Contemporary issues in Management

1. Contemporary issues in Management Alliances, Mergers and Acquisitions as Strategic choices

2. Alliances, Mergers and Acquisitions • Today’s agenda • Why examine alliances, mergers and acquisitions (M&A) • Definitions of M&A and motives behind them • Classification of takeovers • Different forms of M&A • Problems with M&A • Impact of M&A on people at work

3. Alliances, Mergers and Acquisitions • Today’s agenda …cont’d • Strategic alliances: definitions and difference with joint venture • Types of international alliances and global alliances • Main strategic objectives of alliances • Learning from alliances • Successful alliances • Examples of internet alliances

4. Why examine Alliances, Mergers and Acquisitions? • Part of organisations’ strategic method: the means their strategy will be pursuit Methods to pursuit strategies Evaluating strategic options Organic Development Techniques of evaluation Strategic Alliances Success Criteria Mergers and Acquisitions Johnson, et al. (2008)

5. Mergers and Acquisitions • Merger: a mutually agreed decision of joint ownership of an organisation • Acquisition: an organisation takes ownership of another organisation • Motives for acquisitions or mergers: • Keep up with the environment • Capability consideration • Acquisitions driven by stakeholders

6. Keep up with the environment • Speed of entry: rapid changing environment or technology > taking advantage of each others technology (Sony and Erickson) • Competitive situation: difficulty of new entrance in market > entry by acquisition (less competitive reaction) • Consolidation opportunities: balancing demand and supply within a market > e.g. with privatisation of utilities, companies consolidated to sell a number of utilities

7. Keep up with the environment… cont’d • Financial Markets: high share value companies taking over low share value companies > usually aggressive acquisitions for short term gains

8. Capabilities considerations • Exploitation of strategic capabilities or obtaining new capabilities: companies taking advantage of other companies’ capabilities, e.g. R&D, technology, supply chain, market share • Cost efficiency: merging companies or part of companies for lower costs, e.g. production processes > gaining advantage scales

9. Acquisitions driven by stakeholders • Institutional shareholder expectations: expectations for continued growth via acquisitions • Managerial ambition: ambition for continued growth • Speculative motives: speculation for short term increase in share value by acquisitions

10. Classification of takeovers • Horizontal: the combination of 2companies operating in same industry & at similar stage in production • Vertical: the combination of 2 companies operating at different stages of production within the same industry • Conglomerate: the combination of 2 companies operating in completely unrelated field of business activity • Concentric: the organisation acquired is in an unfamiliar but related field into which the acquiring company wishes to expand

11. Different formsof mergers and acquisitions Motives Expectations Bargaining power Attractiveness of partner Retention of identity Industry structure Market conditions Legal constraints Government policy Socio-political forces Motives Expectations Bargaining power Attractiveness of partner Retention of identity Initial configuration Integration Low high portfolio merger redesign absorption Cooperation Domination

12. Different formsof mergers and acquisitions • Cooperation and low integration (portfolio):usually conglomerates - acquiring firms leave the acquired alone with minimum changes, e.g. British Petroleum and Hendricks • Cooperation and high integration (merger/marriage): partners with more or less equal strength > change in corporate identity and culture (third culture)

13. Different formsof mergers and acquisitions …cont’d • Domination and low integration (redesign): acquiring company imposes culture, management methods and technological know-how to acquired company • Domination and high integration (absorption): usually in horizontal mergers - great power difference and acquiring company absorbs acquired company

14. Problems with mergers or acquisitions • Cultural fit: cultural differences between the two organisations • Variables of cultural fit: • Management style (dis)similarity: the attitude of top management towards risk-taking, authority, structure and leadership style • Top Management Teams (TMT) play crucial role in M&A cultural fit: • “significant role in shaping and transmitting corporate culture signals to the broader membership” (Weber, 1996: 1184)

15. Problems with mergers and acquisitions …cont’d • “cultural differences at the top management level are most likely to influence the emerging organizations’ ability to realize the potential synergy of the merger” (ibid.) • “to study the effects of cultural differences, it is essential that there be contact between the members of the two cultures. The likehood of such contact is greatest at the top management level.” (ibid.)

16. Problems with mergers and acquisitions …cont’d • Autonomy removalis taking away decision making power from acquired TMT > leads to human resource turnover • “the greater the cultural gap between the acquired and acquiring firms, the greater the diminishment of the acquired executives, and the greater their rate of departure” (Weber, 1996: 1185) • Commitmentof the acquiring and acquired TMT has a great effect in the successful realisation of the synergy

17. Impact of M&As on people at work • Employees’ responses depend upon: • The announcement itself • The changes which subsequently result • The announcement • ‘Merger syndrome’: sense of loss (bereavement/mourning) • Depends upon: suddenness of announcement, length of employees’ service, degree of attachment and commitment to organisation

18. Impact of M&As on people at work … cont’d • Initial response: preoccupation and unproductive behaviour or leaving the organisation • OR acceptance with nostalgia (acceptance of third culture) • Stress: uncertainty of organisational change • Reasons for stress: job security, reward systems, loss of identity and autonomy, lack of information, career prospects, new working relationships, transfers etc • Results of stress: distortion of communication > attention to pessimistic information

19. Impact of M&As on people at work … cont’d • The changes • Employee resistance: the cultural changes are likely to lead to hostile rivalry between the two groups of employees • Psychological reasons: ‘We Versus They’ antagonism: condescending attitudes, distrust, tensions • Career perspective reasons: effects to career mobility, career patterns, career development activities

20. Strategic alliances • Definitions: • Strategic alliances are wide ranging, covering any kind of collaborative agreement or activity between two or more organisations. They can include joint ventures but not all strategic alliances are joint ventures. (Brassington & Pettitt, 2004) • A strategic alliance between two organisations is an agreement to cooperate to achieve one or more common strategic objectives. The relationship is horizontal in scope, between companies at the same level in the value chain. It is intended to be long-term and strategically. (Cravens & Piercy, 2008)

21. Alliances Vs joint ventures • Alliance: sharing of capabilities between two or several companies in order to enchase their competitive advantage (it can be a long-term contract) • Joint venture: A legal form by which two or more companies collaborate.

22. Types of International alliances Global SCOPE Local Market Capabilities OBJECT

23. Types of strategic global alliances • Coalitions:alliances of competitors, distributors and/or suppliers in the same industry > joining of capabilities, e.g. airlines • Co-specialisations: alliances of companies joining their respective unique but complementary capabilities to develop new products or technology, e.g. Airbus and Ge-Snecma (aerospace technology) • Learning alliances: alliances for transfer of know-how, e.g. General Motors and Toyota (GM to learn manufacturing process and Toyota to learn the unionised NA environment)

24. Main strategic objectives pursuit in alliances • Coalitions • Positioning: Market reach, enhance competitiveness through cost reduction or pooling capabilities, establish standards • Capabilities resources: Financing, sharing risks • Assets: distribution, manufacturing, customer services • Competencies: Market knowledge • Economic value: Economies of scale and of scope, increased revenues, increased customer responsiveness, increased qualities

25. Main strategic objectives pursuit in alliances …cont’d • Co-specialisation • Positioning: Create new business, develop new products, enhance competiveness through specialisation, complement strengths • Capabilities resources: Complementarities of resources, risk sharing • Assets: Complementarities of assets • Competencies: Complementarities of know-how • Economic value: maximisation of assets utilisation by each partner, faster time to market, product development (new revenues)

26. Main strategic objectives pursuit in alliances …cont’d • Learning • Positioning: Access to technology • Capabilities resources: research and marketing personnel, financing • Assets: Access to key tangible and intangible assets • Competencies: Technology know-how • Economic value: Skills development

27. Learning from Alliances • In implementing alliances partners can learn: • About the business: joined databases and intranets in order for both to learn about their business opportunities • About tasks: redefinition of tasks and work processes in the light of change • About partners’ expectations and capabilities: in time expectations change, thus constant observation of partners in necessary

28. Successful alliances have… • Trust • Senior management support • Clearly defined/measurable performance expectations • Clear goals • Compatibility • Room for evolution & growth

29. Examples of internet alliances • Google and eBay • ‘click to call’ advertising on each others sites • Google and MySpace • Search and text-advertising for NewsCorp • Yahoo and eBay • Use of PayPal & exclusive agreement on advertising • Google and AOL • Search technology • Yahoo and Microsoft • Instant messaging and chat

30. References and bibliography • Brassington, F. and Pettit, S. (2004) Principles of Marketing. 4thed, London: Prentice Hall. • Cartwright, S. and Cooper C.L. (1990) “The impact of mergers and acquisitions on people at work: Existing Research and Issues” British Journal of Management, Vol.1 (2), pp.65–76. • Cravens, D.W. and Piercy, N.F. (2008) Strategic marketing, 9th ed.  Boston, [Mass.] ; London : McGraw-Hill. • Johnson, G., Scholes, K., and Whittington, R. (2008) Exploring Corporate Strategy. London: Pearson Education. • Lasserre, P. (2007) Global strategic management. 2nd ed. New York: Palgrave McMillan

31. References and bibliography • Olie, R. (1990) “Culture and Integration problems in international mergers and acquisitions”. European Management Journal , Vol. 8, (2) pp. 206-215 . • Weber, Y. (1996) “Corporate Cultural Fit and Performance in Mergers and Acquisitions”. Human Relations, Vol. 49 (9) pp.1181-1202