Challenges H.R. Consulting Firms are Facing During Cultural Transformations in Mergers and Acquisitions

Introduction

Different factors such as globalization and technological advancement have increased the competitive pressure in the business world. A majority of companies are forming mergers in a bid to deal with the competitive pressure, and also as a means to create value through the acquisition of technologies, unique products and services, and increased market penetration (Ahammad & Glaister, 2013). Other reasons as to why businesses are taking the option of forming mergers or being acquired by other companies are in order to create economies of scale and establish a global brand presence where possible. However, just because companies have merged does not mean that they will enjoy instant success, or be able to deal with the problems that led to these companies being involved in this business commitment (Ahammad & Glaister, 2013).

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In fact, according to Harvard Business Review (2016), the failure rate of most mergers and acquisitions is between 70 and 90 percent. One of the main reasons for the high failure rate is the management of the two or more companies that are merging failing to recognize the cultural synergies or differences (Akanni & Ahammad, 2015). A majority of companies when committing to these deals fail to recognize the differences in the company cultures because it is not something that they can be able to quantify. In most cases, businesses that have merged make the assumption that they will be able to deal with cultural differences effectively during the post-merger stage. Although it can be handled during this stage (post-merger), factors such as arising power struggles in this new relationship, and low morale of the employees make the process difficult.

Organization culture is considered to be the greatest asset of a company. The reason for this is that a company's business rivals can be able to match its products and services by creating a similar or a more powerful marketing strategy. However, it is impossible for two organizations to share the same culture. This means that organizational culture is a unique component, and this is what makes a majority of companies to be successful despite the products or services that they are offering to their consumers (Ager, 2010). It (organization culture) refers to a set of beliefs, ideologies, values, and principles that a company's management and employees have developed over the years. It controls the employees' engagement and organization commitment levels, the way the employees interact with one another in the workplace setting, and their behavior outside the organization. Therefore, what happens when two companies that had their own distinct cultures decide to merge as one as a result of mergers and acquisitions?

Cultural Transformation in Mergers and Acquisitions

The number of mergers and acquisitions from a global perspective are increasing as a majority of the companies assume that they are a fast and easy way to expand successfully into new markets, obtain new products and services, gain access to new customers, acquire new talent, and technology (Gunkel et al., 2015). However, different studies indicate that despite the potential opportunities and benefits that the management may promise their shareholders and other stakeholders, these transactions have a failure rate of approximately 50 to 85 percent depending on the research study that an individual may decide to use. For instance, a study that was conducted by KPMG showed that 83 percent of the mergers that they had studied failed to boost their shareholder value. In another study that was conducted by McKinsey and Company, it showed that 61 percent of acquisitions failed to earn a sufficient return on a company's investment. These research studies are showing that despite the reasons for companies to be involved in mergers and acquisitions such as increasing its revenue growth, boost productivity, or reduce production costs, they are failing to meet their objectives (Ito et al., 2012). In fact, not only do these mergers fail to achieve their financial goals, they are highly likely to lead to a loss of talent, negative publicity, loss of credibility with the shareholders, and system integration problems.

Business analysts have found out that there are a variety of reasons that contribute to the failure of mergers and acquisitions such as negotiation mistakes, unrealistic expectations, management egos, and failure to plan appropriately (Jha, 2015). However, the two dominant obstacles that have been found in a majority of the failed mergers and acquisitions are organizational culture and human integration difficulties that result from cultural transformation. Little or no consideration of the people part, and their influence on the success or failure of a merger can have a negative impact on the purpose of the deal (Jordao et al., 2015). It may affect the ability of a company to acquire new and highly skilled talent as it had earlier on anticipated as the two or more companies risk experiencing employees migrating from the newly established organization. They may not like the new working environment, management style, compensation and benefits packages, or other perks that they were provided by their previous employer.

It is important to point out that human capital is a critical component in determining the success or failure of a merger. If a merged company fails to retain or acquire employees with the right talent or attitude, then the business will fail to meet its goals. Why do most companies fail when it comes to the compatibility aspect of most merging or newly acquired companies? The reason for this is that is that the key players during the pre- and during the merger negotiation process are a company's business development team, senior management, and its legal department (Lavie et al., 2015). This team will mainly focus on the business financial position and capability, and its cost-saving opportunities. There is little or no input from HR department or consultants on issues such as workforce integration, labor relations, and organization structure. In fact, a 2010 McKinsey study on mergers and acquisitions showed that 92 percent of business executives stated that their partnerships could have benefited greatly if they had taken into consideration cultural understanding prior to their mergers.

Organizational culture is considered to be a sense of shared social understanding held by employees working in the same firm as a result of the commonly held assumptions that they share. It is continuously developed in a firm by both the management and employees working at all levels of the firm through joint experience, which is developed over long periods (Zhang et al., 2014). The importance of organizational culture cannot be undervalued because it allows its members (the employees) to coordinate with each other well even when they disagree on certain issues. Communication whether verbal or non-verbal plays an important part in building and sustaining a company's organizational culture (Sadegh Sharifirad & Ataei, 2012). Although culture is considered to be an important component of individual companies, it is also difficult to study and measure in a precise manner. This is probably one of the reasons why little or no consideration is placed on the impact of cultural transformation during mergers.

A majority of companies that are entering into merger and acquisition relationships are beginning to understand that in an acquisition process, things such as existing assets, infrastructure, and technological innovations are not difficult to assess, and integrate; the main challenge is to assess and integrate the different cultural values that the two companies previously had before forming this form of partnership (Sarala & Vaara, 2009). Morrell et al. (2004) state that in order for a merged company to be able to determine its rate of productivity, turnover, employee satisfaction, the rate of absenteeism, and also citizenship, they have to determine the relationship between organizational change and productivity. Cultural fit has to be taken into consideration during all stages of acquisition i.e. pre-, during, and post stages of acquisition. The reason for this is that cultures can be able to make or ultimately break a merger process.

Schraeder and Self (2003) point out that culture formation for an individual company cannot be considered to be a random event or an action dependent component based entirely on the personalities of the current leaders. The reasons for this is that in every organization culture it has a unique style, rules, function, rewards, structure, and policies that are entirely unique from each other. Therefore, the assessment of these variables of the different companies is essential in terms of determining their future integration. Through the assessment of the cultural compatibility of different companies will ultimately increase the chances of forming successful mergers.

The closer the cultural fit of these two companies, the highly likely that the merger will eventually be successful. It is important to point out that cultural fit does not necessarily mean that the two organizational cultures are similar (Schmidt, 2015). It focuses on the 'give-and-take' of these two companies, this means that what they are likely to sacrifice in terms of their respective organization culture values in order to realize a successful merger. Therefore, the company's organizational culture should not be considered to be 'too close' to affect its synergy improvements, or 'too far apart' for the two companies to be able to integrate.

The work environment is a critical or crucial factor in determining the job satisfaction rate of employees working in a certain organization. The work environment comprises the following factors: company culture, the management styles that have been adopted in that organization, hierarchy levels, and the human resource policies (Ellickson & Logsdon, 2002). When employees have a negative association with their current working environment, they may willingly, or unwillingly leave that organization for an alternative company where they feel that their needs in relation to the working environment are fulfilled. Therefore, from a management or employer's perspective, they have to know how to create and use a positive work environment in order to increase its employee satisfaction, and ultimately reduce their turnover rate. This will ensure that an organization maximizes on the capability of its workforce, and experiences a high-performance level.

Most employees place great importance on how they are treated and valued at the workplace- personal respect. When talking about personal respect, it takes into consideration various aspects such as discrimination due to race, religion, ethnic background, gender, and age. It also takes into consideration how things such as bullying, and sexual harassment are handled at the workplace (Flaherty et al., 2007). In addition to that, personal respect also encompasses employer or management to employee relationship. The more personal respect that employees are accorded at the workplace, the more likely they will be satisfied with their role, and position at the workplace.

On the other hand, a lack of personal respect even for a highly paid position may force an employee to quit his or her job. The reason for this is that an individual employee may feel that he or she is not accorded respect despite his, or her contribution, and also a position at the workplace. It is also important to note that when an employee is accorded the personal respect that he or she deserves, one may look beyond the financial incentives of...