1. Most of the companies planning for acquisition of another company check for t
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Question
1. Most of the companies planning for acquisition of another company check for the compatibility in strategic objectives and operational and financial criteria. However, the most important asset of a company i.e. its workforce is neglected. Cisco Systems understands the importance of its employees and has adopted adequate human resource practices to make successful acquisitions. Before acquiring a company Cisco checks for the compatibility of its work culture, employee knowledge and technical know-how, and adjustability of the employees of the target company. Besides, they take care of job security of the employees and do not layoff them unless required. The employees are given adequate training to understand their new roles and responsibilities. All these HR practices help the company in successful acquisitions.
2&3. Human resource is a major source of competitive advantage for a company and key determinant for its success as it is the employee’s commitment and hard work that enables a company to achieve its goals. Despite this, human resource aspects of mergers and acquisitions was not given much importance in several instances, because companies going for acquisitions target for increasing their market share, reducing market competition, or strengthening their core functions/tasks by achieving the technical know-how of other company. They only look for the factors that can be measured and give them revenue and profit. Importance of human resource, their loyalty and commitment for the success of the company were not given that much importance earlier.
4. HRM plays a very crucial role in the strategic management process. In case of mergers and acquisitions, the employees have a prime concern for their job security as the new employer do major layoffs and fire maximum employees of the previous company. This is done mainly because of their incompatibility, lack of requirement in new process, or their loyalty towards previous company. Although it only deteriorates the morale, commitment, and loyalty of rest of the employees. In such situation, HRM would play a crucial role. A company going to acquire another one needs to take step after closely monitoring the compatibility of work culture and employee skills and knowledge. Employees should be given job security to keep them motivated. Besides they should be given proper training for their new roles and work culture. Hence, HRM is very crucial for the strategic management process.
Explanation / Answer
CASE Study -Mergers and Acquisitions
In the past, the decision criteria for mergers and acquisitions were typically based on considerations such as the strategic fit of the merged organizations, financial criteria, and operational criteria. Mergers and acquisitions were often conducted without much regard for the human resource issues that would be faced when the organizations were joined.1 As a result, several undesirable effects on the organizations’ human resources commonly occurred. Nonetheless, competitive conditions favor mergers and acquisitions and they remain a frequent occurrence. Examples of mergers among some of the largest companies include the following: Honeywell and Allied Signal, British Petroleum and Amoco, Exxon and Mobil, Lockheed and Martin, Boeing and McDonnell Douglas, SBC and Pacific Telesis, America Online and Time Warner, Burlington Northern and Santa Fe, Union Pacific and Southern Pacific, Daimler-Benz and Chrysler, Ford and Volvo, and Bank of America and Nations Bank. Layoffs often accompany mergers or acquisitions, particularly if the two organizations are from the same industry. In addition to layoffs related to redundancies, top managers of acquiring firms may terminate some competent employees because they do not fit in with the new culture of the merged organization or because their loyalty to the new management may be suspect. The desire for a good fit with the cultural objectives of the new organization and loyalty are understandable. However, the depletion of the stock of human resources deserves serious consideration, just as with physical resources. Unfortunately, the way that mergers and acquisitions have been carried out has often conveyed a lack of concern for human resources. A sense of this disregard is revealed in the following observation: Post combination integration strategies vary from such “love and marriage” tactics in truly collaborative mergers to much more hostile “rape and pillage” strategies in raids and financial takeovers. Yet, as a cursory scan of virtually any newspaper or popular business magazine readily reveals, the simple fact is that the latter are much more common than the former.2 The cumulative effects of these developments often cause employee morale and loyalty to decline, and feelings of betrayal may develop.3 Nonetheless, such adverse consequences are not inevitable. A few companies, such as Cisco Systems, which has made over 50 acquisitions, are very adept in handling the human resource issues associated with these actions. An example of one of Cisco’s practices is illustrative. At Cisco Systems, no one from an acquired firm is laid off without the personal approval of Cisco’s CEO as well as the CEO of the firm that was acquired.
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QUESTIONS 1. Investigate the approach that Cisco Systems has used in its many successful acquisitions. What are some of the human resource practices that have made its acquisitions successful?
Question 2. If human resources are a major source of competitive advantage and the key determinant of an organization’s ability to pursue a given strategy.
Question 3 why have the human resource aspects of mergers and acquisitions been ignored or handled poorly in so many instances in the past?
Question 4 How do you see the two the role of HRM in strategic management process.
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