Organizations mergers and acquisition Essay
Over the years, failure in international mergers and acquisitions has been largely attributed to misunderstanding and poor organization of cultural difference. Over the last decade, 85% of the total failed mergers and acquisitions were attributable to poor understanding and mismanagement of underlying cultural issues (Richard, 2008, p. 14). This has largely been contributed by the fact that issues of culture take a back seat as they are considered less important to others like financial management and legal matters.
Without understanding of the different organization’s hidden, entrenched and implied values which set and drive decision at all levels, there is usually high probability of drowning in confusion, misunderstanding and conflicts sooner or later after effecting the mergers (Willington, 2007, pp. 54-59). Our company being located in Texas US and planning to acquire Everest Co. Ltd of India will require a careful consideration of the cultural understanding to ensure effectiveness of the process.
Organization culture is the pattern of different values, norms, attitudes and beliefs that influence the individuals, groups and management in all the operations of an institution (Dana, 2008, p. 21). They form the basis and platform for operationalization of different strategies and management functions with ease. As a result, all organizations
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In conclusion, it recommends specific advice to be considered by the managers who will be directly involved in the negotiation process for the acquisition. 2. Company background. Our Company ‘Extra Ltd’ has embarked on an expansion mission according to the current management plan that seeks to make it one of the best companies in the global arena. As a result, the company is in the process of acquiring Everest Co. Ltd from India. Extra Ltd has articulated major changes in its management systems and operationalization structures which have seen its current envious growth.
Most importantly, it has adopted new leadership models that emphasize on customer quality at all levels of the organization management. 3. Comparative cultural profiling and significant differences. Management style. According to Wellington (2007, pp. 78-81), decentralized system adopted by American companies incorporates different staff and employees at various levels of the organizations management in their operations. This has been assimilated as a major platform for ensuring increased efficiency and reduced resistance from the employees regarding different decisions that are made and implemented by these companies.
This notion acts as a major basement for ensuring high focus on the employees while improving the quality of the resultant products. On the other hand India has a highly centralized system which is more authoritative towards the operations and activities of the employees in different companies. Through a top bottom approach system, the country’s companies major decisions are made at the high offices and then communicated to the lower management levels for implementation.
In a centralized system, the staff and employees are less involved in decision making resulting to hardships when instituting major changes in their systems. Centralized systems have been associated with various resistance and massive strikes in different companies. Royal Dutch Petroleum Company successful merge with Shell Transport & Trading Company in the year 2004 was credited to the ability to involve all the staff and employees of the two companies through a decentralized system (Martin, 2008, pp. 99-102).
Staff and employees form the most essential part of an organization since they are involved in the direct implementation of the company’s policies and strategies at all levels and stages. Products and services standards. Being located in US, Extra Company has assimilated Total Quality system of management as a demand from the policies of the land. Total quality management entails careful evaluation of effectiveness in all the systems that are involved in an organization management. Immediate sources, lines of production and management are constantly evaluated to ensure strong sustainability of the system.
Due to poor policies and less emphasis on high quality standards of goods and services, developing countries companies have a culture of producing low quality goods and services. Food products and different medical supplies from India had to be denied entry into the European market owing to their low quality levels that would threaten lives of those people who would consume them (Theodore, 2002, pp. 334-338). Total quality management culture takes care of the natural systems that the raw materials are taken from therefore ensuring a better platform for continued efficiency in the production system.
Recently, companies in US have established a common seal for the products being made using clean technologies that are not harmful to the environment. As a mark of sustainability, there higher sense of responsibility and care to the nature that supplies these companies with raw materials in US than in India. Human resources development. Culture of human resources development increases the ability of companies to raise the standards of staff production capability and improves their innovative capacity (Teresa & Gary, 2001, pp. 102-105).
It forms a platform for strong and better decision making through inclusive systems in a company. Besides, it is the main system that ensures high technology adaptability is achieved in organizations and a major requirement for total quality management system. Since the onset of industrial revolution, strong growth and expansion in the American companies has been pegged to their ability to effectively upgrade their workforce. As indicated earlier, it is well entrenched in the total quality management system for enhancing high quality output from a given company.
However, India has low levels of employees upgrading in the companies. This has been contributed by the large pool of cheap workforce which makes the management to consider upgrading as part of unnecessary expenses for their companies (Wellington, 2007, 77-79). Strategic management and planning. To ensure high productivity, a culture of effective strategic planning and management based on effective analysis of the organization current systems ensures there is a clear focus necessary for propelling it to the future (Thomas & Robert, 2000.
pp. 140-142). Quarterly and annual PESTEL and SWOT analysis acts as direct indicators and pointers to the direction an organization is headed to. The ability to harmonize two organizations strategic plans forms the main litmus paper for future progress. After acquisition of Time Warner by Fusion: America online Inc, strong analysis was undertaken to establish the immediate strengths and weaknesses of the company which assisted in drawing long term effective management plan.
American companies’ management is effected through long term strategic plans that are established after consecutive analysis of their systems. Dell Co Inc after inception in the 1985 had long term plans that made it to effectively maneuver and conquer the highly competitive information technology business. By the year 1999, it had overtaken Compaq and opened branches worldwide (Martin, 2008, pp. 61-65). However, owing to constrains in the resources availability and less focus in India and other developing countries, they mostly adopts short term management plans.
Ernst & Young and KPMG merger failure was mainly attributed to poor harmonization of their management plans to the required levels which had resulted from poor analysis of their systems. Customer focus and orientation. Increasingly, companies have raised their need to link with their consumers by ensuring high quality of the goods and services they offer to them through incorporation of their views in the products production (Patrick, 2002. pp. 112-113). As indicated earlier, there is stronger focus on the intrinsic viability of the production systems through total quality in the management and production units.
As a positive culture, companies assume new technology for increased production and quality from their units. Toyota motors company ability to capture over 75% of the market share for hybrid cars was largely attributed to customer satisfaction in their vehicles through higher level fuel economy, comfort and speed (Wellington, 2007. 76). In developing countries there is lower level of industrialization and thus higher levels of monopoly in the market for the goods and services.
Following this type of operating environment, India has reduced marketing emphasis a system that will be very controversial to change during the acquisition. To add to that, the markets share is low and the management is relaxed in seeking new markets to boost their company. Besides, their marketing budget and research is very low due to monopoly of the market that is less threatened by other companies locally and internationally. Team work. Team work in organization leadership has been linked to high performance of organizations in their systems (Weston, 2002.
p. 123). As a culture, it increases the autonomy of the staff and employees in their duties. Owing to this concept JP Morgan & Chase Company after merging with Bank One Corp became an undisputed force in the banking industry both locally in US and also internationally (Wellington, 2007. p. 59). US companies have strong teams operations that are guided by effective policies that govern their systems. A culture of team work perfects horizontal and vertical communication while supporting a decentralized system of operation in an organization.
Merged companies mostly rely on team work in management and middle level coordination to be able to effectively adjust and harmonize their different combined plans with minimal negative impacts to the immediate operating systems. Though India companies operate with teams in their systems, they exist in very low levels and their autonomy highly threatened. Their operations are viewed as basically directed at harmonization of the production units. As a result, they do not take part in the larger circle of decision making which is very necessary for incorporating their demands and requirements in the company.
Motivation and reward systems. American companies are strongly credited for their focus on their staff welfare at different levels. As indicated earlier, they have elaborate systems for ensuring strong motivation for their employees and staff. It has turned as part of their culture to use high budgetary allocations that ensures they retain the best professionals in their companies. Operating in the previously denoted teams, they have a high level sense of identity with their companies which in turn use emergent leadership for promotions and outsourcing.
To ensure, higher returns they have assimilated strong short term goals and rewarding systems through team work and individual innovations (Weston, 2002. p. 123). Indian systems have on the other hand reduced motivation capacities for their employees and staff. Majority of them operate on the basis of casual management and are run by owners. Permanent employment is mostly offered to the employees due to the government policies and not out of the demand for repute and growth from these companies.
Internal rewarding systems and extra concerns for the employees have been very low making the professionals to shift to other countries in large numbers (Martin, 2001, pp. 59-64). It is therefore very clear that these differences are very significant and demands adequate address before the acquisition is effected. Ranging from intrinsic relations and operations in the production sectors, the companies appear to be operating on two negating worlds that may serve as a major catalyst for failure just like the other prior companies if great caution is not taken.
4. Evaluation of possible cultural problems to be encountered. Possible cultural problems that may be encountered are directly related to the above differences in management and leadership formats between the companies. With the new company appearing to operate from a lower platform in terms of management and leadership, it may appear to be more dictatorial since aspects that are substandard may not be tolerated by the American system. To begin with there will be possible clash in the mode of human resources management.
With American companies’ culture being involved and strongly committed in staff upgrading, internal promotions and international standards maintenance; it might be hard to assimilate the system in India due to low resources availability. Besides, the company may not be able to maintain and sustain the system as the returns are smaller. Though, acquisition and rewarding of employees may be much easier to harmonize, it might be hard to accept a new system derived by professional capability of the people to work in the system (Timothy & Mark, 2000, pp. 42-46).
It will be even harder for the new merged company to accept the system of incorporating its junior staff in the management panels and consulting them at all levels of management for decision making. Employees’ motivation and concerns is the most important aspect for increased efficiency in a company (John et al, 2001, pp. 56-61). The companies’ customer focus is very essential and will require careful consideration. Taking into consideration that customers form the final stage and the businesses exist because of them, the Indian company will have to increase its focus on customer satisfaction.
Therefore, raising the quality standards and improving the marketing system which were previously viewed as part of unnecessary expenditure will be a hot spot. This will be even hard in that the new standards should conform to international requirements to be acceptable in the international realms especially in the European region and (America itself Inter-Pacific Bar Association, 2008. pp. 45-47). It will be hard to harmonize the management systems for the two companies due to the varying systems they are currently used to.
Changing the highly centralized system for the new company to a decentralized one will be hard to agree on. It entails restructuring of the major structures and upgrading the system which may call for the company’s overhaul. Besides, it is clear that staff and employees have adopted this system so strongly that changing and accepting might be very hard and take much more time before it is fully entrenched in the system. Finally, it will be hard to articulate the idea of change in the Indian company as it has very low focus on the employees and little motivation is given to them.
With less emphasis on the need for team work and decentralized system, resistance will be met at all levels of the management and operation. 5. Conclusion. Cultural misunderstanding and overlook has been the main cause of failure in majority of the mergers and acquisitions in the world. Taking control of companies’ operationalization systems from the highest to the lowest levels, cultures dictates effectively the way a company progresses with time. It forms a base for understanding different organizations and therefore laying the correct platform for ensuring effective mergers and acquisition (Denzil & Mark, 2003.
pp. 74-77). American and Indian companies being located and operating at very differentiated heights, the merger in our company will entirely depend on the ability to understand the varying cultures and articulating them in their systems new structures and styles gradually with minimal disturbances to the main operations of the company. 6. Recommendations to the negotiating teams. The purpose of understanding culture is not to eliminate the old system but to reduce the gap between the two companies for effective running of the business.
There has never been a perfect fit between organizations and compromises must be accepted to a given level in order to succeed (Cary & Gregory, 2000. p. 5). Understanding must be sought on all the values in the new company with a focus on long term consideration benefits from them. Ability to read the body language and ensure that the basic principles of high quality production are maintained must be sought (Cartwright & Cary, 2001, p. 49). Finally, they must be oriented at creating an intermediate culture that will be acceptable by both parties in order to ensure higher levels of success. 7.
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