Magoosh GRE

Why managing human resources and the communication process is important during an acquisition or merger?

| December 3, 2012

CHAPTER 1 : INTRODUCTION

Mergers and acquisitions (M&A) have been a popular strategy for organizations to consolidate and grow for more than a century. However, research in this field indicates that M&A are more likely to fail than succeed, with failure rates estimated to be as high as 75%. People‐related issues have been identified as important causes for the high failure rate, but these issues are largely neglected until after the deal is closed. One explanation for this neglect is the low involvement of human resource (HR) professionals and the HR function during the M&A process. The strategic HR management literature suggests that a larger role for HR professionals in the M&A process would enable organizations to identify potential problems early and devise appropriate solutions. However, empirical research from an HR perspective has been scarce in this area.

Mergers and acquisitions (M&A) have been a key strategy for companies1 to consolidate and grow (Ellis & Lamont, 2004). The recorded history of M&A activity beginning in the late 1890s indicates a wave pattern with its characteristic crests and troughs. In recent times, resurgence in M&A activity suggests the emergence of a fresh wave of M&A activity after a brief lull during the initial years of this century. The number of M&A deals and their values exceed several thousands and several trillions of dollars, respectively. Chart 1.01 shows the volume and value of deals involving United States‐based companies over a 30‐year period. Table 1.01 depicts the value of global M&A activity between 2004 and 2006. Comparative trends indicate that the proportion of M&A deals occurring outside theU.K.is increasing. For example, of the global total of $1.9 trillion worth of M&A deals, about 40% of them involvedUKbased companies; this proportion reduced to about 30% in 2006.

Several reasons have been put forward to explain the motivation for companies to undertake M&A. In general, companies merge or acquire in order to: increase size, increase market power, eliminate competitors, enter new markets, improve efficiencies through synergies, diversify risk, realize financial gains, acquire talent and technology, and/or fulfill the personal motives of senior managers (Ghauri & Buckley, 2003; Gaughan, 2005; Sherman & Hart, 2006). M&A are preferred when it is necessary to take swift action, such as when an organization needs to increase market share quickly and cannot do so through the more time‐consuming route of organic growth. M&A also become attractive when capital investments, such as in research and development (R&D), are too large for a single organization to bear. In recent years, changes in the global environment have also contributed to an increase in M&A activity. Liberalization and deregulation policies at the national, regional and global levels, along with technological innovations, have intensified competition and have forced companies to consolidate, including crossing borders to do so (Ferguson, 2003; UNCTAD, 2000; Schuler & Jackson, 2001; and Lynch & Lind, 2002). The increasing popularity of M&A thus reflects the dynamic interaction between important changes in the global environment and motivating factors at the organizational level.

1.1. Background of the Problem

Every year many mergers and acquisition takes place all over the world. Some of them take place by mutual consent while others take place due to unfriendly situation. It has been found that few important issues have not been given due attention in mergers and one such issue is the affect on employees after the merger. Due to mergers, many employees lose their jobs, few gets transfers and their job descriptions changes. Due to mergers almost all employees are affected one way or other. It is expected of employee that they must carry on their work without any break during and after the merger. They should not be affected by merger and they should continue to serve the company. The employees are expected that they should not worry about rumors and threats to their job. The most affected people during merger are the employees as after every merger many of people lose their job.

Apart from the top management, all employees at all levels are affected by merger but few people thought about this issue. The employee rights are very important and they should be given due attention during merger.

It is as if the question of how employees are affected in these sorts of transactions was unimportant or incidental to the fiduciary benefit of shareholders of both parties, and indeed this is allegedly the primary justification for a merger or an acquisition, insufficient attention has been paid to the responsibilities of shareholders in these activities.

Whenever a merger or acquisition takes place, there is much pressure on the management teams to set new levels of expectations from the employees, in order for the (M&A) to result in the success level it initially expected from the (M&A). The thoughts and feelings of the employees are not taken into account, many managers will not even think about how the (M&A) will affect the individual employees.

Some managers will rush into the (M&A) and expect the results of success to start immediately, In many companies and businesses whether they are large or small has a human resource whether it is 1 employee or more than 1,000 employees someone, somewhere has to carry out tasks that lead to the final distribution of the supplies. There are employees with anything from 1year to 35 years and more length of services, there are also employees who have been loyal and given 100% effort to ensure the success of the company or business. More attention should be given to human resource and they are vital for any organization during the merger or acquisitions.

1.2 The Dissertation Question

Why managing human resources and the communication process is important during an acquisition. (iporesources.org)

The reason managing human resources is important in any acquisition or merger, is from the outset of the merger or acquisition the directors and managers should make every efforts to manage all the skills and attributes each employee has to offer the company. When leaders are put in charge of the different departments, the employees should be made to feel valued, and needed, not frightened or feel their future is at risk due to the merger or acquisition. It would be wise for Managers to remember that in some cases there has been a massive amount of investment has been placed in training employees in order for them to achieve the skills and qualities that the company needed to be successful, it has been known for employees to be made feel that they have been doing the job wrong for years, and causes them to lose confidence, and eventually they will leave the company, putting the employees whole personal life at risk, bearing in mind, some employees have shown loyalty and commitment to the company, by their long term service to the company.

Managing Human resources is the key to success for any merger or acquisition, the human side of any company or business is the most valuable asset. To meet any merger or acquisition goals, the human side tends to hold all the aces, as they have the knowledge, skills, talent, aptitude, attitude and creative abilities, which should to maximized to meet the goals set (Adler 2006 295).

The management frame work can be strategically set by the HR department by injecting the “Five Ps” Processes, Practices, Programs, Policies, Philosophy. The Human side of mergers and acquisitions needs to be approached in a manner that will achieve employees working effectively and efficiently which will result in better performances from employees (Barney 2008 71). The aim for the Human resource department is to develop open door policies, flexible management and more approachable and caring management style in order for the employees of both companies to be motivated and energized to support and deliver the company missions.

In recent times Mergers and acquisitions have become a common phenomenon. The employee holds key roles in the merger and they are ghighly affected by the merger and acquisition processes. Human resource negligence has been known as one of the main reasons of its failure. Human Resource management is a vital element in the strategy development of a merger or acquisition such as.

  1. Formulating the strategy and developing activities for a merger or acquisition.
  2. Identifying and developing new competencies
  3. Managing the soft due diligence activity
  4. Advising top management on the merged company’s new organizational structure
  5. Overseeing the communications
  6. Managing the learning processes
  7. Re-casting the HR department itself
  8. Identifying and embracing new roles for the HR leader
  9. Providing input into managing the process of change. (Bastien 2007 17)

Thus Success of Merger & Acquisition entirely depends on the people who drive the Business, their ability to Execute, Creativity, and Innovation. Thus the role of addressing any communication issues, employees concerns, compensation policies, skill sets, downsizing issues and company goals lays a platform for the firm base in Human Resource Management to attain desired goals. Involvement of HR Professionals in Mergers and Acquisitions discussions becomes utmost important as it has an impact on key people issues. This will help them to achieve a much better outcome and increase the chance that the overall deal is a total success (Bernard 2001 50).

 

CHAPTER 2 : LITERATURE REVIEW

2.1 Performance of  M&A

Despite the strategic rationales, the history, and the sheer volume of M&A undertaken, the performance of M&A has not been impressive. The exact rates of success of M&A are contested in the literature, but numerous studies argue that only about 25% to 30% of M&A actually meet their originally stated objectives (see for example, Marks & Mirvis, 1998; Ellis & Lamont, 2004; Pablo & Javidan, 2004; Schweiger, 2002; and Thach & Nyman, 2001). On the other hand, some studies contend that M&A do have positive consequences for acquiring firms (Jensen, 1988; Hitt, Harrison, & Ireland, 2001; and Bruner 2005). In a critique of the conventional wisdom that M&A destroy value, Bruner (2005), based on his analyses of more than 130 studies, concludes that M&A does in fact pay for shareholders of both the buyer and seller firms. Nevertheless, despite the dissenting minority, the general inference one draws from the literature on the performance of M&A is that they do not add much value to the acquiring firm and are probably more detrimental to shareholder wealth in the longer term (Cooper & Gregory, 2000; and Pablo & Javidan, 2004).

Regardless of the rates of success or failure, the impact and implications of poor performance of M&A can be seen at multiple levels: individual, organizational, and societal. 1) At the individual level, negative consequences of M&A include such things as: damage to social networks and social support; increased anxiety and stress due to uncertainty, loss of control, loss of identity, personal shame, and the notion of change itself; loss of employment, loss of trust, negative impact on benefits, possible adverse changes to the employment contract, and possible transfer to a less favorable location (Cartwright & Cooper, 1990). 2) At the organizational level, the implications include: decrease in production and productivity; loss or waste of valuable resources; problems with organizational communication; breakdown of collaborative working relationships; loss of tacit knowledge; damage to organizational culture; damage to organizational image and brand equity; loss of key talent; loss of trust in the leadership of the organization; possible increase in conflicts and grievances; loss of market share and consumers; and may also result in the demise of the organization from the market (Drucker, 1981; Cartwright & Cooper, 1990; Chaudhuri & Tabrizi, 1999; and Krug & Aguilera, 2005). 3) At the societal level, the implications include: reduced consumer choice because of the reduction in competition; increase in dead‐weight loss2; damage to the social fabric, especially in ‘company towns’; and both direct and indirect loss to the local economy (UNCTAD, 2000; and Ghauri & Buckley, 2003).

2.2 Current Explanations for M&A Performance

The major reasons identified for the poor performance of M&A include: paying too much, an inability to sustain financial performance, poor strategic fit between the two organizations, unclear understanding of objectives/synergies, loss of productivity, incompatible cultures, a clash of management styles/egos, loss of key talent, inadequate/improper due‐diligence, ineffective integration, and people‐related issues such as inadequate/improper communication, poor leadership, unclear roles, poor decision making, and cultural clashes (Thach & Nyman, 2001, Beckier, Bogardus, & Oldham, 2001; Cooper & Finkelstein, 2004; Prichett, Robinson, & Clarkson, 1997; Schmidt, 2002; Pablo & Javidan, 2004; and Carey & Ogden, 2004). These reasons indicate that during M&A, issues of conception and execution are important. For example, without a sound strategy, and if the merging companies are culturally mismatched, carrying out integration activities would be futile. Similarly, even when all the economic, financial, and strategic aspects are in place, improper handling of the integration process is likely to cause the M&A to fail. M&A are inherently complex processes that involve the combination of two organizations. They need to factor in several issues such as: corporate strategy, financing of the merger, nature of accounting treatment, expected synergies, integration of cultures, integration of technological and operational issues, retention of talent, allaying fears of employees, integration of human resource (HR) systems, ensuring regulatory compliance, and managing anti‐trust and other legal issues. Consequently, assigning primacy to any one issue, functional area, or discipline to explain the success or failure of M&A becomes problematic. However, in broad terms, the high failure rates are attributed to problems related to financial, managerial, strategic, and HR or people aspects of M&A. Of the many reasons identified for the poor performance of M&A, it is clear that a significant number of them involve people‐related issues. It is estimated that about one‐third to one‐half of all M&A fail because of “employee problems” (Davy, Kinicki, Kilroy, & Scheck, 1988). This should, perhaps, not be surprising because a merger or acquisition is essentially a type of organization change, albeit a radical one, and, therefore, inherently involves people‐related issues. However, the literature indicates that in a typical M&A people issues are largely overlooked until after the deal is done and publicized, with greater priority being accorded to legal, financial, economic, marketing, and production aspects .

2.3 Focus on People Related Issues in M&A

M&A research has traditionally been undertaken from an economic, financial, or general management perspective (Cooper and Gregory, 2000). The body of knowledge generated thus far is substantial, but a huge gap still exists in our understanding of how M&A actually work and what can be done to improve their success rates. The low rates of M&A success and the consequent negative ramifications suggest that, perhaps, one needs to approach the practice and study of M&A differently. The discussion in the previous paragraphs indicates that several of the problem areas identified by practitioners and researchers for poor M&A performance fall under the domain of the HR function3 in organizations. Although it is intuitively appealing that people issues are important in M&A, yet these issues are regularly neglected. To remedy this situation, several academicians and practitioners have argued in favor of according importance to people issues during M&A, and, particularly, involving the HR function of the two companies early on in the M&A process (Ulrich, Cody, LaFasto, & Rucci, 1989; Schuler & Jackson, 2001; UNCTAD, 2000; Mirvis, & Marks, 1992; Schmidt, 2002; Horwitz, Anderssen, Bezuidenhout, Cohen, Kirten, Mosoeunyane, Smith, Thole, & van Heerden, 2002; and Bramson, 2000). They argue that low involvement of HR professionals especially in the initial stages of M&A, i.e., in the pre‐deal and due‐diligence stages, lead to people‐related issues not being identified properly and/or even being ignored (Schmidt, 2002). When viewed from a broader perspective, the literature on strategic HR management calls for a larger role for the HR function in more fundamental aspects of the organization, i.e.,, from the formulation of corporate goals itself. Involvement of HR at the upper levels of management, it is argued, can lead to the development of more appropriate strategies, including M&A, to realize these goals (see, for example, Brockbank, 1999; and Ulrich and Brockbank, 2005). Thus, early involvement and a larger role for HR are believed to produce better M&A outcomes.

However, very few studies exist that specifically address the association between involvement of HR and M&A outcomes. For example, one study examined how HR professionals added value and helped accomplish the merger between Baxter‐Travenol Laboratories and American Hospital Supply Corporation in 1985 (Ulrich et al., 1989). The authors argue that HR professionals played a “strategic business partner” role in this case; i.e., they helped make and implement business decisions. In this case, senior HR executives from both companies were involved in three major integration initiatives: 1) defining the operating philosophy for the newly merged organization; 2) designing an appropriate organization structure; and 3) executing people‐related aspects of the merger such as employee communications, executive and corporate staff selection, employee severance and career continuation assistance. These initiatives were undertaken within a four month period between the date of the merger agreement and the date of the merger closing. In a second study involving a survey of 440 senior HR professionals, Schmidt (2002) argues that HR involvement during integration planning and implementation is more typical of HR’s traditional roles as technical specialists, since during these stages the concern is more toward aligning HR programs and addressing staffing issues. Instead, he argues for HR involvement from the earlier more strategic stages (i.e., pre‐deal and due‐diligence) when the viability and risks of M&A are assessed. He finds that the HR involvement gap at every stage of an M&A was larger for unsuccessful companies. His other findings include: 1) that HR is significantly less involved in the earlier stages than in the later stages (i.e., integration planning and implementation) of M&A; 2) HR involvement in the earlier stages can positively influence decisions that determine success or failure, e.g., in the assessment of the cultural and management compatibility; and 3) that companies with a successful M&A track‐record are more likely to have HR professionals with competencies that allow them to be meaningfully involved across the full range of M&A activities.

In a third study, Kuhlmann and Dowling (2005) analyzed the 1998 merger between Daimler and Chrysler and concluded that the involvement of the HR function starting from the pre‐acquisition analysis of candidates facilitates the entire merger process. Eventually, however, it became apparent that both companies had underestimated their management and cultural differences and Chrysler was sold to a private a private equity firm in 2007 (Economist, 2007b). A fourth study examined the effects of organizational culture and HR management (HRM) effectiveness on the financial performance of a sample of Singapore‐based companies involved in M&A between 1984‐1998. In this study Chew and Sharma (2005) used Huselid, Jackson and Schuler’s (1997) notion of differentiation between strategic HRM effectiveness and technical HRM effectives. The latter involves more conventional HR functions and is more common among companies, while the former involves more complex but better integrated systems that are unique and are more likely to provide competitive advantage to a company. Their findings were similar to Huselid et al. (1997) that strategic HRM effectiveness had a positive correlation with firm performance, while technical HRM effectiveness showed no such correlation. Specifically, Chew and Sharma’s (2005) study found a significant positive correlation between an acquiring firm’s emphasis on strategic HRM effectiveness and its financial performance; the correlation between technical HRM effectiveness and financial performance was not significant.

2.4 Establishing Causality Between HR Involvement and M&A Outcomes

The studies described above seek to show that HR involvement has a positive impact on M&A outcomes. However, the extent to which causality can be established between HR involvement and M&A outcomes is still unclear. The survey conducted by Schmidt (2002) presents self‐reported scores of HR professionals. There is no mention in the methodology about how the problem of “common‐source” was addressed. The study by Ulrich et al. (1989) describes the activities performed by HR professionals during the integration and implementation stages of M&A and relates them to the success of the M&A. However, the discussion on the causal relationship is rather weak. Chew and Sharma’s (2005) study shows a positive correlation between strategic HRM effectiveness and a set of financial ratios (i.e., internal liquidity, efficiency, profitability, and degree of leverage), but causality is much harder to establish because of confounding factors. The authors acknowledge that external factors such as the oil crisis of the 1970s and the economic crises of 1985 and 1997 in South‐East Asia could also have impacted financial performance of the companies in their sample. Kuhlmann and Dowling (2005) state that HR issues are a common but usually incomplete explanation for M&A outcomes; they elaborate (pg. 362):

2.5 Need for a Different Kind of Research

The difficulty in establishing causality in a complex phenomenon such as M&A creates a huge need to examine this phenomenon differently. A “process perspective” is increasingly seen as appropriate for this purpose because of the increasing recognition that execution and implementation issues also need to be given importance along with the economic and strategic rationales for M&A (Javidan, Pablo, Singh, Hitt, & Jemison, 2004). The process perspective “combines elements of the strategic and organizational behavioral perspectives that frame [M&A] as a series of linked phases each of which has an impact on the subsequent phases and on the final outcome of the M&A. This perspective posits that to fully understand [M&A] value creation, one must study the actions that lead up to the [M&A] decision along with the integration and management activities that follow the decision” (Greenberg, Lane, & Bahde, 2005, pg. 56). Therefore, there is a need to understand how M&A actually take place in organizations and what managerial mechanisms facilitate M&A (Javidan et al., 2004). Further, this process perspective can be employed to examine HR processes involved during M&A and the role of the HR function during all the various stages of M&A. Three studies, all based in Europe and using the case‐study research design, have examined the HR roles and processes during M&A. Two of them analyzed HR’s roles using Ulrich’s (1997) conceptual model of four HR roles, viz. Strategic Partner (management of strategic HR issues), Administrative Expert (management of the firm’s infrastructure), Employee Champion (management of employee contribution), and Change Agent (management of transformation and change). The first one, a case study of the merger of two financial firms (Björkman & Søderberg, 2006), found that HR did not have a role as a strategic partner, but played the remaining three roles at various stages of the merger, especially during the integration stage. The second one, a three‐case case‐study (Antila, 2006), found that presence of HR managers in the pre‐combination was mixed, but when they were involved at this stage they played a strategic role. The HR manager of one of the three companies in the study was involved in identifying reasons for acquisition and selecting potential target companies. Both these studies, however, do not explore the relationship between the roles played by HR and M&A outcomes. A third study examined the M&A process and the roles played by HR at each stage in the 1998 merger of Daimler and Chrysler (Kuhlmann & Dowling, 2005). The authors conclude that HR played a minor part in the planning and implementation of the merger because it was assumed that people issues would not create any special problems. Using thick description of the M&A processes at the organization‐level and the HR involvement during these processes, the authors argue convincingly that early involvement of HR professionals would have helped bring to fore the obstacles presented by the cultural differences between the American and German national cultures. The lack of HR involvement, especially in the early stages, hampered the identification of potential problems and creation of suitable strategies to deal with them. The outcome of this merger was disastrous with Daimler offloading about 80% of Chrysler for $7.4 billion in 2007, against a purchase price of $36 billion in 1998 (Economist, 2007b). The three studies described above are important for at least three reasons. Firstly, they are among the very few studies that have examined HR involvement in M&A from a process perspective. Secondly, they indicate that the preferred method to study processes is to use a case‐study research design. Finally, that the extent of HR involvement in M&A, the roles they play, and the processes they follow are diverse and are greatly influenced by the context of the M&A. These studies have laid the foundation for greater examination of the problem at hand, i.e., understanding the causal relationship between HR involvement and M&A outcomes.

2.6 Development of a Theoretical Framework

Organizational theorists, such as Burns and Stalker (1961), Lawrence and Lorsch (1967), Thompson (1967), and Woodward (1965), have argued about the importance of the interaction between contextual factors, namely the external environment, and the management structures or styles of organizations. The conceptual model for this research, guided by contingency theory, posits that certain contextual factors, both internal and external to the organization, influence HR involvement in the M&A process, which in turn impacts M&A outcomes. The model further posits that the same contextual factors also affect HR involvement in the formulation of corporate goals and strategy. The strategic HR management (HRM) literature indicates that HR involvement in the upper levels of management would allow it to contribute in the formulation of corporate goals, and also in developing appropriate strategies to accomplish these goals. Further, according to this model, the contextual factors can directly influence HR involvement in M&A or through HR involvement in the formulation of corporate goals and strategy. That is, HR involvement in M&A can be independent of HR involvement in corporate goals and strategy. However, if HR is involved in the latter, then it will be involved in the former too.

2.7 HR Involvement in the Formulation of Corporate Goals and Strategy

The HR function in an organization broadly refers to the HR professionals, the organization of the HR department, and the HR policies, practices, and systems of an organization. The function manages all the dedicated activity that an organization employs to affect behaviors of all the people who work for it (Jackson & Schuler, 2003). The literature on HR management indicates that the HR function has been making a transition from playing purely administrative or operational roles to becoming more strategic in its outlook (Novicevic & Harvey, 2001). The HR function plays different roles in an organization, ranging from operational and transactional roles to more strategic ones, depending on how they are set up. Ulrich & Brockbank (2005), updating Ulrich (1997), delineate five roles for HR professionals and for the HR function in general: (a) employee advocacy – making sure the employee‐employer relationship creates reciprocal value; (b) human capital development – building capabilities in the future workforce; (c) functional expertise – designing and delivering HR practices that ensure individual ability and create organization capability; (d) strategic partnership – bringing business, change, consulting, and learning know‐how to line‐managers and helping them reach their goals; and (e) HR leadership – embodying the previous four roles and collaborating with other functions, ensuring corporate governance, and monitoring the HR community.

The last two roles in Ulrich and Brockbank’s (2005) model envision HR as a partner at the upper echelons of an organization, i.e., the level at which the vision, mission, corporate goals, and corporate strategy are formulated. These set the tone for how an organization would be governed and managed. The vision and mission statements guide the formulation of corporate goals, and corporate strategy is the organization‐level action plan designed to achieve these goals (Ireland, Hoskisson, & Hitt, 2006; and Grant, 2005). Corporate strategy is then realized through a set of strategic decisions that the organization makes (Fitzroy & Hulbert, 2005). For example, one goal for an organization may be to grow larger in size, which can be achieved through several strategies such as growing organically (i.e., internal growth) or through M&A. In the area of M&A, Haspeslagh & Jemison (1991) define two broad objectives for organizations: (a) to achieve specific strategic goals; and (b) to transfer capabilities, i.e., combination benefits or synergy, resource sharing, and the transfer of functional and general management skills. The specific strategic goals include: (1) domain strengthening – deepening presence within the industry through the acquisition of a competitor, such as Bank of America’s acquisition of MBNA in 2006; (2) domain extending – broadening presence in terms of products, markets, or capabilities, such as P&G’s acquisition of Gillette in 2005; and (3) domain exploring – entering new (even unrelated) markets or adopting new technologies, such as eBay’s acquisition of Skype in 2006.

The HR literature indicates that the HR function can be a valuable business partner in helping formulate corporate goals and strategies; specifically, during the stages of planning, decision‐making, and assessing appropriate strategies. For example,

1)      In planning, HR can participate in the environmental scanning process, anticipate changes, and ensure the availability of requisite organizational capabilities.

2)      In decision making, HR can provide competitive intelligence from employment activities or research cost implications of potential strategies especially in people‐related matters.

3)      In assessing appropriate strategies, HR professionals can bring in a unique perspective that considers important people‐related issues and the ramifications of neglecting or ignoring them.

This is particularly relevant during M&A because they inherently involve the integration of people from different organizational cultures. In the area of M&A, Napier (1989) argues that the early involvement of the HR function can, for example, help retain valuable employees and top managers, who may otherwise leave because they sense a loss of control or want to avoid uncertainty about their role and value in the merged organization.

More generally, research evidence indicates that better organizational outcomes result when HR is more closely involved in both operational as well as strategic aspects of the organization. Huselid (1995) found that better HR practices were negatively related with turnover and positively related with corporate financial (both accounting and market) performance measures. That is, there is a reduction in turnover and an improvement in financial performance with better HR practices. Huselid and Becker (1995, cited in Becker, Huselid, Pickus & Spratt, 1997), in a study of 740 firms, found that firms with a greater intensity of HR practices, such as, rigorous recruitment and selection procedures, performance econtingent incentive compensation systems, and training activities linked to business needs, had a greater market value per employee. Specifically, they found that a one standard deviation improvement in a firm’s HR practices increased market value by $15,000‐$60,000 per employee. In another study, Huselid et al. (1997) found that strategic HRM effectiveness has a significant positive correlation with firm performance. They argue that a strategic role for HR would provide better competitive advantage for an organization because strategic HRM systems are bigger, more complex, and unique, and thus more difficult to be replicated by competitors.

On the other hand, the more operational and technical aspects of HR are more common knowledge and easily accessible. Kirn, Rucci, Huselid, & Becker (1999) describe the positive outcomes resulting from the strategic role played by HR at Sears. The HR function was not only closely involved in formulating and communicating the corporate vision, mission, and goals, but also in competently delivering on HR’s operational issues. Shafer, Dyer, Kilty, Amos, & Ericksen (2001) examined the strategic role of HR in the turnaround of Albert Einstein Healthcare Network from a stable and complacent organization to one that was more agile and change‐ready. Wright, McMahan, McCormick, & Sherman (1998), based on a survey of 86 petrochemical refineries in the United States, report that higher involvement of HR in organizational strategy was strongly related to the perception of HR effectiveness, and that the relationship was strongest when the refineries pursued a product innovation strategy and viewed skilled employees as their core competence. Using the resource‐based view of the firm, Barney & Wright (1998) demonstrated how the HR functions in diverse organizations such as Continental Airlines, DuPont, FedEx, GE, MetLife, Nordstrom, and Southwest Airlines have created value for their respective organizations. Further, in a review of literature, Tracey & Nathan (2002) found that HR policies, practices, and systems are related to a variety of financial and operational success indicators; and that there is “compelling evidence that the proper alignment between HR systems and business strategy will enhance a firm’s performance.” Overall, the literature on strategic HR management indicates that greater HR involvement and a larger role for the HR function in the formulation of corporate goals can lead to the development of more appropriate strategies to realize those goals.

2.8 HR Involvement in the M&A Process

Corporate strategy influences the specific processes that are employed by organizations. With regard to M&A, researchers and practitioners have developed various models and frameworks to describe and understand the stages and process involved, such as: a) GE’s Pathfinder model (described in DiGeorgio, 2002; and Ashkenas, DeMonaco, & Francis, 1998)

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