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At the peak of British supremacy, it was often said that "the sun never sets on the British Empire" as its span over the globe ensured that the sun was all the time shining on at least one of its numerous territories. This could well be linked to the mergers and acquisitions British practiced since centuries. They were sheer strategists and by employing their economic and naval superiority over distinct nations worldwide experienced a superpower status for a long duct of time. Their top commanders employed increase and improvement strategies, possibly never missing to recognize a target. In Indian perspective they formed assorted alliances, merged some states for sufficient ruling and acquired many others and decentralized the power buildings with their numerous strategies and eventually brought our nation under their flag. This was 1900's and in advent years all their strengths were diluted by constant clashes and a major factor which if carefully noticed would link to the cultural and communal gaps they had with other parts of world. Secondly, their exploitation to gain short term volume misbalanced them thoroughly in the long-run. The cultural gap and communal practices were evidently, as we recommend in this paper, one of the major determinants of the failure in holding up their acquisitions around the world.
Hundred years hence as we have moved towards the modern and modern power centers in terms of trade and economic production this success equation of the mergers and acquisitions hasn't changed as much. To be victorious we recommend that the cultural and the communal context are as valid today in the long run as it was hundred years ago.
What is the most needful determinant in the long term success of a merger between two organizations? Is it the drive of the equilibrium sheets, financial ratios, aspiration levels, the vision, the mission or else it is the nature of the favorable policy framework and other favorable government regulation for the environment in which they intend to operate? In the Indian context as we peruse after the demise of the licensee-raj while mid and late nineties, the markets were wide open and Indian enterprise began tasting the fruit of liberalization by acquiring and merging with other businesses around the world.
This paper intends to feature assorted issues linked to the post-merger environment and to devise some strategies to counter these challenges as the management of these post merger/acquisition issues is the biggest challenge in the hand of today's managers
The Race of opportunity with Time, Tide and Technology
There has been a vast convert of mind set in the new age corporate as we, Indians, have made a transition from boycotting foreign made goods in past to buying foreign fellowships in present. As the economic borders have fallen and as the propensity of the customers to be able to pay for good and services have increased the mantra of becoming 'big' for the corporate has taken the forefront. This mind-set is of new India which is no longer restrained by some petty permit-laws as in the past. It is coupled with emerging aspirations of Indian businesses to increase size and spread, enter new markets by growing inorganically for a bigger scale as the traditional organic increase cannot equip them with the same immense scale. Tatas could not have gone from 6 million tones of capacity to 25 million tones had it not been for the acquisition of Corus. But, is it all as good and easy as it appears?
Acquisition and mergers happen as opportunity exists to leverage the combined networks, co-create, to enter new geographic areas, to innovate new products and services with combined expertise, to create more wealth, to increase capacity and scale among many other reasons for the combination. Pre-merger communication happens and variables like time, environmental tide, technology are incorporated and the transition takes places, and appears a smart, crispy enterprise model which is sure to take the world by storm. The human beings are guided and governed by the psychological processes and the intangibility of these beliefs and behavior makes it impossible for any modern gadget to portion and devise a 100% success formula. As evident from statistical figures and research by independent agencies, 70% of mergers fail to accomplish their incredible value.
This paper attempts to feature some of the most common issues which organizations come over while the process of merger or an acquisition. We have endeavored to contribute some solutions to counter these challenges in modern context.
Offsetting Culture & Philosophical clashes: Cultural Integration
As per the cerebrus description in 2008, the M&A deals in India amounted to .6 billion (Annexure 1), which is more than Gdp of many underdeveloped and developing economies around the word. That make an big statement-The stakes involved in the mergers are enormous! Even after an acute research and investigation while the pre-merger period the value at most times is not delivered as expected. This is a huge loss of resources to the stakeholders as well as the nation. The intelligent but unfortunate irony is the repeat of the same mistakes by some new entrants in the domain of mergers as they tend to repeat more or less the same mistakes all over again to waste even more opportunities and resources!
Almost every boss equipped with tons of analytical and shop knowledge, a degree from a Mba college of repute etc. performs a due diligence in finance, shop opportunity & behavior, operations, prognosis with assorted projections, study of legal issues, labor laws and list could go on and on. Then, what of course happens when most of this prognosis on paper fails to take a shape in profits? As per Sudi Sudarsanam (2004), 'The merger integration process may often be based on incorrect assumption about the thinking, behavior, and expectations of citizen from two organizations'. This is where the culture or the religious doctrine of the two individual identities is taken granted for. The skilled workforce is though of as a machine, perhaps, which will duly turn its production almost immediately, which is not the case.
Trout and Ries (1990) argued that managers who plan from the top down are trying to force things to happen whereas managers who plan from the lowest up are trying to find things to exploit. The estimate of management layers between the top and lowest are splendid in a middle sized or a big organization. The more the coating, the more the top most management are insulated from the market. When these mergers do happen they happen at the top most level and other layers are left to assume things, which eventually come to be a big challenge in itself. This does not mean that fellowships do not value human skills & talent; it implies that fellowships often tend to take the human talent & skills for granted and assume that the same skill sets will be available to the enlarged firm even after the acquisition.
In a peruse conducted by Kpmg on M&A in 1999 brought out the factors that were needful in a victorious merger:
Synergy Evaluation
Selecting the management team
Resolving cultural issues
Internal & External Communications
Integration planning
It is needful to note that all the above factors are based on citizen skills & citizen issues giving a clear indication that cultural integration is very important. David and Singh (1994) carefully acquisition culture risk, which is a portion of cultural discrepancy or the distance between the acquirer and the acquired firms, and which is capable of impeding the sufficient integration of the two. In most merger scenarios, the employees of the purchased enterprise are given dinky information about the turn of events until well after the deal is settled. Rumors fly about what's going on, and employees are left in limbo, bitter about the changes and worried about their jobs and their colleagues. If this goes on for too long, they can come to be less sufficient as a psychological protest. That again elaborates one of the biggest challenges that organizations face today while planning a merger and we see in following short cases, which reinstitutes this view.
Case 1: Year: 2008, Sona Group (Gurgaon, India) and ThyssenKrupp (Germany)
As Sona group was in acquiring stage of the German steel maker's (ThyssenKrupp) forging enterprise in January 2008, it realized the problem of the unionized workforce of ThyssenKrupp which resisted the takeover over the concerns of the job security. The proactive chairman had to constantly reveal the idea that the expansion needed all the workforce and also went on to the enlarge of forming a extra group to analyze the cultural discrepancy and the doing of the employees for a six month period before taking a call to restructure the organizational structure.
Case 2: Year: 2008, accepted Chartered bank and American Express Bank
Even before completing the process of acquiring the underground banking enterprise of American Express bank, accepted Chartered put multiple measures like rewards, harmonization, compensation and benefits integration and job grades to be addressed in a phased manner. These all were Hr issues and pretty reflective to the culturisation issues as stated till now.
Case 3: Year 2007, Amtek Auto and Triplex-Kelton Group (Uk)
A extra task force communicated the increase prospects to the employees of the new enterprise as Amtek went into understanding the roots of the cultural issues to deliver the merger situation correctly. It was imperative for Amtek to understand the cultural issues that emerge while the early days of an acquisition because that is the time when most citizen show maximum resistance
Case 4: Ge Capital Acquisition Strategy
By using a dynamic model called "Pathfinder", Ge Capital has perfectly highlighted the point of the human culture, values and beliefs in the enterprise integration perspective. The model disintegrating the M&A process into four categories which are additional divided into subcategories. First or the pre- phase of the model involves the cultural assessments, devising communication strategies and also evaluates strengths and weaknesses of the enterprise leaders, by selecting an integration manager. In the subsequent phase the integration plan is prepared for the purpose of building the foundation by formation of a team of executives from the Ge Capital and the acquiring enterprise is formed. This is the most needful phase as a clear cut communication strategy is industrialized to be deployed for more than a 3 month period by intelligent senior management as well. In the third phase the integration takes place where the actual implementation and revision measures are taken. The processes like assessing the work flow, assignment of roles etc are done at this stage. This stage also involves continuous feedbacks and development needful corrections in the implementation. The last phase involves assimilation process where integration efforts are reassessed. This stage involves long term adjustment and looking for avenues for improving the integration. This is also the period when the organization actual starts reaping the benefits of the acquisition.
Cultural Integration: Revisited
As can be seen and gauged from the above cases that there is no substitute for cultural integration. The mathematics and science has evolved and there will be new models to tap the unblemished inherent of a merger but the very uncomplicated understanding of human behavior before two organization join hands will probably take precedence over every thing else. The two fellowships can recognize these 'human' differences, recognize what's good about each culture, and then conclude jointly how they will face the time to come as a unified force. It is therefore needful for today's managers to collate the cultural fit between the acquirer and target based on cultural profile and managing the inherent sources of clash even before the merger. It is needful to recognize the impact of cultural gap, and originate and execute strategies to use the information in the cultural profile to collate the impact that the differences have.
Countering common Challenges
Cost Management: Post merger salvage costs also becomes a worthy challenge for the corporate team. There might be duplications of processes within the new organizations which are needed to be countered as a starting point. The lack of standardization around items purchased, stocks, inventory, the flows of products and services all straight through the distribution chain induces a large cost both in terms of time and actual resources, which might reduce the behalf of the new company. A procurement optimization could be effected in which all divisions could purchase the same products together, if inherent and viable. It is a known fact that if items are purchased in volume, the profits curve starts immediately. The entire retail commerce idea is based on the buying power and deriving profits rather than selling and gaining profits. The enterprise could also join reusable parts that go into development the products.
Control doing and Speed of Integration: operate of the new unit should be taken immediately after signing of the agreement. Itc to widen its goods range did so when they took over the Bilt industrial containers co. Ltd. Near Coimbatore in Tamilnadu even though the consideration was to be paid in 5 annual installments. Itc controlled the assets and functions of the enterprise immediately so as to put every function in the place and not let the ambiguity takeover the skilled personnel. The operate should be immediate and over all the functions such as marketing, finance, production, originate and personnel should be put in place. In increasing to the prominent persons of acquiring enterprise the key persons from the acquired enterprise should be retained and given sufficient prominence opportunities in the combined organization. Delay in integration leads to delay in improvement and as stated earlier uncertainty and ambiguity for longer periods destabilizes the normal organizational life.
Streamlining Strategic Fit: Mergers with duct of time need to be fitted and continuously aligned strategically, at all strategies level, corporate, enterprise level and functional level, which improves the profitability straight through discount in overheads, sufficient utilization of facilities, the quality to raise funds at a lower cost, and deployment of surplus cash for increasing enterprise with higher returns. If this strategic fit is not dynamic lack of synergies results in merger failure.
Infrastructure and resource Maintenance Post Merger: As evident preventive maintenance cost is much less than breakdown maintenance costs. The resources or the facilities in case of a merger between similar goods companies, which are duplicate should be disposed off or leased out on an immediate basis. There should be no duplication of process as well. Also, importantly the weak infrastructure in the new enterprise should be identified and dealt with immediately with permissible maintenance process allocation. Risk of failure will be minimized if there is a detailed appraisal of the target company's enterprise conditions carried out by the professionals in the line of enterprise in continuous pattern. Detailed exam of the manufacturing facilities, goods originate features, rejection rates, and distribution systems, profile of key citizen and productivity of the workers is also very important. Acquirer should not be carried away by the state of the art bodily facilities like a good head quarters building, guest house on a beach, fullness of land for expansion, etc.
Common Challenges: Revisited
Problems faced by Indian corporate houses as they grow and develop inorganically are numerous. Our political law has numerous muscle arms which probably are needed to be greased times often so as to go ahead with the merger and avoid conflicts post merger. Bharti- Walmart merger will pose problems of the over dependency on the contribute side for the alliance, as far as Bharti is concerned. The high real estate cost for the scope of increasing the alliance should also be carefully a big challenge for the Indian counterparts. Taxes and license requirements are other major issues which one would expect especially if the governments convert overnight and contain new policies for the existing or the new inherent alliances. Illiteracy is also a big inherent threat after merger, especially if Indian organizations are merging with organizations of under industrialized economies. In the case of inherent Reliance-Mtn, merger this might stand out as a inherent problem. It is difficult to reveal with work force which, though is skilled but is illiterate or under educated. Rural communication experts should be sought for under these set of circumstances. As more and more fellowships adopt the route of inorganic increase they should also have ready answers for issues like health care benefits, stock options for employees, emergency counseling for employees in place much before merger so as to flat sail while and after the merger. Other step would be investing some of the wage in facilitating the corporate communal responsibility program. Mergers should invest a small portion and by which they might be able to originate a reliance and value in the eyes of the target consumers. Ordinarily speaking the problems, issues or challenges which a Indian corporate might expect post merger should be very well addressed before the merger it self so as to minimize and offset those while the merger. India the seventh largest country in the world poses many problems and challenges for a local merger itself, international mergers are of course are more challenging.
Conclusion
British failed to hold on to their acquisitions for primarily not comprehending the culture values and exploiting these territories to feel short term profits and lacked the foresight to work strategically for the long term ones. The first-rate discrepancy would be the merger and acquisition spree being carried on by Laxmi Niwas Mittal, the modern Midas, since some decades, and the dinky convert being the touch converts all into steel and not gold. His enterprise acumen, long term vision, reliance system, work ethics had transformed his steel-empire in same analogy, where once again the sun never sets. In the same context Other big challenge for the Indian enterprise corporate would be to exercise patience and plan for the long-term like Ln Mittal and not rush into a mad rush to exploit profits like the British and lose it all in no time.
Making the mergers work successfully is not that easy as here we are not only just putting the two organizations together but also integrating citizen of two organizations with distinct cultures, attitudes and mindsets. While development the merger deals, it is needful not only to make prognosis of the financial aspects of the acquiring firm but also the cultural and citizen issues of both the concerns for permissible post-acquisition integration.
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