Abstract
Over the past one decade, mergers and acquisitions increased at a record rate globally, especially in the United States. The telecommunication sector experienced no exclusion to this phenomenon and the three major telecommunication mergers included MCI and Verizon, Sprint and Nextel, and BellSouth and AT&T. As a result, the telecom playfield faced a whole new level of competitiveness and consequential obstacles. Similarly, the Telecommunication sector in the United Kingdom has also seen several mergers and acquisitions in the past decade.
Despite the sudden popularity of mergers and acquisitions in the corporate backdrop, research suggests that the success rate of M&A’s is typically disappointing in terms of meeting the premerger strategic goals Cartwright & Schoenberg (2006) saw the failure of M&A’s a result of various human resources factors such as cultural disparity, loss of talent, poor motivation, and mismanagement. Owing to this consideration, this research study will examine the impact of mergers and acquisition on employee motivation, taking the example of a recent merger between two telecommunication conglomerates based in the United Kingdom.
Acknowledgement I would gratefully like to acknowledge the following people for being a source of guidance and support through the course of this research. I thank you all for your time, patience and energy to contribute majorly to the study and its results: My teachers who guided me to work towards such an objective and contribute in some way to the society The members of the Communication Workers Union for patiently responding and honestly participating in the survey My family for being patient with me during this research period and understanding my priorities Miss Edwards for forming the
basis of the Morale and Turnover Intention Survey, which contributed as an effective instrument for the purpose of this research. I acknowledge anyone who directly or indirectly assisted me through this endeavor. Contents Chapter 1: Introduction Background of Study In today’s economic scenario mergers and acquisitions is one of the most beneficial way of corporate restructure. An acquisition means purchase of a company or organization by another company or organization.
In an acquisition the buyer has to physically buy control over the bought company, it buys a majority share of the company that make the buyer the owner of the company. It is when one company (the purchaser) purchases or buys over a part or whole of another company (the acquired company) . Mergers and acquisitions are a very vital part of the corporate restructuring policies in today’s financial world. The main aim behind the acquisition or merger is to create a combined share value which is more than the individual share values of the companies combined .
Another form of corporate restructuring is merger. A merger involves discussions between both companies in order to merge a part or whole of the companies together. The number of mergers and acquisitions in US has risen dramatically in the last two decades. The value of US dealings reached US$ 1. 3 trillion in 1999 while the total value of trans-national dealings was US$ 720. 1 billion in 2000 . However, it was proposed in 1987 by Harvard University Professor Michael Porter that around 50 % mergers and acquisitions fail .
In 1995, Mercer Management Consulting reported that around 60% firms that were involved in M&A were less profitable than before . These postulations will be the basis of our discussion of this paper. The importance of M&A’s could not be ignored in the economic settings of the 21st century. In 2003, about 7000 corporate mergers and acquisitions were recorded at a value of $440 billion . This figure is reason enough to believe that mergers and acquisitions have recently emerged as important business and economic tools.
A number of researchers, however, conclude that despite the ever increasing popularity of M&A’s as a means for swift and easy growth, fewer than 20% of the total mergers are successful in terms of achieving the predefined financial and strategic objectives of an organization . This failure is often owed to management conflicts, human resource gaps and other factors that somehow root back to the employees. The objectives behind M&A’s can range from increasing shareholding value , creating better opportunities and growth pathways for mid and top level management , increasing the total market share and to attract a pool of knowledge .
Despite the sad rating associated with successful mergers and acquisitions, a number of companies engage in the practice for the sake of potential rewards that are often too enticing. Mergers and Acquisitions have been an interesting topic in various disciplines including human resources and therefore entail a large amount of literature. Although much of this literature discusses the dynamics and outcomes of mergers, the role of individuals directly affected by such practices is often ignored.
For this purpose, our research studies the effect of mergers and acquisitions on the 2010 merger of T-Mobile and Orange Mobile United Kingdom. Definition of Key Concepts: To be able to understand the results and the research questions clearly, it is important that some key concepts used throughout the research are defined and understood. They are as follows: Impact: According to Oxford Dictionary, the word impact is defined as having a strong effect on someone or something.
For the purpose of this study, impact is defined as the effect of merger on employees of the telecommunication sector. Merger: According to investopedia, a merger is defined as the combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock. Employee: According o investorwords. com an employee is a person who is hired to provide services to a company on a regular basis in exchange for compensation and who does not provide these services as part of an independent business.
Motivation: The term motivation is defined by the business dictionary as Internal and external factors that stimulate desire and energy in people to be continually interested and committed to a job, role or subject, or to make an effort to attain a goal. Motivation results from the interaction of both conscious and unconscious factors such as the (1) intensity of desire or need, (2) incentive or reward value of the goal, and (3) expectations of the individual and of his or her peers.
These factors are the reasons one has for behaving a certain way. An example is a student that spends extra time studying for a test because he or she wants a better grade in the class. Statement of Problem The frequency of mergers and acquisitions has increased so much so that a study suggests that employees will go through at least one merger during their work life . Despite this increasing frequency, a survey research by A. T. Kearney concluded that most of the mergers globally fail to create any value .
According to Astrachan 1992, this failure is often owed to the sense of uncertainty and the feeling of confusion that employees feel right after a merger. Furthermore, employee motivation in the form of high morale and the intention to stay with the organization after the merger is highly important to create successful consolidations . Usually, the problems linked to mergers and acquisitions have their roots in the inability of the management to create a uniform culture after the consolidation process. Therefore, employee motivation remains a neglected area when mergers and acquisitions are considered globally.
For this purpose, there is a need to address this untouched area of management whereby successful mergers and acquisitions are achieved by monitoring employee morale and the turnover intention. Purpose of Study The purpose of this study is to identify the impact of a telecommunication merger on employee morale and their intention to stay with the newly formed consolidation. This research will enable managements to make mergers and acquisitions to be able to meet their strategic goals and prove to be successful with regards to human resource management.
Furthermore, the study will also aim at identifying the underlying effects of various demographic variables on employee morale and turnover intention so that motivation amongst the employees can be rated. Rationale The increase in the number or mergers and megamergers globally is not a fruitful idea in terms of human resources and often has a resulting negative effect on employee motivation, which is directly linked to their morale and the turnover intention. This research will enable managers and leadership to consider this neglected area as a route to successful mergers and acquisitions.
Moreover, the research will enable learning for managers in terms of increasing employee morale and retention during a merger and acquisition setting in the future. Research Questions The study is primarily quantitative and shall be able to answer the following questions and capture employee sentiments after a recent merger in the telecommunication industry. RQ1: What are the ratings of morale level amongst the post-merger employees of the telecommunication industry? RQ2: What are the ratings for turnover intentions amongst the post-merger employees of the telecommunication industry?
RQ3: Are there any significant correlations between demographic variables (age, gender, education, income level) and morale and turnover intention ratings amongst the post-merger employees of the telecommunication industry? Hypotheses HO1: There is no significant relationship between demographic variable age and the morale and turnover intention among the post-merger telecommunication employees. HA1: There is a significant relationship between demographic variable age and the morale and turnover intention among the post-merger telecommunication employees.
HO2: There is no significant relationship between demographic variable education level and the morale and turnover intention among the post-merger telecommunication employees. HA2: There is a significant relationship between demographic variable education level and the morale and turnover intention among the post-merger telecommunication employees. HO3: There is no significant relationship between demographic variable annual income level and the morale and turnover intention among the post-merger telecommunication employees.
HA3: There is a significant relationship between demographic variable annual income level and the morale and turnover intention among the post-merger telecommunication employees. HO4: There is no significant relationship between demographic variable tenure of current position and the morale and turnover intention among the post-merger telecommunication employees. HA4: There is a significant relationship between demographic variable tenure of current position and the morale and turnover intention among the post-merger telecommunication employees.
HO5: There is no significant relationship between demographic variable tenure in the telecommunication industry and the morale and turnover intention among the post-merger telecommunication employees. HA5: There is a significant relationship between demographic variable tenure in the telecommunication industry and the morale and turnover intention among the post-merger telecommunication employees. The above stated hypotheses will be tested to determine whether demographic variables have an effect on employee motivation during mergers and acquisitions. Significance of the Study
Mergers and Acquisitions have emerged as an exceptionally popular method to realize rapid and easy growth . Research suggests that employees are motivated to fulfill their personal needs . Therefore, it can be concluded that a motivated workforce with a high morale rate and the intention to stay will be translated into successful business mergers and acquisitions. The result of the research will prove to be significant for managers to pull off successful cultural integrations and meet the pre-set business strategic goals after mergers and acquisitions. Assumptions and Limitations
According to , it is effective to use survey research when the objective is to obtain a relatively large quantity of data in a small period of time. Therefore, it was assumed that the Morale and Intention to Leave survey authored by Edwards, 2001 doctoral dissertation was a useful tool in answering the primary questions pertinent to the research. Furthermore, it was also assumed that the changes made to Edward’s survey had no impact on the validity and the reliability of the survey tool. It is also assumed that the participants filling the questionnaire clearly understand each question.
Furthermore, honest and unbiased answers on part of the participants are also major assumptions. The survey was based on closed-ended questions so that quantitative analysis could be derived based on a Likert scale ratings assumed to be representative of the variables to be studied. Although factors such as confidentiality and anonymity were maintained and taken care of during the course of the study, the respondents may have been forced to answer in socially acceptable ways, affecting the results of the research.
Other limitations include the truthfulness of the respondents which could not be monitored or controlled by the researcher, and may be affected by weather, personal experiences, work-related experiences, etc. The research is also limited to the sample of workers belonging to the CWU and the results may not be generalized to nonunion employees belonging to the telecommunication industry. Nature of Study Leedy & Ormrod (2012) suggest that when a research is based on a scientific inquiry, through which reality is to be measured, quantitative tools should be used.
Therefore, the research is based on a quantitative survey keeping in line with Leedy and Ormord’s explanation. Edward’s Morale and Turnover Intention Survey was tailored and the sample was based on CWU service workers, where the total number of workers is over 4000. The survey is based on statements relating to job-related morale and intention statements, and demographic variables. The analysis of the data shall provide information about the impact of telecommunication merger on employee motivation in terms of morale and turnover intention.
The primary model of this research, as discussed earlier, is based on study. Under the research, demographic, as well as work-life variables are considered to represent their impact on employee morale and turnover intention. Factors such as morale, job satisfaction, intention to leave the organization, are all interlinked with quality of work and productivity, which in turn is a subset of motivation Organization of the Remainder of the Study Chapter 2 of this paper presents the literature review in support of the human resource perspective and issues during the times of mergers or takeovers.
Consequently, chapter 3 discusses the methodology used to gather the data, followed by chapter 4 which provides detailed data analysis. Finally, chapter 5 completes the research with a final discussion and the takeaways from the research, as well as some recommendations targeted at managers for future merger and takeover situations. Chapter 2: Primary Research Literature review From a human resource perspective, Mergers and Acquisitions have become synonymous with a number of employee related issues such as lower morale, absenteeism, job dissatisfaction, increased turnover and unproductive conduct.
According to about half of all merger failures could directly or indirectly be owed to the “employee problems” that rise in the post merger period. Therefore, a study of employee behavior and psychology can be fruitful to companies seeking mergers as a means to growth. With reference to M&A’s, , noted that workers that are uncertain about their future in an organization tend to use up their energy trying to cope with anxiety and confusion that is a direct product of the insecurity. This in turn affects the productivity of the workforce. Hambrick & Jr.
(1993) studied the impact of mergers on executive level employees with the findings that the social climate and the level of autonomy of the post merger organization are very important in worker productivity. This means that the culture and the ability to make decisions determine largely the performance of the executive level employees. Communication is the key to change management and buffers the resistance shown by employees during a change process . Therefore, most of the resistance comes from employees due to lack of communication, which eventually leads to job insecurity and fear for the future.
This further indulges the employees into behavior that reflects stress, such as believing in the rumors, focusing on the negative side of change, and believing in false sources of information . According to the post merger era fuels the grapevine and the rumors reach their height, creating more anxiety and stress in the organization’s culture. These fears, whether true or not, lead to unproductive behavior, along with a workforce that is fighting a constant fear of being replaced or removed from the organizational chart.
A study by Ashford et al. , (1989) suggested a positive correlation between the number of changes that take place within an organization, and job insecurity amongst the employees. This insecurity is often translated into lack of commitment to the organization, lack of job satisfaction, lower productivity, trust issues with the company, and underperformance. Therefore, the psychological reaction projected by the employees as a result of M&A’s can easily determine the success rate of such a deal.
To pinpoint these issues and counter them, it is essential to understand the sources of employee resistance and stress. The sources of stress can be divided into two parts: the psychological effect of mergers on the employees, and the role of communication in managing resistance to change. Psychological Effects of Mergers on Employees Brockner et al. (1992) suggests that layoffs often have negative impact on the survivors in an organization and an off-putting effect on the overall performance of the entity.
A research by Panchal & Cartwright, (2001) aimed at finding the stress levels amongst the employees following a merger or acquisition. The research revealed that the employees that were with the company before and after the merger showed a higher level of stress and negative work attitude as opposed to those who were hired after the merger. Identity Identity is an integral part of employee psychology and provides a sense of belonging which is translated into commitment to the organization.
Identity is often associated with mergers and acquisitions and the focus is placed on identity or employee identity crisis as a result of change Studies suggest that after a merger or acquisition, employees must adjust themselves with the changing workplace environment and culture which requires cognitive and emotional separation from the conventional ways and coming to terms with the new organizational reality Rousseu & Sitkin (1988) believe that the change resulting from a merger or acquisition poses a challenge to the employees’ identity due to the disturbance of cognitive associations and emotional connections to one of the two consolidating companies. Identity functions as a cognitive framework through which employees respond to changes in the organization. Jones & Volpe (2010) suggest that organizational identification results in behavior that produces employees who feel protective about their organization.
Marks & Mirvis (2001) observed that employee identity often faces a risk during mergers and acquisitions, and pose a threat to employees’ job continuity, efficiency, and self-esteem. Flynn (2005) discussed the three possible identities that employees are likely to adopt. They are grouped under personal, group and organizational. Defining one’s self as a distinctive individual portrays a personal identity type; defining the self as a member of a group is a reflection of relational or group identity; while defining the self as a member of the whole organization reflects organizational identity. Attitude and Behavior The discipline of psychology has identified attitude as one of the most commanding predictors of human behavior. The theory of planned behavior is one of the most popular literatures on behavior and attitude.
The theory holds that an individual’s intent to perform some act (or behave in a certain manner) increases as the attitude towards the behavior becomes more favorable or positive. Armitage & Conner (2001) suggested that the theory of planned behavior is by far the most concrete model of attitude and behavior with figures suggesting the theory of planned behavior accounting for 27% of the variance in subsequent behavior and 39% of the variance in behavioral intentions. Eagly & Chaiken (1993) suggested that attitude alone is a strong determinant of behavior. Numerous other research studies also found out that attitude has a direct influence on behavior. Lipponen et al.
, (2004) found that optimistic attitudes demonstrated by one group of employees to the other company’s employees during a merger were positively associated with post-merger identity, whose precursor was alleged to be justice during merger integration. Van found that identification with the pre-merger company of origin and identification with the post-merger entity was positively correlated to job satisfaction and citizenship or owning behavior in employees. These same identities were negatively related to turnover intentions and negative emotions or behaviors. Communication The role of effective communication during mergers and acquisitions has been the objective of a number of studies and researches. Contrary to management’s perception that advance notice to employees of a merger or acquisition did not positively correlate with increases in absenteeism, tardiness or productivity.
Consequently, Schweiger & DeNisi, (1991) found that effective communication on the long term career potential employees might benefit from after a merger or acquisition may considerably boost employee’s confidence and enhance their commitment to the new consolidation. Similarly Bentley 1(996) and established that communication plays a fundamental part in the acculturation process that employees go through during a merger or acquisition. A communication program by Schweiger & DeNisi (1991) termed as “realistic merger preview”, designed to mitigate the negative effects of mergers or acquisitions on employees after the consolidation, accounted for positive results by lowering levels of global stress and uncertainty.
It displayed the importance of effective communication in helping employees survive times like mergers with greater confidence and esteem. It also improved job satisfaction for the survivor employees. Davy et al. (1988) designed a study to gauge the outcomes of management communication for the period of a merger or acquisition. The research recapitulated the effect on employees attitudes, job performance, intentions to seek other employment or remain employed. The employees found the communication program supportive and the assessments associated positively toward perceptions of job satisfaction, organizational commitment and personal control.
The Role of Human Resource Department in Mergers and Acquisitions One of the most prominent reasons for the high failure rate of mergers and acquisitions is neglecting the importance of human resources . According to Dixon & Nelso, (2005), HR professionals are mostly not included in the decision making process during mergers and acquisitions, although other professionals like people from finance and IT are given preference when an M&A related decision is in the making. Cartwright et al. (2000) identified the importance of human resource function during M&A’s and proposed that the HR has to be treated like a business partner and advisor when huge decisions involving employee sentiments and change management are taken.
Jackson (2009) identified people issues to be the most sensitive during mergers and acquisitions, but always neglected by even some of the biggest giants in the marketplace. Often, the decision of mergers and acquisition is followed by the analysis and feasibility of the business, the legal and financial framework the new organization will be operating in, but nothing with regards to the human resources. Research suggests that only 35% of senior HR executives are involved in the M&A teams). Another research reported that 80% of M&A’s failed at the implementation stage owed to the following factors: 1. An unclear road map 2. Inability to get enough HR executives on the decision making board 3. The HR professionals with a lack of expertise 4. Inadequate skill base overall; 5. Failure in terms of change management
Anderson (1999) identified that it is highly essential for Human Resource professionals to be an active part of the pre-merger discussions and the strategic planning related to mergers and acquisitions as early as possible to allow them to gauge the cultural differences between the two organizations considering consolidation. This involvement allows the Hr executives to discover the areas of variance which could lead to hindrances in the integration process. Furthermore, HR plays the central role in resolving communication issues, potential compensation policies, skill sets, and company objectives that need to be reviewed (Deal & Kennedy, 1999).
Involving HR at the initial stage of the merger and acquisition will also help in drafting a plan as to hoe the people from the two organizations will be merged together into a single corporate culture, how the talent audits will be conducted, how the downsizing will take place, and how the survivor employees will be motivated ( Employee Morale and Turnover Intentions As it has been established above, the human resource function plays a vital role in the success of a merger and Acquisition decision. In today’s highly competitive and knowledge intensive labor market, the acquisition of human capital is crucial and must be one of the main objectives of all organizations considering M&A’s ).
Therefore, employee retention and satisfaction becomes one of the main areas of concern through the M&A progression. In 1995, a study of 150 $500MM+ deals was conducted by Mercer with results proposing that 50% of these deals failed to meet their financial objectives. The primary causes identified for this were as follows: 1. Inadequate due diligence 2. Overestimation of synergies 3. Conflicting corporate cultures 4. Poor/slow integration process Many organizations focus primarily on tangible and financial goals during an M&A process, and fail to identify the human capital opportunities and risks that are fundamental to achieving the M&A objectives.
A recent study of failed acquisitions identified that management abrasion rates soared 47% over 3 years following the acquisition. Same study identified that employee satisfaction dropped down by 14%, while productivity decreased by 50% under an M&A situation. These statistics exemplify the high stakes human capital holds during mergers and acquisitions Dixon & Nelson (2005) proposed that regular and effective communication with the stakeholders, especially employees, of a company going through a merger or acquisition is crucial. Often, the M&A decisions reach employees like a bad news, destroying their morale. This low morale can eventually effect employee commitment and productivity. Hitt et al. , (1991) asserted that poor morale is contagious.
It may begin with one unsatisfied employee and spread into a general melancholy, or may extend from department to department and finally contaminate the whole organization. Turnover is when the employees leave the organization. Since employees help a company achieve its goals and objectives, employee turnover gets both, executives and HR professionals concerned . Furthermore, studies propose that there is a high correlation between high turnover and poor financial performance When employees leave an organization, they take along their knowledge, expertise, and abilities that once contributed to the goals of the organization. Munck (2001) proposed that turnover results in decreased productivity and low employee morale.
It also translates into more investment in the HR so that more time can be spent interviewing the potential candidates, preparing offers, and training new employees The negative impacts of employee turnover are not only limited to quantitative factors, but also extend to qualitative ones. Abrahamson Eric (2004) states that turnover is more than just a monetary loss to an organization. It means that all the money the company invested in a particular employee walks out the door. Furthermore, any new employee that replaces the previous one must start the learning process at the very foundation of the quality and productivity curve, which in turn has a direct effect on the performance of the company. Mergers and acquisition are a form of change, and any change triggers different emotions in different groups of employees.
While the acquiring company employees may feel elevated and excited about the future opportunities the integration will bring to their careers, the employees of the acquired company may feel potentially at risk and may deal with feelings of anxiousness, uncertainty, or even intimidation as they go through this major life changing experience. M&A’s bring along with them a number of worries for the employees, such as job security and the future with the newly consolidated company Wasserstein (2009) stated that when uncertainty surrounds an organization or when employees find themselves lost during a change process or new work roles and standards, it negatively impacts productivity and performance. Grapevine under such situation causes serious rumors to spread across the workplace and the employee morale is not only at an all time low, but turnover rate also takes off.
When Hewlett Packard announced its merger with Compaq, most of the employees became concerned about their job security and much of their time was wasted worrying and paying attention to rumors, rather than serving the customers. As a result, HP lost its customers to other competing companies. Thus, given that change is an inevitable force during a merger and acquisition, upfront and direct communication with employees will prepare them for the coming times without the feelings of insecurity and stress. This way they will be able to serve the consolidated organization better, and the turnover will also remain under control. Reasons for failures in mergers and acquisitions: Flawed Intentions On many occasions, a booming stock market, expanding economy or lucrative financial statement values encourage mergers and acquisitions.
Most of the times mergers are done in intimation, like discussed previously that we have developed a stereotype in our mind that a firm can only become a corporate success by becoming grandiose and the easiest way to become grandiose through mergers and acquisitions. Dealings are often done through highly rated stocks, but the strategic or corporate judgment behind those deals is extremely low- priced . Many a times when corporations sign deals they create a bigger and greener picture of their corporation and its future expectations. The main objective of executives behind the deals is to enjoy higher capital gains through amalgamating the two institutions or becoming famous and glorious by heading the merged large corporation.
These flawed intentions, unethical behavior and overvaluations and over expectations eventually lead to the failure of the company . Even today, a slight discussion about Quaker Oats’ acquisition of Snapple makes veteran corporate dealers to think about their proposed deals all over again. Quacker Oats acquired the flourishing fruit juice business Snapple for about US $ 1. 7 billion in 1994. However in 1997, Quacker, in an astoundingly shocking deal, sold Snapple for only US $ 300 million to Triarc Beverages, a price completely unbelievable to most financial and corporate observers . Yet, what is more shocking is that Triarc Beverages sold off Snapple again to Cadbury Schweppes for about US $ 1 billion. The tragedy made Quacker lose its
