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Organization Change in Mergers and Acquisitions 30
Chapter 2
Organization Change in Mergers and Acquisitions
One of the major factor in Mergers and Acquisitions is change. An employee

evolves from announcement of the change to the final stage. Change is the law of
nature. Change is a necessity for growth and survival. The Human resource has to
get them acquainted with the change in order to survive in an organization.
Organizations and Human resource that do not keep them updated find it
extremely difficult to survive in the market. Despite of how important change is
people still resist change. It is also advisable for the organizations to adapt change.
It is the organizations responsibility to manage change or the outcome can take the
organization down.
During Mergers and Acquisitions employees undergo through various stages of

change.
Figure 2.1 Westbrook Stevens Model of Change
Source: www.westbrookeStevens.com
Orgaanization Change in Merggers and Acquuisitions 31
2.1 Organizaation Chaange

Mehhta & Choouhan (20110) said thhat market is dynamiic in naturre and in order
o to
keeep up withh the pacce of marrket organ
nizations have
h to bee technolo
ogically
advvanced. Otther factors like marrket forcess, socio- economic
e environmeent also
neeed to be coonsidered as they also bring change
c in organizatioons. Organ
nization
chaange is the alteration of
o work ennvironmentt in an orgaanization.
Chaange such as in fasshion, com

mpetition, trend,
t taste, governm
ment policcies are
chaanges which are neecessary for
f every organizattion to reeview else their
organization may
m stumbble down. Change baasically dissturbs the equilibrium
m in an
organization and
a it is thee managem
ment’s duty
y to facilitaate change.
Chaange is replacing the old ways of

o working
g with new.. It brings a lot of chaallenges
but the end result is alwaays fruitfull. A changee in organiization is called organ
nization
chaange. Channge may bee because of internaal or externnal environnment. Ch
hange is
pervvasive in nature.
n It afffects the whole
w orgaanization att large whiich can be directly
or indirectly
2.2 Types off Change
Ch
hange relateed to Peoplle Chaange relatedd to organiization
*Personnell Change *Leadersship Changee
*Culture Change
C *Structuural Change
*P
People orien
nted Change
*Social Change
C *Re-enngineering
*Custom
mer Relation
nship Mnageement *Divvestiture
*Merger & Acquisitio on
*Consolidation
Cha
ange
Change ini General
Change relateed to system
m *Grrowth
*P
Process oreinnted Changee *Unnplanned & Planned Chhange
*Technologiical Change *Developmment Changee
*Continouus Change *TTransformaational Channge
*Transactionnal Change
*Business EExpansion Restructurinng/Downsizing
*R
* Benchm marking *Revollutionary/Evvolutionary Change
*PProactive/Reeactive Channge
Figure 2.2 Typess of Changge

2.2.1 Related to People
Individual change is characterized by belief, needs, attitude, expectations etc.

An organization can change by changing behaviors of the individual members
through various strategies. Change in individual is more difficult than change
in organization.
a) Personnel Change
Change in personnel is an outcome of organization changes. In other

cases companies try to change employee’s behavior and attitude as they
want to increase their effectiveness. Researchers have suggested that at
times change in technology or change in work culture has an impact on
employees which at times is negative as well. Thus the management
must ensure to organize programs to which help in building positive
attitude in them. By training, educating the employees this can be done.
b) Culture Change
Change in culture is one of the most predominant reasons of resistance to

change. But it is management’s duty to foster change in employees for
that various reward programs, training; empowerment programs are done
to boost the employees. The advantage of keeping these programs are
that the employees get motivated also it boost their morale , helps in
decision making which helps to tackle problems relating to culture
issues.
c) People-centered Change
In this case the prime focus is on people. Behaviors, skills, performance,

attitude of people are altered in this change. Communication, leadership,
group interaction & employee motivation are some prime focus of
people-centered change. The result of this change is better problem
solving skills in employees, better work ethics, feeling of belongingness
towards their organization
d) Social Change
Social change is the variation of recognized relationships in the

organization. It includes the large set of goal that organizations create
around people.
e) Customer Relationship Management
CRM is a very important aspect. CRM creates a bond between a

customer and the organization thus creating customer loyalty which in
turn increases the profit and goodwill of the firm. An organization need
to change and update itself time to time in order to create a good
customer relationship.
2.2.2 Related to Organizations
Organizational change can be brought by altering structures, changing policies,

procedures, structures, techniques etc.
a) Leadership Change
Change in leadership in organization results in change in personnel. The

perceptions, strategies, results change. People find it difficult to adjust
with a new leader because every leader has its own ideologies and
strategies and with the new strategies a lot of changes occur in
organization. The new leader re- thinks on all the agenda’s made in past
which in turn brings change in working of employee’s. A good leader
easily brings the change.
b) Structural Change
Structural change is a change that takes place because of external

influences.
c) Re-engineering
Hammer et.al (1993)Re-engineering is re-thinking and re-designing the

process of an organization to felicitate organizations effectiveness. Re-
engineering changes daily tasks or actions. The major aim is to develop

customer satisfaction, perk up quality and productivity.
d) Divestiture
Divestiture happens when an organization disposes a major part of its

assets. Decker et.al., (2008) It can be in a way by selling a part or whole
business unit. ‘Tactical’ divestures and ‘distress’ divestures focus on the
short-term. Whereas, the ‘strategic’ divestures focuses on broader view.
e) Acquisition
In acquisition one business takes over the controlling interest of another

business. Acquisition in layman’s language means when a big fish eats a
small fish. The parent company acquires the target company. A new entity
is created.
f) Merger
Combining two or more companies into one. In a merger two companies

come together to form a new company. No new entity is created.
g) Consolidation
Consolidation is the combining two companies which exist individually.

For example- A Limited and B Limited will cease to exist and C Limited
will carry on the business of both A Limited and B Limited. This is called
consolidation.
A consolidation differs from Mergers and Acquisitions because a new entity is

formed. In consolidation big companies acquire small companies or make the
small companies run out of business by this only a few companies remain in the
business.
2.2.3 Related to Systems
a) Process-oriented Change
The aim of process-oriented change is to encourage output. This change

affects organizational delivery service. As the environmental factors of an
organization change, the requirement for process-oriented change increases.
b) Technological Change
In this ear IT has become a prerequisite for every organization who want to
succeed in long run. IT is the core of all business activities in a firm. The
employees have to keep in pace with the new technology. Technology
brings a lot of change in an organization. Technology includes hardware
and software.
c) Continuous Improvement
Continuous improvement is searching for the best practice in the firm,

adapting that practice and then improving that practice for the betterment of
the firm. Continuous improvements process ensures that there are no
defects in the product as the product is the end result of a firm.
d) Transactional Change
In this type of change only a part of firm changes rest remains the same.
Pellettiere & Vincent (2008) In transactional change the basic nature of
organization remains the same.
e) Business Expansion Change
This change as the name suggests works on expanding the business. The
change is assessed by product development, making new business lines or
selling product in a different and new market.
f) Benchmarking
Benchmarking searches the best practice for the firm, it searches what
the other firms are doing, what should be avoided by the firms to stay in
the long run, and it also searches what is the best for the firms.
2.2.4 Change in General
a) Growth
Growth in organization is a very optimistic type of modification but at

times this change acts as a negative change as because when an
organization changes its culture, system, leadership changes which in
turn can have a negative effect on employees.
b) Planned Change
As the word suggests planned change is the well thought about change.
This change occurs when the management feels there is a need for
change and they plan change in a systematic manner. Proper policies and
strategies are laid out for implementing planned change.
c) Unplanned Change
An unplanned change is a change which happens as a shock to the firm.

It occurs because of a, unexpected situation. It in turn creates chaos in
the organization. This change creates an emergency situation.
d) Radically Innovative Change
It is , the most daunting type of change. This change is marked by

replacing an ongoing process, product, or technology and introducing
new processes, product or technology instead. Employees resist this
change.
e) Developmental Change
This change emphasizes change in an already existing environment and

developing it. Expanding market share or expanding product are few
ways of development change.
f) Transformational Change
As the word suggests the whole firm transforms in this type of change.
Change can be because of any drastic event say technological change,
competition, change in demand and supply etc. The only way out for the
firm is to transform else the firm may succumb to death.
g) Restructuring/Downsizing
This change refers to altering the organizational unit or altering the

workforce. In restructuring a firm sells a part of their asset and in
downsizing the firm decreases the number of employees in the firm.
h) Remedial Change
This change focuses on situations which needs immediate solution. The

beauty of this change lies in the fact that how a firm solves a particular
problem.
i) Evolutionary Change
Evolutionary change is a change where directions are set, responsibilities

are allocated, and objectives are set.
j) Revolutionary Change
A firm like goes through a series of stages like birth, growth, maturity,
decline and obsolesce. In every stage firm has to make various policies,
structures, strategies to adopt the change .These changes in calmer
moments of growth are known as revolutionary change
k) Proactive change
Proactive means active in advance. In this type the firm is already ready
for alterations to be made in the firm. The firms who take this approach
basically wants to avoid any kind of threat in future that is why they are
pro-active. This change is a well thought about change.
l) Reactive change
Reactive change is characterized by a condition where a firm makes

changes but only after they see a threat coming their way. In this case
unlike proactive change the firm only makes changes after occurrence of
some event.
2.3 Forces of Change

In today’s time of advancement, organizations have to keep themselves updated
thoroughly as the market is dynamic in nature and because it changes quickly
organization has to be pro-active. They have to make suitable changes to serve
customer better.
Types of change-
Internal Change External Change
*Change in Leadership * Competition
*Change in employees *Economic fluctuations
Profile *Social trends
*Change in employee’s *Global politics

morale & motivation
*Union Influence
* Implementation of new
technology
Figure 2.3 Types of Change

2.3.1 Internal Change

i) Change in leadership- A change in leader brings change in
organization it can be positive for the management and negative for
employees or vice versa.
ii) Change in employee’s profile- Profile of employee’s change in
various ways like some changes are unavoidable like death.
Retirement, promotion, transfer, resignation etc.
iii) Change in employee’s morale and motivation- When leadership
changes. So do the policies, strategies. So it ultimately changes the
morale of employee.
iv) Union Influence- A union has impact on organization when it comes
to recruitment, selection, salaries, wage etc. Any change in union
directly affects the organization
v) New technology- Advanced technology is a blessing for
organizations but employees find it difficult to adapt to it. Automation
of work means less labor requirement which is seen as a threat for
employees.
2.3.2 External Change
i) Competition-With Mergers and Acquisitions on increasing trend.

Organizations make changes to survive in market. Competition
changes the game. As organizations have to be ready to face them.
ii) Economic fluctuations- Fluctuations like boom, recession, market
exchange rates, and interest rates tend to have impact on
organizations.
iii) Social trends- Social trends also has an impact on organization as the
demand in the market fluctuates in accordance to societal change.
iv) Global politics- Global politics play a major role as the change in
global scenario has a direct bearing on the organizations.
2.4 Process of Change
Feeling
Identifying the Cultivating a comfortable
need for new behaviour with the
change
change
Figure 2.4 Process of Change
The most basic process of change is when the firm first assesses whether there
is a need for change. Need for change is determined by analyzing the problem
area. Organization has to find the forces demanding change.
In the next phase a new behavior is created through orientation, training etc.
The new behavior thus created helps in facilitating change.
In the last stage the employees in organization are made comfortable with the
change through proper motivation and counseling
Researchers have made various processes one such process is Kurt Lewin’s
model of change-
Unfreezing
stage
Movement to
a new stage
Refreezing the
new change
Figure 2.5 Kurt Lewin’s model of Change
Kurt Lewin suggested process for change-

i) Unfreezing the status
ii) Movement to a new stage
iii) Refreezing the new change to make it permanent
2.5 Targets of Change
Human resource
Technological Targets of Functional

capabilities Change Resources
Organizational
Abilities
Figure 2.6 Targets of Change
Change is made in an organization to perk up performance of the four

elements-
a) Human Resource
b) Technological Capabilities
c) Functional Resources
d) Organizational Abilities
a) Human Resource- HR is the base for an organization. It is the core of an
organization. Success of a n organization depends on a good human
resource. The better the HR is the more successful the organization would
be. It is the role of management to motivate and boost up the employee’s.

This is possible through proper training and development. The
management has to motivate employees to adapt to multicultural.
b) Technological capabilities- Change in technology is an astonishing

opportunity for organization to prosper. Technological advancement is a
blessing to an organization as it helps organization to improve the
existing product line, or developing new product.
c) Functional resources- Every organization need to have proper

procedures to function well. An organization makes changes in
organization by improving its structure, culture, technology etc.
d) Organizational abilities- This change states that capability of people can

increase by making appropriate changes. Organizational abilities can be
increased by designing proper organizational structure and culture.
2.6 Elements of Change
Technology Structure People

Task related
related related related
change
change change change
Figure 2.7 Elements of change

Elements of change are basically areas of change. Elements of change are-
a) Technology related change- Technology includes new inventions, new
techniques.
b) Task related change- Task includes job characteristics and it emphasizes
on quality work performance and job motivation.
c) Structure related change- Structure change is change in hierarchy in an
organization.
d) People related change- People related change refers to change in skill
and behavior of people in an organization.
2.7 Management of Change

Managing an organization is a difficult task. Managing change is further more
challenging as the management has to deal with a lot changes culture wise,
technology wise and so on. Only well thought steps in organization can help
them felicitating change.
Follow
up
Implementing
the change
Planning the change
Identifying the problem
Recognizing the need for change
Recognizing the problem area
Figure 2.8 Management of Change
2.8 Organizational Culture and Human Resource issues
Mergers and Acquisitions is a very common way of corporate restructuring but in

spite of hopeful opportunities, Mergers and Acquisitions’ recurrently fail, because
managers ignore the human aspect and consider it least important. Organizations
pay due importance to financial front and strategic issues while Mergering or
Acquiring but always overlook Human Resources issues. The Human Resource
front should be given due importance.
Organizational Culture
Organizations stepping into Mergers and Acquisitions have differed in cultures and
the way these cultures are managed decides the success or failure of the firm’s
future. (Davis & Stanley) opined that “an organizational culture is formed of the
patterns of common beliefs and values that give the members of an
establishment meaning, and give them the foundations for performance in their
organization” however, this affects several areas in the organization, like
‘performance, collaboration, judgment, control, communication, dedication
towards the organization, observation etc.
An organization has either a strong culture or a weak culture. In an organization if

employees have same thinking, same values, same beliefs then that culture is a
strong culture. A strong culture becomes strong only when the workers
unanimously agree on a same assumption.
Facing good and bad times together makes staff of the company extremely close.
A centralized organization always has a plus point over a decentralized
organization as in a centralized organization staffs interact more easily and
informally with the top management hence creating a strong culture. A strong
culture gives stability to employees hence creating loyalty.
Staff should be told about the merger or acquisition at earliest to retain their
confidence in the organization. They should be communicated properly the process
and should be motivated to accept change.
The employees should be told what will be their tasks, duties and responsibilities
after the change. If there are any layoffs or reduction in posts, it should be
communicated gently without keeping the employee in any confusion as fear of
unknown is the most dangerous fear and the employee might go in depression.
A poorly announced merger creates havoc in employees resulting in poor

performance, absenteeism. To ease stress, management should conduct programs,
guidance sessions for new career opportunities. Professionals should be hired to

guide the employees to sail through this situation.
Kurt Lewis, “If you wish to actually understand something, try and change it.”
This proclamation is very accurate when creating change in a business entity .
“Throughout organizational modification, the attention is focused on the
organization in terms of formation, processes, tools, measurements, policies, and
procedures. However, for the transition to achieve success, individuals have to be
committed. Liaison & Denis (2008) their individual interests, values, and
competencies should be effectively aligned with the organization’s vision, culture,
and capabilities.
Organizational leaders should verify the kind of amendment necessary so as to

adapt to the requirements of its internal or external surroundings.
Consequently, organizational change will have an effect on individuals, systems,
processes, culture, business units, or the whole organization.
Mackenzie (2006), “Every action of a man is provoked by want. It becomes

imperative for a leader or manager to smoothly manage the change. It's very
important that the change take into account the impact on workers and
culture while taking care of organizations vision, mission and values. Change, if
managed correctly, can be a positive and flourishing experience.
2.8.1 Impact of Mergers and Acquisitions on Human Resource
Mergers and acquisitions bring a lot of of changes inside the organization. The
dimensions of the organization change, its stocks & shares
changes, there's change in worker and assets, even the ownership can also change
because of the mergers and acquisitions. Mergers and Acquisitions play a
serious role within the organizations. The impact of mergers and acquisitions
varies from entity to entity. Studies have found that the human resource is
majorly neglected in initial phases of Mergers and Acquisitions ( Hunt et al., 1987)
Impact on Employee’s
Figure 2. 9 Areas of Employee concern post Merger

Source: http://www.slideshare.net/kapooranushka/managing-hr-during-mergers-
acquisitions
2.8.1.1 Psychological impact on employees
Mergers and Acquisitions have a severe impact on the psychology of an employee

as the employee becomes fearful of umenployment, they get sacred of demotion,
they loose confidence and feel they are incompetent thus it effects their ego and
their morale is also disturbed.
2.8.1.2 Social & Cultural impact on employees
The social and cultural attitude of employee’s changes as well, as the work culture
changes after M&A, they find it difficult to adjust in the new environment. Their
prestige is at stake, status changes. They feel they will be degraded by the society.
2.8.1.3 Corporate & Professional impact on employees
Once the change is introduced the compensation of employee changes. There is

change in technology, change in leader/ boss all this impacts the employee as they
were comfortable with the previous boss/leader, they were acquainted with the
previous technology and because of this the employee’s resist change. The top
management changes so does all the policies. Reporting system is changed,
grievance handling also changes.
2.8.1.4 Impact of Merger & Acquisition on Job Satisfaction
After M&A the job satisfaction level of employee changes. Employees expect that
they should get proper fringe benefits like retirement benefits, day care facilities,
sick leaves, vacations paid/ non paid, hotel stay, education funding, pick and drop
facility.
Proper infrastructure facility, working environment, proper furniture and fixtures,
proper ventilation (heat, light, air etc), clean washrooms.
Good monetary system, incentives etc. If the M&A are done properly and if
accepted by the employees, then the workforce is satisfied. But if all the facilities
are not given to them then they become demotivated to work and it affects the
productivity of the company.
The impact of Mergers and Acquisitions on workers may be a chief issue because
it creates stress in workers. Mergers and acquisitions might have great economic
impact on the workers of the organization but they are pretty tough for the
workers as there could perpetually be the likelihood of layoffs.
Besides, those that are working would additionally see some changes within the
company culture. Because of the changes within the operational environment and
business procedures, workers can also undergo emotional and physical distress.
Mergers and acquisitions may be intimidating for workers and often end in anxiety
and stress. Cartwright and Cooper (1993) studied the human aspect of merger and
acquisition, and concluded that that the change has a severe impact
on worker’s physical condition and well being.
Schwinger and Weber (1989) suggested that Mergers and acquisitions

are measures that can create disturbance and tension in employees, which
majorly end in psychological, behavioral, health, performance, and
survival issues for employees. With the rising size of Mergers and Acquisitions
and the number of employees affected, it's necessary that executive and human-
resource professionals pay attention to know the actions and reactions related to
the process.
Hunsaker and Coombs (1988, 58) found familiar pattern of emotional reactions in
workers throughout a merger or acquisition; which is called “merger-emotions
syndrome”
2.9 The Merger-Emotions Syndrome
• Denial. In the beginning employee’s first reaction is Denial. They think it’s
merely a rumour.
• Fear. But when it is confirmed employees become fearful like they start
thinking about job loss, layoffs.
• Anger. The employees do everything in their power to stop the merger but
when they are unable to do so they show anger. They start expressing by
doing strikes threatening the management.
• Sadness. Employees start to mourn the loss and recall about the old days.
• Acceptance. After all the above starts to sink in , the employees give up
and start thinking to reconcile with the management as they realize that they
can be replaced so they start thinking on the positive lines.
• Relief. Employees start to understand that the circumstance is not as

unfavourable as they had imagined.
• Interest. Now is the time when the employees start to find the job
interesting and start taking interest in the work. They feel secure in the new
environment and hence start looking for positives at workplace.
• Liking. Employees learn new opportunities and begin to like their new
work environment.
• Enjoyment. Employees find out that the new environment is functioning

and they start to enjoy the work all the more.
Figure 2.10 Merger Emotion Syndrome
Source: Hunsaker and Coombs (1988, 60)
Understanding organizational change is important for a successful business. Sheila

K. McGinnis, of Jones and Bartlett Publishers, states that organizational behavior
is any type of behavior resulting from the structure and culture of the organization.
Managers can bring positive change in employees. Companies should inculcate
various educative programs and trainings to help employees solve problems in the
organization.
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http://www.prosci.com/reengineering.htm
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Behavior. Upper Saddle River: Pearson Education, Inc.
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Process. Retrieved from http://www.dowling.edu/faculty/
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Organization Change in Mergers and Acquisitions 30

One of the major factor in Mergers and Acquisitions is change. An employee

During Mergers and Acquisitions employees undergo through various stages of

Figure 2.1 Westbrook Stevens Model of Change

2.1 Organizaation Chaange

Chaange such as in fasshion, com

Chaange is replacing the old ways of

Figure 2.2 Typess of Changge

2.2.1 Related to People

Individual change is characterized by belief, needs, attitude, expectations etc.

Change in personnel is an outcome of organization changes. In other

Change in culture is one of the most predominant reasons of resistance to

In this case the prime focus is on people. Behaviors, skills, performance,

Social change is the variation of recognized relationships in the

e) Customer Relationship Management

CRM is a very important aspect. CRM creates a bond between a

2.2.2 Related to Organizations

Organizational change can be brought by altering structures, changing policies,

Change in leadership in organization results in change in personnel. The

Structural change is a change that takes place because of external

Hammer et.al (1993)Re-engineering is re-thinking and re-designing the

engineering changes daily tasks or actions. The major aim is to develop

Divestiture happens when an organization disposes a major part of its

In acquisition one business takes over the controlling interest of another

Combining two or more companies into one. In a merger two companies

Consolidation is the combining two companies which exist individually.

A consolidation differs from Mergers and Acquisitions because a new entity is

2.2.3 Related to Systems

The aim of process-oriented change is to encourage output. This change

Continuous improvement is searching for the best practice in the firm,

e) Business Expansion Change

2.2.4 Change in General

Growth in organization is a very optimistic type of modification but at

An unplanned change is a change which happens as a shock to the firm.

d) Radically Innovative Change

It is , the most daunting type of change. This change is marked by

This change emphasizes change in an already existing environment and

This change refers to altering the organizational unit or altering the

This change focuses on situations which needs immediate solution. The

Evolutionary change is a change where directions are set, responsibilities

Reactive change is characterized by a condition where a firm makes

2.3 Forces of Change

*Change in Leadership * Competition

*Change in employees *Economic fluctuations

Profile *Social trends

*Change in employee’s *Global politics

Figure 2.3 Types of Change

2.3.1 Internal Change

2.3.2 External Change

i) Competition-With Mergers and Acquisitions on increasing trend.

2.4 Process of Change

Figure 2.4 Process of Change

Kurt Lewin suggested process for change-

2.5 Targets of Change

Technological Targets of Functional

Figure 2.6 Targets of Change

Change is made in an organization to perk up performance of the four

be. It is the role of management to motivate and boost up the employee’s.

b) Technological capabilities- Change in technology is an astonishing

c) Functional resources- Every organization need to have proper

d) Organizational abilities- This change states that capability of people can

2.6 Elements of Change

Technology Structure People

Change in Leadership Competition

Change in employees Economic fluctuations

Change in employee’s Global politics