performing executives of both the companies (Who Goes? Who Stays?, 2013). 

The main point of conflict was that the two companies had their different  management techniques and decision-making styles due to which stock prices of the BioHealth was declining. Steve had his own employees and Karspar had his own employees and both the CEO’s wanted their employees to get designated at higher posts. Though, it was not possible because the new company required only half of the sum of employees of both companies. Another point for the conflict was there was no mutual consent in the decision regarding their locations of offices. Although it is well-known fact that mergers have to face a lot of issues regarding retention of their employees, cultural diversity, management techniques and methods (Taneja & Saxena, 2014). Conflicts regarding HR manager and their salaries, head of various offices in different regions, efforts to retain the employees occurred during the process of merger of these two companies and conflict of communication with existing employees was the main problem faced by the two senior-level people of the organizations. These conflicts can be analyzed and understood by the application of the major theory of management practices. Theory of human resources relations can help in understanding the human behavior that was used by the top-level management to manage their human resources (Brito & Oliveira, 2016). Contingency theory of management can be used the analyses the authority and decision power of employees of both the companies before and after the process of merger. And at last, modern system theory can be used to define the impact of the merger on the activities, performance, productivity and employee’s satisfaction of both organizations including the effect on their revenue earning capacity (Chikere & Nwoka, 2015).

Process of Integration

According to Steve, employees had to be selected on the basis of their emotional intelligence and IQ level. This approach is quite suitable in case of mergers because it reduces chances of conflicts between the management of two companies. By adopting this method of selection of employees, most suitable and deserving employees can be selected and a good management team can be framed. On the other hand, this approach was not acceptable by Karspar because this is a time-consuming process. In case of merging and acquisition, along with deciding designation of employees, there are many sufficient works related to the operations management, financial management and human resource management of the new company. Time saved from the process of selection of employees could be utilized in these aspects of the business.

Similarly, both of the CEO's did not adopt techniques and methods of communication for their employees. This resulted badly to both of the companies as employees started leaving the organization. And it is a well-known fact that at the time of acquisition and merger, existing employees are the most valuable assets of an organization and in order to get success in the merged business, new employees can never perform like existing employees. The merger process was lacking of a well thought out communication plan to manage the fear and anxiety and establish a good transition among employees (Sherman, 2011).

Other steps that were involved the process of integration of two businesses, is the location of working offices of new companies. Steve had an opinion that the plant of DeWaal, located in Indonesia should have closed and Shanghai Plant of BioHealth should have been carrying forward. This opinion was not liked by the CEO by DeWaal as in his understanding, Indonesia Plant had a very efficient plant which could be run in the best possible way. It shows that there were many dissimilar opinions between the two top managing persons that could be eliminated with the help of their staff members but they followed command style of leadership that does not allow the employees to suggest in managerial decisions. Christian, manager of DeWaal, was the only one who was considered about the fairness in the distribution of jobs and designations (Ray, 2010).

In the given case study, it is also not clear that whether anyone had considered the competencies that were needed by the DeWaal Biohealth after the merger. It can also be seen in the case study the preference was given to the employees that were known by the CEO’s of both the companies (Miller, Jr., & Segall, 2017).

Processes to recommend

The process of integration followed by both the companies was not very effective in terms of employee satisfaction and managing the merging process. If management strategies and theories were properly followed by the leaders involved in the process, then a better outcome could be obtained after the merger. One important factor that was not considered by the leaders was cultural values and differences of employees. For example, there was conflict about the manager of Bangalore Plant. And it is a fact that a local person can work more efficiently than an outsider. So it was not the topic of conflict but took so much time and efforts to take the decision (ODonnell, 2017). Considering cultural values of the employees and their working condition could impact in a positive way to both of the organizations. Another important factor that should also be considered that all the people involved in the process of merging followed command style of leadership. Command style of leadership does not allow the employees to suggest their leaders in decision making. They are bound to follow the decisions taken by their leaders. It is the most obvious reason of employee’s dissatisfaction in the organizations. In given case, CEO's of both the organizations did not communicate any official message about the merger to their employees. Employees were worried about their job as they did not receive any satisfactory message from their superiors. The loss of employees could be saved by the not adopting the command style (Experts, 2011).

As healthy and successful mergers can take place with the help of some strong managerial decisions and success factors. On the basis of above study, here are some recommendations that could be used by the CEOs of above two companies to simplify the process of merger and to eliminate the reasons of conflict (Barros & Dominguez, 2013). These recommendations can be summarized as follows:

The success of merger and acquisition strongly depends upon the leadership because leaders are responsible to set the working conditions for the whole organization. In the above case study, main leaders were CEO of both the companies and some important managers in their organizations. They all should have a courageous, bold and transparent view towards the decisions. CEO’s the companies were not clear about their decisions as their decisions were continuously fluctuating. It is the most important quality of a leader to encourage his teams and retain his team members. Steve, the CEO of De Waal, did not have this quality and it resulted him in losing 8 employees of his organization. Even after knowing the fact that 4 more employees were also thinking to leave the organization, he did not take any step to retain them. In this situation, he needed to create an encouraging and inspiring vision for every employee in the organization (Zhang, et al., 2014).

Cultural clashes can be reduced by well managed cultural assessment during the process of merging. It enhances the ability of an organization to achieve the desired strategic objectives. In given case, management of both companies was totally different because of their cultural differences. In such case, it was the duty of the members of merging process to find out cultural differences and eliminate the conflicts that could be occurred due to these differences (Vedd & Liu, 2017).

Both the CEO's did not prepare any communication plans for meetings and discussions. It created a number of conflicts in exchanging their ideas and methods. Also, they did not prepare any plan to communicate with their employees before and after the process of merger. This communication gap resulted in leaving the jobs by employees because they started feeling less job security in their current organization. Effective and immediate communication plan for employees and management are the major factors that reduces employee’s fear and stress during the process of merger (Angwin, Mellahi, Gomes, & Peter, 2014).

In the given case study, it can be found that Steve was waiting for the approval of all legal formalities and legal procedures from concerned legal authorities. He was personally was involved in all such formalities and was not able to pay attention to other important decisions regarding the process of merger. In such situations, it is to be recommended that he should have hired a legal team for handling all legal procedures and for taking all legal approvals. It might have reduced his burden and he could use his time and efforts in other important areas (Zuhairy, Taher, & Shafei, 2015).

Successful companies always approach mergers with people intervention in a systematic and methodical manner. After analyzing the given case study, it is to be recommended that both the organizations should have used adaptable and standardized playbooks containing step by step process and instructions with templates, tools, documentation, and facts to cover each major aspect of merger form starting to the end (Christensen, Alton, Rising, & Waldeck, 2011).

The above case study has been analyzed using Human relations theory and Contingency/Decision theory of organizational practices. Human relations theory is also known as the neoclassical theory. As this theory emphasis on analyzing differences between people to create different and effective motivators that may help in resolving conflicts among the employees. If during the merging process of above two companies, this theory would have been used in proper way then it may be easy to retain existing employees of the organization. Use of this theory could also help in creating conflict-free and strong relations between both the CEO's. This theory also involves emphasizing on participative management, social interactions and equally decision-making rights of participating firms that can help in the merger process up to great extent (Indabawa & Uba, 2014).

Applying contingency theory also provides brief knowledge about the case study as it is also called decision theory. The theory views all conflicts as manageable one. This theory briefs that organizations should act linearly and rationally to adopt environmental changes which causes due to the merger of two companies. Contingency theory identifies the effectiveness of management by the environmental adoption abilities of management. This theory is best suitable to understand the merger process of given pharmaceutical companies because all the important managerial level employees had the power and authority for making decisions in their areas on the bases of situations. As many employees left the organization and other important employees like Bruce and Alison also had the authority to decide their job responsibilities and contribution to the business. According to this theory, companies and employees are required to adjust and modify their managerial techniques and styles based on the situations occurring in front of them (Pang, Jin, & Glen, 2010).

Modern Systems Theory is also helpful to understand the given case because it says that a small change in the organization can cause a major impact on other factors related to that change. Mergers are all about changes regarding the management, functions, and policies and even about the changes in the existence of participating organizations. By applying modern system theory, the effect of such changes and their measurement can be understood in an easy way. Changes are never accepted happily and it can be seen in the case study that some of the employees left the organization and other were facing trouble in working with new and changed policies and procedures (Golubov, Petmezas, & Travlos, 2013).

Conclusion:

On the basis of above analysis, it can be concluded that merger of BioHealth and DeWaal was not successful as it was assumed by both of the companies. Although the managers and CEO's of both the companies tried a lot and followed many approaches to make this merger successful. They also did not follow appropriate approaches. The conclusion can be framed after the study that in the process of merger and acquisition, participating companies should have a sound communication system with their employees. It is so because, at the time of the merger, existing employees of the organization plays an important role.  If the communication system is weak then this may result in losing capable employees as shown in the case of Steve. It can also be said that merging is the process where two organizations lose their existence and a new organization is framed, so this process should be followed by applying efficient management methods and techniques. The entire study concludes that merger is a very vast process and should be adopted carefully by the organizations in order to run the new organization efficiently and successfully.

References

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