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Case 1

Mergers and Acquisitions at Cisco Systems
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 favour 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 of without the personal approval of
Cisco’s CEO as well as the CEO of the firm that was acquired.[4]
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?
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, why have the human resource

Buono. Find out what human resource practices were used and obtain their evaluations of what was helpful or harmful. The Human Side of Mergers and Acquisitions: Managing Collisions Between People. and morale. It was obvious from the beginning that the organizational cultures were very different. REFERENCES 1. loyalty. many anticipated benefits of the mergers are not realized because of different organizational and human resource cultures. The Human Side of Mergers and Acquisitions. San Francisco: Jossey-Bass Publishers. According to one national estimate. and earnings fell. Case 2 Merging Incompatible Organizational Cultures As the number of mergers and acquisitions has continued to rise. Determine how they and their co-workers were affected. Shelly. Those issues had not been resolved because of internal conflict between the exHomedco and Abbey Healthcare executives and employees. 1999): 118–44. p. they planned to expand their home health services nationwide as the effects of managed care spread. . had been fierce competitors. Cultures. Yet three years later the stock value of Apria had declined by 25%.aspects of mergers and acquisitions been ignored or handled poorly in so many instances in the past? 3. Homedco and Abbey Healthcare Group decided that rather than continuing to compete. Together. “The 100 Best Companies to Work For in America. when efforts began to find another company to take over the firm. Also. Whereas Homedco had a more formalized structure with more centralized decision making. “Joining the Fold: Under Cisco’s System. 2000): A1. Buono and Bowditch. Thurm. which did not happen fast enough. they could strengthen their market positions by merging to create one large firm.” Fortune (January 11.. which was evenly split. both headquartered in southern California. 4. Consider someone who has been through a merger or acquisition. 2. Anthony F. the Board of Directors. What happened was primarily due to operational problems caused by the merger. 1989. One example from the health-care industry illustrates the problems. and have Jeremy Jones from Homedco as CEO. Two large homehealth-care organizations. How far Apria declined was soon evident. former CEO of Abbey Healthcare. and James L. accepted the need to remove Timothy Aitken. Bowditch. Branch. 263. The Human Side of Mergers and Acquisitions. Apria Healthcare Group. merging computer and billing systems by using the Abbey Healthcare system meant that employees from Homedco had to be trained. Ask about the effects on productivity. and just 15% of all combinations achieve their stated financial objectives. Ultimately. and Organizations. Mergers Usually Work. That Defies the Odds. it has become evident that merging two different organizational cultures is not easy. Scott. Also. 70% of all mergers and acquisitions do not meet expectations. numerous billing errors and the resulting complaints and phone calls from unhappy customers overwhelmed Apria customer service departments. 3.” Wall Street Journal (March 1. Find out how they felt as employees. Abbey Healthcare had very decentralized decision making. and branch managers had significant authority. few buyers were interested. As a result. Buono and Bowditch.

For instance. which caused most of the bestperforming Abbey sales representatives to quit. about 14% of the employees in the combined company lost jobs. similar conflicting cultures have diminished the effectiveness of mergers by firms in other industries as well. 2. a new dress code and time-recording procedures irritated many former Abbey workers. Since the merger.To save costs and eliminate duplication of jobs. it turned into the “merger from hell. as well as the Apria one. only 6 of the 21 regional managers were formerly with Abbey Healthcare. In this case. But the greatest number of those cut were former Abbey employees. A significant number of them left in the first year. it is evident that human resource issues and organizational culture incompatibilities can destroy the value of mergers that appear to be logical from a broad business strategy perspective. Finally. when Homedco HR policies were extended into Abbey offices. it appeared that most Homedco managers were notaffected as much as the Abbey Healthcare managers. Given the problems both KeyCorp and Apria have. this situation is not unusual. One instance is a merger of two financial institutions. Questions 1. The level of conflict was so severe that employees from one firm referred to those from the other company as “idiots” and refused to return phone calls from employees with the other firm. and a new executive team has been struggling to rebuild Apria. both Aitken and Jones left the firm. the combined firm has grown only half as fast as other banks its size and has cut 5. Society Corporation and Key Corporation (KeyCorp). Instead of being a healthy merger. For example. Even changing some basic HR policies caused problems.” Unfortunately. Describe how analyses of human resource issues should have been done prior to the Apria merger.000 employees. For those remaining. what actions could be taken to begin creating better organizational cultures? .