College of Business and Public Administration, California State University San Bernardino,. California .... turnover, stress and illness' (Seo and Hill, 2005: 423).
Understanding employeelevel dynamics within the merger and acquisition process Todd Creasy Gordon Ford College of Business, Western Kentucky University, Kentucky, USA
Michael Stull College of Business and Public Administration, California State University San Bernardino, California, USA
Sinnon Peck Weatherhead School of Management, Case Western Reserve University, Cleveland, Ohio, USA
Given the challenge companies face in combining organisations in the merger and acquisition (MS(A) process, this article presents a model that explores the potential determinants of success in the company blending (acculturation) process. The model examines the effect of employee-level factors and perceptions of managerial behaviours during the M&A process. Utilising data from 254 employees that recently experienced an M&A, the authors tested for managerial guided, direct and indirect impacts on employee-level dynamics (job satisfaction and organisational citizenship behaviours) which are believed to affect the successful co-mingling of two previously independent organisations. The authors highlight the key role that employee identification with the new consolidated organisation plays, most notably organisational citizenship. Lastly, attention is drawn to the importance of management's perceived competence and procedural justice toward employee-level factors. The article concludes with specific managerial suggestions for improving M&A acculturation outcomes.
Introduction Why do mergers and acquisitions fail so often, despite their promise of positive outcomes? The extant literature has examined a wide variety of issues reflecting a variety of academic traditions (e.g. economics, finance, management, human resources) and some attention has been focused on cultural conflicts in combining organisations that may hinder the so-called acculturation process (Marks and Mirvis, 1985, 1992; Weber and Schweiger, 1989; Cartwright and Cooper, 1993; Larsson, 1993). Acculturation is the outcome of a process in which beliefs, attitudes and values of two organisations, pre-
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Todd Creasy, Michael Stull and Simon Peck
viously independent, form a unified culture. 'Not surprisingly, achieving acculturation represents a major challenge to firms' (Larsson and Lubatkin, 2001). Employees may resist this acculturation effort in choosing to adopt an individualist role or remain independent of the consolidating firms. Widespread resistance has often been termed 'culture clash', a situation wbicti bas been shown to bave consequences sucb as lower commitment, reduced cooperation and turnover (Sales and Mirvis, 1984; Buono, Bowditcb and Lewis, 1985) and deteriorating operating performance (Weber, 1996; Very, Lubatkin, Calori and Veiga, 1997). Tbe contribution of tbis paper is to developiand test a model of tbe importance of employee-level dynamics during an M&A.' Tbe autbors model tbe determinants of job satisfaction and organisational citizensbip bebaviour, positing tbat tbese outcomes are particularly imporjtant determinants of tbe success of an M&A acculturation process. Tbe autbors draw on a new primary database of employees involved in M&As to test! tbe bypotbeses and suggest implications for tbe management of organisation consolidations. • . i
Employee-level dynamics and the acculturation process Employee responses to M&A activity bave been central to a number of studies. Of particular interest bere are tbose tbat bave focused on bow employees identify witb one merger partner's culture over anotber (Buono and Bowditcb, 1989; Greenwood, Hinings and Brown, 1994). Specifically, Buono and Bowditcb (1989) found tbat negative employee reactions to a merger or acquisition rnay lead to lower levels of job security, satisfaction and less favourable attitudes toward management. As Nemanicb and Keller (2007) riote: 'unless managed successfully, tbese employee level outcomes . . . can manifest tbemselves at tbe firm level as an exodus of talent, tardiness, absenteeism, lower productivity, reduced customer satisfaction, less innovation and ultimately reduced economic benefits . . .' (2007: 49). Tbere is researcb on various aspects of cultural discontinuity, identity and organisational citizensbip bebaviours witbin a merger or acquisition environment. However, tbe extant literature appears to lack analysis of tbe causal links between tbese tbree constructs, and an examination of bow management may prevent related undesirable employee bebaviours during acculturation activities. Therefore, in considering consolidations 'as a manageable process, not a unique event' (Balmer and Dinnie, 1999: 67) tbe autbors examined tbe effects of procedural justice, trust in management and cultural discontinuity on! an employee's identity and perceived organisational support. Of fiirtber interest was bow tbis identity and perceived organisational support affected employee job satisfaction and organisation citizensbip bebaviours, tbe latter being itbe In this work the terms, mergers and acquisitions are used synonymously; as Parvinen and Tikkanaen (2007: 763) note this can be considered appropriate since what is being studied here is 'an organizational amalgamation that leads to two or more formerly separate economic entities appearing within a single organizational boundary. Despite some contractual and legal differences between mergers, acquisitions and takeovers, we feel that their similarity justifies examining them as one phenomenon'. •
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Understanding employee-level dynamics within the merger and acquisition process
subject of recent work on the role of transformational leadership in the management of M&As (Nemanich and Keller, 2007). The conceptual model guiding this research draws from the broad management and psychology literature and is depicted in Figure 1 and discussed below. . " MANAGEMENT COMPETENCE (MCOMP) EMPLOYEE IDENTIFICATION (IDENT) CULTURAL DISCONTINUITY (CULTD)
H10
PERCEIVED ORGANISATIONAL / SUPPORT (POS)
HI
.
ORGANISATIONAL CITIZENSHIP BEHAVIOUR ^ (OCB)
\
/^^
/
\^^ JOB SATISFACTION (JOBSA)
\ H4 V
H9 PROCEDURAL JUSTICE (PROJS)
Figure 1 : A framework for understanding systemic management effects on employee-level factors in the M&A acculturation process . • .
Organisational citizenship behaviour
.
Organisational citizenship behaviour (OCB) is defined as 'a discretionary nature that is not part of an employee's formal (role) requirements, but nevertheless promotes effective functioning of the organisation' (Podsakoff, MacKenzie, Moorman and Fetter, 1990: 115). The underlying construct consists of five types of citizenship behaviours: altruism, conscientiousness, sportsmanship, courtesy and civic virtue (Organ, 1988). Within ariiergeror acquisition, employees assume additional responsibilities due to acculturation tasks, which can have 'traumatic impacts on employees such as layoffs, turnover, stress and illness' (Seo and Hill, 2005: 423). High levels of organisational citizenship behaviours (or 'extra rolebehaviours') may be necessary during the acculturation period. As Eisenberger etal. (1990) note, 'extra role activities carried out on behalf of the organisation play a major influence in an organisation's success' (1990: 52). This is likely to be especially true during the acculturation process.
job satisfaction Job satisfaction has been defined as the level to which a person or employee has a positive affective attitude or orientation toward their job, these feelings being directed toward the job in general or toward facets of it (Smith, Kendall and Hulin, 1969). McCune (1999) suggested that job satisfaction is an important
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theoretical and practical concept because it may affect the ability of the employee to deal with job demands successfully and perform effectively. Due to the heavy demands placed on employees engaged in M&A integration, job satisfaction may be helpful in sustaining positive employee performance during a period at which the organisation could be vulnerable. At the organisation level, low job satisfaction has been linked to increased absenteeism, job turnover, decreased task performance and declining employee morale (Petty, McGee and Cavender, 1984). Any of these negative outcomes, the authors contend, has the capacity to seriously undermine an M&A acculturation effort.
Organisational identification Organisational identification is defined as 'a feeling of oneness with a defined aggregate of persons, involving the perceived experience of its successes and failures' (Mael and Tetrick, 1992: 814). Organisational identification is the process of accepting as one's own the identity of the organisation (e.g. 'I bleed Fed Ex Orange and Purple'). The identification process enabling this identity is a potentially powerful definer of the person and of interest to the researchers indeed ' . . . for many people their professional and/or organisational identity may be more pervasive and important than ascribed identities based on gender, race, age, ethnicity or nationality' (Hogg and Terry, 2000: 121). The research on mergers and acquisitions has dealt with both identity and the identification process issues occurring in the organisations involved (see Balmer, 1995, 1998), Balmer and Dinnie (1999) Gray and Balmer (1998), Melewar and Harrold (2000). Schweiger, Ivancevich and Pov^er (1987) found that employees described feelings of loss of identity. Rousseau (1998) posited that a change produced by a M&A could seriously challenge an employee's identification due to the disturbance of cognitive alignments and emotional attachments to one of the two consolidating businesses. ! As in many mergers or acquisitions where employee identification processes are disrupted, prudent management of organisation identity (through identification) may be linked to success of the post-M&A integration: 'Partisan allegiance to the pre-merger companies . . . can all contribute to a quagmire in which the merger process slowly sinks' (Balmer and Dinnie, 1999: 57). As Haunschild et al (1994) note, 'Research on organisational mergers has shown, for instance, that the success of a merger depends partly on the extent to which employees let go of their pre-merger identity' (1994:1157). Employees must migrate, which includes cognitive and emotional separation from the company of origin and alignment of self with the new organisational reality (Weick and Quinn, 1999). Therefore, management's role in the employees' new identification process may be key in successful M&A outcomes. Organisation identification can have a direct impact on organisational citizenship behaviour (Eisenberger et al, 1990) and has been seen to affect job satisfaction (Beggan, 1992). Terry (2001) suggests that identification with the post-merger organisation is related to high job satisfaction, more extra-role behaviour and lower turnover and absenteeism. Brewer and Gardner (1996) note that individuals may adopt one of three
I
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Understanding employee-level dynamics within the merger and acquisition process
identification orientations - with the new (merged) organisation, the premerger sub unit or adopt an individualist identity. Therefore, the identification orientation not associated entirely with one's self will focus on either one of the two consolidating businesses or the consolidated company. Employees make choices of identifying between the company of origin or the new combined organisation. Van Dick et al. (2004: 133) stated that 'only identification with the post-merger organisation was significantly associated with self reported OCB'. In addition, they also found that identification with preand post-merger identities were significantly related to job satisfaction. Building on these works then, the authors contend that higher levels of post-merger identification will lead to improved degrees of job satisfaction and organisational citizenship behaviours. With reference to the importance of employee identification with the organisation, the authors suggest the following hypotheses: Hypothesis 1: Employee identification with the new consolidated organisation will positively influence organisational citizenship behaviour. Hypothesis 2: Employee identification with the new consolidated organisation will positively influence job satisfaction.
Perceived organisational support Perceived organisational support (POS) conveys the quality of the relationship between the employee and organisation by measuring the depth to which employees believe their organisation cares about their welfare and values their contribution (Eisenberger et al, 1986). Setton et al (1996) found that if organisations treat their employees well and value their efforts, employees will recompense by devoting greater effort toward helping the organisation achieve its goals. This perception is generated by the personification of the organisation by employees when they attribute humanlike characteristics to it (Stinglhamber and Vandenberghe, 2003). Rhoades, Eisenberger and Armeli (2001) found that perceived organisation support mediated the role between job conditions and affective organisational commitment, or that perceived organisation support mediated an individual's judgment of managerial justice (procedural justice) and attitudes. With particular reference to M&As, Rhoades and Eisenberger (2002) found three major predictors of perceived organisation support; organisational rewards and working conditions, support from supervisors and procedural justice. Of relevance to the model presented here, Moorman et al (1998) found that perceived organisation support fully mediated the relationship between procedural justice and organisational citizenship behaviour. Likewise, Masterson, Lewis, Goldman and Taylor (2000) found that perceived organisation support fully mediated the relationship between procedural justice and job satisfaction and partially mediated the relationship between procedural justice and organisational citizenship behaviour. As a result, the following hypotheses are offered: Hypothesis 3: Perceived organisational support (POS) will positively influence employee organisational citizenship behaviours.
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Hypothesis 4: Perceived organisational support (POS) will positively influence employee job satisfaction. ¡
Cultural discontinuity The sense of cultural continuity or organisational fit between the pre-m'erger and post-merger scenarios is critical to the success of a merger. Jemison and Sitkin (1986) defined 'organisatiorial fit' as the match between the company's cultures and administrative practices. Lubatkin (1983) found that M&A partners high in organisational fit or cultural continuity prodviced higher shareholder returns than those low in fit. Leighton and Todd' (1989) and Marks and Mirvis (1985) found that differences in managerial practices and culture ('fit!) were especially significant in determining acculturation success. Continuity during the acculturation process can determine the degree employees identify with the newly combined organisation. As. van Knippenberg et al. posit, 'continuity plays a key role in determining post-merger organisational identification' (2002: 236). The article defines cultural' discontinuity (poor organisational fit) as consolidating conipanies whose' culture, administrative practices, coiitrol systems and rrianageiiient styles are significantly diffèrent. The literature linking cultural discontinuity, and perceived organisational support (POS) is not large and more generally, the organisational fit uterature 'is quite fragmented and typically addresses only those aspects of organisational fit that pertain to specific problems encountered in a particular tase' (Jemison and Sitkin, 1986: 147). Conceptually, POS is the assurance that help would be available from the organisation to the employee when necessary to complete one's job and/or deal with stressful situations. Favourable treatinent by the organisation to\yard the-employee is then construed to be organisational support. If cultural discontinuity is an outcome of M&A activity, which also frequently includes changes in reporting relationships and job titles, it seems logical that perceptions of organisational support could also wane. As Buono and Bowditch (1989: 96) point out,that when discussing issues of organisational fit, ' . . .organisational instability increases and is characterized by a growing number of questions about structural, cultural and role related changes and concerns'. As these questions increase and intensify, it is suggested here that the perceptions of one's support from the organisation would also be called into question. Thus the authors propose the following hypotheses: Hypothesis 5: Cultural discontinuity will be negatively associated with employees identification with the new combined organisation. i Hypothesis 6: Cultural discontinuity will he negatively associated with perceived organisation support.
Management's competence A large literature has developed dealing with the issue of trust in organisational life (Could-Williams and Davies, 2005)! Ballinger ahd Schoorman (2007) found that trust in a leader is related to organisational citizenship behaviours.
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Understanding employee-level dynamics within the merger and acquisition process
motivation and job satisfaction. Tbe autbors' interests lie not in tbe composite notion of trust, but in one aspect of trust - tbat of employee trust in tbe ability (or competence) of management to effect positive outcomes. Tbe widely accepted model of trust proposed by Mayer et al, (1995) focuses on tbe relationsbips between two parties, tbe trustor and trustee, and views tbree factors: ability, benevolence and integrity. Ability is defined as tbat group of skills, competencies and cbaracteristics tbat allow a party (management) to bave some influence witbin some domain. As Mayer and Davis (1999) note, 'For management tbis subsumes botb tbe formal and informal influence tbey are perceived to bave in tbe organisation, as well as tbeir perceived competence and skills' (1999; 124). Here, interest lies in employees' trust of management's ability (or competence) to produce successful outcomes at tbe time of tbe M&A announcement. Mayer et al. (1995) proposed tbat over time, a trustor v/ill evaluate tbe outcomes of previous vulnerabilities granted to tbe trustee, (wbicb in this research would be senior management). If the trustor's appraisal of tbe prior vulnerabilities was positive, tbe perceptions of top management's ability (or competence) to perform would improve. Tbe autbors' work centres on tbat level of perceived managerial competence. Botb job satisfaction and OCB bave been found to bave been directly affected by trust (Konovsky and Pugb, 1994). A leader's or manager's concern for tbe special needs of employees will positively affect POS (Eisenberger et al, 1990). Tberefore, tbe autbors offer tbe following bypotbeses: Hypothesis 7: Management competence will be positively associated with employee identification with the new consolidated organisation. Hypothesis 8: Management competence will be positively associated with perceived organisation support.
Procedural Justice Procedural justice, as originally conceptualised, was concerned with an individual's perception about tbe fairness of procedures governing decisions (Masterson et al, 2000). 'There is substantial evidence tbat fairness is an important dimension affecting employees' actions and reactions within organisations'. (Masterson et al, 2000: 738). Procedural justice bas been found to contain causal links to identity and perceived organisational support. Huo, Smith, Tyler and Lind (1996) associated fair treatment with organisational identification, in tbat fair treatment bad a greater positive impact on an employee's decision to identify witb tbe organisation. Kwong and Leung (2002) found tbat positive perceptions of procedural justice symbolises inclusion, a strong relationsbip, and encourages people to define tbe relationsbip in a long-term perspective. Tbese later findings were similar to feelings of organisational support. It appeared tben tbat negative perceptions of procedural justice could produce lower levels of perceived organisational support and organisational identity witbin employees working tbrough an M&A integration. Thus tbe autbors offer tbe final hypotheses: Hypothesis 9: Procedural justice v«ll he positively associated with perceived organisation support.
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Hypothesis 10: Procedural justice will be positively associated with employee identification with the new consolidated organisation.
Research method Research setting and sampling procedure The authors have developed and utilised a pre-qualified database of 2,254 organisational employees in the United States representing a wide range of industries (e.g. banking, health care, telecommunications, insurance)' and organisation types (e.g. manufacturing, service, consulting) for inclusion in the study. The database consisted of individuals who are currently employed in a management-level position (e.g. officer, director, senior or middle manager) or professional level assignment (e.g. computer analysts, accountants, engineers) in an organisation that had previously experienced a M&A. A cross-sectional survey was administered to this group in an online, electronic, and printed format to increase interest and response rate. As a second step, the respondents were further qualified on the basis of (a) whether they had experienced a merger or acquisition event in the last 36 months, and (b) whether the employee had direct experience in the merger or acquisition The authors attempted to incorporate as many recent M&A participants (including those going through an event) as possible while balancing the need to gather data from a diverse and large group of industry participants that experienced M&As over a particular period of time. While respondents often recall recently stored information more accurately, drawing solely from current, ongoing M&A transactions would have limited sample size, sCope and generalisabilty of the findings. A follow-up reminder was sent to each potential respondent after a gap of two weeks to encourage participation. This yielded a final valid sample of 254 respondents resulting in a usable rate of 11.2%. To test for non-response bias, independent samples were subjected to t-tests. No significant differences (p < .05) were found for either response (wave or survey format) suggesting there is no pervasive non-response bias in the data. The sample data has the following characteristics: Females accounted for 60%; ages ranged from less than 35 years old - 22%, between 36 and 45 years - 24%, between 46 and 55 years 35% and over 55 years of age - 19%; salaried positions totaled 59%; valid percentage of respondents working for organisations employing less than 1000 employees was 37% and for those working for larger firms was 63%. At the time of the M&A, the percentage of the sample working in the firm for less thanfiveyears was 39%. In addition, at the time of the M&A, the percentage of those working in their current position five years or more was 58%.
Measurements and control variables The measures of constructs used in this study are described in Appendix A below. For a majority of the constructs, existing scale items grounded in the relevant literature were employed and adapted with minor wording changes, where necessary, to fit the research context of mergers and acquisitions All
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Understanding employee-level dynamics within the merger and acquisition process
used a 5-point Likert scale. Control variables consisted of various qualifiers such as size of company and tenure in position, amongst others.
Analysis Exploratory Eactor Analysis (EEA) was used to refine the measures used in the merger and acquisition context. Subsequently, the authors utilised a two-step Confirmatory Eactor Analysis (CEA) and Structural Equation Modeling (SEM) to test the study hypotheses and account for the potential of confounding effects. Using both EEA and CEA procedures, the authors assess whether the constructs exhibited convergent and discriminant validity. In particular, CEA is well-suited to provide evidence of variance extracted, discriminant validity, and composite reliability (e.g. Eornell and Larcker, 1981). The next analytical step involved estimating the proposed model's misspecification bias. To account for this, the proposed model was established as a baseline model to which direct effects were then added. This iterative process was conducted from mediator to dependent variable paths and for independent variable to mediator paths. Additionally, to address the issue of respondent-specific factors, several control variables (e.g. age, gender, size of company) were included in the analysis to provide some measure of control for this bias.
Results Utilising exploratory factor analysis the authors examined the measures to determine convergent and discriminant validity for all items within the research model. An EEA revealed that five of the eight variables (procedural justice, identification - old, identification - new, organisational citizenship behaviour and job satisfaction) had outcome measures which loaded cleanly on a single factor (loading ranges were from 0.43 to 0.90) and had no items trimmed during EEA. These factors accounted for 51% of the common variance. Due to cross loading or low dominant loadings, items were trimmed fi-om three of the eight variables. Overall the retained items for all factors accounted for 69% of the common variance. Using CEA in AMOS, a measurement model was estimated that tested convergent and discriminant validity of the 38 items measuring the nine latent constructs. It was proposed that individual items would load only on a single factor in accord with each construct's definition. The CEA produced the following acceptable model fit statistics: j ^ = 1267, df= 783, NEI = 0.846, IEI = 0.935, CEI = 0.934, PCEI = 0.850, RMSEA = 0.049, SRMR = 0.0547 and PCLOSE of 0.566. The model fit statistics indicate a reasonably good representation of the variance-covariance matrix of study measures and are suitable for additional analysis. Table 1 below displays the mean and standard deviations of the variables used in the subsequent analysis. Table 2 below displays the parameter estimates which indicate that the factor loadings are all statistically significant. Additionally, the composite reliabilities exceed 0.70 for all constructs. Using a variance extraction approach based on Ramaswami and Singh (2003) and Eornell and Larcker (1981), all estimates exceed the maximal and average variance shared
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30
Mean
2.79
3.56
3.26
3.52
2.86
2.80
3.43
3.76
3.56
3.01
4.50
Variable
Procedural justice
Cultural discontinuity
Management competence
Identification - old
Identification - new
Perceived organisational support
Job satisfaction
Organisational citizenship behaviour
Tenure with organisation (years)
Tenure in position (years)
Company size (employees)
00 o
0.343
0.759
rt" o
-0.030
0.050
0.033
-0.009
0.138
0.199
0.135
-0.011
0.093
0.167
0.107
-0.040
-0.012
0.215
0.250 0.066
0.095
0.027
0.612
-0.100
0.015
0.071
0.042
0.719 -0.020
o
-0.016
-0.078
0.141
0.056
0.479
d
0.069
-0.136
0.025
0.125
0.673
ON
1.29
0.111
-0.069
0.335
0.031
0.052
CO
1.28
0.81
0.94
0.399
0.347
in
0.242
0.329
0.559
0.94
0.256
vo
0.500
0.071
0.029
ro
0.99
0.235
0.391
0.372
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Understanding employee-level dynamics within the merger and acquisition process
for each construct. Overall, the constructs within the research model have suitable properties and appear reasonable for subsequent analysis and interpretation.
Fit of the hypothesised model and hypothesis testing The re-specified model depicted in Figure 2 below was utilised for hypothesis testing. Since the hypothesised effects are all indirect, the potential for unhypothesised direct effects to have significance was addressed in the empirical analysis by establishing a baseline model to which direct effects and/or emergent effects were then added. This provided a good-fitting model and addressed the potential for mis-specification bias. In all, six new paths were added that represented direct paths from the independent variables (three) to the two dependent variables. MANAGEIVENT COMPETENCE (MCOMP) EMPLOYEE IDENTIFICATION (IDENT) CULTURAL DISCONTINUITY (CULTD)
ORGANISATIONAL CITIZENSHIP BEHAVIOUR (OCB)
0.46 - Identity New
mo
PERCEIVED ORGANISATIONAL SUPPORT (POS) PROCEDURAL JUSTICE (PROJS)
HI 0.17
0.47
JOB SATISFACTION (JOBSA)
H4
-0.23
> Paths hypothesised "a priori" ——
> Direct paths Inciuded foilowing re-specification
Figure 2: Model test results - empirical evidence of the systemic management effects on employee level factors in M&A acculturation process.
This re-specified model exhibited the followingfitstatistics: y^ = 15.12, df12, CFI = 0.99, NFI = 0.998, SRMR = 0.03, RMSEA = 0.03. Thus the model appears to provide an acceptable representation of the study data. In a second step, the model was subjected to a test to determine if mediation effects were present. Full and partial mediation were present in the model. The fully mediated indirect effects of management competence on organisational citizenship behaviour and job satisfaction were significant at the 0.10 and 0.01 levels respectively with t-values of 1.95 and 2.43 respectively. The indirect effect of procedural justice on job satisfaction was significant at the 0.01 level with a t-value of 7.58 resulting in full mediation. The partially mediated effects
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Table 2: Estimated coefficients for the hypothesised relationships: results from SEM analysis Dependent variable:
Initial coefficient
Final coefficient
t-Value 1
Perceived organisational support Procedural justice Management competence Cultural discontinuity
0.69 *** 0.12 ** -0.06
0.69 *** 0.12 ** -0.06
15.08 2.63 -1.32
Identification - old Procedural justice Management competence Cultural discontinuity
-0.04 0.30*** 0.13
-0.04 0.30 *** 0.13
-0.60 4.59 1.94
Identification - new Procedural justice Management competence Cultural discontinuity
0.46*** 0.14* -0.13*
0.46 *** 0.14* -0.13 *
7.87 2.49 -2.28
-0.23 * 0.03 0.02 0.07 0.11 0.17* 0.10
- 2 . t2 0.42 0.32 0.67 1.90 2.08 1.07
-0.08 -0.10
-0.86 -1.71
0.05 0.07 -0.01 0.48 *** 0.06 . 0.08 0.08
0.67 1.22 -0.07 5.73 ' 1.74 1.49 1.13
Organisational citizenship behaviour Procedural justice Management competence Cultural discontinuity Perceived organisational support Identification - old Identification - new Controls Tenure with organisation (years) Tenure in position (years) Company size (employees) Job satisfaction Procedural justice Management competence Cultural discontinuity Perceived organisational support Identification - old Identification - new Controls Tenure with organisation (years) Tenure in position (years) Company size (employees) Overall final fit statistics xHd.f.) NFI/CFI NNFI SRMR RMSEA (90% Confidence Interval)
-0.08 0.13* 0.15*
0.53 *** 0.10* 0.12*
0.11 0.00
1.54 O.(39
15.12(12) 0.98/0.996 0.033 0.032 (0.00 to 0.075)
1
of procedural justice on organisation citizenship behaviour were only significant at the 0.10 level.
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Understanding employee-level dynamics within the merger and acquisition process
Hypotheses tests The estimated coefficients for the final model are displayed in Table 2 (above), with Figure 2 (above) employing a graphic representation of the significant paths. With regard to Hypothesis 1, results provide support in that as employee identification increases v^^ith the new consolidated company over the pre-merger companies, employees tend to exhibit more organisational citizenship behaviours (ß = 0.17, p < 0.05). However, no support was found for Hypothesis 2, indicating that as employee identification increases with the new consolidated organisation higher levels of job satisfaction would occur. Of the factors that contribute to job satisfaction (pay, training, challenge), it appears that identifying with the new organisation can't be directly included. The authors found no evidence to support the proposition that higher levels of perceived organisational support positively influence organisational citizenship behaviour, thus rejecting Hypothesis 3. Therefore it may be possible to feel supported by the organisation but still hesitate in carrying out extrarole behaviours. However, these results indicate support for Hypothesis 4 (ß = 0.470, p < 0.001), suggesting that as feelings of perceived organisational support improve among employees, job satisfaction is positively influenced. Fully supporting Hypothesis 5, cultural discontinuity has a negative effect on an employee's identification with the newly merged organisation (ß = -0.13, p < 05). Hypothesis 6, which proposed that employees experiencing high levels of cultural discontinuity would experience declining levels of perceived organisational support was not supported by the data. Thus even though the pre-merger culture is at odds, this doesn't inevitably translate into declining levels of organisational support. In regard to both Hypothesis 7 and Hypothesis 8 the data suggest that as employees' perception of management competence to successfully execute the merger increases, employees' identification with the new organisation (ß = 0.14, p < 0.05) and perceived organisational support (ß = 0.12, p < 0.01) are positively influenced. Further, procedural justice appears to have a positive relationship with perceived organisational support within the consolidated organisation, confirming Hypothesis 9 (ß = 0.69, p < 0.001). Likewise, support was found for Hypothesis 10 as high levels of procedural justice appear to exhibit a strong and positive influence on an employee's identification with the newly merged organisation (ß = 0.46, p < 0.001).
Discussion The aim of this paper was to examine a number of key employee level dynamics in a systemic fashion within the domain of a merger or acquisition. Overall, the findings based on a 'processual view of M&As' (Parvinen and Tikkanen, 2007) are consistent with and build on the findings of prior research and may provide insight and value to those charged with the M&A acculturation process. Based on Eisenberger et al, (1990), the authors posited that high levels of organisational citizenship behaviour and job satisfaction would help produce more positive outcomes for merger or acquisition acculturation goals. Since the relationship between procedural justice and job satisfaction is
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fully mediated by perceived organisation support, this suggests that level of support employees feel from the organisation is a critical factor infiuencing the way they feel about their job. Because perceived organisation support is strongly affected by procedural justice and less so by employees perception of management competence, it appears that job satisfaction is highly infiuenced by the processes and procedures an organisation implements that signal strong support: for the employees. Eurther, the results presented here indicate that the effect of procedural justice on organisational citizenship behaviour is partially mediated hy an employee's identification with the newly consolidated organisation. While procedural justice has a strong and significant effect on new identification and this new identification has a positive direct effect on OCB, the direct, partially mediated effect of procedural justice exhibits a negative impact on employees' willingness to engage in extra role behaviours during the organisational consolidation. Thus whilst managers should strive to ensure practices, policies, processes and procedures are perceived as being fair, unbiased and equally distributed across the employee population this analysis suggests that this may not - in isolation - achieve the organisational citizenship behaviour necessary during M&A acculturation. A clear 'and transparent set of policies and processes could foster a culture of 'working to the rules' and this suggests it may not facilitate engagement in tasks or activities that necessarily fall outside the defined job descriptions, policies and/or procedures. The implication is that managerial attention to procedural justice per se is inadequate. With regard to the degree of difference between the merger partners, results suggest that greater degrees of cultural discontinuity will result in diminished identification with the new consolidated organisation and lower subsequent organisational citizenship behaviours. In this relationship, identification with the new organisation form fully mediates the relationship between cultural discontinuity and organisational citizenship behaviour. This mediation suggests that how closely employees identify with the new organisation is a powerful determinant of the behaviours practiced while performing job functions. Because new identification is mostly influenced by procedural justice arid less so by cultural discontinuity or perceptions of management's competence, it appears that organisational citizenship behaviour is more influenced by the process in which an organisation treats its employees (through its effect on identification) than by the perceived differences between the consolidating companies. Thus, while managers must be aware of the cultural similarities/differences between consolidating companies, it may be that the manner in which employees are treated during the merger and acquisition process may send a more powerful signal of management's philosophies and subsequent intentions. The findings here suggest that organisational citizenship behaviour is also driven by an employee's identification with the organisation. While neither management competence nor cultural discontinuity exhibit a direct effect on organisational citizenship behaviour, they do play | an important role in the process of influencing employee identification vvith the new or old organisation, a key factor leading to employee organisational citizenship behaviours. ¡ I
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© 2009 The Braybrooke Press ltd. journal of General Management Vol. 35 No. 2 Winter 2009/10
Understanding employee-level dynamics within the merger and acquisition process
In terms of limitations, self-report measures were utilised for all constructs. While self-report data suffers from subjective biases, the authors sought to minirnise the motivation for social desirability by providing confidentiality for all respondents. In addition, a reasonable argument can be made that selfreport data tends to bias the mean values but is less likely to bias the correlations between constructs, which are the primary interest of this study. Second, the sample utilised a panel of organisational respondents rather than soliciting specific organisations for participation. While sampling from a limited number of organisations provides control over specific contextual factors (e.g. organisation size and structure, recent nature of the M&A event, etc. ), it can limit the generalisability of the studyfindings;the latter was chosen as a more critical factor in sample selection. Additionally, the use of organisation data allows the influence of survivor bias, as respondents are selected from those remaining with the firm after a merger/acquisition event. Lastly, the response rate, compared to similar studies, is somewhat low. This is partially due to the prequalification step that was utilised to focus only those organisational respondents from our database that had recently experience an M&A event and were directly involved in the merger process. Despite its effects on overall response rate, this step was useful in gaining access to respondents who were more likely to providé input without retrospective bias and could also relate their direct experience in the M&A process.
Conclusion To conclude, despite the enormous sums of money spent on organisation consolidations designed to create shareholder wealth, the results can be disappointing. It is evident that prudent managers should seek to lessen the probability of culture clash within M&A acculturation activities to prevent value destruction. Using a new data set of employees involved in organisational consolidations, the contribution of this paper has been to examine in a systemic way a number of the direct and indirect, mediating effects of important managerial policies and characteristics. Therefore the results from this examination suggest a number of important implications such that if such policies are studied either in isolation or independently they may have sub-optimal outcomes. The authors show that employees who are heavily identified with the new, consolidated organisation may experience higher levels ofjob satisfaction and OCB, both of which are believed to positively influence acculturation outcomes. Therefore, based on this study, practitioners should minimise cultural discontinuity between M&A partners, and maintain fair management practices and/or procedures during the M&A process. These in turn should lead to higher levels of identification with the newly consolidated organisation and feelings of support. These elements combine to produce higher levels of extra role behaviours (i.e. organisational citizenship behaviour) and improved job satisfaction both of which can improve M&A consolidation outcomes. This work also adds to the literature which places importance on the phenomena of organisational identity within a merger or acquisition consolidation and support some of the conclusions drawn Haunshild et al, (1994) who suggest it is critical for employees to abandon the former company identity and adopt
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Todd Creasy, Michael Stull and Simon Peck
Table 3: Employee-level dynamics within the M&A process: management implication. Key factor
Why it's important
Management actions
Perceived management competence
Employee's perception of management's competence in successfully executing the M&A is important. It has a direct impact on employee's identity with the newly consolidated company and the support your company offers employees.
Management should remind employees at the beginning of the M&A endeavour of past successes in these types of efforts.
Procedural justice
These actions by management have a significant and direct impact on the new established company and perceived employee support from the new company.
Management should mak certain that decisions are fair and equitable to all parties. communicated overtly and honestly and are open to questions.
Cultural discontinuity
Co-mingling companies with vastly different cultures has a negative effect on establishing a identity for the newly, consolidated company.
Management should endeavor to align the company with one that is similar culturally. Bad marriages are difficult to rectify.
Employee identification
Identifying with the newly, consolidated company improves job satisfaction and citizenship behaviours among employees.
Management can create new tangible evidence of the merger (shirts, mugs. business cards) and prescribe to the above to aid employees and their identity with the new corporate entity.
Perceived organisation support
Employees undertaking heavy acculturation activities need to feel supported by the company; this leads to strong feelings of job satisfaction.
Open door policies for : employees to discuss stressful periods are recommended; flexibility with schedules can add to feelings of support
1
the identify of the newly merged company. Managers who strive to help employees adopt an identification with the newly consolidated organisation in the merger and acquisition process should seek to ensure the practices, policies and procedures are fair and unbiased while also conveying past managerial success at both acquisitions and mergers if appHcable. Positive outcomes from procedural justice, as suggested by this data, will positiv|ely affect employees' identification with the newly consolidated organisation which could lead to improved organisational citizenship (or extra role) behaviours and enhanced levels of job satisfaction, both of which are experienced by employees engaged in organisational consolidation. ! A summary of managerial actions or poHcies that may prevent acculturation missteps or 'culture, clash' are summarised in Table 3 above. Taken together, the processual approach presented here, highlighting the role! of
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© 2009 The Braybrooke Press Ltd. Journal of General Management • Vol. 35 No. 2 Winter 2009/10
Understanding employee-level dynamics within the merger and acquisition process
direct and mediating variables, suggests a new perspective on the prospects for successful acculturation activities for both researchers and for those managers charged with merger or acquisition initiatives.
Acknowledgments The authors are grateful to EDM seminar participants at Case Western Reserve University for comments. The authors would also acknowledge the contribution of the anonymous reviewers and senior editor of the Journal of General Management. Errors and omissions remain the authors' own.
Appendix A: Study variables job satisfactior)
Job satisfaction was measured using two distinct scales: a three-item scale adapted from the Job Diagnostic Scale that has been previously used in the context of organisational mergers (van Dick, Wagner and Lemmer, 2004) and Wood, Chonko and Hunt's (1986) two-item scale of global job satisfaction. The items were included to measure additional aspects of job satisfaction. Organisational citizenship behaviour
Organisational citizenship behaviours were measured using two selected items from Podsakoff, Mackenzie and Fetter (1993). The two items selected measured 'civic virtue' and were deemed most appropriate given the authors' interest in extra-role behaviours that are believed to play a role in the acculturation process. In addition, three items were utilised from the Podsakoff, MacKenzie, Moorman and Fetter (1990) that tap in to the altruism dimension of organisational citizenship behaviour. Procedural justíce
Procedural justice was measured using a six-item scale that captures the degree to which employees feel management processes and procedures are fair and openly communicated during the merger or acquisition process. The items were based on Mansour-Cole and Scott (1998) scale and dealt with the fairness of the procedures used in an organisation during company restructuring and associated layoffs. Management competence
Mayer and Davis's (1999) measure of managerial competence (one dimension of the managerial trustworthiness scale) which assesses an employee's perception of managerial capability using six distinct items was employed. Cultural discontinuity
Cultural discontinuity was measured with van Knippenberg, van Knippenberg. Monden and de Lima's (2002) perceived inter-organisational differences scale that assesses the cultural fit of two merging entities using a four-item scale. Organisational identification
This construct included two dimensions: identification with the pre-merger or acquisition organisation and identification with the newly consolidated
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Table lA: Estimated measurement parameters of study constructs Construct
Loading"
t-value
Variance Highest extracted*"
Average R2''
Reliability'
PROJS 1 PRO)S2 PR0JS3 PR0JS4 PR0JS5 PROJS6
0.787 0.885 0.795 0.752 0.880 0.837
14.76 17.74 14.98 13.81 17.58 16.22
0.677
0.653
0.221
0.926
Cultural discontinuity CULTD2 CULTD4
0.799 0.774
11.11 10.85
0.620
0.187
0.087
0.876
Management competence
TRST2
0.829
16.04
0.777
0.174
0.095
0.758
TRST3 TRST4 TRST5 TRST6
0.9.11 0.893 0.864 0.911
18.72 18.09 17.11 18.70
Identification - old
IDENTOl IDENT02 IDENTO3
0.773 0.658 0.902
13.28 10.96 16.04
0.599
0.076
0.021
0.817
Identification - new
IDENTN4 IDENTN5 IDENTN6 IDENTN7
0.624 0.871 0.647 0.878
10.59 16.84 11.08 17.06
0.597
0.582
0.208
0.852
Perceived organisational support
POSl
0.847
16.63
0.722
0.653
0.250
0.939
P0S2 P0S3 P0S4 P0S5 P0S8
0.904 0.897 0.910 0:690 0.802
18.50 18.26 18.73 12.35 ¡5.27
Job satisfaction
JOBSAl J0BSA2 JOBSA3 J0BSA4 J0BSA5
0;862 0.864 0.669 0.779 0.645
11.07 14.31 11.61 16.70 16.66
0.590
0.391
0.147
0.922
Organisational citizenship behaviour
OCBl
0.876
17.19
0.704
0.024
0.008
0.946
0CB2 0CB3 0CB4 0CB5
0.879 0.818 0.759 0.871
13.93 15.58 17.44 17.36
Procedural justice
Overall fit statistics X^ [d.f.) NFl/CFI NNFI SRMR RMSEA (90% Confidence Interval) PCLOSE
1267 (783) 0.85/0.93 0.055 0.05 0.56
The values are estimated maximum likelihood factor loadings. i This is an estimate of variance extracted by each factor based on the formula by Fornell and Larcker (1981). ! Highest R2 is the highest variance shared between this construct and any other construct in the model; it is computed as the square of the highest R (correlation). Average R2 is the average variance shared between this construct and all other constructs; it is computed as the mean of squared correlations. " This is an estimate of cornposite reliability based on the formula by Fornell and Larcker (1981).
Understanding employee-level dynamics within the merger and acquisition process
organisation. This was assessed using van Knippenberg, van Knippenberg, Monden and de Lima's (2002) measure of whether employees identify more strongly with the pre-merger organisation or the post-merger consolidation entity utilising a six-item scale. An item from Mael and Tetrick's (1992) identification research ascertaining the use of we', vs. 'they' by the survey respondent was included noting prior research investigating the use of 'we' and self representation of employees (Brewer and Garder, 1996)1 Perceived organisatíonal support
Perceived organisational support was measured using six items from the Survey of Perceived OrganisationalSupport (Eisenberger etal, 1990, .1986) as modified by Eisenberger, Cummings, Afmeli and Lynch (1997). The original scale contained eight items. However, two items that were reversed scored did not load properly when conducting factor analysis and were subsequently removed from the data set. , . Cor)trol variables
•
Given the nature of the sampling frame, employee and firrn specific control variables were used in the analysis. Specifically, like Nemanich and Keller (2007), the authors control for organisation tenure (and time in job position) given that it may affect employee responses to a consolidation. Tenure data were collected in interval form. Likewise, in keeping with the idea that firni size can affect the variables, the authors controlled for the size of the company. Tenure in the position and with the company were on a 5 point scale with ' 1 ' equalling less than one year, '3'r less thanfiveyears and '5' equaling ten years or more. Organisational size was captured similarly on a six point scale with ' 1 ' equaling less than 100 employees, '3' equaling between 250 and 500 and '6' equaling 5,000 or more. . .. . • • '"
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Todd Creasy, Michael Stull and Simon Peck
Todd Creasy is a faculty member in the Gordon Ford College of Business at Western Kentucky University teaching human resources, management and operations management. Todd has 15-plus years of experience in human resources with specialties in compensation, benefits, staffing, training, recruiting and organisational development and behaviour. He also consults as a Six Sigma Master Black Belt and Lean expert serving as a change agent in various industries including mining, aggregates, construction, transportation, trucking and healthcare among others. Michael Stull is currently Associate Professor of Management & Entrepreneurship and Directorof the Inland Empire Centerfor Entrepreneurship (lECE) at California State University San Bernardino (CSUSB). He has more than 25 years of experience as an entrepreneur, manager and educator. Michael has won numerous awards for his business accomplishments and teaching and research activities, including the recent selection as Outstanding Professor for Teaching in the College of Business and Public Administration at CSLJSB. Under his direction lECE has received national recognition from the Princeton Review and Entrepreneur magazine. He earned his doctorate in Management from Case Western Reserve University. | Simon Peck is Associate Professor of Business Policy at the Weatherhead School of Management, Case Western Reserve University. He has previously worked at Wa'rwick Business School, and City University Business School, London and at the University of St Gallen, Switzerland. He has published a number of academic articles in the field of corporate governance and performance in outlets such as the Academy of Management journal and the Strategic Management Journal. He is an associate editor of the journal LRP: Long Range Planning. ••''•
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© 2009 The Braybrooke Press Ltd. Journal of General Management Vol. 35 No. 2 Winter 2009/10
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