Merger British Airways And Iberia Airline

The theme of this essay will revolve around the chapters of Mergers & Acquisitions and highlight key issues and difficulties which emerge when two corporate bodies come together under one roof to achieve a common goal. This study concentrates on the merger of British Airways (BA) and Spain’s largest air transport, Iberia. This merger will face many difficulties in the near future due to unfavourable characteristics. This essay will be discussing one of the key difficulties the merger will face, followed by suggestions of suitable interventions.

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Keywords: Merger, Employee, Culture, Relationship, Training, Retention

International Airlines Group (IAG) – Organizational Chart

The new entity which was formed with their collaboration is called International Airlines Group (IAG). Since the magnitude of BA and Iberia’s merger is huge, therefore IAG is likely to encounter many human resources problems like employee expectation, employee intention to leave, employee relationship, and dysfunctional teams in the organization. But most importantly, it will have to face the problem of ‘cultural mismatch’. To find viability in the new organization, IAG will have to look into few key interventions in order of importance they are (1) Culture should be driven down by Top Management Team (TMT) of IAG (2) Managing employee relationship and last but not the least (3) Arrange training workshops on continuous basis to beat the odds. While it is challenging to draw grounded conclusions from such a limited essay; it does serve the objective of identifying major problems for IAG and also the interventions, which if taken into consideration, will convert their partnership into a successful marriage.

Background of IAG

BA and Iberia recently merged under a holding company listed in London and Madrid, with a joined management structure named IAG Group. It’s headquarter is in London; with BA shareholders retaining 55% ownership of the company according to BBC News (www.news.bbc.co.uk, 2011). IAG’s and Iberia’s chairman is Antonio Vázquez, while IAGOs CEO is Willie Walsh. The IAG board comprises of 14 members, seven from each of BA and Iberia, cited the official website of Iberia (www.grupo.iberia, 2011) Apart from IAG, both BA and Iberia will continue to operate as independent brands and run their businesses as they were running prior to the merger.

Post-Merger Organizational Challenge

As discussed earlier the biggest problem IAG is likely to face is the mismatch of British and Spanish culture.

Cultural mismatch:

According to Black 2005; Gerham and Fang 2005 (cited in Sledge et al., 2008) in international business research, popular press and scholastic books, ‘culture’ has grown to become a frequent subject. Culture, which is a consequence of choices, has come to existence with the way societies have reacted to questions of how we view our reflection, our relation to environment, relation with one another, and how time relates to us (Schneider and Barsoux, 2003). But Hofstede’s (2001) argue that culture is a consequence of difference in one mind’s collective programming with another’s; this sets the differentiation among the two groups (Hofstede and Hofstede, 2005, p400). The merger is seen to bring a lot of benefit (financial and strategic) to BA-Iberia but there can be many challenges for both the company’s employees. It is clear that British and Spanish cultures are very different; and can create conflicts and pitfalls which may become difficult to overcome. According to the ‘evolution of Hofstede’s doctrine’, to explain BA and Iberia under Hofstede’s dimensions; it would be as follows:

Power distance: At BA, like most British companies, there is not much hierarchy or formality between the managers and their employees; managers help their employees to achieve their goals, while at Iberia the organizational hierarchy is completely different. In Spain, the employees see their bosses as an elderly paternal figure and require more micro level instructions. This can make Iberia employee’s very dependent on supervision and guidance at a micro level, which the BA managers are not used to of providing.

Uncertainty avoidance: BA believes the ‘bigger the risks, greater the returns’. Iberia like many Spanish organizations is risk averse in nature and avoids unknown at all costs. This difference in attitudes and culture can create major issues when new projects or proposals are to undertake and also while indentifying and implementing new processes and strategies in IAG.

Individualism: Unlike Spanish, British are individualistic in approach and think nuclear and about their own personal space. Spanish are opposite in nature. They believe in collectivism, and taking the path in unity. In team management this can create difference among employees of BA – Iberia.

Masculinity: BA is inclined more towards Masculinity whereby employees are assertive, tough, and targeted on material success; Iberia employees are feminine and give more importance to tenderness and closeness.

Time orientation: Spanish are polychromic, multi-tasking and not respecting deadlines is common for them, and they change plans at the last minute, while in UK, management style is very timely, adhering to agenda system and planning procedures. This will further create a major problem among the two groups and issues in regards to submission of projects and planning procedures.

BA and Iberia have undoubtedly merged in the fleet industry due to the economic recession and imminent dire financial difficulties but as argued by Lubatkin, 1983; Marks & Mirvis, 1985; Officer, 2003; Pekar & Allio, 1994 (cited in Surkund, et al., 2009) in spite of extensive number of mergers and acquisitions taking place today, their rate of failure is also of same enormity i.e. between 50% – 80%. Similarly IAG also holds a high probability that troubles will emerge from within the group as two dissimilar parties have come together under one roof to accomplish a common goal. To avoid this failure in future, they should consider taking certain interventions which will help them in bridging the big gap between their cultures and convert their partnership into successful marriage. This process will primarily begin with the TMT who will be the first to take initiatives to drive the process of building a new culture within IAG. This will help the employees to identify themselves and their new workplace. Training will be the second important action to condition their minds and help them to attain predetermined standards already set by the TMT of IAG. And third will be the relationship building practice amongst the employees carried by the group.

Recommended Interventions:

Culture should be driven down by the TMT of IAG

In an international joint venture (e.g. PCE, HCN or TCN) each employee has its own national identity and characteristics. Elements like nationality, workplace, position in the venture legal rights and hierarchy are derived from these characteristics (Shenkar and Zeira, 1992; Schuler, 2001). According to Frayne et al. (cited in Li et al., 2002) in this very system is the positioning of the TMT, who has the responsibility of running the daily operations of the venture who must convert their difficulties, ambiguities and conflicts into effective strategies and create a concentrated TMT. Once the top management (Board of Directors) is confident of their group cohesiveness, they will be in a better position to reinforce an amalgamation of both cultures or a modified version of original ones. This will lead to the development of a ‘third culture’ according to René Olie (1994) which will stream all the way down into the veins of the organization making the two groups feel their presence and membership in IAG. Hence result in and positive progressive change in attitudes of both groups and successful cultural integration. Research studies of Smircich 1983 and Schein 1985 (cited in Olie, 1994) support that building an organizational commitment, communicating management’s philosophy and motivating employees; can be only done by a symbolic powerful management. As Taylor et al. (2008) also cite evidence in the study of 10 MNCs from which they sampled 1664 core employees belonging to 39 affiliates. It was learned that organizational culture characterized by high adaptability and a HRM system characterized by high performance work practices were found to have a significant and direct effect on employee commitment. Perhaps the element culture is the influencer of many factors of which one is employee commitment. Therefore it is in the hands of IAG’s management to shape their group of employees into a united culture and a united team, hence committed merger. After this conflict is resolved the next step for management will be of bringing the two BA-Iberia employee groups together as one or closer to each other to not let the gap be felt between them in order to develop good employee relationship.

IAG managing employee relationship

When new management faces an organizational change, they undergo a level of stress and disturbance, which adversely affects employee’s performance. To minimize the emotional effect of such a change and help them in recovery, organizations should involve them in exercises that keep them active, gives them more exposure, and engages them in healthy routines. This kind of involvement with the workplace increases employee satisfaction hence retention. Development of friendship programs, communication, trust, and mentoring and workplace flexibility are means to building a rapport with employees.

Friendship Programs: Shaughnessy’s (1995) study illustrates an example of an organization which developed a bond between its various offices by instigating a number of friendship events. BA-Iberia can follow the same footsteps too.

A vacation in which Iberia staff member should visit BA’s local office.

Regular Business trips occurrences

Spouses attending annual partner meetings.

When any BA client has a visit to Spain, one employee of BA accompanies the client and introduce him personally to Iberia’s staff.

Visits of senior managers to each other countries to hold knowledge sharing sessions.

Communication, trust and mentoring: Willemyns et al. (2003) studied trust perception, mentoring and power in employee-manager relationships. It was found that an employees’ trust on the manager is totally dependent on the manager’s ability to live up to the employees trust. Therefore continuous mentoring, a good communication routine can develop a firm trust between employee and manager. This trust will provide IAG’s employees to confide in their managers and feel free to communicate their thoughts to the managers.

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Workplace flexibility: It is very important that employees feel flexible in the environment they have to spend long hours in. IAG should offer its staff flexibility in the form of providing work-life policies. Also, an environment which is comfortable and at the same time keeps them engaged continuously. Studies have shown that an employee’s tendency to retain with its employer is more when it’s provided with a favouring environment. Richman et al. (2008) supports the above with his study of various MNCs data in his research that proved greater employee engagement and longer retention was due to flexibility and facilitating work-life polices the MNCs provided their employees. To achieve similar results, IAG should follow the same footsteps. Because this engagement will convert gradually into retention, hence employee loyalty for a long tenure.

Arrange training workshops on continuous basis to beat the odds.

As cited in M&A study (Global report 2009), and discussed by Schuler and Jackson (2001) and also supported by studies of Elina M. Antila (2006) training sessions on continuous basis should be setup with best HR managers as Garavan study states (cited in Shook and Roth, 2010, p1) in organizations HR practitioners are the ones who are more inclined towards their colleagues concerns and issues as compared to other department’s practitioners. In the sessions, employees should be aligned and taken through basic cultural practices, guidelines and knowledge sharing which are predetermined by the IAGs Board of Directors and shareholders. Who better to make this communication effective other than the HR managers themselves for both the BA and Iberia. This is well supported by Gallos’s research (cited in Shook and Roth, 2010, p1) that HR personals collectively believe that innovation, company’s effectiveness, and survival “require respect for and attention to the human side of enterprise”. Such trainings will benefit both groups a great deal. Not only help the employees of Iberia to learn and cope with the British management style (timeliness, assertiveness, under taking risks at times) but also make BA aware of the collective approach to managing business and reflect a balanced approach (road between individualism & collectivism) to working in an organization. Training will help the new group in employee retention of key employees. As very rightly put by Wright (cited in Surkund et al., 2009, p3) that employees are a bank full of knowledge which is non-transferable and are subject to priority by the targeting firm. Therefore it can be assumed that the employees who are still on the payroll are vital to the IAG and are the future assets for the organization. Even Kiessling and Harvey, (2006) express the retention of TMT (top management team) and that they are a valuable resource as they possess critical knowledge which can fix problems arising in the post-merger situation said by Cannella and Hambrick, 1993; Hambrick and Canella, 1993; Khrishnan et al.,1997; Singh and Zello,1998 (cited in Kiessling and Harvey, 2006). Once these key employees are trained, they will have a sense of security that IAG wants them to stay and contribute, and will result in higher level of commitment hence greater retention.

Conclusion

Diversity in cultures is always good for one organization in terms of bringing different sets of characteristics, backgrounds, and expertise together under a single roof and working towards a common goal. Perhaps this will result in a creation of a symbolic organization with a symbolic human resource function that carries diverse sets of knowledge. However, in order to achieve such brilliance, IAG must be mindful to take corrective actions and gel their diverse cultured HR together into a united team before they get too busy with their operation. With studies in past, cross cultural mergers have resulted into failures due to management’s ignorance to the fact that it is the people are one of the main contributors to a successful organization and if they clash because of cultural diversity, the merger will not last for long hence face major failure. This failure will begin from within the IAG first, in terms of damaging its employee’s confidence, expectations, faith IAG’s management and ultimately it will lose its key employees. Therefore it is very important be aware of the areas of focus once an organization enters a cross cultural merger.