Instruction for Written Report
You have been appointing as a change consultant by an organisation who are recently planning to purchase another similar sized company in order to expand the presence in Scotland ‘post Brexit’.
You have been asked to present a report of 3000-word for the Managing Director - who is concerned for the success of the move.
This report will be required to evidence the following:
Task 1: Critically analyse this statement ‘most merger and acquisitions fail to achieve the original objectives for the undertaking (Smith 2003) and a great number of investigations into this phenomenon cite ‘cultural differences’ as the root cause problem.
Task 2: Using an appropriate academic model examine and analyse how this merger might be practically managed.
Provide Report presentation and referencing
Structure with Index
- Executive summary
- Tasks - main body of analysis and evaluation
Change is an integral and inseparable part of a corporation. To facilitate change within the confines of an enterprise, it is essential for the company to exercise effective leadership and management. In this relation, merger and acquisition is an effective strategy that is adopted by companies across the globe with a view to expand their business network. The present project is divided into 2 tasks. The first task is concerned with critical evaluation of a statement.
Critically evaluate this statement “Most merger and acquisitions fail to achieve the original objectives for the undertaking (Smith 2003) and a great number of investigations into this phenomenon cite ‘cultural differences’ as the major source of the problem.”
Merger as well as acquisition tends to imply a substantial change within the premises of a company. It is usually perceived by scholars as well as witnessed by researchers that mergers and acquisitions generally result into a failure and are not able to generate significant value for shareholders. A large number of studies conducted over this subject stipulate that the accumulation phase of acquisition and merger procedure is a complex area of focus that implies the failure of M & A. In this relation, it is identified that whenever an organisations adopts merger or acquisition strategy and put it into force, it's main aim is to facilitate expansion of business networking. The move is intended to be executed for enabling the increment of revenues as well as profits. However, it is seen that most of the times, M & A fail to accomplish these objectives owing to a number of reasons. Such sources of the problem are briefly described as follows:-
Issues related to cultural integration:
Merger or acquisition encompasses accumulation of diverse set of cultures belonging to two or more organisations. There lies massive difference between the organisational culture, values, beliefs, customs, traditions, ideologies, leadership, management, staff perspectives of the 2 companies. In case merger or acquisition is executed in a manner which does not provide assistance to the employees in being sensitive to the other cultures, it would lead to failure of the implemented strategy of M & A of the company.
Unrealistic consideration incurred for target organisation:
The procedure of Merger and Acquisition encompasses valuing the target organisation and thereby paying consideration for taking over the assets of an entity. In this regard, it is usually seen that the price incurred to the target organisation is much excessive of the amount that should have been incurred. This is yet another reason why mergers as well as acquisitions by corporations fail to attain the objectives behind their implementation.
This is one of the most prominent causes behind the failure of acquisition and merger strategy adopted by a corporation. In this regard, it is analysed that the combined organisation needs to prepare itself for a cluster of challenges which would be faced by it as a result of the altered situations. For this purpose, an enterprise devise plans with the help of which integration of both the companies can effectively take place. With respect to this, it is identified that in an instance whereby the data related to the concerned issues is irrelevant or inadequate, the integration of companies becomes a difficult task to be executed as per the requirements.
M & A which are executed by backing them up with effective strategic course of action are the ones that usually face success. On the contrary, it is analysed that the organisations which fail to take into account the strategical benefits of merger encounter failure. Thus, this acts as yet another cause behind the failure of acquisition or merger to achieve the original objectives of undertaking.
Ineffective business equipments:
It is further seen that a large number of mergers and acquisitions also tend to face failure as a result of the ineffectiveness of offerings rendered by the merged organisation at market place. In this regard, it is determined that at times the merged company is not able to stay aligned with the market requirements and thereby provide products which are capable of meeting the needs and demands of people pertaining to a nation. Thus, the delayed or ineffective response of company to the preferences of people also lead to the failure of acquisition and merger in accomplishing the objectives linked to the undertaking.
Ineffectual due diligence:
Due diligence is regarded to be an essential aspect of merger and acquisition strategy as this provides assistance in detection of corporate as well as financial risks which the acquirer acquires along with the target organisation. In this regard, it has been analysed that inaccurate estimation of the related risks may consequently imply the failure of merger or acquisition strategy of the corporation.
It is well known that one of the most prominent aspects of an effectual acquisition or merger move is doing planning regarding the manner through which an ideal capital structure would be set to do financing of the deal. It is on the discretion of acquirer to acquire the target by way of paying consideration in cash. For payment of consideration, the acquiring company may take borrowings from marketplace. This leads to the creation of an excessively high leveraged structure which tends to enhance the burden of interest over the corporation. This inflated cost of interest would take a large part of the earnings of the company and thereby ending the primary purpose of executing the acquisition strategy.
Whereby a merger is executed by a firm, it becomes significance to do the assessment of compatibility of directors as well as composition of boardroom. Hereby, it is often seen that the director or manager who is separated from the power may become specifically bitter. In addition to this, there are even high chances of some personality clashes that may take place amidst the executives pertaining to the two organisations executing the merger strategy. Thus, this serves as a crucial factor or issue which causes hindrance in the execution of integration of 2 or more companies.
The overall procedure of merger needs a number of legal approvals. In this case, it is analysed that whereby one or more of the stakeholder groups are not supporting the adoption of merger strategy, it might result in emergence of legal constraints or issues. This may lead to a decline in the pace of the overall merger process. This tends to result in delay of regulatory procedures and thereby consequently imply increment in risk of business deterioration.
Human Resource Issues:
Whenever an organisation executes the acquisition and merger strategy, it is seen that a new corporate culture is levied down and enforced within the confines of the corporation. This implies restructuring of company and thereby consequently implying possibility of job loss for some individuals. This can lead to creation of uncertainties, resentment and anxiety amidst the personnel pertaining to the corporation.
It was found that the integration stage of the whole merger and acquisition process was the most problematic area which contributes to merger and acquisition failure, and that the problem in the integration stage has to do with the human factor (the employees-coping with cultural differences, politics, lack of effective communication, etc). Another factor that occurred most after the human factor is poor strategies that are rolled out after the deal is sealed. Again, M & A failure rate is very high; averaging about 50%, regardless of the initial high hopes.
With reference to an appropriate academic model identify and evaluate how this merger might be practically managed.
Kotter’s or Prosci Adkar models
Lewin's Change Management Model
Change is one of the major threats for business organisations but at the same time it also provides opportunities to enhance their overall performance. Thus, managing change is crucial for company so that they can reduce the possibilities of arising any kind of uncertainty. In context of this, organisation use Lewin's change management model that provide simple framework for effectively understand the organisational change. As it includes some crucial staged mentioned below:
Stage 1: Unfreeze: It is initial stage of transformation and also consider as a critical stage that help in managing the change within the company. Mainly, it includes the willingness of employees to change to move from existing to transformed situation. Along with this, company also focus on making workers aware about the need for change and at the same time also improve their motivation to evaluate the new ways to attaining better results. Furthermore, effective communication is also play a significant role in this stage in which firm includes employees within the change process.
Stage 2: Change: It is also refers to the transition and implementation of change. As it focus in including new and innovative ways to do the best thing to attain positive outcomes. Along with this, people are focus on implementing the actual change that required an effective planning, communication and also encouraging involvement for endorsing the change in an effective manner. This stage is not much easy because it includes certain uncertainty, fear in employees towards the consequences of selecting best change process. As employees need time for understanding the change in this stage. In this regards, at the time of managing change it is important for manager and team members to effectively deal of time and efforts so that negative affect of changes can be easily eliminated.
Stage 3: Freeze: Under this stage of change model, employees move from the stage of transition to stable aspects in order to accept the change. In this, workers have news ways of performing their task that support in attaining positive results. Along with this, workers are accept the changes and also celebrate the success of the change within the company. For this, manager also provide training and proper support to workers so that they are aware about all the changes. With the assistance of this, they can easily improve the chances of attaining success.
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On the basis of above discussion, it can be said that change is an important part of every corporation as it is introduced within the confines of the organisation with a positive motive. Some of the most common reasons behind the incorporation of change in an entity are introduction of a new product / service / process / system, facilitating shift in leadership or management approach, introducing a new technology and many more. Apart from this, it is seen that merger and acquisition strategy is adopted by corporations across the globe with a view to facilitate expansion of their presence across the globe and enable increment in existent customer base. In addition to this, it is recognised that there are several factors which hinder the M & A strategy from achieving the objective for which the move was taken. Besides this, it is regarded by several scholars and researchers that cultural differences is a primary reason behind the failure of merger and acquisition strategy adopted by companies across the globe.
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