Globalization has demanded change in business practices because of its initiated competition (Schuler and Tarique, 2007). However, two streams can be found in the literature suggesting two different views about this phenomenon of globalization. One view suggests that it is being evolved to accomplish the power, politics, and wealth accumulation objectives and to do so, it has been instilled through carefully planned strategies, plans and tactics (Chomsky, 1999; Schuler and Tarique, 2007). Other view conveys a contrasting philosophy asserting that it is a social phenomenon which is benefiting the people around the globe by reducing monopolies of few (Castells,1996).
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Though these two views convey two opposite messages stating it political fixture designed for the purpose of gaining control of power, authority and wealth or a phenomenon which is operating to benefiting the people around the globe has instigated challenges for the business organization, somehow. Whether these are threats or opportunities, these are challenging (Mourdoukoutas, 2006). This phenomenon has changed the face of the world economy, and economic conditions of most of the countries are forcing the organization to change their business strategies. The organizations are using various forms of collaborations and alliances such as mergers, acquisitions and joint ventures inside and across the national boundaries in order to survive through the threats or to grow on the new challenging opportunities provided by globalization. Kogut and Singh (1988) state that collaborations such as joint ventures, mergers and acquisitions are the source of sharing and spreading and sharing risks over partners firms. According to Contractor and Lorange (1988) such collaborations “allow developing and harnessing knowledge of the host organization”. Choi and Hong (2002) suggest that “collaborations can be for the purpose of knowledge or/and material flow”.
However, many of such collaborative efforts are not successful and according to Datta (1998), employee resistance is the key factor that hinders the success in such collaborations. And this essay, in fact, analyses the statement “often employee-related issues prevent a merger or acquisition from succeeding” in order to offer a better understanding of the factors of such failures by reviewing the relevant literature and using a case study. However, main focus of the essay is on collaborative relationships with main focus on joint ventures.
Employee Related Issues and Failure of Mergers and Acquisitions
As states in the given statement that “often employee-related issues prevent a merger or acquisition from succeeding”, Datta (1998) asserts that these are the conflicts and interventions arising from the employees that hamper the success of mergers or acquisitions. Kumar and Andersen (2009) state that these conflicts and resistance from employees stem from three levels due to their unwillingness to be the part of the new development and insecurity associated with this new formation. Das and Kumar (2009: 18-19) explain these levels stating that
“Pragmatic conflict occurs at the level of the functional specialists, moral conflict falls within the domain of alliance level managers, and cognitive conflict involves the top level managers, i.e. the individuals who are responsible for initiating and managing the alliance based strategy of the firm. Pragmatic conflict centers on issues of operational coordination among partner firms, moral conflict revolves around the appropriateness of behaviors among the partner firms, while cognitive conflict focuses on issues pertaining to the strategic rationale for continuing with or exiting from the alliance”.
Das and Kumar (2009) it is the top management which should be made responsible for their lack of vision about the intensity of change and then failure to manage change, resulting in failure of such collaborations.
Change Management and Success of Collaborative Efforts
Organizational change usually is perceived or rightly believed to contain threat or challenging opportunities of personal loss or rewards respectively as consequences of the change for the stakeholders. Lorenzi and Riley (2000) state that these threats or risks can fluctuate from simply disturbance of established routines to job insecurity if we talk about the internal stakeholders. While Hall (2002) classifies the change as shot tem and long-term and states the trade-offs between short and long run.
Use of the term “change management” has been widespread in management writings and organizational studies (Ackoff, 1981, 1990). Interest of managers and researchers in change management topic has been stimulated by the commentary of Peter Drucker (1999), stating whether change can be managed at all or organizations are merely led or facilitated because of its episodes. In the words of Lorenzi and Riley (2000)
“Change management is the process by which an organization gets to its future state, its vision. While traditional planning processes delineate the steps on the journey, change management attempts to facilitate that journey”.
Consequently, implementing change instigates crafting a vision for change, and it proceeds further by empowering and allowing individuals to work as agents in the process to accomplishing that vision. These agents require realistic and future oriented strategies, plans and tactics to make successful transformation. However, since managing change is not simple and requires top managers to have a holistic approach which addresses all the major factors and disturbances arising from them.
Factors Requiring Attention
Kauser and Shaw (2004) that though employees’ can affect the success of such collaborations, however, there are plenty of factors that have more devastating impact on the success. In fact, firms investing in such collaborations face various uncertainties, resulting in affecting the intended outcomes. Gulati and Singh (1998) state that such uncertainties can stem from numerous factors that can be critical in hampering success in the firms with different norms, cultures, future plans and intentions. If these are the international joint ventures, various factors such as difference in national cultures, varying labour market conditions, different political and legal system can be crucial in defining success in collaborations (Bratton and Gold, 2007).
Unavailability of “timely and adequate allocation and sharing of resources” is one of the main reasons that can cause some type of failure in such collaborative efforts and hence should be given proper focus while addressing the change arising from collaborations (Boddy et al, 1998). Given the dynamic and volatile business environment, timely and adequate allocation of resources, including human, capital an information, are vital in the success of mergers and acquisitions (Yan and Zeng, 1999). Earlier, Yan (1998) believed that bargaining power, control and trust are the main factors that can play central role in the successful mergers and acquisitions. Sirmon and Lane (2004) state that cultural compatibility should be taken care, while going into such collaborations.
Lorange and Roos (1992) that these are the intentions of the collaborating firms that cause issues, resulting in impeding the success. Lorange and Roos (1992) further state that difference in objectives, and differing practices, norms, values also contribute towards failures. Fey and Beamish (2000) suggest that varying intentions, lack of cultural compatibility, and differences in objectives are the main factors that create uncertainties in employees, resulting in impeding the success. Hennart et al, (1998) collaboration without clear identification of need and objectives of collaboration, lack of concentration towards qualitative factors cause failures because it hinder effective decision making.
Looking at the above statements and assertions, it can be argued though employees related issues can cause failures but it is the failure to manage change due to lack of vision to identify the factors and manage them is the main reason. Employee related issues such, according to Hennart et al, (1998), arise from lack of trust in the new working arrangements. If top management is able to remove these issues by giving incentives, ensuring security and involving them in the entire process of initiation and development of such collaborations, employees related issues can be solved (Sirmon & Lane, 2004). Yan (1998) evidence that such failures are the result of incomplete contracts because of improper decision-making on behalf of the people who are supposed to manage change by efficiently responding to and reacting to changing business environment through proper attention to various internal and external factors. Sirmon and Lane, (2004) suggest that it is the lack of vision to predict the severity of change which can result from the new business arrangements. These collaborations demand employees’ new roles and hence, human resource management should be well prepared to play its new roles in these changing business arrangements along with their traditional roles of hiring, training etc. Inability to do so means failure of collaborations whether it is mergers, acquisitions or joint ventures (Sirmon and Lane, (2004) and in this regard, role of human resource management need to be changed due to globalization and its wedged factors such as culture, political and social structures, economic conditions, labour market conditions, market size. Human resource management role should be sensitive to all the factors and effective in cross cultural environment, both organizational and national (Scullion and Linehan, 2005).
For instance, national culture, defined by Hofstede (1980, 1991) as values, beliefs, and assumptions distinguishing people of different societies from one another, with Power Distance, Uncertainty Avoidance, Collectivism-Individualism, and Masculinity-Femininity dimensions affect the HRM role and practices in this era of globalization, where companies are driven to go limitless in terms of nationalities. For example, Budhwar and Boyne (2004) state that in India, hiring and promotion is completed keeping in view religion, caste system, and culture. (Clark & Pugh (2000) suggest that feminine culture of Netherland is not suitable to use hard HRM. According to Hofstede (1983) and Blunt & Jones (1986), that Kenya’s culture showing uncertainty-avoidance dimension needs that organization should take care various ceremonies such as funerals and marriages. Similarly, tensions arsing form different organizational culture (in case if it is different) and national culture requires more than traditional HRM role (Cooke et al 2008).
This means that in case of international collaborations, these factors can cause serious problems and hence organizations need to develop and deploy a policy that pay attention to these factors as well to avoid future harms.
In case of mergers and acquisitions in different countries, political, legal, and social structures influence HRM role and functions (Noe & Ford, 1992). Economic system of a specific country with different governance structures is also hard on playing its cards to alter the HRM role and practices in its own terms. Labour Market conditions, (Ali, 2000), market size (Tayeb, 2005) also needs different motivational and promotional strategies as same standard for all markets cannot work. Same quantitative target will not work for sales persons in London and Lancaster. Role of unions is also important in shaping HRM decisions of selections, promotions, wages (Collins et al, 1993), and motivation (Rosen et al, 1986)
It means that new business environment may require different business practices, demanding different role of HRM and that is its role envisioned in strategic HRM (SHRM. Bratton & Gold (2007: 56) define SHRM as “The HR polices and process that result from the global competitive activities of multinational companies and that explicitly link international HR practices and processes with the worldwide strategic goals of those companies” It means that HRM is no mere an administrative facility but has received or expected recognition as a strategic business collaborator. Companies are actively relating the HRM in the development and implementation of both people and business strategies (Christina Evans, 2003). It means that HRM needs to manage people and proactively support the overall management and decision making of the organizational. According to Guest (2002) managing people includes ensuring commitment from employees, building high trust and flexible roles, creating focus on values, flattering hierarchical structure of the organization, and ensuring autonomy at national level and enhancing self control. In the era of globalization, where new forms of organizations are unavoidable, Christina Evans (2003) goes further to explain the HRM role stating that it contributes to overall development of the organization through performance measures, agenda building, translating strategic level strategies into HR deliverables. Holbeche (1999) suggests that role of HRM is strategic rather than operational, proactive rather than traditional reactive, changing instead of stagnant, and of employee champion. Ulrich (2000) suggests that HRM role in competitive world is turning knowledge into action.
Keeping in view the new role of HR, this essay suggests that it is not the employee related issues that cause problems; rather it is the ineffective role of HR that can cause predicaments for the collaborating firms.
Black and Gregersen (1999) state that if seen from individualistic perspective,
“Resistance from the employees to adopt new practices, procedures and values can be a problem and can be a factor in failure of mergers. There could be conflicting interests of the employees of local and foreign companies, which could enhance the complexity of the task for expatriates……And this signifies the fact that the employees involved in such collaborations, especially expatriates, require interpersonal and cross-cultural skills, along with comprehensive understanding of the foreign culture to efficiently work with employees of different cultures”
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The above statement brings attention to the fact that though employees’ resistance and issues related to employees such as lack of strong interpersonal skills and inability in understanding of different cultures are vital in creating troubles in the success, it also bring attention to the fact the important new role of HR to train them and make them suitable for such unavoidable assignments, in the current business scenario. Hence, once again, this essay argues that if we look at the surface, it looks the employees related problems; however, in-depth investigation tells us that it is the over-all ineffectiveness of the organizational policies and practices that hinder success.
Luo (1998) asserts that success of such arrangements depends upon the right choice of partner. Luo states the partner’s selection significance stating various factors vital in this regard including organizational practices, routines, norms, values, culture, structure, government connections, effectiveness of distribution channels, skill and capacity development, position and experience in the industry. Brouthers et al., (1995) propose ”the four c’s” formula for the success such arrangements, and these four Cs are compatible goals, complementary skills, cooperative organizational culture, and commensurate risk-taking orientation”.
This suggestion of Brouthers et al., (1995), further signifies the value of clearness in business objectives, responsibilities and understanding of the partners. Zeira, et al., (1997) found significant positive relation between objectives’ clarity and and success of mergers and acquisition. For the purpose of re-iterating this point, survey results of Thompson’s (1996) study identifies that cross-cultural communication issues, lack of business objectives clarity, and intentions of partner firms create fatal towards the success of such collaborations. According to Thompson’s (1996; 145)
“Disagreements and misunderstandings over the business objectives of the relationship and over business strategies were most fatal and threatening to the success”
Kealey et al., (2006) suggest that issues arising from environment create the major hindrances and, to a particular level, these problems can be alleviated, and the level to which these problems are alleviated, determines the failure and success. Kealey et al., (2006) identifies some such issues which have been stated as under:
Congeniality of the organizational cultures and compatibility among them
General economic health of the economy (host) along with international economic conditions, resources availability such as financial and human, and consumer demands and competition.
Regulatory and law and order situation of country (host), such as foreign investment restrictions, import and export controls and policies
Friendliness, health, and effectiveness of firms
Social and political climate, and ability of the management to manage change pro-actively
Looking at the above discussion and emphasis on change management, role of human resource management and external environmental factors along with clarity of objectives, trust, and intentions of the partners, and significance of selection of firms for such collaborations, this essay argues that though importance of employee related issues can be a problem in the success of mergers and acquisitions is always their but these are issues which are the result of improper HR policies, ineffective change management.
Case of Rolls-Royce and BMW
It was, in fact, joint venture resulting in acquisition between Rolls-Royce and BMW stared in 1989 and broken, after 10 years, in 1999. Habib and Mella-Barra (2002) express their point of view about termination of this collaboration stating that
“it is possible that the venture ended because of failure to cooperate on the part of the two partners, such an explanation is unlikely given that BMW was paid in Rolls-Royce shares, which have made BMW one of the largest shareholders of Rolls-Royce, with a 10% stake”.
From this termination it is also argued that Rolls-Royce wanted to acquire know how the pertenr regarding to re-enter the aircraft engine manufacturing after long time because Rolls-Royce was not in the business before the initiation of joint venture. And when Rolls-Royce believed that they have gained substantial knowledge of how to run the business independently, it terminated the collaboration. While Minehart and Neeman (1999) suggest an another reason stating that this close was consequence of various conflicts arising from lack of consensus on investment decisions and trust and together with imbalance in powers of decision making.
Therefore, if combined these stated reasons, it was the differences in intentions, goals, conflicts, power disparity and lack of trust that cause termination of this venture. Hence, it was not the employee related issues rather some organizational level issues which caused the end the collaboration.
Conclusion
This essay analyses various factors which can cause failures to mergers, acquisition and particularly joint ventures. In fact, this essay analysed the statement “often employee-related issues prevent a merger or acquisition from succeeding” to reach a certain conclusion. This essay argues that though employee related issues play detrimental role in such collaboration, however, these issues are the result of the certain inefficient practices including inability to manage change, ineffective HR policies and practices, lack of clear objectives etc. These factors also include intentions and lack of trust and differences in objectives.
The case of Rolls-Royce and BMW confirmed above ideas suggesting that, it has been the differences in intentions, goals, conflicts, power disparity and lack of trust that cause termination of this venture. Therefore, these were not the employee related issues rather some organizational level issues which caused the end the collaboration.
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