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Unrest can be valuable in takeovers

09.12.2008
Resistance against being bought up can be turned into something positive, according to a new doctoral thesis from BI Norwegian School of Management.

Takeovers and acquisitions have become increasingly common in recent decades. Companies grow and expand by buying up other companies, and there has been a formidable increase in both the number and value of the acquisitions.

A similar trend can be observed in the public sector. Large enterprises grow larger through mergers and takeovers of smaller entities.

Having said that, corporate acquisitions are a very demanding exercise and it is often difficult to realize the objectives of the takeover. A great many acquisitions fail.

Once the deal is sealed, the critical phase of integrating the acquired company into the rest of the business begins. It is crucial that the integration process be successful in order to extract maximum value creation.

In her doctoral project at BI Norwegian School of Management, researcher Helene Loe Colman has followed five of the acquisitions made by a leading Nordic ICT company (information and communication technology) during the period from 2004 to 2007.

Who are "we", and who are "they"?

Colman wanted to lift the lid on the "black box" of corporate takeovers which deals with integration of the acquired business. She was particularly interested in the role played by the employees' organizational identity for value creation.

Organizational identity is an expression of "who we are" as an organization. When the company you work for is bought up, you also quickly form an opinion of "who they are". When the acquisition is a reality, you will also spend a lot of time and energy on speculation over "who we will become" after the takeover.

"A successful integration process hinges on taking into account how the employees perceive the organizational identity", Colman asserts, based on her doctoral project.

Acquisitions will pose a challenge to the organizational identity of everyone affected by the takeover.

A lot of energy in play

Acquisitions often lead to a significant degree of uncertainty, trouble, conflicts and other turbulence. "The threat against the organizational identity and the resistance against being bought up can release a lot of energy, and can trigger action," Colman confirms.

According to the strategy researcher, this energy need not have just negative effects; it can also be channelled into a positive force.

Colman believes that the key to enhanced value creation lies in achieving good interaction between the buyer's organization and managers and employees in the purchased company.

Instead of streamlining and shoving the acquired employees into a new organization chart as fast as possible, it will be more beneficial to draw up a plan for how to best utilize the knowledge and competence that come with the acquired employees.

And here, says Colman, lies the opportunity to extract significant gains in the form of new work processes, new technology, leadership skills, project management, sales and marketing methods, learning, and the ability to ask new, critical questions when confronted with established truths.

Hurry up - slowly

"Allow the acquired employees to be different for awhile. Your new employees represent a valuable resource, and they can contribute to positive rejuvenation," says Helene L. Colman.

According to Colman, using the acquired managers actively in the integration process makes good sense. They know where the resources are, and they have the authority and the legitimacy to guide these resources into the new, merged organization.

"They can also function as a buffer for employees in the bought-up company, and ensure the highest possible degree of ”business as usual”, even in turbulent times.

5 practical tips

Based on her doctoral work, Colman has arrived at five practical pieces of advice for successful acquisitions:

1) Acquired companies with a strong organizational identity should be integrated carefully. Don't be afraid to let things continue as before, for awhile. If you move too quickly, you risk destroying valuable knowledge and competence.

2) Developing a common identity and culture can take place gradually – let acquired businesses retain some continuity in the integration process. It is important for employees to feel a sense of continuity to ensure that they gradually feel a sense of belonging to the new organization.

3) Let some time pass between acquisitions, so that one takeover has been integrated before the next one comes along. Functioning organizational structures are an important part of an organization's ability to absorb knowledge.

4) Assign the integration to the line: integrating "people" and "tasks" are two sides of the same coin.

5) Focus on the managers in the acquired business. They possess knowledge about the resources found in the acquired business, and they know how these resources can be transferred to the buyer. They can also function as a buffer against disturbances from the integration and help ensure ”business as usual”.

Reference:

On 8 December 2008, doctorate student Helene L. Colman disputed for her doctorate at BI Norwegian School of Management with the thesis entitled ”Organizational Identity and Value Creation in Post-acquisition Integration”.

Helene L. Colman completed her doctoral work at the Department of Strategy and Logistics at BI Norwegian School of Management. Colman has a Bachelor of Social Science (cand. polit.) and Bachelor of Arts (cand. mag.) from the University of Oslo, with a major in sociology. Today she works as a researcher with the Institute of Applied Social Science - FAFO.

Audun Farbrot | alfa
Further information:
http://www.bi.no

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