Task: In the contemporary management environment, mergers and acquisitions are hot topics; particularly as mergers and acquisitions are among the most commonly used strategies for growth. The pitfalls of mergers are well known and well-studied in the management literature.
Yet, there are some fundamental challenges that organisations keep stumbling over. One of them is integration. Preoccupation with due diligence and political factors surrounding merger negotiations too often leaves a crucial piece in the merger puzzle left till it is too late – integration of cultures and structures and people. It is well known today that poor results from mergers can so often be put down to people issues.
In this major assessment you are asked to analyse the following case and answer the questions below using a business report format. Further detail on the format of the business report are provided below.
Case study: Who goes, Who stays?
Using the knowledge that you have gained from the subject up to, and including, Topic 9, Managing people, answer the following questions.
The merger between the two pharmaceutical companies DeWaal Pharmaceuticals and BioHealth labs brought several integration issues. By analysing the case study in this human resource assignment, it was found out that the major issues that exist between the two parties are intercultural differences, ineffective HR policies, problem in the decision-making of the managers and lack of communication and relationship skills. This escalated the tensions and the chaos between the two parties and they were unable to meet the objectives and goals of the organization. Thus, it was recommended in this human resource assignment that both the parties to develop an effective HR strategy, embrace the cultural differences and formulate an appraisal system that would lead to the effectiveness of the organization.?
Merger and Acquisitions (M&A) is referred to the consolidation of the companies as well as assets that include various transaction process like “mergers, acquisitions, consolidations, tender offers, purchase of assets and management acquisitions”. This human resource assignment will shed light on the merger between the two pharmaceutical companies named DeWaal Pharmaceuticals and BioHealth labs and the integration problems associated with it. Management and organizational theories will be used to validate the concept of M&A. The human resource assignment will also provide recommendations to the top management and the HR department to mitigate the issues of M&A.
Answer: 1. What conflicting values are at stake in the case? Identify and explain, using relevant management theory and concepts. Contextualize your answer with reference to literature on integration problems in mergers and acquisitions, with specific reference to people issues.
The merger between the two pharmaceutical companies DeWaal Pharmaceuticals and BioHealth labs was in the front news of every newspaper. Few months later, there were integration issues in mergers and acquisitions. The challenge encountered by them was to accept the two different cultures as quickly as possible. CEO Steve Lindell faced issues in selecting the top level management for the organization. The price of the BioHealth’s stock plummeted by 20%. Another integration issue was ineffective human resource department that led to the failure as little attention was given in hiring the competent and proficient men (Lebedev et al., 2015). The problem of Steve Lindell was that he made selection decisions and fixed them later, thus this was extremely shortsighted in today’s competitive world.
Added to this, there was a communication gap between Steve and Bruce where Steve was not even impressed with the Dutch executives. This common problem with the mergers is that favoring the known people. As there was an issue with the HR system with no structured interviews with no 360-degree feedbacks, Steve was unable to retain the top executives and form a great team. Steve also brought a “softball to the hardball game”. He failed to understand the meaning of power and the way it must be executed. Speed was critical in the merger and the acquisition that should have been done differently to attain success. On the other hand, Christian was unable to make decisions and dependent on the test results and computers. The main problem was that Steve and Bruce did not eliminate Christian and mentioned that depending on test results and computers will take a lot of time. Steve was also unable to select proper criteria for selection that must have emphasized on the success of the business, decisiveness as well as communication and relationship skills (Brueller et al; 2018).
Steve has also missed out on measuring people who are important for the success of the company like Alison. The selection team must have approached these people and talk to him about the systems and the processes. Thus, Steve and Kasper are at odds in understanding the importance of speed in selecting the top management for the company. Kasper was not aware of the slow pace and the need for urgency. The senior team was not stabilized and it was not clear whether the two used facts to make decisions. The two leaders failed to rise above the cultural differences. Kasper wanted to safeguard his staffs in Indonesia and Steve mentions about his people “just seem to get it”. Steve mistake was concentrating on getting the approval of the regulatory while not focusing on the other important things for two months.
The management theories that can be applied in this scenario are efficiency theory and value creating theory. Value creating theory of merger and acquisition denotes that the management of the organization puts all their effort into creating value for the firm and concentrate on the interest of the shareholders (Holmström, 2017). As there have been several issues in the integration process, Steve and Bruce must apply this theory to create effective value within the firm. The efficiency theory of the merger denotes that mergers are only possible when they generate synergies that benefit both the parties. Thus, there must be effective synergy between the two mergers DeWaal Pharmaceuticals and BioHealth Labs that will benefit both the parties.
2. Critique the process that is being applied to work out the details of the integration, particularly with regard to structure and top management staffing using relevant management theory and concepts. Ground your answer in evidence regarding people and culture issues in merger integration studies.
One of the major issues between the two pharmaceutical companies DeWaal Pharmaceuticals and BioHealth labs was with the set up of the Human Resource Department (HRD). There was no effective HR department to look after the processes and systems of the organization. Therefore, there was no appraisal system, 360-degree feedback or evaluation of both the parties. Steve showed up for the lunch party without a proper planning for HR integration due to which he made decisions haphazardly. It was important for Steve to appear for the dinner party with an effective planning (Howson, 2017). It was also unwise to form his part to comprehend that he is able to make selection decisions and later fix them if they do not work out now. Thus, it was essential on Steve’s part to design a strategy to retain the top executives of the company. Moreover, it was important to incorporate an HR department who would look at the fairness of the organization, financial policies and provide a safe and secured environment for the members of both the parties. The theory of value creation can be applied in this case. As the effectiveness of the company was losing, the Managers must have incorporated a value creation theory where they could have increased the value of the firm by formulating effective strategies like hiring the competitive executives, forming an effective HR department and addressing the challenges of intercultural issues (Bonaime et al., 2018). The merger between the two companies led to the increase of executives at the top management level. Due to many executives in the top management, there were conflicts and disagreement in their opinions that led to chaos and confusion. This troubled the management to take effective decisions and accomplish the goals and objectives of the organization.
There was a disagreement between Steve and Christian Meyer. On one hand, Christian Meyer wanted to test the IQ of the executives for the purpose of emotional intelligence, on the other hand, there were Steve and Bruce felt that these testing were time-consuming and was of no use. However, they were not able to communicate the problems and make an ultimate decision. Both the parties favored each other members that resulted in intercultural conflicts and turmoil. Thus, it was important for both the parties to accept the cultural differences and embrace each other peacefully. Moreover, there were ego clashes and power conflict between the two parties that led to more problems. It was important for both the parties to coordinate together and work with collaboration because that leads to the generation of new ideas and transfer knowledge and power. Here, efficiency theory can be applied as both the parties needed to improve their synergy to enhance the productivity and efficiency.
3. How would you recommend the conflicting values be resolved?
In order to resolve the conflicting values of both the companies, namely, DeWaal Pharmaceuticals and Bio-Health Labs, the following recommendations must be adhered to:
4. What process would you recommend that the two senior executives and their HR people follow to work out the details of integration in regard to the top structure?
In order to undergo successful merger and acquisition, as well as effective, manage the integration process within the company, the two senior executives along with the human resource team can consider the three-stage model of merger and acquisition (Schuler et al., 2015). This will facilitate the executives in avoiding the issues being faced in the company at present and carry out their merger and processes in a better and effective manner devoid of any clashes or miscommunication between the two senior executives. The three-stage model of merger and acquisition is further divided into three major stages, which can be considered by Steve and Kasper in order to work upon the details of integration for the merger and acquisition process.
The first stage is the “pre-combination”. In this stage, the senior executives are recommended to identify and comprehend the different human resource issues taking place in the company owing to merger and acquisition. In this context, the key issues identified in the case study are the lack of effective communication between the executives, which further led to the poor formation of merger and acquisition team. Furthermore, lack of professionalism was witnessed, as the decision concerning the merger was taken over a lunch. Here, both the executives must have considered a number of factors such as service, quality, cost and so forth and analysed its needs and requirements prior to making the decision.
In addition, another significant issue that was witnessed was lack of coordination between the two executives for which there was very little communication between them; thus, resulting in Steve taking unnecessary decisions, which further affected the process of the merger. As discussed by Schuler and Jackson (2012), in order to overcome such issues, the executives must establish practices of knowledge transfer and learning; thus, mitigating differences between them. Besides, they must consider an extensive and systemised selection process in order to recruit the best possible team for the merger.
The second stage is “combination” where the integration between the companies is considered. Here, the senior executives are recommended to build a designing and implementing team in order to manage the combination and transition in the merger process effectively. Furthermore, as stated in Schuler and Jackson (2012), communication is the most significant factor in every merger and acquisition. Therefore, both the executive managers are suggested to put away their different and consider knowledge transfer and learning practices in order to ensure the success of the merger. In the final stage, that is “solidification and assessment” the executives need to coagulate or solidify staffing and leadership. Here, staffing and leadership of new entrants are vital. Furthermore, both the senior executives are suggested to evaluate and consider certain key factors such as cost, stakeholders, profit share, and so forth and build a new organizational structure as per the requirements and needs of the current business policies and regulations. In addition, the different cultural background of both the companies must be considered in order to develop new business cultures, policies, and practices keeping in mind the perspectives of both the organizations.
5. Evaluate the usefulness of the management and organizational theories and practices from the subject that you have applied in analyzing the case
In context to the case study, the best suitable organizational and management practice or theory that the merging companies; namely, DeWaal Pharmaceuticals and Bio-Health Labs must take under consideration is the “Agency Problems and Managerial Theory” (Leepsa and Mishra, 2016). When undergoing a merger or acquisition, every company tends to face a number of issues. For instance, as witnessed in the case study, the various conflict between the managers owing to their different interest, principals of stakeholders of the companies and so forth. Leepsa and Mishra (2016), have discussed the potential repercussions in context of agency problems. It has been further studied that the manager also considered as the agents of the shareholders and the company experience a number of conflicts during the merger. For instance, an executive who possesses fewer amounts of shares tends to give less time and effort to the profit generation activities of the company.
As per the theory, such actions of the concerned executives cannot be assessed by the business organization for the reason that it necessitates a large number of resources in different forms like incentives and inducements in order to monitor the different managerial activities. Therefore, it can be concluded that agency issues include certain expenses such as monitoring cost of the activities of the agents, structuring cost of contracts. In addition, it includes the bond preparation cost with the agents in order to take the most favorable decisions in favour of the company, cost of residual owing to the differences in the decisions being made between the chief owners and the agents, and so forth. In accordance with the discussions of Burke (2017), in order to maintain the shareholder’s interest, the business organization, tends to separate the control and ownership rights from the managers. As a result, in order to make any sort of decisions concerning the merger and acquisition, the managers need to take approval and consent from the shareholders. However, if in any situation, these strategies and frameworks do not work, the only solution to the agency issues is considered takeovers. It refers to the external control, which is imposed in order to resolve the agency conflicts. Here, managers from outside the company take primitive measures in order to resolve the conflicts by controlling and managing the decision-making process of the company. In this context, the “Agency Problems and Managerial Theory” will facilitate both the companies in solving its conflicts and agency problems; thus, ensuring the success of the merger.
In the above human resource assignment, the different conflict values that were in jeopardy in the provided case study has been highlighted. Furthermore, this human resource assignment has considered different management theories such as value creation theory and efficiency theory in order to identify the key issues of conflict within the organizations. Furthermore, the project has shed light on the process that the companies are considering in order to work out the different details of integration within the organization. Here, the top management and structure of staffing have been given maximum significant in context to merger and acquisition. Furthermore, the project has outlined different recommendations that the companies must consider in order to resolve its conflicting values. In addition, further recommendations have in provided in order to work on the integration details of the top structure of the companies. Finally, the human resource assignment has considered the “Agency Problems and Managerial Theory” in order to analyse the issue highlighted in the case study. Human Resource assignments are being prepared by our HR assignment help experts from top universities which let us to provide you a reliable university assignment help service.
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Brueller, N.N., Carmeli, A. and Markman, G.D., 2018. Linking merger and acquisition strategies to postmerger integration: a configurational perspective of human resource management. Journal of Management, 44(5), pp.1793-1818.
Burke, W.W., 2017. Organization change: Theory and practice. Sage Publications.
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Leepsa, N.M. and Mishra, C.S., 2016. Theory and Practice of Mergers and Acquisitions: Empirical Evidence from Indian Cases. IIMS Journal of Management Science, 7(2), pp.179-194.
Leepsa, N.M. and Mishra, C.S., 2016. Theory and Practice of Mergers and Acquisitions: Empirical Evidence from Indian Cases. IIMS Journal of Management Science, 7(2), pp.179-194.
Schuler, R.S. and Jackson, S.E., 2012. HR issues, activities and responsibilities in mergers and acquisitions. ILO.
Schuler, R.S., Khilji, S.E. and Ruël, H., 2015. 6. Role of human resource management in international mergers and acquisitions and international joint ventures in emerging markets. Handbook of Human Resource Management in Emerging Markets, p.122.