(2) The
problems of takeovers and mergers including difficulties integrating businesses
successfully
Takeovers and Mergers involve the
change in ownership of two companies since increasing profit is always the
ultimate objectives of most businesses. Business belief by engage in takeovers
and mergers will lead to benefits such as growth, higher competitive, synergies
to be lower cost to anticipate increasing in more profit. However there may be
problems concerned with the takeovers and mergers to achieve what the T&M
leads to, as a T&M would have huge impact on two businesses, some cases may
be only problems with transition and solve in a short time, in other cases
could be problems that lead to a false move put business at risk such as resulting
business failure. Integrating means the fusing of business operations such as
manufacturing, HRM, and marketing. It does not occur instantly, but over a
number of years, therefore the benefits of T&M will be realized only after
years. This essay would analyze various problems that a T&M might have and
the difficulties to integrate businesses successfully.
The first problem I would like to
discuss is Corporate Culture Clash. Firstly, organizational culture is commonly
defined as the attitudes, values, beliefs, norms and customs which distinguish
an organization from others, it formed by the organizations history like the
life cycle of the company, also the company characteristics like size, complexity
and formation such as rules. As mentioned, a T&M involve two businesses
which have different cultures, therefore problems may occur, there might be
resistance, the doubtfulness of the culture to be adopted, and the effect could
only be seen after the T&M.
Take Daimler-Chrysler as example,
On May 7th, 1998, it was announced that Chrysler would merge with Daimler-Benz,
moreover it’s a mergers of equal which the new company, with 442,000 employees
and a market capitalization approaching $100 billion, would take advantage of
synergy savings in retail sales, purchasing, distribution, product design, and
research and development. However, it leads to the result of three years later
DaimlerChrysler's market capitalization stands at $44 billion, roughly equal to
the value of Daimler-Benz before the merger. Its stock has been banished from
the S&P 500, and Chrysler Group's share value has declined by one-third
relative to pre-merger values. It was because of the culture clashes, much of
this clash was intrinsic to a union between two companies which had such
different wage structures, corporate hierarchies and values, such as Chrysler's
image was one of American excess, and its brand value lay in its assertiveness
and risk-taking. Mercedes-Benz, in contrast, exuded disciplined German
engineering coupled with uncompromising quality, therefore if they share the
same platform would lose out their value, they both have different ways of
doing things, now they are merger of equal, with opposite of value, it would
have problem on decision making while both would have different perspective on
behalf Daimler-Benz remained committed to its founding credo of "quality
at any cost", while Chrysler aimed to produce price-targeted vehicles,
this unwillingness to ‘join
together’ lack of synergies,
besides as culture has a big impact on employee morale and motivation
hence the productivity and the quality of service provided, therefore this
culture clashes impact on the employees would lead to poor efficiency,
productivity, communication and employee turnover which are time and money
costly also would lead to lower sales unit eventually lead to the above figures
of significant fall in profit and total worth, put both companies at risk.
In addition, the successful of
T&M on this behalf depends on the planning ahead, did they recognized the
culture differences, and what they plan to try to understand the cultural
values and strengths of the acquiring workforce and allow it change or
integrate the business to achieve their aims of T&M. For DaimlerChrysler, synergy
savings are only achieved when two companies can produce and distribute their wares
more efficiently than when they were apart. Owing to culture clash and a poorly
integrated management structure, DaimlerChrysler is unable to accomplish what
its forbears took for granted three years ago: profitable automotive
production. On the other hand, Tata taken over Jaguar Land Rover was successful
due to the embracing the culture of the takeover target which leads to them
enjoying a net profit of 430million USD a quarter, which a year ago were net
loss of 61 million.
Another one would be the problems
in assessing the performance of the target business. T&M is a way of growth
for the Business hence it is a large investment, which should require
investment appraisal, in T&M there should be a due diligence investigation
on the target business, this will investigate the target business allow T&M
firm to have fully understand of the business, ensure whether the T&M could
assess the benefits as they expected such as cost synergies or growth.
Therefore its essential to undertake for analyze before they make the T&M
decision. However, there is problem firstly it’s the problem of time, as the
window of opportunity could be limited, often other companies or competitor
could be interested as well since it could be a competitive market as free
market. Therefore, there could be limited of time to make the decision hence
the investigation could not be complete or accurate due to the urgency, which
could possible lead to false influence on decision making and make a bad
decision for the long term performance; like an example of Royal Bank of
Scotland acquire ABN Amro, RBS engaged a budding war with Barclays to but ABN
Amro, although they had done a due diligence, however they hadn’t done a DD
after the start of the banking crisis, as a result this decision exposed RBS to
substantial risks, clearly it was a mistake, since without government
intervention the bank would have collapsed, would cause more damage to the
economy and society. Although they have been successful (Taken over of NatWest)This
was a mistake from the RBS senior management ambition for growth and had been
over optimistic about the economic situation lead to this terrible T&M
resulting putting RBS as risk and damage the reputation and the faithful from
the stakeholders.
In conclusion, difficulties
integrating businesses successfully can arise from a number of things including
clash of organizational cultures, management personality clashes, poor
planning, and lack of experience in managing integration. The success depends
on the willingness of organizational members to surrender their own culture,
and at the same time perceive that the other culture is attractive and thereby
worth adopting; there is much
doubt whether new leaders can change a well-established corporation culture.
There is no ideal or
appropriate culture any culture can be effective. Therefore it really depends
on the leadership style and the skill of the owner and directors are they ready
for T&M and the planning before it. In short term, business should retain
the workforce, longer it takes, greater uncertainty, the greater the risk
losing talented employees. T&M benefits or failure can be seen after years,
during that period the success very depends on it, I recommend business use the
Kotter’s 8 step change model. Despite obvious importance, little value is
given to integrating cultures, like in Tata Land Rover helps identify the
importance. Overall, Success
is possible.
Moreover, also some external factors could influence the success of the T&M, such as the economics environment, whether it’s the slump or Boom, which would have big impact on most Businesses hence the T&M success, the ability that they survive, overcome or take advantage of is by their leadership, the ability to deal with uncertainty.
Moreover, also some external factors could influence the success of the T&M, such as the economics environment, whether it’s the slump or Boom, which would have big impact on most Businesses hence the T&M success, the ability that they survive, overcome or take advantage of is by their leadership, the ability to deal with uncertainty.
