This report examines a merger between DeWaal Pharmaceuticals and BioHealth Lab and compares them to contemporary real-world cases. Mergers and acquisitions occur for various reasons in businesses. It has however been established that the biggest motivator is the alignment of financial, products, and markets to position the growth of the merged entities as is the case between DeWaal and BioHealth (Marks & Mirvis, 2010; Light, 2001).
In retrospect, some cases, mergers and acquisitions result from a challenging business environment that threatens the merging parties. Such threats could be due to technological changes. In the recent past, many companies have done mergers and acquisitions due to a growing threat from perceived technologically advanced competition. Case in point is Lenovo and IBM merging to be more competitive against rivals such as Apple, Hewlett Packard, and Dell (Snow, 2011).
Another reason for Mergers and acquisitions is due to fear of a rapidly shifting economic environment. Unilever, for instance, acquired Best Foods in Asia due to a challenging economic climate in Europe and the United States. This was as a result of the economic crisis which shrank the purchasing parity of Unilever traditional customers. This was also coupled with the lower cost of production in Asia as compared to the western countries (Marks & Mirvis, 2010).
Even though organizations hurry into mergers and acquisitions, the human resource aspect is often ignored given lower precedence than financial and market prospects. This often results in culture shock which leads to mistrust between employees. Research shows that about 83% of mergers fail sooner or later. It has also been established that within the first three years, 30% of mergers and acquisitions fail primarily because of the lack of human resource integration of which cultural differences act as the greatest hindrance. Change management and communication to integrate workers should, therefore, be recognized as vital ingredients for the success of mergers and acquisitions (Bradt, 2015).
Conflicting values in DeWaal Pharmaceuticals and BioHealth Lab
The first conflict on the DeWaal Pharmaceuticals and BioHealth Lab is on the power struggle between the two most senior managers that is, Steve Lindell and Kaspar Deveide. To begin with, Steve views Kaspar with suspicion. Steve feels that Kaspar is usurping his powers by playing him to the media gallery. He also thinks that he should be the senior most manager because BioHealth Lab is bigger than DeWaal Pharmaceuticals. This creates mistrust between the two CEOs (Light, 2001).
Secondly, there is conflict about the criteria for executive employees retention by the two merged companies. Whereas there are 120 executives in both companies, there are only 65 positions open for filling in the merger. This is creating a lot of anxiety among the employees in both companies. The issue is also creating a lot of fear in both factions to the extent that it has led to the exit of four executives in Bio Health. Numerous other employees are considering job offers from rival firms (Lee, Kim & Park, 2015).
Cultural conflict is also very predominant in most mergers and acquisitions (Rees, 2011). It in the DeWaal and BioHealth case, it’s clear that there is a big difference in the conduct of the meeting between Steve and Kaspar. While Steve is direct to the point, Kaspar is a bit laid back preferring to approach the meeting agenda by floating irrelevant topics. Steve, on the other hand, does not trust the Dutch executives even though he hasn’t met them or analyzed their performance, capabilities, and the strengths they would bring to the merger.
Conflict of ideas is another big issue in the merger. It is clear for instance, that due to low productivity, Steve would like to close down the Indonesian plant owned by DeWaal. Kaspar, on the other hand, objects to this idea because of the historical importance of the plant between the Netherlands and Indonesia. Other conflicts involving ideas include the difference in view between Bruce and Christian on appraisal method for retaining the employees. Both Bruce and Steve are against testing of the Executives IQ which they view as a latest Human resource fad that has no bearing on the modality for choosing the executives (Lee et al., 2015).
Employee relocation is also a conflicting issue in the Merger. Some Executives from DeWaal Pharmaceutical, for instance, turned down an opportunity to work in New York where the Headquarters would be located. Some of these employees had undoubtedly created many networks in their jurisdictions before the merger and were not looking forward to severing those networks (Light, 2001).
Communication is evidently a big issue in the merger, particularly on BioHealth’s side. Due to lack of communication, some of the employees fear that Kaspar is manipulating Steve and will influence a better deal for DeWaal at the detriment of BioHealth Lab (Koerniadi, Krishnamurti & Tourani, 2015).
There is also conflict on the portfolio sharing formula between BioHealth Lab and DeWaal Pharmaceutical. It is not clear the formula that will be used to fill the 65 positions. The management has not explicitly defined whether the size of the two organizations will influence the choice or the number of employees on either side will be the formula to be used (Light, 2001).
In the most successful mergers and acquisitions, companies have a strategy to integrate cultural differences and move the organization forward as one unit. It is for instance necessary for the management to identify one culture which can be used as the platform to integrate the second culture (Kansal & Chandani, 2014). This can be done through training of employees of the second culture or through succession management while at the early stage of the merger or acquisition process (Weber, 2015). This is far from what is happening at BioHealth and DeWaal. They waited till the last minute to integrate the human resource- which has led to myriad issues such as a drop in share price by 20%.
According to the contingency management theory, it is crucial for a manager to employ the most appropriate management style depending on the circumstances facing an organization (Battilana & Casciaro, 2012). In the case of BioHealth and DeWaal, a leadership management approach would have been suitable to include the executives in the decision-making process. Instead, Steve and Kaspar took the whole process of integration by themselves which appears to be autocratic. This has made the executives feel sidelined and fearful of their future careers.
According to motivational theories, it is important for management to realize that employees are the most important aspect of an organization. The Herzberg’s two-factor theory, for instance, depicts that management should identify those aspects that motivate their employees and boost them while suppressing the job dissatisfiers (Ireland, Hoskisson & Hitt, 2012). This is not the case at DeWaal and BioHealth where the management seems to run the show without much regard to the employees’ emotions. The BioHealth sales executive, Allison – has to bring to attention the fear facing the employees to Steve- which he had no idea hitherto.
According to Lewin’s Change management theory, it is important for the senior most managers to act as agents of change. This can be demonstrated by freezing company activities during a change, moving the employees into the change and finally unfreezing the organization activities. This is not the case with BioHealth and DeWaal where the employees fear for change has not been addressed. This is one of the reasons why some executives are opting to find jobs elsewhere (Hayes, 2018).
According to the resource-based view of the firm, employees form the nerve center of an organization because they possess a bundle of resources such as talent, knowledge, and abilities which are difficult to imitate or acquire by other firms. However, by not addressing the employees’ fears, BioHealth and DeWaal have opened an opportunity for rival companies to tap into this bundle of resources which may reduce DeWaal and BioHealth competitive advantage (Day, 2014).
The systems theory encourages that top management should recognize that different factors in the organization affect employees and the employees, in turn, affects the systems at work. Therefore, employees are part and parcel of the organizational system that works harmoniously towards a common goal. By senior managers like Steve and Kaspar not addressing employees concerns in their decision-making, a barrier is created in the system. For instance, the effect of firing half the executives since only 65 are required out of the 120 current executives, will definitely impact the remaining employees’ motivation which will lead to low productivity(Rees, 2011).
The importance of communication in the workplace is very important as it helps every employee to translate everyday activities into objectives to achieve the company’s strategy. Without communication, employees feel neglected. This is exactly the position at DeWaal and BioHealth Lab. Since Steve is not communicating the modality of retaining the executives and integrating the two cultures some employees feel dejected and are in the process of finding other jobs. The company could lose talent and incur high costs of recruiting and training new talent (Gomes, Angwin, Weber & Tarba, 2013; Benton & Austin, 2010).
The first method to resolve the retention and integration conflict is through open communication. Most of the staff feel left out of the merger process between DeWaal Pharmaceutical and BioHealth Lab. For this reason, some of them have started to rebel by finding alternative jobs. Embracing communication would help to alleviate the fallout between the senior CEOs and their executives as it would involve them while at the same time reassuring their importance to the company (Depamphilis, 2018).
Secondly, the two CEOs can seek an arbitrator to do recruitment on their behalf. The arbitrator can be in the form of a recruitment agency without any ties to the two organizations. That way, any decision made by the agency would be acceptable to both parties. As an added advantage, the executive positions would be filled through merit as opposed to partisanship (Gomes et al., 2013).
Teamwork is another important strategy to resolve conflicts. In this method, both BioHealth and DeWaal should come forth with an ideal team of executives who they commonly agree on. The two CEOs who are conflicting would then let the team selected to proceed objectively with selecting the rest of the executives (Breuer, Ghufran & Salzmann, 2018).
Change management in the organization is very crucial. The conflicts unraveling at BioHealth and DeWaal are due to lack of preparation for change when the two organizations merged(Kansal & Chandani, 2014) Now that change is happening, it would be beneficial to start the change management process or hire change managers to fast-track the process of helping employees fit in new roles in the company (Benton & Austin, 2010).
Being transparent and open to both parties’ suggestions and ideas would help to create an atmosphere of trust. Currently, the two CEOs don’t seem to trust each other which has resulted in prolonged decision making which has affected the share price of the company and led to a turnover of talented staff (TeeriKangas & Thanos, 2018).
Finally, training on cohesiveness and conflict resolution would go a long way to alleviate the conflicts. Then training can be packaged as employee role play for both organizations which would help to scale down anxiety (Weber, 2015).
The first step is to define the changed roles of each and every position for the 65 positions created by the merger. The defined roles should capture the changes in each position, what the occupant will be doing, the qualifications and competencies of the occupant, the results expected and finally the appraisal duration to gauge the performance of the occupant (Avinadav, Chernonog & Perlman, 2017).
The second step is to agree on the organizational culture to adopt. This is because having two different cultures is the main cause of the conflicts in the two organizations. The two cultures can be subjected to rigorous performance-based indices for an objective decision to be made. It is also necessary for the 2 CEOs and their HR officials to generate cooperation from everyone in the organization on the choice made for the culture and the roles of the positions created (Kansal & Chandani, 2014).
The fourth step would be to enlist the services of an external recruitment agency to manage the interviewing and selection of the most appropriate executives for the roles already defined. This will ensure that every executive is given a fair chance for selection. The selection process may also unveil deficiencies in the current executive pool and make suggestions for external sourcing of the talent (Avinadav et al., 2017).
Management of change is very important at this point. The executives and the other employees will justifiably be anxious about the new direction being taken by the company. Change management should include identifying the areas that require changes, support for the employees and evaluation of the progress. Reassurance for absorption of executives who are not selected into other roles should also be made (Hayes, 2018).
It is very important to manage the communication process. This is because it can be easy for executives to feel lost if there are no clear communication channels. This will encourage feedback mechanisms to identify and arrest any challenges early enough. Face-to-face communication should be given priority. Reinforcements of the change to everyday work should follow this step (Gomes et al., 2013).
The resource-based view theory of the firm is very useful. This is because it perceives the organization as having resources that are rare and not easily accessible to other organizations. This thus gives a company a sustained competitive advantage. Human resources are the most important resource and hence must be carefully handled and involved in cultural integration during mergers and acquisitions. Otherwise, they will decamp to competitors and erase the company’s competitive advantage (Ireland et al., 2012).
The system theory is also very important as it allows top management to view human resources as part of the organizational system that can affect or be affected by internal and external factors. If the human resource is compromised, then the whole system fails and the company productivity is affected. Leaving out the executives in the decision-making process in mergers and acquisitions is a recipe for chaos in the outcome (Day, 2014).
Employee motivation cannot be overemphasized. In Herzberg’s two factor theory, the management is advised to identify job satisfiers and boost them while removing job dissatisfiers such as employee exclusion as was evident in the merger case. The same applies to theory x and theory y which encourages managers to identify self-motivated the not so motivated staff in a firm. Consequently, the self-motivated staff can be granted autonomy in a firm while for the not so motivated staff, job dissatisfaction barriers can be identified and removed to encourage employee motivation (Ireland et al., 2012).
On contingency theory, it is appreciated that management makes their decisions because the current circumstances obligate them to do so and not because they are expected to make generalized decisions. This theory is therefore very useful in the current situation of mergers and acquisitions because it dictates that the circumstances warrant involvement of employees through leadership. This serves to quell the fear experienced by the employees (Battilana & Casciaro, 2012).
Lastly, change management cannot be avoided in mergers and acquisitions. Therefore it is very useful in determining whether a merger or acquisition will be successful or fail. It has already been depicted that 83 percent of mergers and acquisitions fail because of failure to incorporate change management including culture integration (Hayes, 2018).
Conclusion
This report examines the case of a merger strategy between BioHealth Lab and DeWaal Pharmaceutical. The report explores the conflicting issues in the case. It also compares the merger and acquisition against management theories and concepts in a bid to understand the failures of the employee retention exercise being undertaken by the two companies. The report delves into the necessary recommendations to resolve the conflicting values. Finally, the report looks at the usefulness of managerial theories and concepts suggested earlier long.
References
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