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Whilst mergers and acquisitions (M&A) are a popular
strategy for an organisation’s corporate development, the majority fail.
Research on M success and failure, has primarily focused on financial and
strategic factors (Stahl & Voigt, 2008). By examining mergers from an intergroup
relations perspective, it may provide a fuller understanding as to why failure may
occur. The present essay will give a brief overview defining M. Followed
by a description of an intergroup relations perspective: the social identity
approach (SIA). Finally, SIA will be evaluated regarding the extent to which it
can be applied to features of M (continuity and status) to explain why
they may fail.

A merger can be defined as two distinct entities combining
to form a new organisation. Whereas, an acquisition is when one entity buys
another. As a result, the acquired company ceases to exist while the acquiring
company remains the same (Ullrich, Wieseke & van Dick, 2005). There is
little difference between mergers and acquisitions, given that in most mergers
there tends to be one organisation in higher status than the other (Lipponen,
Wisse & Jetten, 2017). Hence, the M literature generally refers to
these terms interchangeably and therefore this essay applies to both mergers
and acquisitions.

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M can be advantageous to organisations to maximise
corporate growth, to compete with rival organisations and to diversify
(Descubes & McNamara, 2016). It is greatly acknowledged that mergers tend
to fail (Cartwright
& Cooper, 1993; Cartwright & Schoenberg, 2006; Weber & Camererkj1 ,
2003). A failed merger can be considered one which does not meet expected
financial targets or does not produce business benefit. Marks and Mirvis (2001)
state M fail to meet financial and strategic targets in three out of
four cases.

It is estimated failure occurs due to ’employee problems’ in
between a third and half of mergers (Davy et al., 1988). Hence, it is useful to
understand employees’ responses to mergers from an intergroup perspective,
especially the social identity approach (Terry, Carey & Callan, 2001). Identification
is strongly associated with employees’ behaviours which affects organisational
performance. Van Dick, Ullrich and Tissington. (2006) found employees who
highly identified with their post-merger organisation reported more extra-role
behaviours, job satisfaction, and lower turnover intentions. The opposite
pattern emerged for employees who less strongly identified with post-merger
organisation, suggesting weak identification may be related to M failure.

The social identity approach (SIA) has been used to explain
the failure of mergers (Amiot, Terry & Callan, 2007; Fischer, Greitemeyer,
Omay, & Frey, 2007; Lipponen et al., 2017; Makri, 2016). SIA integrates two
compatible theories: social identity theory (SIT; Tajfel & Turner, 1979)
and self-categorization theory (SCT; Turner et al., 1987, as cited in Ullrich
et al., 2005). SIT proposes a person’s social identity is part of their
self-concept, which impacts their self-esteem through comparing characteristics
of their own group to those in other groups (Fischer et al., 2017). SCT
proposes the way in which one categorises themselves depends on the situation.
For example following the announcement of a merger there is a tendency for
employees to self-categorise which leads to perceiving groups as ‘us vs them’.
SCT and SIT are often referred to as SIA in the literature.

In the case of a merger, each organisation can be seen as a
social group, which employees will derive an identity from. Therefore, SIA can be
used to understand the relations between organisational groups. Much like
social identity, one’s organisational identity tends to be an important part of
an employee’s self-concept. Organisational identification is an individual’s
perception of belonging to an organisation and defines themselves in terms of
the organisation they are a member of (Ashforth & Mael, 1989). As
previously discussed, research has found strong post-merger organisational
identification has a positive association with increased performance, increased
job involvement, increased job satisfaction and reduced intent to leave
(Jetten, O’Brien & Trendall, 2002; Riketta, 2005; van Dick et al., 2006).
Together this suggests post-merger identification is a crucial determining
factor to the success or failure of a merger.   

M&As challenge employees’ organisational identity. In a
merger employees encounter three different groups: their current group
(in-group), the organisation they would be merging with (out-group) and a new
merged group (superordinate group) (Giessner & Mummendey, 2008). If
employees do not perceive this new identity as positive, they may reject it and
keep their old organisational identity (Terry et al., 2001). This is likely to lead
to undesirable responses between organisational groups.

One possible reason for merger failure is employees struggle
to identify with the new organisation (Lipponen et al., 2017). When employees
identify less strongly with the post-merger organisation it can jeopardize the
financial targets of the M. This is because low levels of post-merger
identification leads to increased group conflict, reduced motivation and in
turn reduced organisational performance (Giessner, Ullrich & van Dick,
2012). This is further supported by Jetten and colleagues (2002) which found
both post-merger organisational identification and team performance are reduced
after a merger. Hence, it is important to understand the factors influencing
identification, in order to explain M failure. Two factors are considered
here: continuity and group status.

M involve dramatic changes including organisational:
structure, goals and culture, which results in a perceived loss of continuity
for employees (Ullrich et al., 2005). In the context of mergers, continuity can
be considered the employee’s perception that the post-merger organisation is a
continuation of the pre-merger organization (van Knippenberg, van Knippenberg,
Monden & Lima, 2002). Ullrich et al. (2005) claim the failure of M&As
is partially due to a lack of continuity, such that employees do not feel they
are doing the same job as before the merger. Hence, they resist adopting new
organisational identity (Giessner, 2011). According to SIA, the stronger the perception
of continuity, the greater the association between pre-merger and post-merger identification
(van Leewen, van Knippenberg, & Ellemers, 2003). In contrast, a lack of
continuity can produce weaker post-merger identification. One reason for this,
may be identity threat. Mergers require employees to assume a new identity
based on the post-merger organization, this threatens their existing identity
with the pre-merger organisation (Lipponen et al., 2017). As previously
discussed, identification is important as it increases the likelihood members engage
in behaviours which support the functions of the organisation (Riketta, 2005). In
this respect, intergroup processes, such as continuity, are important to
consider when trying to understand why M&As may fail.

Another factor influencing identification is organisational
status. Mergers tend not to be ‘mergers of equals’, such that there tends to be
status differences. For example, one organisation may have a larger market
share, higher revenue (Lipponen et al., 2017) or more employees (Fischer et
al., 2007). Relative status is the in-group’s position (one organisation)
compared to the relevant outgroup (merging organisation) and these differences
in status become more noticeable after the merger is announced.

SIA can be used as a framework to study the influence merger
status has on psychological variables such as identification and satisfaction
with mergers. Employee’s evaluations of the merger, which includes their
identification and satisfaction, are considered by the SIA to be the two most
important factors influencing the success of M&As (Fischer et al., 2007). SIA
suggests employees from low status organisation would have a greater tendency
to reject the new organisational identity. Their low status position in the
merger would not provide members with positive self-esteem and therefore they
may cling to their pre-merger identity (Fischer et al., 2007). In an experiment
by Fischer et al. (2007), participants were allocated to a group of unequal or
equal status, as manipulated through fake feedback on a previous group task. In
the unequal status condition, participants were told one group performed better
than the other, resulting in a low status and a high status group. In the equal
status condition, participants were told both groups’ performance was equal. It
was found low status and equal status groups reported significantly weaker
identification with the merger than high status group. Satisfaction with merger
was significantly higher for high status group than low status group but not
equal status.

A similar pattern of results were obtained by other researchers
(Amiot et al., 2007 and Lipponen et al., 2017). Terry et al. (2001) compared employees’
responses of a actual merger of an airline organisation. The employees either
belonged to the high status organisation (an international carrier) or
relatively low status organisation (domestic carrier). Results showed poorer
identification and less commitment to the new organisation for employees in the
pre-merger low status organisation than employees in high status organisation. Taken
together, research implies organisational status is important to explain employees’
responses to M and that low status employees may be seen as a threat to
merger success.

So far the strengths of SIA’s ability to explain merger
failure has been discussed, subsequently the limitations of this perspective
will be considered.

It is acknowledged more longitudinal research is needed to
study the long-term effects intergroup relations have on the successfulness of
a merger. Amiot et al. (2007) recommends future research should collect data at
several points throughout the merger. There are constant changes occurring
within mergers and equally changes in the employees’ responses. A more thorough
longitudinal design may deepen an understanding of the changes that occur in
the group processes throughout the merger. Also van Dick, Wagner and Lemmer, (2004)
found both high pre and post-merger identification correlate with positive
job-related attitudes and behaviours. These researchers question whether this
pattern will change over time, as large parts of the organisation remained
unaffected by the merger thus far. Given that identification is known to vary
over time, it would be more beneficial to understand the processes which lead
to changes in identification throughout the course of a merger (Giessner et
al., 2012).

Another limitation is SIA research is heavily reliant on
findings from cross-sectional designs which can incur biases. When data is collected
all at one time point, either before or after the merger, employees may be
susceptible to exaggerating or incorrectly remembering their levels of
identification. Boen et al. (2006) is an example of pre-merger identification
being measured retrospectively. Employees’ responses may have been influenced
by hindsight bias and they may have exaggerated their pre-merger identification.
More research like Lipponen et al. (2017) is needed, as data was first
collected in the preparation stage of the merger before the new organisation
was formed, and again post-merger, consequently responses are less likely to be
distorted.

The methodology used to investigate intergroup relations in
M&As typically depends on field research. Giessner (2011) acknowledges field
studies often lack control over variables. As a result it is difficult to infer
causality from findings because a confounding variable could be influencing the
relationship. Although, mergers and acquisitions are challenging to study
because it is not practical to test intergroup processes of a real-life merger
in a laboratory setting. Fischer et al. (2007) attempted to manipulate status
differences and whilst a strength of this was a causal relationship could be
inferred, it can also be considered a limitation. It reduces the
generalizability of applying this research to real life mergers, which do not
occur in such highly controlled environments. Therefore, findings should be interpreted
with caution, either when inferring casual relationships from field studies or
generalizing findings from experiment to real mergers.

It can be argued the relations between the two organisational
groups has a considerable influence on the successfulness of the merger. The
present essay discussed the intergroup relations perspective: the social
identity approach. Research which has applied the SIA to M&As, proposes failure
is due to a lack of post-merger organisational identification. In addition, it
has been shown that organizational identification is influenced by features
such as continuity and group status. However, SIA does have its problems, such
as a reliance on cross-sectional designs and field studies, which make it
difficult to draw solid conclusions from findings. Therefore, limiting the extent
to which SIA can be used to explain why mergers fail.

 

 

 

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