Executive Summary
The current business environment is very volatile and competitive. As such, the capacity to solve organizational problems has increasingly become an elemental aspect of strategic management. Nonetheless, this task requires leaders to possess critical thinking skills. As such, the hypothesized mini-case study will provide the opportunity to develop critical-thinking and problem-solving skills for future practice. The case study will involve a Tech Company that has undergone a merger. This mini-case aims to highlight the human resource issues and challenges that emerged during the merger. The paper will also identify and discuss the HR practices that organizations should implement to ensure a successful merger.
This assignment has employed the strategic human resource management (SHRM) model to establish the theoretical basis for the mini-case study. The core of the SHRM is the assimilation of human resource (HR) practices into strategic decisions. Although this merger was critical to enhancing efficiency and profitability, the managers handled the pre-deal process inappropriately when they failed to include the employees. Staffing and a clash of cultures emerged as prominent issues during the merger. According to the provisions of the SHRM model, the company should have dealt with staffing concerns adequately during the pre-deal stage. Also, the new management should have formulated feasible frameworks to prevent a clash of cultures.
Introduction
One of the fundamental responsibilities of leaders in organizations and business entities is to solve problems. This process cannot succeed without the use of critical thinking skills (Claydon & Beardwell, 2007). The current business environment is very volatile and competitive. The majority of corporations are now developing strategies that will ensure productivity and efficiency in the fluid and dynamic marketplace (Okpara & Wynn, 2008). According to Kai, Cooper, and Zhu (2007), it is imperative to identify opportunities and threats on time. The ability to analyze situations critically influences the feasibility of strategic decisions. As such, business case studies have emerged as feasible tools through which companies can assess their processes (Lin & Shih, 2008).
The objectives of this mini-case assignment are twofold. First, the conceptualization of a real-life situation will provide the opportunity to develop critical-thinking and problem-solving skills. According to Nyberg, Moliterno, Hale, and Lepak (2014), these competencies influence effectual leadership and management. Second, the formulation of the mini-case study will facilitate the process of translating the theories learned in the classroom to real-life settings (Claydon & Beardwell, 2007). This mini-case will analyze the current state of affairs at a California-based Tech Company (Tech Systems Inc.). The company has just undergone a merger, but pertinent issues have begun to emerge. My position in the organization entails serving as the representative of the employees.
Problem Statement
The Human Resource (HR) function has become an integrated component of strategic thinking because employees play a significant role in realizing organizational goals (Kai et al., 2007). HRM models have evolved continuously to support evidence-based practices and decisions (Claydon & Beardwell, 2007). Thus, this assignment will employ the strategic human resource management (SHRM) framework to establish the theoretical basis for the mini-case study. In addition, the mini-case will analyze the various HR problems that arose from a merger. Some of these issues will include organizational culture, productivity, cultural integration, and change management.
Behind the Scenes: The Firm
Roy and Rich Smith founded R&R Computer Solutions Inc. in 2000. The initial portfolio of the R&R Company involved the manufacture of computer software and hardware. The strategic idea behind the establishment of this business entity was to take advantage of the growing demand for laptop computers. Roy and Rich hatched their entrepreneurial idea while pursuing a bachelor’s degree in computer engineering at California State University. The location of R&R Inc. near Silicon Valley enabled the business to increase its productivity and profitability. In essence, R&R Inc. became IBM’s largest supplier of computer software and hardware.
The proliferation of smartphones and tablets in the technology sector, coupled with IBM’s financial challenges, portended a difficult future for R&R. The company started to record a steady decline in its sales. Roy and Rich decided to diversify their portfolio by acquiring a telecommunications company (A&T) in 2009. The newly formed venture (Tech Systems Inc.) entered a memorandum of understanding (MOU) with Google in 2011, which allowed it to manufacture smartphones and tablets based on the Android Operating System (OS).
The company was profitable until 2013, when the competitive landscape in the sector shifted significantly. In response, the top managers made a unilateral decision to merge the parent company with Wu Xiang Hu, a Chinese multinational company with subsidiaries in Europe and Asia. The merger has seen the reorganization of the management structures. Chinese nationals are now in control of all the top positions. The new CEO has also replaced all the departmental heads with new personnel from Europe and Asia. The employees are very anxious about their job security. In addition, the cultural tension among the staff is undermining their working relationship and productivity.
A Failing Merger: The Story of Tech Systems Inc
Tech Systems Inc. released its flagship smartphones (the T brands) in 2010 after signing the MOU with Google. The company reported record sales throughout 2011 and 2012. Tech Systems’ profitability helped it to become a significant player in the smartphone industry. However, sales slowed down in 2013 after Apple and Samsung challenged the company’s competitive position. The sophisticated iPhones by Apple and Samsung’s innovative Galaxy S phones were more appealing to consumers than the T brands. As Tech Systems’ market share continued to wane, the top management started to look for ways to avert the risk of insolvency. Consequently, the CEO formed a committee to brainstorm and formulate an alternative solution.
The panel of experts settled on two strategic options. The first recommendation required Tech Systems to develop an independent operating system. The committee had found out that the company was losing advertisement revenue because of its overreliance on Google’s Android ecosystem. The second alternative was to continue using the Android OS but limit users’ access to the Google App store. The top management decided to adopt both options. However, the implementation of these plans required substantial financial resources. The main problem is that the company did not have sufficient funds to realize this goal.
Tech Systems had reported a loss of $10billion in the 2013/2014 fiscal year. In addition, the U.S Trade Dispute Tribunal had imposed a further $5billion penalty on the company for infringing on Samsung’s intellectual property rights. Tech Systems did not have the financial resources to execute its strategic move. The primary concern was that the company’s credit rating had reduced from four to three stars after the previous audit by the National Bankers Association. Thus, financial institutions were unwilling to bail out the company until it settles its debts. The lack of funds pushed the top management to make the autonomous decision of merging with Wu Xiang Hu.
Wu Xiang Hu had proposed to buy 51% of Tech Systems’ stocks in 2012, although the management rejected the offer. Tech Systems decided to float its shares at the NYSE through an Initial Public Offering (IPO) when the financial situation worsened in the first quarter of 2014. This plan would have benefited the employees because they were to control 45% of the stake. Nonetheless, Tech Systems’ financial standing meant that the IPO would not raise enough funds. The top management bypassed the initial offer and decided to merge with Wu Xiang Hu in the fourth quarter of 2015. According to the deal, Wu Xiang Hu controlled 65% of the company’s stocks while its U.S subsidiary bought 20% of Tech System’s stake. This move was unpopular among the employees and junior managers who felt shortchanged.
The employees did not receive any official communication regarding the imminent merger. Thus, they were shocked when they received an invitation to attend the signing ceremony. The announcements made during the event astonished and infuriated the staff. First, Chinese nationals had replaced the current CEO and Vice President. Second, three officials from Wu Xiang Hu’s Europe headquarters filled the positions of the Financial Manager, HR Manager, and Operations Manager. Third, the new CEO announced the realignment of the transformation processes and working hours through an interpreter. Finally, the new HR manager also announced a rationalization program that would see the laying off of 80 junior employees in three phases.
The Beginning of a Crisis
The new management announced plans to release new products under the name Wu Technologies. One of the strategies included the introduction of a revolutionary smartphone at the 2016 Consumer Electronic Show (CES) in Las Vegas. This ambitious plan has witnessed a dramatic increase in the number of working hours from six (previous) to ten (current). The HR department also has frozen leaves and offs until the end of the 2016 Expo. Despite these efforts, the company is behind schedule by six months. Wu Technologies has already lost three of its most talented employees to rival companies. In addition, the company may face a financial crisis because the previous managers overstated the value of Tech Systems through the irregular capitalization of expenses.
The HR manager sent a memo recently to all departments threatening to sack and suspend all the ‘lazy’ workers. The newly appointed CEO has terminated the tenure of eight technicians and four software developers under unclear circumstances. The HR manager subsequently replaced them with Chinese nationals. The number of Chinese employees has been increasing for the past four months. The HR manager has prohibited the new employees from joining the workers’ union. The company has also changed the terms of service from the pensionable model to performance-based contracts. The worker’s representative has presented these matters before the industrial court because the top managers are unwilling to settle them amicably.
Theories
The core principle of strategic human resource management (SHRM) is the development of a strategy (Lin & Shih, 2008).1 Organizations often develop strategies that define their future goals and aspirations. Nonetheless, Lin and Shih have noted that managers do not incorporate the HR function into the strategic planning processes. The fundamental goal of SHRM is to develop organizational capabilities by making certain that the organization retains committed, skilled, and motivated employees (Nyberg et al., 2014). SHRM achieves this objective in two ways. Firstly, SHRM integrates business strategies with HR practices. Secondly, SHRM facilitates the formulation and implementation of practical and logical HR policies (Kai et al., 2007). Nyberg and his colleagues have found out that these programs enable the management to meet employees’ needs both individually and collectively.
The resource-based view is the first approach of SHRM. The rationale underpinning this stance is that organizational resources, including employees, create a competitive advantage (Fischer & Rush, 2008). In addition, the uniqueness and culture of a company depend on its resources (Lin & Shih, 2008). Secondly, the best practice method of SHRM assumes that HRM procedures are universal.2 Thus, they can suit any situation and enhance organizational performance (Claydon & Beardwell, 2007). The best HR practices encompass efficient information-sharing channels, the security of tenure, and sound hiring processes. Employee commitment and effective communication enable the organizations to remain competitive and productive (Kai et al., 2007).
The best-fit approach of SHRM posits that HR strategies and practices should be coordinated with the circumstances and context of the organization.3 Claydon and Beardwell (2007) have argued that the efficiency of HRM practices depends on its harmony with the organization’s developmental stages. On the other hand, Nyberg et al. (2014) have asserted that HRM procedures, practices, and programs should change as the organization transforms and develops.
Finally, Claydon and Beardwell have noted that the environmental context and organizational size influence HR practices inevitably. Conversely, other generic processes shape these HR procedures. Some of them include employee selection, appraisal, training, and motivation. These issues support the adoption of best practices in HRM (Lin & Shih, 2008).
Problem Statement and Literature Support
Mergers and Acquisitions (M&A) represent one of the strategies that businesses are using to realize organizational goals. Although mergers increase efficiency and productivity, they are high-risk ventures (Harding & Rouse, 2007). Okpara and Wynn (2008) have reported that more than 85% of mergers and acquisitions fail to meet their strategic goals. The primary concern is that the newly formed company may experience a high turnover when its skilled employees resign (Creasy, Stull, & Peck, 2009). Fischer and Rush (2008) have identified the failure to manage the human resource function adequately during the integration stage as one of the underlying risk factors for failure. The strategic role of Human Resource Management (HRM) is to address the people-related problems during mergers (Kai et al., 2007).
The Strategic Human Resource Management (SHRM) has underscored the coherency that exists between strategic business management and HR practices. According to Nyberg et al. (2014), the successful implementation of a business strategy depends on the adaptability and compatibility of HR systems. The Tech Systems Inc. and Wu Xiang Hu merger are on the verge of failure because the top management overlooked the HR function. The HR issues and problems illustrated in the mini-case study have arisen from the management’s inability to anticipate the effect of the merger on the people. The pre-deal stage of the merger set the tone for failure by neglecting to assess the influence of cultural integration on the organizational goal.
The review of the literature has identified ineffective cultural integration as one of the factors that hinder the success of a merger (Budawar, Varma, & Katou, 2009). The cultural clash between the American employees and those from China is undermining communication networks within the company. For example, the CEO could not address the employees without the services of an interpreter. This scenario has highlighted the cultural and language divide at WU Technologies. Denison, Adkins, and Guidroz (2011) have found out that mergers and acquisitions often fail because of cultural tensions. Each organization has an established set of behaviors, beliefs, and meanings. A perceived threat to these establishments polarizes the workforce (Budawar et al., 2009).
One of the elemental components of the best practice models is employee involvement and effectual communication (Creasy et al., 2009). Tech Systems Inc. failed to acknowledge this fact since it did not involve the junior management and employees in the decision-making processes. Fischer and Rush (2008) have identified effective communication between managers and employees as a critical factor that ensures the successful implementation of change. Change is an inevitable ramification of mergers and acquisitions, which requires proactive management to achieve the anticipated benefits (Denison et al., 2011).
The merger process at Tech Systems Inc. was finalized with haste without preparing the employees for the transition. The new management also failed to involve the employees in making decisions regarding the development the design and production of the new line of smartphones.
Strategic HRM Alternatives and Solutions
The mini-case study has highlighted the challenges inherent in mergers and acquisitions. According to Budawar et al. (2009), these obstacles emerge either directly or indirectly from the issues related to strategic management. In essence, the top management often overlooks the aspects relating to culture and change management during the pre-deal stages (Okpara & Wynn, 2008). The best practice model of SHRM has underscored the significance of fitting HR practices into the company’s strategic plan. On the other hand, the best-fit approach of SHRM has emphasized the establishment of coherence in HR practices and policies (Nyberg et al., 2014). The best strategy would have been to deal with staffing issues adequately.
The main impetus behind mergers and acquisitions is the desire to enhance the efficiency of organizational operations and processes (Harding & Rouse, 2007). The first consequence of merging two companies is the downsizing of employees to eradicate redundancies. Although these processes are crucial, the manner in which they are accomplished determines whether the merger will succeed or fail (Fischer & Rush, 2008). The parent company should have conducted a due diligence exercise to identify the required proficiencies and skills before finalizing the merger. Harding and Rouse have asserted that the arbitrary downsizing of staff causes confusion and inefficiency. Wu Electronics is behind schedule in its strategic plan because the uncertainty about the future is causing unease among the employees.
Another crucial component of staffing during mergers and acquisitions is the effectual management of diverse cultures (Budawar et al., 2009). The inclusion of foreigners in the parent company is causing tensions among the employees. Creasy et al. (2009) have found out that the harmonization of organizational cultures improves performance and productivity. The new management should have formulated feasible frameworks to ensure that the employees from both companies move in one direction.
Fischer and Rush (2008) have noted that culture usually becomes a source of conflict rather than synergy. Cultural differences exemplify a nuisance that can cause a disaster after the merger (Okpara & Wynn, 2008). Both companies should have conducted a feasibility study on how to assimilate the two cultures together to avoid a clash of opinions.
Another staffing issue is the effectual management of diverse cultures. The inclusion of foreigners in the parent company is causing tensions among the employees (Okpara & Wynn, 2008). Creasy et al. (2009) have found out that the harmonization of organizational cultures improves performance and productivity. The new management should have formulated feasible frameworks to ensure that the employees from both companies move in one direction (Fischer & Rush, 2008). Cultural differences exemplify a nuisance that can cause a disaster after the merger (Okpara & Wynn, 2008). Both companies should have conducted a feasibility study on how to assimilate the two cultures.
Conclusion
The principal lesson learned from the organization is that the human resource function should assume a prominent position during mergers and acquisitions. The failure to address HR grievances during the pre-deal stage makes it impossible for the M&A to accomplish its strategic goal. Secondly, the HR theories and issues have provided valuable insights to facilitate the implementation of a successful merger.
The strategic human resource management model plays a fundamental role in this process because it facilitates the incorporation of HR practices into the organization’s strategy. This mini-case assignment has identified HRM as a critical component of organizational management. The core of this lesson is that companies cannot achieve their strategic objectives without the HR function. I want to learn more about the strategies for managing change during mergers and acquisitions. This desire has emerged from the inevitability of M&A in the contemporary business environment.
References
Budawar, S., Varma, A., & Katou, A. A. (2009). The role of HR in cross-border mergers and acquisitions: The case of Indian pharmaceutical firms. Multinational Business Review, 17(2), 89-110.
Claydon, T., & Beardwell, J. (2007). Human resource management: A contemporary approach (5th ed.). Harlow, NY: Prentice Hall.
Creasy, T., Stull, M., & Peck, S. (2009). Understanding employee-level dynamics within the merger and acquisition process. Journal of General Management, 35, 21–42.
Denison, D. R., Adkins, B., & Guidroz, A. M. (2011). Managing cultural integration in cross-border mergers and acquisitions. Advances in Global Leadership, 6, 95-115.
Fischer, K., & Rush, T., (2008). Staffing after mergers and acquisitions: A human resource management study. Journal of Business Case Studies, 4(12), 29-35.
Harding, D., & Rouse, T. (2007). Human due diligence. Harvard Business Review, 85, 124–131.
Kai, K. A., Cooper, B. K, & Zhu, C. J. (2007). The effect of SHRM practices on perceived firm financial performance: Some Initial evidence from Australia. Asia Pacific Journal of Human Resources, 46, 168-179.
Lin, H-C., & Shih, C-T. (2008). How executive SHRM system links to firm performance: The perspectives of upper echelon and competitive dynamics. Journal of Management, 34, 853-881.
Nyberg, A. J., Moliterno, T. P., Hale, D., & Lepak, D. P. (2014). Resource-based perspectives on unit-level human capital: A review and integration. Journal of Management, 40, 316-346.
Okpara, J. O., & Wynn, P. (2008). HRM Practices in a transition economy: Challenges and prospects. Management Research News, 31(1), 57-76.
Footnotes
- SHRM evolved to facilitate a value-driven, integrative, and proactive approach to human resource management in the 1990s. The primary goal of SHRM is to assimilate HRM practices into the organizational strategy.
- The universalism of the best practice model assumes that a set of HR practices benefits all organizations regardless of their location or context. Nonetheless, these procedures should emphasize high performance or high commitment to achieving productivity.
- The best-fit approach shares insights with the contingency theory by ensuring a vertical alignment or integration between HR and the organization’s business strategies.