The organisation of this paper is such that it combines both theory and a practical example to address the question of strategic change management. This paper aims at showing the importance of managing strategic changes in organisations so as to ensure a smooth flow in the organisation’s operations. Changes within the organisations will definitely cause a stir in the workforce and the organisation in general and if these are not addressed then they could lead to detrimental effects. This paper focuses on change brought about by a merger. To illustrate this, the merger between Projacs International and Projacs (Kuwait) is used as a case study. Employee resistance to change is addressed as a barrier to change. The effect caused by corporate structure is also addressed together with other barriers to change. Finally, the paper offers recommendations that companies can use in addressing and managing strategic change in the case of mergers.
Mergers are just one of the many causes of strategic changes that organizations go through. To be able to effectively manage this type of change, it is only wise that the management puts into consideration all the areas in the organization that are going to be affected. Projacs International is what resulted after the merger between Projacs and Projacs International. The merger gave the companies a chance to pool their resources and to better manage their expenses and their clients. The new company could now attract less taxes and their corporate bond helped them to deliver project management undertakings even better. As would be expected, mergers just like other forms of strategic changes within the organization are likely to highly impact on the employees due to the need to adjust to the new culture. Employees from Projacs (Kuwait) were especially affected since they had to move offices. Some were laid off and it was especially hard for some previous heads of department to be put under new departments when they were used to being the heads. Projacs International had to deal with the differences in culture which if left unattended would have negatively impacted on the company. Integration of the employees served a central role in reconciling the two companies. This could be a lesson to many companies planning to have a merger in the future. Even though, there are measures that companies should put into consideration to ensure a successful transition as this paper will reveal.
The effective management of mergers and acquisitions is an undertaking that could prove challenging to most managers as the companies undergo strategic change. Reports show that merger failure rates range between 35 percent to 60 percent (Pautler, 2003: 13). This is as a result of the demanding nature of mergers and the inability of managers and employees to adjust to the change. Mergers require the re-alignment of procedures, distortion of the hierarchical structures within the company and at certain times the movement to another office all which are bound to cause a considerable effect on the employees and the organization as a whole. Managing this strategic change requires that managers address all aspects of the organisation that have been affected. The Projacs International and Projacs (Kuwait) is a good illustration of the effect of mergers to the organization, their benefits and the possibility of going through the transition period effectively. The effect on the employees due to changes in the organisation and the differences in corporate culture came as a barrier to change during this merger and the company had to do everything possible to make the merger a success. This paper addresses the merger to give a practical view on management of strategic change.
Projacs International has been in existence since 1984 and has become one of the leading project management companies in the Middle East as well as in other parts of the world. Projacs International is comprised of well trained staff who have been the cornerstone of its success. The company which has achieved a growth rate of 36 percent per year since the years 1998 has completed over 250 major projects. Projacs International operates in Bahrain (headquarters), Saudi Arabia, Kuwait, Qatar, Bulgaria, Jordan, Syria and Morocco among others making a total of twenty three branches. Projacs International specializes in project management for professional bodies and companies and undertakes among others; construction management, value engineering, design management, training and technology transfer.
Projacs’ main area of operation was project management just like Projacs International. The only difference now was that the company operated at a lower scale mostly serving clients from Kuwait and the neighbouring countries. As a company, Projacs had established an organisational structure consisting of heads of departments all who had subordinates reporting to them. As a small firm, the company faced stiff competition from the large giant, Projacs International such that the move to form a merger was a welcome idea after lengthy discussions with the board members.
The Merger (Key Drivers)
When Projacs International planned a Merger with Projacs (Kuwait), this was a move that the two companies had agreed would be a profitable undertaking by combining both their resources and human capital for sustainable development (Connor, 2003: 219). The move came as a result of the realization that the two companies were operating in the same field yet they could do even better if they operated under the same umbrella. For this reason, a merger appeared to be a wise step into making the two companies more successful and in pooling of resources. Again, while the companies could pay less tax by forming one company, the companies also saw this as an opportunity to consolidate their processes and reduce their expenses (Salter, 2008: 167). Projacs (Kuwait) now stood to benefit from the name of Projacs International which is well recognized throughout the Middle East as one of the best project management company (Carmelli, 2003: 78). The company could benefit not only from increased recognition but also from more business as the two companies undertook their operations jointly.
The Effects of the Merger
When the management of the two companies decided that they could do better if they worked together than when they worked singly, the resulting merger had a considerable effect on the employees at Projacs Kuwait. Most felt that their system had been distorted as they had to move into new departments under the new arrangement. These were more so employees who were already heads of departments at the Kuwait company who had to join new department probably as normal employees (McConnel, 2008; Salter, 2008: 159). Several resigned and negative attitudes toward the new heads of departments were witnessed in those who were left behind. This displays the negative side of mergers that companies are likely to encounter (Schaubroeck, 1999: 234). The challenge now comes in the manner in which they handle these kinds of effects. This is where the management of strategic change comes in. The various changes felt in the organisation had a great impact on the employees and more so the heads of departments such that the company lost valuable employees.
Key Barriers to Change
a) Employee Attitude and resistance to change
By the time of the merger, Projacs (Kuwait) had established a stable organizational structure and there was a defined system of management. The company had also established ties with several other companies who acted as their clients. As a result of the merger, there was a destabilisation effect with employees and clients having to come to terms with the fact that they would now be dealing with Projacs International (McConnel, 2008: 77). Some staff members had to be moved to Bahrain and under new departments and the organization structure therefore had to be re-arranged. Employees acted as a barrier to change as several did little to co-operate after the merger (Regester, 2008: 55). The company suffered loss as some of the heads of departments and other employees left the company humiliated by having to work under new heads when they were used to being in command (Mullins, 2001: 8). Those who were left had an attitude towards the departmental heads which was not good for the company. This can be explained in terms of Abraham Maslow psychological theory emphasising the concept of self actualisation (Smith, 2001: 69). Self actualisation refers to a peak of time, especially in one’s career when a person is likely to feel that he or she has really achieved something they desired in life (Smith, 2001: 71; Anderman, 2004: 125). Being taken from such a position and having to wait to become a head again is enough to reduce motivation which explains why some of the employees quit (Nicol, 2001: 97).
Just like any other company experiencing change as a result of a merger, Projacs’ corporate culture was bound to be different from that of Projacs International such that the employees found it particularly difficult to work with each other. The organizational structure of Projacs International was a bit complex considering that it is an international firm (Regester, 2008: 56). The new organisational structure is shown by figure 1 in the appendices. Projacs workers from Kuwait needed to adjust from a more simpler structure involving a few heads of department to a structure with Projacs (Kuwait) employees were to face a more complex situation as it is them who had to move to Bahrain.
Overcoming the Barriers
Differences in corporate awareness was the first issue to be addressed. Projacs International as the company came to be known was facing differences in their corporate procedures due to their different backgrounds (Regester, 2008: 58). These two had to be integrated to ensure compatibility and proper co-existence for effective production to take place. Projacs International therefore organized forums in which the employees met to discuss various issues and share their experiences about their companies. This way, most of them could now identify with their colleagues leading to better working relationships.
The issue of company heads was much more complex to sort out. Former heads of department still felt that the company had not been fair by placing them under new heads. The Human Resource department was given the mandate to ensure that the employees would accept this reality with time. To do so, a lot of meetings were called to address the issue and an increase in salaries and benefits helped to make the situation better. There was no way of getting back the talent that had left the firm through the resigned employees but these could easily be replaced from within the company as well as hiring from outside.
Observations and Recommendations
1) Defining corporate goals set by the two companies is one of the most important aspects to ensure the success of a merger (Pautler, 2003: 11). This also involves addressing all the cultural differences of the merging businesses. The case of Projacs International and Projacs (Kuwait) had clear cut goals and objectives. The cultures in the two organisations however differed in that Projacs International was already an international firm dealing with not only local clients but also international ones. It would take time for Projacs (Kuwait) staff to adjust to the culture of chasing international clients having been used to local clients. To counter such kind of a barrier to change, there should have been extensive training prior to the merger to make the employees familiar with Projacs International’s corporate culture.
2) Interactive sessions between the companies’ employees prior to the merger is an excellent move. It ensures that the employees share and get to know each other so that they will not be strangers once they start working together. Cooper (2007: 111) notes that differences in an organisation are evident when employees cannot cooperate due to lack of a bond between them.
3) In managing strategic changes within a company, managers should be aware that they expect barriers to change especially in the form of employees who are not ready to embrace change and who are likely to deter the effective progress of the change (Sisson, 2000: 81). Other obstacles such as corporate culture differences and differences in strategies need to address so as to effectively establish the changes in the organization (Mickel, 2008: 147; Yemen, 2007: 234).
3) Strategic decisions on the long-term direction that the organisation is going to take ensures that the merger addresses the various concerns that the companies could have. Strategies are undertaken should be discussed at length by the management of both companies and if possible consider the views of the employees about the future of the new company (Burtton and Stephanie, 1999: 65)
4) The need for planning is inevitable in managing change. Planning early for the changes and more so preparation of staff for the transition will ensure that the chances of success of a merger is maximized (Balogun, et al, 2008: 23-29; Mitroff, 2004: 70). Tactical plans ensure that the company puts more effort in implementing the plans rather than just drafting them (Murphy, 2003: 11). Adequate preparation of the staff involves informing them in advance and briefing them on the likely direction that the merger will take and how it will affect the company as a whole (Libreni, 2001).
5) The management should also explain to the employees the benefits that the company stands to gain and the reasons or perceived potential benefits that led to the decision on the merger (Reh, 2009: 1). Cartwright and Cooper (1996: 50) note that inconsistency in giving information is a major contributor to merger stress.
6) Retaining talent from the acquired firm is a sure way of enhancing success especially where the company deals with more technical or professional undertakings such as the project management by Projacs. Pautler (2003: 12) notes that it becomes difficult to retain in-house experience due to the rate at which staff are likely to leave the firm after a merger. The reference here is the number of employees that Projacs lost as a result of the reshuffling of management following the merger. These employees could have left with a lot of potential and had Projacs defined ways of motivating them and helping them to adjust to the new system then their departure could have been avoided (Libreni, 2001: 74; Bromman, 1996: 36).
7) Not talent and skills alone determine an employee who is best suited for a certain position in the event of a merger. Their ability to cope with change and to adjust to new relationships is also important. Cartwright and Cooper (1996: 62) note that skills do not guarantee that the employee will be committed and effective. It is therefore essential that companies take into consideration the ability of individual employees to fit and work well with other employees and with the new working environment (Wiley, 1997: 26).
8) Post-merger integration helps to reduce debilitating effects that may result from conflicting plans, policies and procedures. The merged companies should therefore undertake the process of harmonising their systems as fast as possible to facilitate the formation of the new company (Reh, 2009: 1). The need to enhance compatibility is key to ensuring harmony within the organization (Cartwright and Cooper, 1996: 57). The companies should drive people towards making a homogeneous culture by creating collaborative relationships (Tichy, 1983: 273; Shamsie, 2003: 73)
9) As a HR strategy, a company undergoing a merger needs to come up with ways of motivating employees as they adjust to the new system (Lee, 2000: 68; Anderman, 2004: 117). Motivation helps to shield the effects making the employees focus less on them and hence be able to accomplish their work well. The HR strategy also requires that the employees are not given tight targets during the transition period as this could lead to stress and poor performance (Whittaker, 1999: 79).
10) Another key to maintaining success of a merger is to maintain focus (Murphy, 2003: 8). This means that the companies involved need to keep revising the reasons as to why they came together and constantly study their progress to establish whether their plans are working accordingly.
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