The modern business market's increased rivalry and instability provide huge hurdles for organizations seeking to establish new operations, either in their home nation or in a foreign market. In this regard, businesses have chosen to seek mergers and acquisitions as a transformation initiative in order to improve their performance and, as a result, profitability and growth. A merger is a corporate arrangement in which two or more companies join to become one. It is frequently a strategy tool utilized by the management of various organizations with the goal of increasing efficiency and performance by seeking synergies. The business arrangement mentioned above usually stipulates a certain ration which guides in the process of awarding shares to stakeholders based on some shares held by the transferor company before the merger. Mergers present several advantages to the companies under the arrangement. First, mergers increase the net worth of shareholders by enabling them to own small shares in a larger pie, unlike their small business before the merger. Besides, mergers also enable the acquirer to overcome the challenges associated with asset purchases, including bulk-asset notification among other barriers. Moreover, the process is also free of charge (Weber & Tarba, 2012).
Mergers entail the coming together of different entities to form one joint company. The acquisition, in contrast, involves the takeover of an entity by another company. Notably, a group often purchase another targeted entity to become the sole owner of the business. Under such arrangement, the targeted firm cease to exist as its stock becomes the property of the new acquirer. Contrary to mergers where two or more equal companies join to become one large corporation, the acquirer company if often larger and more financially powerful than the acquired entity. The acquisition can be friendly, where the acquired firm assents to the process, or unfriendly where the takeover is usually hostile in nature. Although there is absoluteness in the buyer's power under acquisition, the arrangement requires significant sums of cash to undertake (Weber & Tarba, 2012).
The following discussion revolves around two articles on mergers and acquisitions, each highlighting different perspective regarding either the success or failure of the business arrangements mentioned above. These articles include "The DaimlerChrysler-Mitsubishi merger: a study in failure" by Jason Begley and Tom Donnelly and "Managing Strategic Alliances: Learning to Live with Ambiguity" by Rajesh Kumar. While the first article delves into the failure of mergers and acquisitions as exemplified in the DaimlerChrysler-Mitsubishi merger, the second article highlights the success of such a business initiative. The following section summarizes the two articles mentioned above.
The article "The DaimlerChrysler-Mitsubishi merger: a study in failure" by Jason Begley and Tom Donnelly puts much emphasis on the failed merger between DaimlerChrysler Group and Mitsubishi Motor Corporation of Japan of 2000. After a success merger with the US-based Chrysler Corporation in 1998, the joint company, DaimlerChrysler Group embarked on an initiative to pursue an alliance with the Asian giants, Mitsubishi Motor Corporation. According to the author, such a move intended to achieve a variety of things. First, DaimlerChrysler Group sought to explore the Asian market where it had a limited presence to enhance global market share as well as increase sales and subsequent profitability. Besides, the company also intended to gain a global competitive edge against other similar corporations across the world. In this article, however, Begley and Donnelly (2011) highlights the failure of the American company to achieve its merger objectives. According to the above authors, the joint company experienced failure in the first four years of its operations in the Asian market as witnessed in its inability to achieve a large-scale transnational production in the Asian market (Begley & Donnelly, 2011). The article not only outlines the motives behind the merger but also explores the reasons that contributed to the alliance between the American and Japanese motor corporations. Besides, it attempts to ascertain and uncover the reasons behind the Board of Daimler-Benz's decision to terminate the relationship with Mitsubishi Motor Corporation and disengage from the latter company's problems (Begley & Donnelly, 2011).
Jason Begley and Tom Donnelly presents an elaborate and critical analysis of the merger between DaimlerChrysler and Mitsubishi corporations by first analyzing each the companies separately before discussing the alliance in-depth. The authors cannot go without associating the failed merger between the two companies with the problems encountered by Daimler and Chrysler in the US as well as the weaknesses of Mitsubishi in Japan. More importantly, they put much emphasis on the deep challenges faced by Mitsubishi and the failure of the DaimlerChrysler CEO, Jürgen Schrempp to foresee the potential problems that such a merger was likely to encounter as the main reasons behind its failure (Begley & Donnelly, 2011).
On the other hand, the article "Managing Strategic Alliances: Learning to Live with Ambiguity" by Rajesh Kumar attempts to highlight the success of M&A by discussing the case of Renault-Nissan alliance. According to the author, ambiguity is a critical factor that affects partnerships to a great extent; thus effective and efficient strategies such uncertainties remain key to the success of mergers and acquisitions. Kumar (2014) reiterates the fact that ambiguities emanate from a variety of sources during the negotiation as well as the implementation of the mergers and acquisitions. First, the firms in a merger not only cooperate but may also compete at the same, therefore posing challenges in the implementation and management of the joint company. Besides, the managers involved in the negotiation for the alliance are not necessarily involved in the administration of the merger (Kumar, 2014). Lastly, the level of commitments exhibited by the partners in a merger may differ sharply, thereby creating a challenge in the management of the alliance. The article stated above highlights the successful merger between Renault and Nissan by first pinpointing the objectives of both the companies going into the alliance before discussing the evolution of the partnership. The author majorly attributes the success of the merger to effective and efficient leadership and management as compared to other associations that have failed as witnessed in the case of DaimlerChrysler and Mitsubishi Motor Corporation (Kumar, 2014). The two firms created a suitable business environment as well as an organizational culture that encouraged harmonious operations within the new joint company. Moreover, the leadership instilled a corporate culture that favored the activities of both the parties as well as the commitments of the companies towards the achievement of a successful venture.
Kumar (2014) concludes the article by reiterating the importance of managing ambiguity in the attainment of an effective and efficient alliance between any two or more companies. The ability of an alliance to manage uncertainties hinges on a variety of factors, including the development of a clear vision and shared strategic ambition, efficient management of the potential challenges, selection of the manager, as well as the development of the capability of the alliance over time (Kumar, 2014).
Summary of Five Articles
The first article is "What Explains Mergers' Success or Failure? The Role of Organizational Structures, Strategies and External Environments in Mergers - Empirical evidence from two different cases" by Fredrik Øren Refsnes (2012). In this article, the author attempts to highlight the importance of mergers and acquisitions as a strategic business mechanism often adopted by companies not only to gain a competitive edge in the highly volatile global market but also improve their general performance and profitability. The author of this article argues that while companies usually explore the option of pursuing mergers and acquisition to enhance their business operations and performance, not all of them succeed in such endeavors (Refsnes, 2012). Notably, the majority of organizations have reported failure, more so in managing the joint ventures after the mergers or acquisitions. The article attempted to withdraw insights from various literature sources on organizational and technological innovations revolving around the study of the factors that determine success and failure of mergers and acquisitions (Refsnes, 2012). It pursued an empirical analysis by putting much emphasis on the two different alliances, highlighting the failure in one situation and success in the other. Notably, the article discusses the success of the merger between Statoil and Hydro in 2007, as well as the failed merger between Telenor and Telia in 1999 (Refsnes, 2012). According to the findings of the study mentioned above, the author attributes the success of the merger between two companies to their similarities and complementarities, particularly their business strategies, external policy environment, as well as their respective organizational structures.
The article "Enhancing the success of mergers and acquisitions: An organizational culture perspective" by Mike Schraeder and Dennis R. Self in 2003 also delves deep into the factors behind the success of mergers and acquisitions in the contemporary society. According to the authors, corporations have realized the importance of mergers and acquisitions in enhancing their performance as well as gaining competitive advantage in the targeted markets. The article notes that companies have invested billions of dollars in mergers and acquisitions to ensure success in such initiatives (Schraeder & Self, 2003). However, the authors lament that the success rate of such mergers and acquisitions is not commendable. The article further notes that previous studies provide reasons behind the high rate of failure of the mergers and acquisitions in the global arena (Schraeder & Self, 2003). For instance, excellent research and attention to the organizational culture is key to the success of any merger and acquisition.
It is notable that cultural implications should be at the forefront while considering any potential merger and acquisition before the parties go ahead and engage in such negotiations (Schraeder & Self, 2003). According to the article, there should also be a consideration of the implications of the merger and acquisition not only before the venture but also after the alliance. Lastly, the researchers attempt to provide a comprehensive perspective on the various ways that corporations can achieve success in the field of mergers and acquisitions. These strategic initiatives include digging deep into the aspects of organizational change and strategy, as well as corporate development or management research as suggested by several researchers in the business realm (Schraeder & Self, 2003). In a nutshell, this article presents an in-depth analysis of the mergers and acquisitions, not only by highlighting the reasons behind high failure rates but also outlining the possible reasons behind such failures. Besides, the authors have also provided a comprehensive perspective of the possible solutions to such failures and what corporations can do to increase success, particularly in the pursuit and subsequent management of post mergers and acquisitions (Schraeder & Self, 2003).
Jeff Badrtalei and Donald L. Bates wrote an article entitled "Effect of Organizational Cultures on Mergers and Acquisitions: The Case of DaimlerChrysler" in 2003 to highlight the factors behind the failure of particular mergers and acquisitions, with a particular focus on the Daimler-Benz and Chrysler. In this article, the authors begin by acknowledging and appreciating the significance of partnerships of any form. According to the article, such business arrangements, be it joint ventures, acquisitions or mergers often present viable strategic options for companies to realize diversification growth, global presence, as well as economies of scale. The authors acknowledge the challenges involved in the listing of all the cultural characteristics that affect partnership, thus their decision to eschew the enormous effort. Instead, this article opted to discuss the implications of organizational cultural effects on the Daimler-Benz-Chrysler merger (Badrtalei & Bates, 2003). The authors highlight some of the consolidation processes, including due diligence, identification, negotiations, blending of systems, as well as operations. Furthermore, the article placed much emphasis on the cultural factors that presented significant barrier at each stage of the merger between Daimler-Benz and Chrysler corporations and are likely to plague the alliance after its initiation (Badrtalei & Bates, 2003). The main objective of this study was to highlight the cultural factors behind such failures in mergers and acquisition, and in the process providing a guide on how to overcome similar challenges and increase chances of success in future partnerships and alliances.
While stressing on the cultural issues determining the success or failure of mergers and acquisitions, this article also mentions the potential implications of the market and economic pressure as at the time of such business alliances (Badrtalei & Bates, 2003). Nonetheless, the authors argue that although such economic and market aspects are significant, the organizational cultural characteristics remain predominant among the factors that determine the effectiveness in the management of mergers and acquisitions in successful corporations. According to the authors of this article, the conflicts between the American and German cultures as at the time of Daimler-Benz and Chrysler merger played a critical role in jeopardizing the management of new joint venture after its formation (Badrtalei & Bates, 2003).
The article "Alternative forms of charismatic leadership in the integration of mergers and acquisitions" by David A. Waldmana, and Mansour Javida in 2009 allude to the fact that the performance of post-merger entities depend in part on the organizational leadership among other factors. According to the authors of the article, corporate leadership plays a critical role in ensuring the effective post-merger management and performance of the new joint organization (Waldmana & Javida, 2009). They present a theoretical model that affirms the relevance of various forms of charismatic leadership to the implementation of mergers and acquisitions (Waldmana & Javida, 2009). The article attempts to conceptualize the distinction between charismatic leaders with different power motives, their possible behaviors, as well as the potential implications of their leadership behavior on the new joint organization. In this respect, the article attempts to suggest that personalized charisma often presents enormous challenges in the management and subsequent performance of a post-merger organization (Waldmana & Javida, 2009). Notably, the authors argue that personalized charism is not only resistant to change but also leads to associated stress and absorption strategy.
Besides, the form of leadership mentioned above also results in a turnover with varying levels between the two firms involved in the acquisition or merger. On the other hand, the article throws its weight behind the socialized charisma by associating it to a collaborative decision-making and vision-formation in the new joint organization. Such attributes are likely to steer the merged organizations to greater heights by transforming their operations and performance. The article further notes that in cases of unfavorable pre-merger conditions, the absorption strategies are critical in ensuring an effective integration of the one firm (Target Company) into the other (acquiring firm). In addition to emphasizing the unexplored aspect of leadership and its effects on the effectiveness in the management of mergers and acquisitions, this article also highlights the relevance of cultural and organizational unification in achieving successful post-merger organization (Waldmana & Javida, 2009). The article argues that there is sufficient evidence to associate corporate integration with effective implementation of mergers and acquisition across the globe. However, Waldmana and Javida (2009) affirm the challenging nature of the goal mentioned above. While there are several factors attributed to the failure of various mergers and acquisitions, multiple literature sources cite cultural and organizational integration as critical ingredients to the success of such business alliances.
The article "HR Issues and Activities in Mergers and Acquisition" by Randall Schuler and Susan Jackson presents a different perspective on the factors that determine the success of mergers and acquisitions. Like other previous articles, this article acknowledges the instrumentality of mergers and acquisitions as a strategic mechanism that corporations utilize to position themselves effectively in the business market. Schuler and Jackson (2001) reiterate the fact that organizations use mergers and acquisition tool to not only diversify in the new markets but do so in a more efficient and swift manner. However, the success of such companies in pursuing such business initiatives is not guaranteed. According to this article, the majority of organizations that pursue mergers and acquisition initiatives often fail to achieve their desired goals and objectives (Schuler & Jackson, 2001). The article by Schuler and Susan Jackson pinpoints the neglected human resource factors as some of the factors that cause failure in mergers and acquisitions. The authors note that while much emphasis goes to the market factors as well as financial issues the neglected human resource attributes also play a significant role in influencing the outcome of such business arrangements (Schuler & Jackson, 2001). The article affirms the several calls by previous studies for a systematic redress of a variety of human resource activities and practices by corporations engaging in mergers and acquisitions to ensure they achieve the success in both management and integration of the new joint organization. The authors suggest the three-step approach to mergers and acquisition that attempts to pinpoint the several human resource practices in a more effective way (Schuler & Jackson, 2001). The article provides a comprehensive analysis of the human resource factors through examples at each stage in the three-step model. Lastly, the two authors conclude the analysis of the human resource factors and how they determine the performance of mergers and acquisitions by highlighting the role played by the sector as well as its importance in the management of the joint venture (Schuler & Jackson, 2001).
Common Problems with M&A
While mergers and acquisitions provide a suitable mechanism which companies can utilize to gain a competitive position in the business market, the strategic business has a fair share of its challenges. According to Schraeder and Self (2003), the failure of the stakeholders in the merger or takeover process to implement effective management initiatives is likely to compromise the management and performance of the new joint venture after the merger. This chapter discusses the common challenges encountered by corporations in a merger.
Communication Challenges
Several studies on mergers and acquisitions in the recent past have cited communication as one of the greatest challenges faced by businesses in merger and acquisition arrangements. According to Schraeder and Self (2003), the companies in such business arrangements experienced challenges in communicating to their new employees among other stakeholders. The author stresses on the need for effective communication to the employees, empowering them, as well as establishing an organizational culture that enhances integration as a critical factor in the management of mergers. It is notable that many mergers and acquisitions often leaves the management and employees in the dark, an issue that is likely to compromise the efficient operations and subsequent performance of the new joint corporations (Begley & Donnelly, 2011). Given the fact that even the top management may not have the necessary information required by the employees, they desist from engaging their followers on the same to divulge vital information, an issue that significantly affects the organization. Studies show that lack of proper communication flow in the workplace is likely to cause distrust as well as uncertainty among employees (Schuler & Jackson, 2001).
Integration Challenges
Mergers and takeovers often involve some integration, an issue that has posed challenges to several firms in the past. According to Schraeder and Self (2003), the degree of integration differs from one merger to the other based on a variety of factors. These factors may include the timing, size, and nature of the merger, the compatibility of the partner's business cultures, as well as the need for cost synergies among other issues. Begley and Donnelly (2011) emphasize the fundamentality of post-merger integration, an issue they assert that companies in a joint agreement must foster to steer the new venture forward. However, they often experience challenges in bringing different elements of their organizations together due to certain differences. Previous studies stress on the problems encountered by corporations in a merger, particularly attributable to the comprehensive planning and negotiation involved in the merger and acquisition process (Schraeder & Self, 2003). It is important to appreciate factors like the differences in culture while pursuing the integration planning to ascertain the post-merger corporate culture, an aspect that is critical to the subsequent performance and operations of the new joint venture.
Cultural Differences
While companies are intending to get into a merger and takeover often focus on the financial and business gains, they always tend to be insensitive to the popular cultural issues and their potential implications on the merger. Several studies on mergers and acquisitions reveal that almost 30% of the mergers and takeovers usually fail, an issue attributed to lack of harnessing the disparities in organizational cultures (Dauber, 2012). Although many companies aspiring to take part in the mergers and acquisitions put much emphasis on the scientific and mechanical aspects of the business relationship, the issue of people management is equally vital (Dauber, 2012). It is noteworthy that new joint organizations are likely to encounter enormous challenges because they exhibit shifts and changes in management practices and approaches, an issue that presents adverse implications on the employees of the new venture. The cultural challenges mentioned above manifested during the merger between Daimler and Chrysler. While these two companies were almost equal on industry and product levels, they exhibited different cultures. Notably, Chrysler had a culture of creativity, daring, and diverse, while Daimler displayed a conservative culture characterized by efficiencies and reservation. The differences in corporate culture became vivid a few months after the merger, thereby affecting the new organization enormously. There is a need for participating firms to carry out due diligence of differences in corporate cultures before engaging in mergers and acquisitions.
Best Practices for Mergers and Acquisitions
Although the success rate of many mergers and acquisitions have been disturbing, corporations involved in such business alliances can adopt initiatives aimed at enhancing their success levels. Most of the mergers initiated in the past have failed, an issue that has since attracted enormous research to uncover. Notably, previous studies show that between 50 and 70% of the corporations involved in mergers and acquisitions often fail after a given period after the business alliance (Weber & Tarba, 2012). The failure of such corporations is attributable to a variety of factors as discussed above. Previous studies have demonstrated that effective leadership remains key to the success of organizations after a merger or acquisition. Notably, corporations that utilize hands-on leadership approaches often perform well and integrate efficiently after the merger as witnessed in the case of Renault and Nissan merger and vice versa (Waldmana & Javida, 2009). Besides, there is a need for such companies and their management to involve all staff in the decision-making process as well as running of the venture to enhance inclusivity and ownership of the company (Waldmana & Javida, 2009). Such an issue is likely to steer the new joint organization to success. As noted before, effective communication between the negotiating team and the management, as well as the employees is critical to the success of companies after mergers and acquisitions, and lack thereof is a basis for their failure. Notably, lack of communication not only creates distrust among the company employees but also provides and an avenue for uncertainty, an issue that is detrimental to the normal operations and performance of any business. In this respect, the top management should uphold a high level of honesty and openness while communicating with the employees in an attempt to realize the goals and objectives of the merger.
Conclusion
Companies in the contemporary global business market have utilized the strategic tool of mergers and acquisitions not only to gain a competitive edge against rivals but also enhance their performances and subsequent success. The strategic business mechanism mentioned above have helped several companies to realize their goals and objective while exploring new markets either at home or in the foreign markets. However, it is notable that mergers and acquisitions also present enormous challenges to corporations involved in such business alliances. As noted in the discussion above, such problems include disparities in corporate cultures, communication challenges, human resource management issues, as well as integration issues. The failure to address these matters have contributed massively to the inability of many corporations across the globe as exemplified in the merger between DaimlerChrysler and Mitsubishi Motor Corporations. Nonetheless, there are success factors whose effective redress are likely to steer the new joint organizations to achieve the strategic objectives. The primary determinants of success in a joint venture revolve around effective management and business strategy, due pre-merger diligence and cultural sensitivity, as well as people management among other fundamental organizational issues. Both corporate culture and national culture have significant implications on the operations, performance, and survival of a company in a given business market. As a result, the management of various firms must carry out efficient and elaborate research to establish the prevailing culture as well as the compatibility of corporate cultures between their company and the target business to avoid any potential conflicts. Effective leadership approaches and involvement of all staff in the management of the new joint venture remain pivotal to the performance and subsequent success of the organizations.
References
Badrtalei, J., & Bates, D. L. (2007). Effect of organizational cultures on mergers and acquisitions: The case of DaimlerChrysler. International Journal of Management, 24(2), 303
Dauber, D. (2012). Opposing positions in M&A research: culture, integration and performance. Cross Cultural Management: An International Journal, 19 (3)
Refsnes, F. Ø. (2012). What Explains Mergers' Success or Failure?: the Role of Organizational Structures, Strategies and External Environments in Mergers-Empirical evidence from two contrasting cases (Master's thesis).
Schraeder, M., & Self, D. R. (2003). Enhancing the success of mergers and acquisitions: an organizational culture perspective. Management Decision, 41(5), 511-522.
Schuler, R., & Jackson, S. (2001). HR issues and activities in mergers and acquisitions. European Management Journal, 19(3), 239-253.
Waldman, D. A., & Javidan, M. (2009). Alternative forms of charismatic leadership in the integration of mergers and acquisitions. The Leadership Quarterly, 20(2), 130-142.
Weber, Y. & Tarba, S. (2012). Mergers and acquisitions process: the use of corporate culture analysis. Cross Cultural Management: An International Journal, 19(3), 288 – 303
