Role and Importance of Human Resource Management

Introduction

Mergers and acquisitions are common types of strategic alliances aimed to improve strategic position of the company and its competitiveness. The article”Factors affecting the role of HR managers in international mergers and acquisitions” by Antila and Kakkonen vividly portrays the role and importance of human resource management in international mergers and acquisitions. A merger can be considered a mutual agreement of sorts between two firms to join together to become one company. For instance, one merging firm does not take on huge amounts of debt either to fend off or to purchase the other. Mergers are seldom hostile in nature. Therefore, negative factors inherent in hostile takeovers are absent. The possibility of massive sell offs are usually not an issue. Using a case study method, Antila and Kakkonen evaluate a role and tasks of HR manager in international mergers and acquisitions, and discuss the factors explaining the roles of human resources management in these companies. The present study builds on this analysis by exploring further the factors that explain the roles of HR managers in IM&A contexts. The focus of the analysis is on the roles and involvement of HR not just on the strategic role” (Antila and Kakkonen 2008).

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Discussion Section

In theory (Galpin& Herndon, 2007) an equitable distribution of resources is a critical ingredient to a successful merger. The commitment of resources that is to be made by the respective organizations must be made clear from the onset. The proper mix of resources, whether it is strictly financial or involves a commitment of manpower as well, must be defined from the very beginning. In fact, resource commitment is an integral part of any successful corporate strategy. It is especially important to develop a postmerger resource allocation strategy beforehand to ensure a workable and realistic merger strategy. Thus an overall strategy for resource allocation must be developed in parallel–at the same time that corporate strategies, financial goals, and market strategies are being developed by the respective organizations–for this commitment to ever make sense or to have any merit. Antila and Kakkonen show that human resources play a crucial role in merger success helping management to organize and control planning and implementation. Six main categories of investigation were identified: top management’s support, line management’s support, factors related to the HR function and HR managers, and external and internal factors (Antila & Kakkonen 2008).

The article involves analysis of the literature on the problem and proposes evaluate and analysis of the sources. Antila and Kakkonen found that the problem of HR management in mergers and acquisitions is discussed in the literature but of the studies do not propose steps and actions to improve personal function and involvement of HR in planning process. “According to Jeris et al (2002) HRD was not involved in initial decision-making to merge or acquire, though post-deal HRD initiatives were perceived as critical indicators of success” (Antila and Kakkonen). It was identified that only few studies address the problem of tasks and duties of HR management in the M&A context.

According to Mills (2003) when a major reorganization occurs within a company, the benefits of the reorganization are not always immediately apparent. Employees are shuffled around, out of one department and into another, taking on new or additional tasks. Management roles might change. Work locations might change. However, out of this apparent chaos might emerge a stronger, more viable corporate structure. But one factor that undermines this type of activity is that people are basically resistant to change. Antila and Kakkonen share the same ideas stating that people become comfortable with the status quo and organize their lives around perceived constants. When these constants that stabilize one’s life are disrupted, one tends to resist them, even if the future benefits will outweigh the current inconvenience. Likewise, merger strategies tend to suffer from similar problems. Even a sound strategy, and the friendliest of mergers will tend to face some amount of resistance from within the two corporations.

Change is inevitable, and these structural changes within the organization take time to settle and be accepted by the respective management and employees. After all, not only are two companies’ physical assets and technologies merging, but their employees must merge together as well. Thus, it is important to recognize that it might take some time before the “dust” settles and the benefits of the merger are realized. Management must be patient and must make it clear to the organization that it is committed to the long-term success of their corporate strategy. A special attention in literature review is paid to characteristics of the HR function and external and internal factors, Antila and Kakkonen underline that everything–principles, policies, procedures, technology, public image–follows from its purpose as though determined by destiny. From the very beginning it needs to interface with the Work that needs to be done and the Workers who are called on to do it (Agrawal & Jaffe 2000). From that point on, the organization takes form as a gargantuan undertaking, a one person job, or anything imaginable in between. This form serves many goals, among them: housing the enterprise, attracting Workers, providing the Work, and ultimately serving as the touchstone for the achievement of the purpose (Andrade & Stafford 1997).

Methodology Section Analysis

The research is based on a qualitative research method. Antila and Kakkonen claim: “The case study technique is applied here since it is an in-depth, multifaceted investigation using qualitative research methods of a single social phenomenon”. This method is effective because in research, reliability in data collection is assured in three ways: measuring internal consistency, applying test-retest correlation coefficients, and using equivalent forms of the instrument. If reliability is not assured, then the scientific assumption of accuracy of measurement is violated. The facts are not repeatable. Just as reliability is estimated by calculating the internal consistency of a test form, a similar measure is derived from a semi-structured interview schedule. Control over the timing, the environment, and the question order is possible where no such control is possible with questionnaires.

To the extent that these controls enhance validity, they fulfill reliability requirements by definition. One cannot have validity without reliability and, concomitantly, to the extent that one has validity one need not estimate reliability. If subjects are selected for a study solely because they score extremely low, at posttest they will tend to score higher, regardless of the treatment. The opposite is also true. Both are examples of extreme cases regressing toward the mean of the population. Thus, significant differences between pretest and posttest scores can occur because extremes were initially selected. Case-study methodology has potential for increased validity for several reasons. First, because multiple data-collection techniques are used (interview and quantitative statistical analysis), the weaknesses of each can be counterbalanced by the strengths of the others. “The study was carried out in three Finnish international companies. In Finland the overall M&A activity and especially international M&A activity has been increasing in the past few years” (Antila and Kakkonen 2008). The sample size for company A involves 19,000 people in more than 40 countries; for company B – 27,000 people; and for company C – 13,300 people. Conclusions related to the role of HR in mergers and acquisitions under study. Second, validity was increased by checking the interpretation of information with experts. Third, with case studies there were generally a variety of data sources.

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The main limitation of the methodology is absence of comparative analysis with other companies and organizations not involved in mergers and acquisitions. This would help to use a scientific method in which one hypothesizes something about the case and collects data to determine if the hypothesis should be rejected could add to validity and also help future researchers determine starting places for their research. All of these approaches would tend to improve understanding of the case and give in-depth descriptive information.

Another limitation of the research study is semi-structured interviews. In contrast, the structured interview is designed to collect the same data from each respondent, while the semi-structured interview may be used to identify broader issues. In this latter case, each respondent may contribute a different perspective, depending on his or her position regarding the phenomena under study. semi-structured interviews are totally dependent on the skill and training of the interviewer. To the extent that such skills are evident, the data collected are likely to be valid. Structured interviews and partially structured interviews can be subjected to validity checks similar to those used in evaluating questionnaires.

That is, are the questions consistent with the purpose of the study? The interview schedule (list of questions) or interview guide should be created to direct the interview on a path consistent with the purpose. Diversity of opinion exists about the leeway a researcher may use with the interview guide. Others restrict the guide to a list of questions with a less freewheeling attitude. As research strategies, interviews provide both more complete and more accurate information than other techniques. Through probes, follow-up questions, and attention to nonverbal cues, the researcher is able to enhance the data collected. The data are valid to the extent the researcher is able effectively to execute these tasks. Limitations to validity exist, as with other qualitative methods, when the subjective bias of the interviewer affects the interpretation of the data in ways that misrepresent the subjects’ reality. These invalidations may be more likely with the unstructured interview than with the structured one.

Results

The researchers found that there are different roles of HR managers in the context of IM&As. The factors identified by the research literatures have not been bound to any certain context. The research found that each firm brings unique strengths and assets to the merged organization, and it is the potential synergy that makes a merger strategy so attractive. The key strengths are obvious and are generally the main reason for the merger in the first place. In high-tech mergers, the firms involved are generally attracted to each other because of the technological expertise that each offers the other. There are many other reasons as well, including the influx of financial muscle to the organization, increased distribution channels, the ability to enter new markets, and the establishment of complementary product lines.

It is also important to seek out other strengths that are perhaps not initially obvious. One firm may have more efficient accounting practices, investing heavily in computer resources to manage their finance and accounting activities. The other may be more successful in manufacturing techniques, investing in automation, state-of-the-art equipment, and just-in-time inventory control (Baldwin 1995). By merging together, the new management can hand pick the best features from each firm to utilize. To best achieve this, corporate executives must rely upon the expertise of the employees of each organization. It is not enough to have an outsider, unfamiliar with the inner workings of the organization, make an evaluation of the organization and its strengths. Such internal “knowledge workers” must be located to obtain a fair and valid assessment of each firm’s strengths and weaknesses (Angwin, 2007).

Antila & Kakkonen 2008 found that some employees, for whatever reason, will always view this type of change as a threat, and information will not be volunteered. Their strategy is one of turf protection and not one that furthers the overall corporate objectives. If left unchecked, their sentiments might spread like a virus to others within the organization and could completely shut down communication within the organization. If the merging firms are separated by great distances, communication becomes all the more essential. When opening up a new office or division in a new city, state, or country, plans are made well in advance to maintain communication. Periodic meetings, reports, or visits by management are all traditional methods of keeping in touch with the field office and keeping it in check. Likewise, steps must be taken in advance to ensure that the communication between the merged organizations is maximized (Gaughan, 2007). However, it is ineffective and wasteful for corporate management and executives to cross-cross the country on a daily or weekly basis. Temporary relocations may be necessary to ensure that information is transferred to the appropriate personnel (Galpin & Herndon 2007).

Close relations between top management and employees was identified by the research study. Nowhere is the need for open channels of communication more apparent than in the transfer of technology from one firm to the other. With this type of information flow, precise detail must be efficiently and flawlessly transferred between technical managers and engineers. If this does not happen, precious time is wasted while engineers work blindly on inaccurate information or while the same information is repeated over and over again. “Although the relationship with top management is essential, HR managers also work closely with BU and line managers. When line managers learn that HR can be trusted and helps them on a daily basis it is more likely that they include HR managers in an acquisition process” (Antila & Kakkonen 2008). Further complicating the issue is that many engineers lack good communicating skills. They seldom document and are very protective of their work.

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However, technology transfer may be crucial to the merger’s success. It may be the key ingredient for the new firm to enter new markets that will shape the future direction of the firm. In cases such as these, direct contact and visits by key engineering personnel is the only solution. Effective communication is thus a necessary ingredient for any organization’s success (Antila & Kakkonen 2008). Likewise, without the proper flow of information to the key decision makers, any merger can be doomed to failure. In the first few months after a merger occurs, information and the flow of information are critical. Without them, corporate executives cannot effectively make decisions as to the nature of resource allocations, what to consolidate, and where management talent is needed, or keep abreast of problem areas (Mueller 1987). If communication channels continue to remain shut, executives will not be able to take steps to rectify these problems because they will not know that they exist.

By evaluating both a successful and unsuccessful HR roles, the researchers (Antila & Kakkonen 2008) see patterns that are consistently evident in successful mergers and suspiciously absent from those that fail. In this way we can obtain a set of guidelines that can be used to determine whether a strategy of growth through the merging of two firms is appropriate for a given firm. Typically, maintenance goals are grouped under administration. Administrative personnel, especially in very large organizations, are often situated some distance from the work of the mission. In organizations dealing with the extraction of raw materials, such as forest products and petroleum, extensive and continuous field work to learn the needs and problems of the workers carrying out the organization’s mission can overcome the separation (Mills 2003). If this is not done, bureaucracies that ostensibly exist to serve as communication channels often end up being mainly concerned with their own survival.

When this happens, the mutual understanding that needs to exist between mission and maintenance breaks down and the organization becomes rigid and unresponsive, eventually failing. This is a familiar phenomenon in government organizations where the maintenance bureaucracy tends to become an end in itself. It has lost touch with the reason for its existence, namely, to serve as a vehicle that facilitates the execution of specific missions. Breaking down the purpose of a work-doing system into goals and objectives not only enables management to get the work done, it also facilitates the tracking of success and / or failure. Each goal and each objective is set up with measurable indicators of whether it is being accomplished (Antila & Kakkonen 2008).

Organizations are set up to realize a purpose that presumably was formulated to meet a need, real or imagined. In either case, in the minds and hearts of the progenitors, values are associated with the purpose. Similar hidden values show up when a choice has to be made between profits and quality, or profits and ties to a community. Frequently, profits are given first priority in these situations (Reed 2001). This value gets translated into principles, stated or not, and sends a subtle message to workers, giving them permission to cut corners in the quality of their work or their integration in the community. The point is the principles are there and typically show up in the policies of an organization. “In an IM&A context it was found that if managers who are responsible for the IM&A projects were not aware of the HR issues in the process and if they had no previous experience in them, they were less likely to involve HR managers in the process” (Antila & Kakkonen 2008).

These are the written statements declaring the rules by which the organization will operate. They derive from the principles. In the case of Starbucks, the matters of health insurance and profit sharing are stated policies. In the case of the hidden values, they do not necessarily appear in a policy statement. They may simply be part of the informal culture of the organization and only discovered when a problem manifests. “It seems that the context matters. Compared to the general factors the nature and characteristics of the IM&A project, the relationship with the target company, experience of the M&A project leader, and the overall M&A tradition in the organisation affects the HR mangers’ role in these processes” (Antila & Kakkonen 2008). Negotiations followed, a policy of nondiscrimination was declared with the insistence that it was a principle of management. Disciplinary measures were meted out to the offending restaurants and minority ownership of some restaurants was provided. Not until problem-arousing massive consumer feedback emerged did a clearly stated principle and policy become part of a negotiated agreement (Robbins, 2004).

Organizations have volumes of policy statements. These policies are, in effect, its operating system and pertain to every aspect of its operations, for example, housing (buying vs. leasing), purchasing, accounting, depreciation of equipment, consulting services, outsourcing of various production operations, printing, hiring, reimbursing travel, taking leave (sick and vacation), covering health insurance, compensation, parking, taking work breaks, and working overtime. These policies are usually on loose-leaf paper and stored in binders with dates on every sheet. Policies are constantly being revised (Robbins, 2004). Policy setting has to do with mission and maintenance goals. As an activity, it is established close to the very head of the organization where a person or group receives the feedback of the functioning of all the organization’s subsystems.

On the basis of this feedback, a determination is made if things are happening as they should, and if not, why not, and what revisions in policies and procedures are necessary to make them happen. These persons must be highly aware and sensitive to the purpose / values / principles–sometimes referred to as the culture of the organization–if they are to respond promptly and consistently to the feedback. Emphasis must be placed on selecting appropriate business sectors, and ensuring that they are viable market segments for the firm to pursue (Robbins, 2004). Historical trends, current expertise, and interest are all key elements in selecting an appropriate business sector. It is not enough to simply enter a new market because it is popular or has been in the news lately. Market studies must be made, the business sector defined, and the firm’s role within that sector established before any attempts are made to enter it. Once a broad set of acceptable sectors has been defined, it is then necessary to fine tune this list into a small subset. Acquisitions must be aimed at improving the competitive position of the combined entity within a promising industry (Schuler, 1998).

Confusion

The research found that elaboration typically begins with consideration of the resources available (e.g., money, technology, and worker skills) to achieve the quality product envisioned. However, this is only the beginning in the exploration of resources, an exploration that leads to uncovering constraints, the other side of the coin. Inevitably, market considerations come up and force the issue of whether or not the presumed need is real. The function of HR differs from traditional one and is influenced by the context and environment. Somewhere among these ruminations, a determination needs to be made as to where the product will be produced. These questions and considerations are enough to indicate that serious organization and coordination need to take place in order for the purpose to be realized. At this point setting goals and objectives can be seen as not only plausible but desirable. Practically every question that comes up has optional answers and varying costs and consequences.

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The main limitation of the research study is semi-structured interviews which prevent research from objective data collection and high reliability. The time has come to generate hard data with respect to the options in order to make hard choices. To arrive at a strategy of proper resource allocation, an assessment must first be made as to what resources each organization brings to the merger and to the new corporate direction. Factors such as the size of the organizations, facilities available, what resources are at their disposal, what long-term commitments are presently in place, assets, liabilities, and cash flow all come into play when assessing resource availability. Once these resources are located, the next step is determining which ones are usable.

Not all resources may be needed after the merger. They may not necessarily coincide with the new corporate strategy or there may be duplicates. Although there are fewer obstacles than in the case of a hostile takeover, gaining support and trust is always a difficult endeavor. Thus, a key ingredient to success is to make certain that authority is evenly distributed within the newly organized company. If this is not the case, then power struggles will result between the management of the two companies, and a true merging will never take place. Plans must be in place to utilize the managerial talent available within each organization. It is especially important that the upper management of each organization achieves a very good working relationship with the other from the onset. Since these are the people that are the most visible within each organization and will most probably be looked to for guidance and to gauge the merger’s status, their role within the new firm is crucial.

Bibliography

Agrawal, A. Jaffe, J. F. 2000, “The Post-Merger Performance Puzzle, ” in Advances in Mergers and Acquisitions, 1, Amsterdam: Elsevier, 7-41.

Andrade, Gregor and Erik Stafford. 1997, “Investigating the Characteristics and Determinants of Mergers and Other Forms of Investment, ” mimeo, University of Chicago.

Angwin, D. 2007, Mergers and Acquisitions. Cambridge University Press.

Antila, F. M., Kakkonen, A. 2008, Factors affecting the role of HR managers in international mergers and acquisitions. Personnel Review 37 (3), 280-299.

Baldwin, John R. 1995, The Dynamics of Industrial Competition, Cambridge: Cambridge University Press.

Gaughan, P. A. 2007, Mergers, Acquisitions, and Corporate Restructurings. John Wiley & Sons; 4th Edition edition.

Galpin, T.J., Herndon, M. 2007, The Complete Guide to Mergers and Acquisitions: Process Tools to Support M&A Integration at Every Level. Jossey Bass; 2nd Edition edition.

Mills, H. 2003. Making Sense of Organizational Change. Routledge.

Mueller, Dennis C. 1987, The Corporation: Growth, Diversification, and Mergers, London: Harwood Academic Publishers.

Reed A. 2001, Innovation in Human Resource Management. Chartered Institute of Personnel and Development.

Robbins, S. 2004, Organizational Behavior. Prentice Hall. 11 Ed.

Schuler, R. 1998, Managing Human Resources. Cincinnati, Ohio: South-Western College Publishing.

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