About Mia Dragostin
Identify the key strategic issues, themes and theory which are need to be considered when establishing the function in the new organization
As both companies subject of the merger belong to the same industry, we have the indication that this is a horizontal merger, and this, according to Bank Street site glossary means that the companies selling the same type of products or services might be in fact competitors in the pre-merger.
Before trying to give my friend any advice, I need to find out more precisely what questions are related generally to mergers.
Very briefly, Post (1994, p.101) notes that mergers have as main driving force ‘the profit motive and market control through expansion’. Consequently, the financial criterion is considered to be the main evaluation criteria of success for mergers.
Similarly, Legare (1998) indicates that the mergers are deeply analyzed from the financial point of view, with a lot of emphasis placed by top management on legal, financial and productivity issues; the same focus on law and financial is observed by Buono and Nurick (1992).
However, Legare (1998) suggests that the real success of the merger relies on the way in which the integration of the merged companies is handled by the human resource department. This argument is supported by Post (1994) who places among the factors that make mergers succeed the efforts of ‘keeping top management and key personnel and explaining corporate culture to new employees‘ (Post, 1994, p.101), while a source of mergers failure is ‘the clashing of corporate cultures’ (Post, 1994, p.102), amongst other factors.
The interpersonal conflict at the executive level (level which contains individuals from the merging companies) generated by differences in vision regarding the goals of the new structure is considered by Legare (1998) an important issue, which unsolved, could determine key people to leave the new company, with a final result of poor performance post-merger, instead of the desired and planned improvement.
The same importance of HR is revealed by Walker and Price (2000), who note as well that ‘people-related issues’ unwisely addressed proved to achieve rather failure of mergers than success.
Legare (1998) suggests that when human resource department function receives a great importance in planning and implementing mergers, the human ‘misfits’ could be consciously avoided.
The fact that in our case the top management supports training and development (TD) approach is a signal that the TD manager is expected to bring direct contribution to the success of the whole merger.
Thus, I can assume that Learning and Development (LD) department that my friend PO is appointed to manage, has the role to help avoid the human ‘misfits’, overcome the expected culture clash and make the merger a profitable business in reality.
Making the best of both companies is the main goal of LD
I propose that an initial analyze of the key issues should take into account when approaching the design of her department strategy, analyze which uses the Bolman and Deal (1991) four frames theory. According to this theory, there are four frames (or perspectives) which should be used when trying to understand what is happening in an organization. These frames reveal a partial view on reality, and the complexity of the reality asks for connecting in a larger view all partial pictures as revealed by each frame. The frames are: structural, human resource, political and symbolic.
Under the structural frame, my friend needs to find answers to the following questions:
- What is the structure of each company? If this is an international merger, we could assume that they differ, and the new company needs to harmonize the differences. The key issues which might require clear details are:
- 1. The structures of the component companies are: unitary, centralized, decentralized, divisionalised, matrix, process-based, or a flexible type (core-periphery, ‘shamrock’, ‘as-hoc-racy’) (Armstrong, 1999). Each of this structure requires a specific approach to HRD and if different in the component companies, a serious effort of synchronization is required in order to generate coherence.
- What were the formal roles and relationships in individual companies and what are these in the new company? Do the HRD departments of the component companies have similar functions? Hubbard and Purcell’s (2001) research suggest that a large number of personnel are leaving the company when the new roles generate disillusionment, ethical issues, in a new working environment, with new tasks, colleagues, bosses, customers.
According to Hendry (1994), in an international firm, as the new company is, the HR strategies depend on the choice of staffing. Perlmutter (1969, cited in Hendry, 1994) the staffing choices range from: ethnocentric (with main decisions taken at headquarters and subsidiaries managed by expatriates); polycentric (subsidiaries are granted local control of operations and management by locals, but the headquarters staffed with parent country’s nationals decide the targets); regiocentric (regional managers are granted larger autonomy, but important decisions are taken by managers from the parent country); geocentric (top management is international, and staffing is based on contribution, rather than on nationality criteria).
Consequently, the LD function is closely related to the type of staffing promoted in the new company, would generate specific strategies to manage the HRD function. For example, for an ethnocentric type, HRD needs to concentrate on enabling the transfer of skills through expats.
Analyze under the human resource frame generates additional questions:
Using this frame, Bolman and Deal see the organization as a place where the needs of the organization and of the individuals meet. Thus, when the organization is not able to contribute to fulfilling employees’ needs, either people’s talents are wasted, or people are lost, by their leaving. So my friend needs to identify
- What are each organization needs, i.e. ‘professional experience and expertise, ideas and commitment’ (Telford, 1996, p.16)
- What are the organization needs for the new company?
- What are people’s needs, i.e. ‘work satisfaction, income, and personal expression’ (Telford, 1996, p.16)
- Identify how the needs can be balanced.
- The redundancies generate problems of redesigning the workload, new skills required, adaptation to new structures.
The political frame of Bolman and Deal (1991) implies that conflict in coalition emerges when there are substantial differences and scarce resources, and in this case power becomes a resource. The process consists of bargaining and negotiation. The politics of achieving consensus in the daily processes of work and reorganization highly influence the result of the merger. Political frame is especially relevant for:
- Leadership issues related to the type of industry: As Bertrand and Noyelle (1998, p.82) indicate, the financial industry is characterized by ‘highly segmented division of labor, strong top-down chains of command and chains of mobility’. The features of the industry structure translated into leadership and decision-making could generate huge disharmonic issues. For instance Post (1994, p.45) notes that one rule of success for a seller (the smaller company in a merger, in our case) is to ‘maintain corporate culture and ethics as well as personal integrity’. Therefore, if the both actors in merger want inflexibly to attain such a success criteria, seems to be difficult to realize the complex transformations required in mergers without considerable conflict.
- More, the fact that the companies might be competitors, used to view each other in a negative way, negotiating at the level of daily duties could be a very difficult process, where human defenses and resistances to be brought into stage. HRD needs to be equipped with skills and understanding of such issues in order to deal with them. The HRD’s flexibility and sensitivity is essential here and a decisive answer to the question ‘could enemies become friends’ must be given.
According to Armstrong (1999) the political behavior has as main feature the fact that it is discreet; political influence is exerted regardless it is consciously acknowledged, and in the case of a company where might exist factions of ‘us’ and ‘them’ could lead to group conflicts, which could break the company , if not correctly addressed. The HRD has to pay attention and to foster collaboration in team-work groups.
The symbolic frame of Bolman and Deal (1991) reveals the beliefs and assumptions which give meaning to the way the things are done
- The HRD needs to identify the organizational culture of each organization. Answers to the question’ How are the things done?’ would reveal ‘the beliefs, values, attitudes and behavior norms’ which underlie ‘the symbols, rituals and ceremonies’ that take place in organizations. (Telford, 1996, p. 18)
- Can be fostered a functional collaborative culture?
Armstrong (1999) emphasizes the decisive importance of culture for an organization, noting that culture can ‘do the work’ for an organization, by fostering a supporting environment for improving performance, can ‘work against’ by building barriers which prevent from attaining organization’s objectives.
Having a wide understanding of organizational process, Legare (1996) advises about the organizational defenses against change as demonstrated by Argyris (1993) and for a durable change in mergers, is required to understand and deal with the organizational group assumptions as well.
My friend needs to discover, analyse describe what the organizational culture of each organization is. Based on this understanding, and using as guide the new company desired culture, the HRD professionals need to help, possibly, unlearning of old defensive routines which keep them back from integration, and learn (adapt) to new organizational culture concepts and views, by engaging employees in the double-loop learning (Argyris). If this horizontal merger is one between equals, then the TD manager has to consider if the new culture would be one of the previous independent companies, or will be designed a new culture, able to generate a new start for employees of both companies, thus assuring equal opportunities and challenges.
Literature suggests great difficulty of accommodating the perceptions of each others companies’ employees, Buono & Nurick (1992) revealed ‘we’ versus ‘they’ splitting in the new formed company.
Segal (1996, quoted in Legare, 1998) indicates that HRD department should be aware that changing values and integrating organizational culture requires a deep understanding of human feelings.
For HRD one of main stakeholders is the employees. They are directly affected by merger as they must accommodate the organizational change by changing themselves. This accommodation is not part of job description, so as any extra tasks, employees must be bought-in for change. Buono and Nurick (1992, p. 20) supports this idea when states that employees commitment ‘must be earned rather than assumed’.
For line managers integration could generate modifications of their job position: status, changes in duties and responsibilities, adjustments in their job structure and internal values and perspectives.
Suggestion for according individual’s and organizational needs and reduce the mismatches are offered by Legare (1996, p. 39): ‘think like Freud, embody Rogers and use Lewin’. Thus advocating for an approach which tackles directly the deepest human psychological issues, Legare supports the role of HRD professionals as interpersonal conflicts diffusers.
Regarding culture as the merger is between two organizations in different countries, real integration should take into account besides the culture of organization and the culture of the two geographical areas, and this just introduces another dimension of the diversity which should be given proper attention.
Outline how to approach the development of the organization's TD policy
According to Reid, Barrington and Brown (2004, p.96), the policy of HRD is influenced by
- ‘aims and strategic objectives of the organization
- Size, tradition and prevailing culture
- Products and services
- Economic and social objectives
- Recruitment policy
- The labor market and the alternative means of acquiring skilled and qualified staff
- Obligations to provide professional updating (continuing) training
- Top management’s views on the value of learning and training
- Availability of information about the organization’s learning and training needs
- Past and current HRD policies and practices
- Learning and experience of its managers
- Caliber of its HRD staff
- Resources that can be allocated to the function
- Expectations of the employees and their representatives
- Legislation and government-funded schemes’
This large list of factors which draw their influence on the final policy reveal that HRD policy wisely structured could be a very sensitive tool for assessing the evolutionary phase of each factor, and the impact it has on department’s strategically approach.
Questions which need to find an answered before projecting a coherent HRD policy.
- For the positions that double, how does the new company deal: keep the specialists and train for new roles or decide for redundancy? How to keep the talents?
- Translate or unify the cultures: identify own vision and goals of individual companies and generate common visions and goals; unify values, make clear the roles and responsibilities; foster new team spirit, in a commonly accepted ‘way we do the things’
- Translate or unify operational standards for new company: to assure that top and line managers participate conscious and actively to apply training policy
- Banking industry: is this a professional services one? If yes, the value rests entirely in the staff; lack of HR integration could have direct effect on customers’ business relationship
In our merger case, the integration of the two component companies could be considered the main HRD goal.
Stopper (1999) indicates the five stages of integration needed to generate a successful, merger, known as Pathfinder Model: 1. Start-early: a stage where a plan for merger is to be designed, together with identification of talents;
2. Implement restructuring as soon as possible: is recommended a quick and decisive approach to restructuring, acquired through a straightforward communication of future actions
3. Dedicate resources: appoint a manager of the integration, who is supposed to manage the resources and keep the process under accountability
4. Integrate operations and cultures concentrating on results, by using short-term projects which could generate visible results
5. Communicate with constituencies
The 100-days plan aims to integrate the cultures of the companies as soon as possible. This approach, even if might sound seductive for a figures driven shareholder who has as mental metaphor the assumption that ‘time is money’ , Legare’s (1998) approach which takes into account the human psychology seems to be more in tune with the realities noted by researchers.
According to Stopper (1999) the integration manager is expected to identify needs and goals for integration, and to act as a liaison between merged companies.
The process of designing should have five stages (Armstrong, 1999): analysis of the present situation, diagnosis of things to be done for better functioning of the department, plan for implementation of the changes, implementation of the plan, and final evaluation of the designing process.
Bertrand and Noyelle (1988, p. 9) indicate that in the financial sector there has been registered a shift from the once companies of great stability and continuity, to more flexible and adaptable companies. The type of services shifted to customer assistance, which demands ‘decentralization of functions and decision-making responsibilities’. This generated a new need from HR, especially HRD to offer solutions for up skilling labor force for being able to deal with new tasks of the new functions of the business. This view on the changing content of the competencies (table 1) required in the banking industry indicate another central task for HRD, competing for attention in the same time with the need for integrating the cultures.
Table 1. Bertrand and Noyelle, 1988, p.41
The impact of this shift in competencies needs on HRD strategy demands a careful planning of training and development actions, and permanent monitoring of the progress.
In order to achieve a real cultural synchronization, a possible path to use is to engage in Strategic HRD. Grieves and Grieves (2003) identify Strategic Human Resource Development (SHRD)’s characteristics: HRD is part of business strategy, line managers have responsibility for, training is replaced with learning and workplace learning has a major importance.
Through applying SHRD, the HRD manager could realize the so much needed integration of the two merged companies, as the strategy resulted under a SHRD approach enables the change under the external and internal pressures, generating the required flexibility and adaptation.
The policy of HRD depends largely on the top management views regarding the vision and goals of the new company, and the type of process used to achieve them.
Whether the board decides for modeling the new company after the looks of the acquirer, or wants to negotiate for a new organization framework, more collaborative and flexible in essence, any of these choices determines the approach of HRD policy.
If HRD manager is convinced that the success of the merger depends on the way people from previous competing companies, work together for new business purposes in the new company, then, regardless of the framework adopted by the top management, HRD should try to influence them in embracing this approach (if they think contrary), or to become passionate about it (if they are in the same thinking frame). This takes us to the next section: how does HRD manager market its function?
Creation of a marketing strategy for TD function, products and services
Targeted marketing is one marketing strategy which uses the concept of market segmentation. A market segment is a group of customers similar from the point of view of the criteria used for differentiation. The individual members of a market segment generally have common demands or needs, and it is assumed that they respond in a similar manner to the same message.
LD manager could use the targeted marketing if is able to identify the market segments, market being in this case the organization
This marketing strategy of TD function makes perfect sense if we perceive the organization from a stakeholder perspective (Mabey, Salaman and Storey, 1998). In figure 1 there are detailed the groups of stakeholders and their specific interests when training and development issues are in focus.
Figure 1. Mabey et al., 1998, p. 381
In fact, Joy-Mathews, Andrews and Firth (1999) use the same approach, identifying the groups inside organization that are subject of HRD marketing persuasion, and there specific needs. Directors are members of the first group, with the need for organizational performance; department managers make a second group, looking for efficiency; the trainers who want cost effectiveness and the trainees who look for improving own performance.
It is obvious that the stakeholders approach shows that for different groups which have different needs, the HRD offer and communication discourse with these groups have to be different. The conclusion is that ‘marketing the function to individuals demands a very different strategy to marketing to a board of directors’ (Joy-Mathews et al., 1999, p.460)
Using the above theoretical frame, the most obvious benefit of marketing TD function is improvement of communication channels between TD department and its stakeholders. But, as Joy-Mathews et al. (1999), communication and persuasion is only a small benefit of marketing approach: the main result is the fact that TD activity unfolded under a marketing spirit, is a way of flexibly supplying the demand of the stakeholders, by identifying what demands are, and offering a suitable training service, using an adequate message.
In our case, the HRD function has two main goals
- to enable the required up skilling, according to new competencies needed, and
- to enable the cultural integration of the merged companies
A targeted marketing strategy could contain the following steps:
- Identify the stakeholders and link each group with present and future needs
- Pro-actively (taking into account the environmental changes) devise the training proposals in order to offer solution to the identified needs
- Keep alert to the possible regrouping of the stakeholders groups and involve them in the design and implementation of the strategy (Walton, 1999)
This strategy seems to be suitable to enable achieving the above goals.
At its extreme, the targeted marketing becomes customized marketing, where the training service matches the specific demand of each buyer, in our case each stakeholder.
While developing a marketing strategy, the marketers need to pay attention to price, product, promotion and place (four Ps). This marketing mix helps in designing the adequate product (in our case training service), delivering the expected results to a specific stakeholders group.
Applying marketing approach to HRD could be in fact a tool for enhancing the match between the purpose of the training and the individual’s own needs and purposes, as found in Knowles’ (1984) andragogy: adults are most interested in learning subjects related relevantly to their job or personal life. Through marketing, HRD gets one step closer to identify these relevant subjects, and thus integrates this activity deep into the fabric of HRD ‘traditional’ activities.
Walker and Price (2000) identify as well that HRD contribution to retain and integrate talent is essential for merger’s success. In the same time, if HR department’s strategy should communicate employees who will realize the change, not necessarily the profitability and business growth aims, but to translate these into benefits for them. This idea takes us to the problem of communication.
Evaluating the financial viability of the TD function within the organization
Napier (1989, p.273) indicates among the main reasons of mergers: ‘to create value for the shareholders (create profits through economies of scales, apply knowledge and skills from one company to the other, controlling target company’s management); increasing sales; increasing managements’ prestige; and decrease uncertainty in external environment of the company. Top management needs, thus, to be proven with financial criteria - figures and indices - that the planned targets were achieved.
But, evaluation of the training and development interventions’ performance is the dark shadow that hangs over TD function. Measuring the outcomes of TD activity is one of the most controversial aspects of training, and the financial viability is even more difficult to demonstrate in the language understood by top management and shareholders. The traditional financial framework which uses Return on Investment model (for instance) requires well defined financial measures, measures difficult to be applied to TD function.
Stopper (1999) reveals that most mergers prove to generate loss, by not recovering the costs of the deal, and more, following merger, the productivity, the stock market and profits fall. Buono & Bowditch (2003) suggest that the cost loss generated by problems experienced by each individual could be quite high. Amongst them: tardiness, absenteeism, turnover (especially of key members), reduced output, declining morale, loyalty, commitment, trust.
But, assuming that the previous steps of understanding the nature of the mergers, creating a LD policy and of a marketing strategy were achieved, the financial viability of the TD function is a result that is a normal consequence of implementing the previous steps.
Still, financial viability is the dark shadow that hangs over TD function.
The traditional financial framework uses the Return on Investment model, which requires well defined financial measures. The outcomes of TD activity are difficult to be evaluated in clear-cut measures.
In a service based sector as banks are, the profits are generated at the interaction interface between employees and customers. No matter what the financial products offer might be, without employees’ active participation in their delivery, the real profits could get far away of the potential profits, in the way they were designed.
Buono and Bowditch (2003, p. 234, citing Kelley, 1987) indicate a chain of dependencies which finally impact on profits.
- Banks’ customers do not complain when they are dissatisfied with service, but they just change the financial institutions
- Customers’ dissatisfaction is related to the poor quality of service
- Poor quality of service is determined by employees’ perception of poor management
- Employees treat customers the way they are treated by their management
- Thus, if the customer service is to be improved, the way the employees are treated must be improved.
- The conclusion for a merger is that if the employee’s problems which arise during the change period are not addressed coherently by top management, the final profits might be hugely affected.
The TD interventions could be aimed to help people overcome the difficulties of a merger. In the same time, this could constitute as well a motivational tool, as employees could feel that the top management cares about them, that they are important and valuable for the firm.
The main conclusion of the presentation is that a successful merger needs to be well planned, and the human resource issues should be addressed in the same measure as the financial, legal and operational ones.
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