Recent evidence shows that majority of the mergers and acquisitions fail in achieving the strategic and financial benefits. While it is true that some of these failures can be largely attributed to financial and market factors, recent studies point to human resources issues as the main reason for merger and acquisition failures. Human resource problems are often overlooked by managers. Problems surface as the integration process starts. This paper highlights some critical human resource issues in mergers and acquisitions and suggests some guidelines as to how these issues are resolved.
Mergers
and acquisitions (M&As) are getting popular in achieving corporate growth
and diversification objectives. Given the difficulties managers have traditionally
faced in the pursuit of internal organic growth, external growth through M&A
may seem like an easy and obvious solution. Although M&As have become a very
popular route to corporate growth, prior research and studies reveal that they
are not as successful as they are supposed to be. Studies by Porter (1987) and
Young (1981) suggest that acquisitions have a high failure ratenearly half of
all acquisitions are rated as being unsatisfactory by managers of acquiring firms.
Ravenscraft and Scherer (1989) report that the profitability of the target firms,
on an average, actually declines after an acquisition. More recently, KPMG's (2001)
global survey reports that 70% of the combinations studied, failed to add value
(Devine (2003), p. 30).
There
is a plethora of literature which diagnoses and analyzes mergers' failure from
the financial and strategic point of view. Researchers from finance have focused
on issues related to the market for corporate control, specially its competitiveness
(e.g., mode of payment, type of transaction, number of bidders and shareholders
gains). These studies have provided little knowledge with regard to factors that
influence performance or have explained why nearly half of all acquisitions fail
to fulfill prior expectations. Successful acquiring firms are frequently cited
for their superior analyses of fundamental strategic and economic factors relating
to strategic fit of target companies, including how the distinctive competencies
of the target could be combined with those of the suitor to create additional
value (Chatterjee, 1986; Lubatkin, 1987; Shelton, 1988; Sing and Montgomery, 1987;
Seth, 1990); but there is considerable diversity in the findings of the above
studies. It is true that mergers and acquisitions do fail for reasons of strategic
nature; but making successful mergers and acquisitions, as many organizations
have learnt, is more than just a matter of getting the right strategic fit. Many
firms have come to recognize that a successful and compatible marriage depends
upon the characteristics of partners, which extends beyond the suitability of
strategic fit and consequently researchers raise questions whether the organizational
and human resource management issues have any role in the success or failure of
mergers and acquisitions. Marks (1982) reviews research on merging human resources
and concludes that the importance of organizational and human dynamics in mergers
on financial performance can neither be precisely determined, nor can be denied. |
