Mergers and Acquisition Chapter 12 Mergers â the consolidation of ...
Mergers and Acquisition Chapter 12 Mergers – the consolidation of two organizations into a single organization 1) Horizontal merger – the merging of two competitors – occurs in a value chain 2) Vertical merger – the merger of a buyer and seller or supplier – expanding in a value chain Conglomerate merger – the merger of two organizations competing in different markets – managers likes to manage larger companies to have more status and power Acquisition – the purchase of an entire company or a controlling interest in a company Consolidation – two or more organizations join and form a new organization Takeover – one company acquiring another company Companies merge for 3 reasons: 1. Strategic benefits 2. Financial benefits 3. Needs of the CEO or managing team Operating synergy – the cost reduction achieved by economies of scale produced by a merger or acquisition Vertical integration – the merger or acquisition of two organizations that have a buyer-seller relationship Horizontal integration – the merger or acquisition of rivals Financial Benefits -
Organizations need to reduce the variability and risk of their cash flow Organizations often use “cash cows” the fund “star” operations All growth strategies have different tax implications Developing new products and entering new markets is expensive Financial statement analysis often reveal undervalue organizations Goal is to increase shareholder’s wealth
Needs of the CEO of Managing Team -
Managers may pursue their personal interests at the expense of stockholders Often the motives of executives can be deemed unconscious
Merger Methods Hostile takeovers – dramatic and complex
Poison Pills – refers to the right of key players to purchase shares in the company at a discount making the takeover extremely expensive White knights – are buyers who will be more acceptable to a targeted company Pac-Man – is a defensive manoeuvre where the targeted company makes a counteroffer for the bidding firm Success Rate of Mergers -
Only about 20% of all mergers are successful 60% are disappointments 20% complete failure Best success rates are with similar businesses rather than dissimilar ones Mergers take so much time and resources often the original business is neglected Mergers are more successful when a large firm absorbs a small firm Mergers are less successful in service industries due to greater risk
Financial Impact -
Estimated financial returns are rarely realized Many mergers fail because the buyer overextends itself financial with high debt loads
Impact on HR -
Reduced morale may lead to lower productivity
Culture – the set of important beliefs that members of an organization share Climate – behaviours that are rewar4ded and supported by the firm Assimilation – occurs when one organization willingly gives up its culture and is absorbed by the culture of the acquirer or the dominant partner Integration – refers to the fusion of two cultures, resulting in the evolvement of a new culture representing the best of both cultures; the form rarely occurs because the marriage is rarely one of two equals, and one partner usually dominants Deculturation – sometimes the acquired organization does not value the culture of the dominant culture of the dominant partner and is left in a confused, alienated, marginalized state known as deculturation; this is a temporary state, existing until some integration or separation occurs Separation – the two cultures resist merging and either the merged company operates as two separate companies or a divorce occurs
Planning moves beyond the traditional concepts of HR planning for several reasons: 1. The Contingency Plan 2. HR Due Diligence 3. Transition Team Contingency Plan -
Plan should identify the contact person and the merger coordinator Contact person should develop a plan Plan should outline the chain of command, communication methods, procedures, and negotiation skills training
Due Diligence – is a process through which a potential acquirer evaluates a target firm for acquisition including the review of: - Collective agreements - Employment contracts - Executive compensation contracts - Benefit plans and policies - Incentive, commission, and bonus plans - Pension plans and retirement policies - WSIB statements, claims, assessments, experience rating data - Employment policies - Complaints – employment equity, health and safety, wrongful dismissal, unfair labour practices, certification and grievances Transition Team Appoint a transition team to deal with: 1. Urgency 2. Information gaps 3. Stress - HR policy review might uncover complementary, duplicated or contradictory HR policies for the merger companies
Merger affects the following functions: 1. 2. 3. 4. 5.
Selection Compensation Performance Appraisal Training and Development Labour Relations
*horizontal mergers, vertical mergers, reasons for merging, definitions, what can happen in takeover, cultural issues in mergers, financial benefits Selection 1. Retention, and 2. Reduction HR managers must terminate duplicate positions and redundant employees once the merger or acquisition is completed “How many employees does the merged company need?” Lean and mean cuts to the workforce results in greater work overload and stress Post-Merger Changes in Status 1. Demotion – under the new organizational structure, some employees are given less responsibility, less territory, or fewer lines due to amalgamation 2. Competition for the same job – some companies force employees to compete for their old jobs 3. Termination – some employees are let go strategically Compensation •
An important compensation decision for post-merger company is related to:
1. Merge compensation systems? 2. Adopt a totally new compensation system? 3. Create a new compensation system? •
All employee benefits will be subjected to the same scrutiny
Performance Appraisal •
Employee behaviour and performance is usually not typical after a merger or acquisition
•
Employee behaviour post-merger can be modeled into three categories: 1. Not knowing – remedied by more communication 2. Not able – the solution is training 3. Not willing – a strong case for performance management through feedback and incentives
Training and Development - Managers and peers may need some additional training in the role of coach and counsellor to deal with post-merger behaviours - Employees need training for stress reduction and relaxation techniques Labour Relation - It is important to interpret the collective agreement for all relevant clauses that may affect employees and/or managers and their rights to job security, seniority, buy-outs, etc. -
Collective agreements ultimately need to be renegotiated to protect the rights of employees and/or managers that belong to unions
-
union participation helps the merger process go more smoothly because unions make valuable contributions
Chapter 13 Outsourcing Outsourcing – a contractual relationship for the provision of business services by an external provider HR functions most likely to be outsourced: -
Temporary staffing Payroll Training Recruiting Benefits administration
Outsourced HR Functions Compensation: -
Payroll Benefits Compensation administration Pension
Recruitment and Selection: -
Advertisements Screening of applications Testing Reference checking Preliminary interviews Executive salary negotiations Exit interviews
Training -
Program delivery program design and development Training consulting Training needs analysis Program evaluation Strategic planning Administration Training policies
Reasons for Outsourcing: Six Major Reasons: 1. Financial savings 2. Strategic focus 3. Access to advanced technology 4. Improved service levels 5. Access to specialized expertise 6. Organizational politics Financial Savings - Cost reduction is typically 10 to 20 percent - Economies of scale from specialized outsourcers who are more efficient - Cost control - Decreased capital commitments Strategic Focus
- Strategic focus - decide to focus on specific core competencies, like customer service or innovation - Core work is transformational and adds value to employees or customers - Move secondary functions (or non-core work), like benefits administration, to firms that have that do these things well (they are core competencies for the outsourced firm) Core competencies – resources and capabilities that serve as a firm’s competitive advantage - Core competencies distinguish a company competitively and reflect its personality Advanced Technology - Technology has been a main driver of outsourcing - Organizations want to improve technical service if they cannot find technical talent or need quick and reliable access to technology - Technology enables a company to reduce transaction time (the time it takes to handle a request) Improved Service - Quality improvement - Outsource to those who are excellent performers - More flexibility in hiring and rewarding employees - Improved response time, performance and confidentiality Specialized Expertise - “Outsource when somebody can do it better than you.” - Experts understand the complex laws and regulations required in HR - Use of experts reduces the risks and liabilities for organizations - Access to “best practices” Organizational Politics - Outsourced function is not as visible as an in-house department performing the same tasks - Outsource to get rid of a troublesome department (e.g. employees who are underperforming) - Outsourcing reduces headcount - HR outsourced ratio 1:231
- Traditional HR ratio 1:100 Projected Benefits vs. Actual Benefits -
Outsourcing is not as cost effective and problem-free will be provided Incompatible systems and client demands are the reason for excessive costs
Service Risks - Contractual arrangements dictate which services will be provided -
Flexibility is compromised to add new features or change service levels
-
Disruption of service could pose challenges from potential labour relations problems with outsourced organization
Employee Morale - Outsourcing is a form of restructuring that can create displaced, resentful, alienated, and anxious employees - Organizations that outsource face a backlash - About one-third of HR professionals resist outsourcing because they worry about: –
Losing their jobs
–
Being forced to work for a vendor
–
Fear that management believes outsiders are more competent
Reduced Value -
Extreme levels of outsourcing hollow out a company An organization experiences a reduced capacity to generate profits or innovate The internal image of HR may deteriorate
Management of Outsourcing - Selecting the vendor - Negotiating the contract - Monitoring the arrangement Selecting the Vendor Once outsourcing has been selected, the organization needs to do the following:
–
Inform the staff of the affected function
–
Prepare a request for proposal (RFP)
–
Invite internal and external bids
–
Establish a team to evaluate these bids
Request for Proposal -
Selecting the Vendor: RFP - describes the responsibilities to be outsourced and invites potential providers to present their proposal for carrying out the job
Negotiating the Contract - Customize and negotiate the outsourcing contract - Set performance standards or penalty clauses for the outsourcing company - Establish benchmarks for service expectations –
Response time
–
Response cost
–
Customer satisfaction ratings
Monitoring the Arrangement Most frequent causes of outsourcing problems are: –
Poor service definition
–
Weak management processes
Establish a relationship to ensure the outsourcer acts in the best interests of the organization, and has relevant knowledge of the organization - Check outsourcing company’s references - Demand frequent and accurate reporting - Conduct internal and external client satisfaction surveys Chapter 14 What gets Measured?
-
Costs (of implementation) Results (performance) – Job satisfaction and commitment (engagement)
Measuring HR -
Issues (performance)
1) Organization - *profits, revenues, ROA, ROE, economic profit) 2) Team – group performance, group turnover rates 3) Individual – performance rating, attitudes, absenteeism HR levels 1. Principles level – overall objectives of HR (ie. A control strategy versus a high-involvement strategy) 2. Policies level – what HR goals support the principles (i.e. performance-based pay) 3. Practices level – what specific practices supports the policy (i.e. profit-sharing, gainsharing, etc) Decide what you want to measure in HR, what is relevant, choose an outcome in every outcome Where to get the measure of HR? Senior management (1 person can give incorrect information) Line Managers (do they understand the purpose of the HR practices?) Employees (what information do we seek?) Typical Sources HR policies or practices data often come from the senior HR management team. - Problems include confusion of level (policy or practice); extent to which HR practices may differ between employee groups; extent to which HR managers are biased or wrong. Employee Surveys - Problems include the challenge to find appropriate indicators of performance; establishing temporal relationships; providing useful management information. Issues (HR practices) Relating constructs (an idea about the way something works – ex. Job satisfaction, conscientiousness) to other constructs or observed variables is difficult Possible Designs
- Survey - Experimental - Quasi-experimental - Qualitative - Case study - Meta-analysis Surveys - Very commonly used in HR - A series of questions, on paper or in interview style - Great for describing attitudes and opinions - Not great for in-depth examination - How you ask the question affects what answer you get! - Population (sampling frame) - Sample - Generalizability Purposes of Organization Surveys 1. To pinpoint areas of concern 2. To observe long-term trends 3. To monitor program impact 4. To provide input for future decisions 5. To add a communication channel 6. To perform OB/HR research 7. To assist org change and improvement 8. To provide symbolic communication Designs
Successive Independent Samples –
Series of cross-sectional surveys
–
Same questions asked
–
Different samples each time
–
Aim is to describe changes over time
–
Confound: if samples before and after an event are not comparable
–
i.e., organizational trust
Panel or Longitudinal –
Same sample of respondents is surveyed more than once
–
Assess direction and extent of change
–
Can assess the effects of a manipulation
–
Problem to find people who will participate
–
Problem of respondent mortality (attrition)
–
Respondents may try to be consistent
–
Initial interview may sensitize respondents
What do Organization’s typically do? - Survey employees along variables of interest (i.e. engagement, turnover intent, etc.) - Aggregate results by team (functional group). - Return aggregated results (averages for each question) to teams; suggest that teams examine results and action-plan together on how to improve. Final Exam M/C – from the textbook Demand -
trend analysis – sales and # of employees Regression analysis Subjective measures Nominal group and Delphi technique
-
Integrated Linear
Supply -
Markov analysis Replacement charts Movement analysis Vacancy modelling Ch. 7-8
Succession Management -
Effective performance appraisal KSAO’s – competencies//readiness levels
Downsizing – improve efficiency and save money (but it doesn’t always work) -
Survivors and victims of downsizing Survivors identify themselves as the victim Survivor syndrome – collection of negative affect
Avoid downsizing -
Flexible work schedules Telecommuting Incentive pay provides the organization more flexibility with fixed and variable cost Contingent and part-time workers If downsizing unavoidable then you treat your victims through outplacement Honest thoughtful reasons to victim
Pre-midterm -
Organization strategy What strategy is Value proposition (what brings value to customer) Product market focus (what do you sell and to whom) Goals (measurable, hard or soft goals) Core activities HR strategies (universal modes, contingency modes, configural mode) Barney (competitive advantage) – rarity, inimitability, non-substitutability, valuable
Restructuring
Organizations need to reduce the variability and risk of their cash flow Organizations often use “cash cows” the fund “star” operations All growth strategies have different tax implications Developing new products and entering new markets is expensive Financial statement analysis often reveal undervalue organizations Goal is to increase shareholder’s wealth
Needs of the CEO of Managing Team -
Managers may pursue their personal interests at the expense of stockholders Often the motives of executives can be deemed unconscious
Merger Methods Hostile takeovers – dramatic and complex
Poison Pills – refers to the right of key players to purchase shares in the company at a discount making the takeover extremely expensive White knights – are buyers who will be more acceptable to a targeted company Pac-Man – is a defensive manoeuvre where the targeted company makes a counteroffer for the bidding firm Success Rate of Mergers -
Only about 20% of all mergers are successful 60% are disappointments 20% complete failure Best success rates are with similar businesses rather than dissimilar ones Mergers take so much time and resources often the original business is neglected Mergers are more successful when a large firm absorbs a small firm Mergers are less successful in service industries due to greater risk
Financial Impact -
Estimated financial returns are rarely realized Many mergers fail because the buyer overextends itself financial with high debt loads
Impact on HR -
Reduced morale may lead to lower productivity
Culture – the set of important beliefs that members of an organization share Climate – behaviours that are rewar4ded and supported by the firm Assimilation – occurs when one organization willingly gives up its culture and is absorbed by the culture of the acquirer or the dominant partner Integration – refers to the fusion of two cultures, resulting in the evolvement of a new culture representing the best of both cultures; the form rarely occurs because the marriage is rarely one of two equals, and one partner usually dominants Deculturation – sometimes the acquired organization does not value the culture of the dominant culture of the dominant partner and is left in a confused, alienated, marginalized state known as deculturation; this is a temporary state, existing until some integration or separation occurs Separation – the two cultures resist merging and either the merged company operates as two separate companies or a divorce occurs
Planning moves beyond the traditional concepts of HR planning for several reasons: 1. The Contingency Plan 2. HR Due Diligence 3. Transition Team Contingency Plan -
Plan should identify the contact person and the merger coordinator Contact person should develop a plan Plan should outline the chain of command, communication methods, procedures, and negotiation skills training
Due Diligence – is a process through which a potential acquirer evaluates a target firm for acquisition including the review of: - Collective agreements - Employment contracts - Executive compensation contracts - Benefit plans and policies - Incentive, commission, and bonus plans - Pension plans and retirement policies - WSIB statements, claims, assessments, experience rating data - Employment policies - Complaints – employment equity, health and safety, wrongful dismissal, unfair labour practices, certification and grievances Transition Team Appoint a transition team to deal with: 1. Urgency 2. Information gaps 3. Stress - HR policy review might uncover complementary, duplicated or contradictory HR policies for the merger companies
Merger affects the following functions: 1. 2. 3. 4. 5.
Selection Compensation Performance Appraisal Training and Development Labour Relations
*horizontal mergers, vertical mergers, reasons for merging, definitions, what can happen in takeover, cultural issues in mergers, financial benefits Selection 1. Retention, and 2. Reduction HR managers must terminate duplicate positions and redundant employees once the merger or acquisition is completed “How many employees does the merged company need?” Lean and mean cuts to the workforce results in greater work overload and stress Post-Merger Changes in Status 1. Demotion – under the new organizational structure, some employees are given less responsibility, less territory, or fewer lines due to amalgamation 2. Competition for the same job – some companies force employees to compete for their old jobs 3. Termination – some employees are let go strategically Compensation •
An important compensation decision for post-merger company is related to:
1. Merge compensation systems? 2. Adopt a totally new compensation system? 3. Create a new compensation system? •
All employee benefits will be subjected to the same scrutiny
Performance Appraisal •
Employee behaviour and performance is usually not typical after a merger or acquisition
•
Employee behaviour post-merger can be modeled into three categories: 1. Not knowing – remedied by more communication 2. Not able – the solution is training 3. Not willing – a strong case for performance management through feedback and incentives
Training and Development - Managers and peers may need some additional training in the role of coach and counsellor to deal with post-merger behaviours - Employees need training for stress reduction and relaxation techniques Labour Relation - It is important to interpret the collective agreement for all relevant clauses that may affect employees and/or managers and their rights to job security, seniority, buy-outs, etc. -
Collective agreements ultimately need to be renegotiated to protect the rights of employees and/or managers that belong to unions
-
union participation helps the merger process go more smoothly because unions make valuable contributions
Chapter 13 Outsourcing Outsourcing – a contractual relationship for the provision of business services by an external provider HR functions most likely to be outsourced: -
Temporary staffing Payroll Training Recruiting Benefits administration
Outsourced HR Functions Compensation: -
Payroll Benefits Compensation administration Pension
Recruitment and Selection: -
Advertisements Screening of applications Testing Reference checking Preliminary interviews Executive salary negotiations Exit interviews
Training -
Program delivery program design and development Training consulting Training needs analysis Program evaluation Strategic planning Administration Training policies
Reasons for Outsourcing: Six Major Reasons: 1. Financial savings 2. Strategic focus 3. Access to advanced technology 4. Improved service levels 5. Access to specialized expertise 6. Organizational politics Financial Savings - Cost reduction is typically 10 to 20 percent - Economies of scale from specialized outsourcers who are more efficient - Cost control - Decreased capital commitments Strategic Focus
- Strategic focus - decide to focus on specific core competencies, like customer service or innovation - Core work is transformational and adds value to employees or customers - Move secondary functions (or non-core work), like benefits administration, to firms that have that do these things well (they are core competencies for the outsourced firm) Core competencies – resources and capabilities that serve as a firm’s competitive advantage - Core competencies distinguish a company competitively and reflect its personality Advanced Technology - Technology has been a main driver of outsourcing - Organizations want to improve technical service if they cannot find technical talent or need quick and reliable access to technology - Technology enables a company to reduce transaction time (the time it takes to handle a request) Improved Service - Quality improvement - Outsource to those who are excellent performers - More flexibility in hiring and rewarding employees - Improved response time, performance and confidentiality Specialized Expertise - “Outsource when somebody can do it better than you.” - Experts understand the complex laws and regulations required in HR - Use of experts reduces the risks and liabilities for organizations - Access to “best practices” Organizational Politics - Outsourced function is not as visible as an in-house department performing the same tasks - Outsource to get rid of a troublesome department (e.g. employees who are underperforming) - Outsourcing reduces headcount - HR outsourced ratio 1:231
- Traditional HR ratio 1:100 Projected Benefits vs. Actual Benefits -
Outsourcing is not as cost effective and problem-free will be provided Incompatible systems and client demands are the reason for excessive costs
Service Risks - Contractual arrangements dictate which services will be provided -
Flexibility is compromised to add new features or change service levels
-
Disruption of service could pose challenges from potential labour relations problems with outsourced organization
Employee Morale - Outsourcing is a form of restructuring that can create displaced, resentful, alienated, and anxious employees - Organizations that outsource face a backlash - About one-third of HR professionals resist outsourcing because they worry about: –
Losing their jobs
–
Being forced to work for a vendor
–
Fear that management believes outsiders are more competent
Reduced Value -
Extreme levels of outsourcing hollow out a company An organization experiences a reduced capacity to generate profits or innovate The internal image of HR may deteriorate
Management of Outsourcing - Selecting the vendor - Negotiating the contract - Monitoring the arrangement Selecting the Vendor Once outsourcing has been selected, the organization needs to do the following:
–
Inform the staff of the affected function
–
Prepare a request for proposal (RFP)
–
Invite internal and external bids
–
Establish a team to evaluate these bids
Request for Proposal -
Selecting the Vendor: RFP - describes the responsibilities to be outsourced and invites potential providers to present their proposal for carrying out the job
Negotiating the Contract - Customize and negotiate the outsourcing contract - Set performance standards or penalty clauses for the outsourcing company - Establish benchmarks for service expectations –
Response time
–
Response cost
–
Customer satisfaction ratings
Monitoring the Arrangement Most frequent causes of outsourcing problems are: –
Poor service definition
–
Weak management processes
Establish a relationship to ensure the outsourcer acts in the best interests of the organization, and has relevant knowledge of the organization - Check outsourcing company’s references - Demand frequent and accurate reporting - Conduct internal and external client satisfaction surveys Chapter 14 What gets Measured?
-
Costs (of implementation) Results (performance) – Job satisfaction and commitment (engagement)
Measuring HR -
Issues (performance)
1) Organization - *profits, revenues, ROA, ROE, economic profit) 2) Team – group performance, group turnover rates 3) Individual – performance rating, attitudes, absenteeism HR levels 1. Principles level – overall objectives of HR (ie. A control strategy versus a high-involvement strategy) 2. Policies level – what HR goals support the principles (i.e. performance-based pay) 3. Practices level – what specific practices supports the policy (i.e. profit-sharing, gainsharing, etc) Decide what you want to measure in HR, what is relevant, choose an outcome in every outcome Where to get the measure of HR? Senior management (1 person can give incorrect information) Line Managers (do they understand the purpose of the HR practices?) Employees (what information do we seek?) Typical Sources HR policies or practices data often come from the senior HR management team. - Problems include confusion of level (policy or practice); extent to which HR practices may differ between employee groups; extent to which HR managers are biased or wrong. Employee Surveys - Problems include the challenge to find appropriate indicators of performance; establishing temporal relationships; providing useful management information. Issues (HR practices) Relating constructs (an idea about the way something works – ex. Job satisfaction, conscientiousness) to other constructs or observed variables is difficult Possible Designs
- Survey - Experimental - Quasi-experimental - Qualitative - Case study - Meta-analysis Surveys - Very commonly used in HR - A series of questions, on paper or in interview style - Great for describing attitudes and opinions - Not great for in-depth examination - How you ask the question affects what answer you get! - Population (sampling frame) - Sample - Generalizability Purposes of Organization Surveys 1. To pinpoint areas of concern 2. To observe long-term trends 3. To monitor program impact 4. To provide input for future decisions 5. To add a communication channel 6. To perform OB/HR research 7. To assist org change and improvement 8. To provide symbolic communication Designs
Successive Independent Samples –
Series of cross-sectional surveys
–
Same questions asked
–
Different samples each time
–
Aim is to describe changes over time
–
Confound: if samples before and after an event are not comparable
–
i.e., organizational trust
Panel or Longitudinal –
Same sample of respondents is surveyed more than once
–
Assess direction and extent of change
–
Can assess the effects of a manipulation
–
Problem to find people who will participate
–
Problem of respondent mortality (attrition)
–
Respondents may try to be consistent
–
Initial interview may sensitize respondents
What do Organization’s typically do? - Survey employees along variables of interest (i.e. engagement, turnover intent, etc.) - Aggregate results by team (functional group). - Return aggregated results (averages for each question) to teams; suggest that teams examine results and action-plan together on how to improve. Final Exam M/C – from the textbook Demand -
trend analysis – sales and # of employees Regression analysis Subjective measures Nominal group and Delphi technique
-
Integrated Linear
Supply -
Markov analysis Replacement charts Movement analysis Vacancy modelling Ch. 7-8
Succession Management -
Effective performance appraisal KSAO’s – competencies//readiness levels
Downsizing – improve efficiency and save money (but it doesn’t always work) -
Survivors and victims of downsizing Survivors identify themselves as the victim Survivor syndrome – collection of negative affect
Avoid downsizing -
Flexible work schedules Telecommuting Incentive pay provides the organization more flexibility with fixed and variable cost Contingent and part-time workers If downsizing unavoidable then you treat your victims through outplacement Honest thoughtful reasons to victim
Pre-midterm -
Organization strategy What strategy is Value proposition (what brings value to customer) Product market focus (what do you sell and to whom) Goals (measurable, hard or soft goals) Core activities HR strategies (universal modes, contingency modes, configural mode) Barney (competitive advantage) – rarity, inimitability, non-substitutability, valuable
Restructuring
