Power and post-merger integration : a qualitative case study of managers' influence bases and their effects

Power and Post-Merger Integration

A Qualitative Case Study of Managers’ Influence Bases and Their Effects

MSc. Business Administration – Strategy Track

Author: Leonie Neuffer (student number: 11093048) Supervisor: Hesam Fasaei

Second reader: tbd.

Word count: 15.611

Deadline: Friday, June 23, 23:45

Statement of Originality

This document is written by student Leonie Neuffer who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

Abstract

Researchers have increasingly investigated human factors like the role of culture in post-merger integration. However, a merger of two “equals” inevitably also raises questions of power, especially because power distributions are not obvious. How are employees influenced by managers in the change process? Who is perceived to win and who is to lose? Little attention has been paid, though, to the role of power beyond the power dynamics in the board room. Therefore, this research turns to investigate power and its effects in the manager-employee relationship. More specifically, to what extent does the use of power by managers contribute (or impede) post-merger integration in the case of a “merger of equals”? Adopting a single case study approach, this question is being examined through a qualitative analysis of semi-structured interviews and questionnaires. The study reveals that in the beginning of the integration phase, the CEO’s referent power was effective to motivate employees but when the economic crisis facilitated the use of coercive power, referent power was lost. This, combined with the dissatisfaction by employees with higher managements’ level of expert power, contributed to negative effects on the integration including issues with compliance, engagement, organizational commitment, and perceptions of takeover. Moreover, the study uncovers that middle managers’ power bases are generally perceived to be quite low, while the middle manager-employee relationship is rated as largely positive. These findings imply that top managers might need to expand especially their expert and referent power base to improve employee satisfaction and that middle managers’ potential as change intermediaries may be untapped. Hence, this study adds to literature highlighting expert and referent power for effective leadership and contributes to literature on middle managers’ role as change intermediaries by arguing that power may be an important pre-condition.

Tables of Contents

1. Introduction 3

2. Literature Review 6

2.1 Conceptualizing Post-Merger Integration 6

2.2 Conceptualizing Social Power 7

2.3 Power in Post-Merger Integration 11

3. Research Design 15

3.1 The Case Study Approach 15

3.2 Construct Definitions and Measurement 16

3.3 Data Collection 17

3.4 Data Analysis 20

3.5 Strengths and Limitations of the Research Design 21

4. Results 22

4.1 Higher Management (Business Line Managers and Executive Board) 22

4.2 Middle Management (Business Unit Managers and Direct Supervisors) 30

5. Discussion and Conclusion 33

References 40

Appendix A – Interview Guide 45

Appendix B – Questionnaire 47

Appendix C – Coding Structure 49

1. Introduction

It has been widely known that most mergers do not succeed – with an estimated failure rate somewhere between 50 percent (Porter, 1987) and 80 percent (Marks and Mirvis, 2001). There have been numerous studies and reports of culture clashes and disruptions in the process of post-merger integration that make previous plans fall short of managers’ expectations (cf. Cartwright and Cooper, 1993; Datta, 1991; Lodorfos and Boateng, 2006). As a consequence, there are usually high degrees of employee turnover and a decline in customer satisfaction, resulting in significant declines in profitability (Buono and Bowditch, 2003). Hence, practice shows that there is still much room for improvement for the integration process. For companies, it is utterly important to fully understand the challenges of the integration process. Indeed, scholars have found a number of integration difficulties such as administrative, technological, geographic and socio-cultural differences, resistance to change, as well as structural differences or “unevenness between parties” (Stahl and Voigt, 2004; Morosini, Shane and Singh, 1998). Such challenges that accompany a merger’s transition period can incite emotional reactions (fights, fears, frustration, and discouragement) and can reduce the speed of integration (Maire and Collerette, 2011). Having more detailed knowledge about such “soft” issues helps to anticipate and act upon them so that smooth integration is ensured. One of the soft and human issues at stake in a post-merger integration process is the role of power and how exactly power-related processes unfold. Taking two entities to form a completely new organization often causes a power struggle, as members of both organizations may seek control over the new one. Who will gain and who will lose? What bases of power are used and what are the consequences? Several studies on post-merger integration have concentrated on the power dynamics among peers in the top management, which may have negative effects on integration, such as executive departure (Hambrick and Cannella, 1993) and open conflict (Vaara, 2001). Only rarely have researchers examined the use of power bases by managers in relation to their employees (cf. Pierro, Raven, Amato and Bélanger, 2013). However, the use of power bases may have implications for important post-merger outcomes on the operational level, such as employees’ organizational commitment, their turnover rates, performance, and their citizenship behavior (Pierro et al., 2013). Therefore, more research needs to be done to understand what power bases are used by managers in relation to their employees, the conditions under which those power bases are deployed, and the effects on post-merger integration.

The case1 _{under scrutiny for this research is a “merger of equals” in the European} consultancy sector that took place in the aftermath of the financial crisis of 2008. It concerns two companies of similar size and with similar structures which were operating to a large extent in complementary markets. A “merger of equals” is especially interesting to study because it creates an expectation of distributive equality, which leads the parties to expect that every aspect of the merger will be equal (Zaheer, Schomaker and Genc, 2003). Trying to maintain such equality may be challenging and how strong parties perceive their respective contributions has been found to be influenced profoundly by power (Kabanoff, 1991). This makes it relevant to study how distributive orientations may be influenced by using certain power bases in a “merger of equals.”

Thus, the aim of this master thesis is to answer the following research question: To what extent does the use of power contribute (or impede) post-merger integration in the case of a “merger of equals”? More specifically, the following sub-questions will be answered: How are descriptive power bases deployed in the context of driving the post-merger integration? What kind of factors in the post-merger setting contributed to (the extent) of the power base used? What are the effects of the power bases employed?

Academic and Managerial Relevance

This study intends to provide empirical evidence and a systematic understanding of the role of power bases in post-merger integration and how this relates to advancing the integration process. It is an application of the power bases as defined by French and Raven (1959) and Raven (1965). Besides that, by paying attention to potential power dynamics between the original companies, as well as the to the power bases deployed across the different levels of management, this research aims to contribute, on the one hand, to the academic debate of power dynamics between the predecessor companies in post-merger integration (Hambrick and Cannella, 1993; Vaara and Tienari, 2003; Vaara, 2001); and on the other hand, it intends to contribute to the debate in change management literature on power dynamics between change agents and change recipients (Boonstra and Gravenhorst, 1998). Lastly, the results of this research may assist organizations in better understanding the dynamics of post-merger integration and therefore being able to act upon them. Companies increasingly pay attention to human and sociopolitical factors of the integration, but since existing research has paid little attention to the role of power, this research may fill an important gap.

Structure of this Study

This thesis begins with a review of the central concepts under scrutiny, namely power and post-merger integration. It proceeds by operationalizing power in terms of managerial power bases that serve as a basic framework for the empirical study. Subsequently, the methodological approach is discussed. This qualitative study draws on data collected by means of semi-structured interviews and a questionnaire. The analysis was carried out by coding and simple calculations of means and frequencies, respectively. In the results section, the power bases, effects, and contingencies are presented first for higher management and then for middle management. The thesis concludes that referent power of higher management played an especially important role in shaping post-merger integration. Initially, high referent power led to positive effects on integration, while in the long-run the loss of referent brought about negative effects for corporate integration, such as low organizational commitment and low trust in higher management. With respect to middle management, the results reveal their low power bases in all respects, which may have had negative effects for middle managers’ ability to facilitate change and integration. Overall, the theory of power bases (French and Raven, 1959; Raven, 1965) turned out to be a useful and insightful tool to make sense of a post-merger integration process.

2. Literature Review

In this chapter, the central concepts of power and post-merger integration will be discussed. The section on post-merger integration starts with presenting the different ways in which integration has been studied and elaborates on the way it is conceptualized in the context of this research, including what defines “successful” integration. Furthermore, two different perspectives of power will be presented and the operationalization of power for this research will be explained. The review then proceeds to discuss, on the one hand, how power has been framed in terms of “power struggle” between the combining companies in literature on post-merger integration and, on the other hand, how power has been framed in terms of power differentials between change agents (managers) and change recipients (employees at the operational level). This study concentrates on the latter, while also paying attention to the implications for the former. Lastly, some literature on “merger of equals” is reviewed since this type of merger is the focus of this research.

2.1 Conceptualizing Post-Merger Integration

Scholars have conceptualized post-merger integration in various ways. Some have understood integration in terms of a set of actions – as “the managerial actions to combine two previously separate firms” (Cording, Christmann, and King, 2008, p.74). Other scholars have conceptualized integration as an outcome in which the two firms’ functions and activities are physically consolidated (Heimeriks, Schijven and Gates, 2012). Still other scholars regard integration as multidimensional. For instance, Shrivastava (1986) identifies four different levels of integration that managers should address: procedural, physical, managerial and socio-cultural tasks. Birkinshaw, Bresman and Håkanson (2000) simplify these four levels by making only a distinction between task and human integration. They conclude that the process perspective of mergers generally sees task integration in terms of transferring capabilities and resource sharing and the organizational behavior view is predominantly concerned with achieving a shared identity and satisfaction among the employees from both companies (Birkinshaw et al., 2000). Thus, in this this study, merger success will be defined as “a function of the two parallel processes of task integration and human integration” (Birkinshaw et al., 2000, p.400). Task integration refers to “the identification and realization of operational synergies,” while human integration refers to the “creation of positive attitudes towards the integration among employees on both sides” (Birkinshaw et al., 2000, p.400). More specifically, task integration views value creation as the objective of the merger, which can be measured in terms of transfers of capabilities and resource sharing. In contrast, human integration is concerned mainly with generating satisfaction, and

ultimately a shared identity among the people from both companies (Birkinshaw et al., 2000). Furthermore, a key assumption here is that the two dimensions of integration do not necessarily occur to the same extent. Rather, a relative focus on either human or task integration has the potential to have a significant negative impact on the overall outcome of a merger (Birkinshaw et al., 2000). Indeed, Birkinshaw et al. (2000) find that human integration appears to facilitate the effectiveness of the task integration process as a driver of acquisition success. The rationale behind this is that if managers strive for employee satisfaction as an end in itself, a resulting shared identity and mutual respect will provide the basis for closer task integration. For integration to be ultimately successful, both human and task integration need to be effective. The authors model the impact of human and task integration on merger and acquisition outcomes as follows (figure 1). Firstly, a low degree of task and human integration implies a failed acquisition. Secondly, a high degree of human integration, but low task integration gives a mixed success because it delivers satisfied employees, but no operational synergies. Thirdly, a low degree of human integration, but high task integration also represents a mixed success, since operational synergies are achieved at the expense of employees. Finally, a high degree of both human and task integration implies a successful acquisition (Birkinshaw et al., 2000).

L e v e l o f c o m p le ti o n o f h u m a n in te g ra ti o n H ig h

Mixed success: Satisfied employees but no operational

synergies achieved

Successful acquisition

L

o

w Failed acquisition

Mixed success: operational synergies achieved at expense

of employees

Low High

Level of completion of task integration

Figure 1. Impact of task and human integration processes on acquisition outcome (Birkinshaw et al., 2000)

2.2 Conceptualizing Social Power

The study of power has a long tradition in organization studies (Hardy and Clegg, 1996; House, 1988; Mintzberg, 1983; Pfeffer, 1981). Social power is a notoriously vague and malleable concept and, thus, has been conceptualized in numerous different ways (Tienari and Vaara, 2012). A distinction can be made between those who conceptualize power as a personal resource (Pfeffer, 1992) and those who conceptualize power as a relational resource (French and Raven, 1958). The former perspective relates to something you possess or a set of resources that you can accumulate, while the latter view holds that power is not an isolated attribute, but is generated,

maintained, and lost in a context of relationships (Buchanan and Badham, 2008). This study adopts the latter view defining power in terms of a relational resource. Indeed, the definition of social power that will be adopted here refers to the ability by the agent to bring about change in the target using resources available (French and Raven, 1959; Raven, 1965). More precisely, social power “can be conceived as the resources one person has available so that he or she can influence another person to do what that person would not have done otherwise” (Raven, Schwarzwald and Koslowsky, 1998, p.307). The assumption behind this perspective on power is that it is observable and identifiable. In fact, French and Raven (1959) and Raven (1965) identify six different bases of power, namely reward (ability to compensate for compliance), coercion (ability to punish for non-compliance), legitimacy (influence derived from a formal title or position), expertise (influence derived from superior skill, knowledge, or experience), reference (influence derived from perceived attractiveness), and information (potential to utilize information). These bases of power represent resources upon which an agent can draw to influence a target. Buchanan and Badham (2008) argue that, firstly, these bases of power depend on the perception of others. An agent may be able to reward or punish the target, but if the target does not believe that the agent possesses these abilities, he or she will be unwilling to comply with demands of the agent. Secondly, the bases of power are interrelated (Buchanan and Badham, 2008). For instance, an agent using coercive power may lose referent power. Thirdly, an agent can use different bases of power, in different combinations, in different context, and at different points in time (Buchanan and Badham, 2008). Further, Raven (2008) maintains that these bases of power differ in the way social change is implemented, the permanence of change, and the way each basis of power is established and preserved.

Coercive power involves the threat of punishment (Raven et al., 1998). This can be personal coercion in the form of a threat of rejection or disapproval from someone we value highly, or impersonal coercion in the form of real physical threats, such as being fired or fined (Raven, 2008). The influence is socially dependent, since the target relates his or her compliance to the actions of the agents. As a result, the effectiveness of coercive power requires surveillance by the influencing agents. To the extent that targets may hide noncompliance, the agent may need to ask for evidence for the compliance of the target (Raven, 2008). With coercive power, there is also the tendency for targets to resent feeling forced and to have ill feelings towards the influencing agents (Raven, 2008).

Reward power results from the promise of monetary or nonmonetary compensation (Raven et al., 1998). A personal reward is the personal approval from someone we like, while impersonal reward involves promises of monetary rewards, bonuses, or promotions within an organization (Raven, 2008). Similar to coercive power, reward power is socially dependent and

requires surveillance by the influencing agent. The underlying logic behind this is that targets will only comply if they believe that the agent will know whether he or she has complied (Raven, 2008). Unlike coercive power, reward power may result in positive feelings associated with reward and thus greater acceptance of the change and greater liking of the influencing agent (Raven, 2008).

Legitimate power results from the target accepting the right of the agent to exert influence over the target and the target’s obligation to follow the request (Raven, 2008). This power base is initially socially dependent upon the influencing agent, but surveillance is unnecessary for compliance to occur (Raven, 2008). Legitimate power can be further differentiated into position, reciprocity, equity, and dependence (Raven et al., 1998). Legitimate position power results from the social norm that demands us to obey people in a superior position in an informal or formal social structure (Raven, 2008). Legitimate power of reciprocity stems from the idea that if someone does something positive for us, we should feel obligated to reciprocate (Raven, 2008). Legitimate power of equity entails a “compensatory norm” in a sense of righting a wrong (Raven, 2008). It involves the agents demanding compensation for hard work or sufferance by the agent, or harm caused by the target (Raven et al., 1998). Finally, legitimate dependence power is based on the “social responsibility” norm of us feeling obliged to help others who are in need of assistance or dependent on us (Raven, 2008).

Expert power follows from the target’s faith that the agent has superior knowledge about what behavior is best in a certain context (Raven, 2008). If the target perceives the agent as an expert, understands his or her reasoning, this will lead to acceptance and compliance on part of the target. This power base is also initially socially dependent upon the agent, but surveillance is also not necessary for influence to be successful (Raven, 2008).

Referent power is based on the target’s identification with the influencing agent, or on seeing the agent as a model that the target wants to emulate (Raven et al., 1998). Again, this power base is initially socially dependent upon the agent, but surveillance is not necessary (Raven, 2008).

Informational power involves the supervisor carefully explaining to the subordinate how the job should be done differently, with persuasive reasons for it (Raven, 2008). It is distinct from expert power to the extent that the subordinate internalizes the changes into his or her beliefs, attitudes, and values. Informational power, therefore, leads to cognitive change that is maintained without continued social dependence on the influencing agent, the supervisor (Raven, 2008). In other words, the presentation of persuasive material or logic leads to socially independent change.

Change Power base Category of base Power mechanism Socially independent change

Information Soft Presentation of persuasive material or logic

Socially dependent change, with surveillance necessary Impersonal reward

Harsh Promises of monetary rewards

Personal reward

Soft Personal approval from someone whom we

like Impersonal

coercion

Harsh Threats of being fired or fined

Personal coercion

Harsh Threat of rejection or disapproval from someone we value highly

Socially dependent change, with surveillance unnecessary Legitimate dependence

Soft Social responsibility norm

Legitimate reciprocity

Harsh Norm of reciprocity

Legitimate equity

Harsh Equity or “compensatory” norm

Legitimate position

Harsh Norm to obey someone with a superior

position

Expertise Soft Faith in superior knowledge about what is

best in a certain context Referent

power

Soft Identification with the agent

Table 1. Eleven power bases by Raven et al. (1998)

Raven et al. (1988) developed the Interpersonal Power Inventory Items to assess the bases of power attributed to supervisors in influencing subordinates. The bases for power include harsh and soft ones. Harsh bases of power encompass personal coercive power, impersonal reward power, legitimate power of reciprocity, personal reward power, impersonal coercive power, legitimate power of equity; whereas expert power, referent power, informational power, legitimate power of dependence, legitimate power of position are soft bases of power (Raven et al. 1998). Similarly, Peiró and Meliá (1999) found support for a bifactorial model of interpersonal power in organizations. According to that theory, formal power is associated with hierarchy, as well as with legitimate, reward, and coercion power bases, while informal power includes referent and expert power bases. In this research, power is not just analyzed in terms of soft and hard power bases, but is differentiated into the eleven power bases in order to be able to explain the subtleties of power (Pierro et al., 2013).

Overall, the connotation of power in the field of management has been rather ambiguous – ranging from a more negative to a more positive one. For instance, Eisenhardt and Bourgeois (1988) argue that politics within top management teams is linked with poor company performance, by restricting information flow, consuming time, and creating inflexibilities and

communication barriers. Stahl et al. (2013) note that while organizational development and human resources management literature has tended to dismiss the political dimension of change as a destructive force, critical management studies has regarded politics not only as inevitable but also as essential drivers of change and therefore needs be seen more positively. For instance, Schuler and Jackson (2001, p.241) claim that “power and politics are the driving forces, rather than productive objectives” and Coghlan (2000) even argues that a change agent who is not politically skilled will fail. These mixed findings suggest that a more detailed account is necessary of how (different bases of) power may relate to the success of a merger.

2.3 Power in Post-Merger Integration

Prior work on mergers and acquisitions has extended little beyond emphasizing the importance of power dynamics at the negotiation stage. Empire building and the pursuit of market power can represent important reasons to engage in mergers (Osarenkhoe and Hyder, 2015). As a consequence, research often concluded that merger failure could be attributed largely to factors such as continued power struggles at the top, relative size, and context (e.g. degree of hostility) (Cartwright and Cooper, 1995). Indeed, internal factors, such as power plays between the merging groups, have been identified as a challenge faced by management during post-merger integration (Maire and Collerette, 2011). However, only few studies on mergers and acquisitions have actually explored the role of power. Some scholars have discussed how power is only implicitly addressed in research of mergers and acquisitions (Tienari and Vaara, 2012). Tienari and Vaara (2012) outline seven perspectives on power, which they identified to be only implicitly present in the literature on mergers and acquisitions. Yet, they note that overt and active discussion of power and politics is largely absent in post-merger integration literature and that these themes are only implicitly addressed in work on motives and performance, employee concerns, cultures and cultural politics, identities and identification, institutions, legitimation and discursive struggles, and marginalization and exclusion. Consequently, the researchers call for more critical studies on mergers and acquisitions.

Only few scholars have explicitly examined the role of power by focusing on relative standing (Hambrick and Cannella, 1993) and the “balance of power” in top management teams (Vaara and Tienari, 2003), as well as the potential of role identity in creating power struggles (Vaara, 2001). The study by Hambrick and Cannella (1993) is a rare example investigating explicitly the role of power after a merger or acquisition. In fact, the authors draw on the concept of relative standing to explain executive departure after an acquisition. They argue that some acquisitions lead to low standing, feelings of inferiority, a climate of acrimony, and a loss of

autonomy for acquired executive which makes them likely to leave the company (Hambrick and Cannella, 1993). Another rare example is the study by Vaara and Tienari (2003) that introduces the concept of “balance of power” in internal politics around top managerial positions. According to the authors, in post-merger organizations, the “balance of power” principle can trigger confrontation. In fact, the “balance of power” can become problematic when new decisions and choices are made, as it constrains the ability of top managers to control and further develop the new organization (Vaara and Tienari, 2003). The researchers find that it tends to be difficult to maintain a genuine balance in power dispositions. Thus, moving from a “balance of power” setting to another kind of political reality is a key challenge for managers in post-merger organizations (Vaara and Tienari, 2003). Furthermore, Vaara (2001) also examines power struggle in management, but differentiates between different levels and their associated roles. He finds that behavior consistent with the role identity can create opposing sociopolitical forces in a merged organization. This is because the different levels of management identify with different parts of the organization and therefore have different interests in the integration, which may lead to conflict (Vaara, 2001).

Taking a process view on power in post-merger integration, Stahl et al. (2013) argue that when scrutinizing the role of power disparities in mergers and acquisitions, it is possible to distinguish between an inception, implementation, and outcome phase. In the inception phase, the focus usually lays on the power imbalance between the acquirer and target. For instance, Blazejewski and Dorow (2003) find that smaller power differentials between organizations may result in turf wars, whereas larger power differentials can promote convergent or radical change. In the implementation phase, less confrontational managerial tactics, such as voicing opinions through media trigger the adjustment of values, actions, and attitudes to a new frame (Stahl et al., 2013). Finally, in the outcome phase, senior management continues to use business media to succor key stakeholder groups and to mitigate any negative assessment (Stahl et al., 2013).

Other researchers put particular emphasis on the effects of power struggles in the integration phase (Buono and Bowditch, 2003). The period after the merger or acquisition is usually characterized by turnover and absenteeism, “we-they” tensions, power struggles, and declines in performance of job-related attitudes, which normally take at least one to two years to resolve (Buono and Bowditch, 2003). Some firms even never seem to recover from this organizational consolidation phase resulting in a “psychological pit” and loss of momentum (Buono and Bowditch, 2003). In a study on the Urban-Suburban bank merger, Buono and Bowditch (2003) found that power struggles intensify the “we versus they” hostilities between groups. Besides that, while employees tend to feel good about their pre-merger managers during this period, there is a significant decrease of sense of commitment to organizational goals after

the merger.

It becomes clear that previous research on power in post-merger integration has been limited and that the research that exists primarily focuses on power differentials (or power struggles) between the two former companies (Stahl et al., 2013; Blazejewski and Dorow, 2003). Often particular attention is paid to the top management teams (Hambrick and Cannella, 1993, Vaara and Tienari, 2003).

Power in Organizational Change

In the context of this study, mergers and acquisitions are regarded as a specific type of change (Fay and Lührmann, 2004). Therefore, the theoretical arguments of this study build also on the literature regarding power and change. Change inevitably involves power. Change agents as well as those who resist change efforts need to steer their strategies through the deployment of power (Hardy and Clegg, 2004). Even though power cannot be understood as the sole social force changing organizations, dynamics resulting from using power and their effects on change have been frequently underlined (Perió and Meliá, 1999).

What becomes clear is that change literature with respect to power focuses primarily on the relationship between the ones who drive change, such as change agents, (top) managers, and middle managers, and the ones who are affected by change. In this study, it is argued that in a post-merger integration process, not only power differentials between the two former companies may be relevant, but also differentials across the different hierarchical layers of the new company. To get a detailed understanding of the “power struggle” across the hierarchy, it is important to also assess the types (or bases) of power deployed by each level of management. By drawing onto literature on power in post-merger integration, as well as power in change, this study opens up to two types of relationships that may be relevant to power: the relationship between the two former companies and the relationship between the different levels in the hierarchy. In other words, instead of focusing primarily on power (differentials) between the two former companies, this study focuses also on the use of power by the different levels of management in the new merged company and how this may inform perceptions about power differentials between the two former companies.

The Particular Case of Power in the Integration After a “Merger of Equals”

As this study focuses on the particular case of the integration subsequent to a “merger of equals,” in the following, the existing literature on this particular type of merger is reviewed. Previous research on integration of “merger of equals” has underscored the importance of justice, social identity, and culture (Zaheer, Schomaker and Genc, 2003; Drori, Wrzesniewski and Ellis, 2011;

Lipponen, Olkkonen and Moilanen, 2004), while the role of power remains largely obscure. Zaheer et al. (2003) point out, “by defining a merger as one of ‘equals’, an expectation of distributive equality may be created (i.e. that every aspect of the merger will be equal), rather than one of integrative equality, where on balance, each side will gain in some areas and lose in others” (p.186). They argue that framing a merger as one of ‘equals’ is likely to reinforce existing organizational identities by generating an expectation of strict equality in all aspects of the post-merger integration. As a result, strong identification with the former firms can undermine the integration process itself, so that efforts to create a new organizational identity may be crucial (Zaheer et al., 2003). More optimistically, Drori et al. (2011) argue, contrary to the skeptical portrayal of mergers of equals, that the notion of equality facilitates establishing a new culture by mutually appreciating the original cultures. Furthermore, Lipponen et al. (2004) found that in a merger of equals, procedural justice appeared to be a strong predictor for both post-merger organizational identification and the common group identity. In other words, if employees perceive the post-integration process as fair, they are more likely to identify with the organization and common ingroup.

In a merger of equals, power may play an especially salient role because neither party is expected to dominate the other. Therefore, this research aims to uncover how the various power bases used by different levels of management may or may not influence perceptions of “equality” and thereby contribute to (or impede) integration.

3. Research Design

The research starts out with a theoretical framework of the six power bases as defined by Raven et al. (1998) to structure and to operationalize the research on how power bases are deployed in a post-merger integration context, what contributes to the deployment of certain power bases and what are the effects for integration. Hereby, this study intends to inform existing theory with new insights about the role of the use of power in post-merger integration.

3.1 The Case Study Approach

This thesis follows an inductive single case-study research approach. Since there is little research done so far on the role of power in a post-merger context, an inductive and exploratory study helps to develop theoretical propositions based on empirical evidence (Eisenhardt and Graebner, 2007). Besides that, such an approach allows for richness in data and the ability to fulfill the research purpose of identifying and comprehending the full range of power bases deployed in post-merger integration and their effects. Indeed, if relatively little is known about a phenomenon, qualitative methods, such as case studies, are recommended due to their ability to discover the underlying nature of the phenomenon under scrutiny (Strauss and Corbin, 1990). This research adopts a combined-methods approach, which is a popular methodology in case-study research (Boeije, 2010). Combined-methods in this research entails gathering qualitative data from interviews, as well as numerical data from a questionnaire.

This study deploys a single-case (embedded) design (Yin, 2014). The rationale for a single case study is the common case. A common case is chosen in order to be able to “to capture the circumstances and conditions of everyday situation – again because of the lessons it might provide about the social processes related to some theoretical interest” (Yin, 2014, p.52). As this single-case study involves units of analysis at more than one level, it therefore can be considered as an embedded design (Yin, 2014). In this study, the unit of analysis is power, more specifically, the different power bases on the different hierarchical levels in the organization. Furthermore, the context of the case study is a merger, not the company itself, which may have undergone several mergers or acquisitions in the past years. The goal is, however, to understand the power dynamics resulting from one particular merger.

Since the topic of this research was a sensitive one for the respondents to talk about, as well as for the privacy of the organization, it was agreed not to mention any terms that lead to the identification of the organization, including its name and details of the organizational structure. Therefore, the case (merger) will be described only mentioning key features of the merger. Therefore, what can be said is that the case consists of a proclaimed “merger of equals” between

two European consultancy firms with similar structures and operating in complementary markets, that took place in the aftermath of the financial crisis of 2008.

3.2 Construct Definitions and Measurement

Similar to the study by Birkinshaw et al. (2000), this research is rather unusual to the extent that both qualitative and quantitative data are used. This means the constructs were investigated by conducting (qualitative) semi-structured interviews, as well as by using (quantitative) questionnaires. Well-defined constructs were taken from prior studies and “emergent” constructs were defined in the course of investigation (Birkinshaw et al., 2000).

Power

This study draws upon Raven, Schwarzwald and Koslowsky’s (1998) quantitative operationalization of the six bases of power (French and Raven, 1959; Raven, 1965), with three of them further differentiated: reward (personal, impersonal), coercion (personal. impersonal), legitimate (position, reciprocity, equity, dependence), expert, referent, and information. Raven et al.’s (1998) Power/Interaction model of interpersonal influence (IPI) thus measures eleven bases of power attributed to supervisors in influencing subordinates. The items of this model can be found in Appendix B. Respondents were asked to respond to one of the two forms of the IPI: subordinate or supervisor. The subordinate form had the following instructions (Raven et al., 1998).

“Often supervisors ask subordinates to do their job somewhat differently. Sometimes subordinates resist doing so or do not follow the supervisor’s directions exactly. Other times, they will do exactly as their supervisor requests. We are interested in those situation which lead subordinates to follow the requests of their supervisor.

Think about a time when you were being supervised in doing some task. Suppose your supervisor asked you to do your job somewhat differently and, though you were initially reluctant, you did exactly as you were asked. On the following pages, there are a number of reasons why you might do so. Read each descriptive statement carefully, thinking of the situation in which you were supervised. Decide how likely it would be that this would be the reason you would comply.”

Respondents could choose between seven alternatives ranging from 1 (definitely not a reason) to 7 (definitely a reason) for complying. In the form for supervisors, the respondents were presented a similar work situation and were asked to indicate the extent to which each item was a reason why the subordinate would have complied (Raven et al., 1998).

Next to this quantitative measure, the six bases for power were measured qualitatively during the interviews. Respondents were asked to what extent each power base was deployed by the different levels of management. The specific questions can be found in the interview guide in appendix A. To conclude, while the questionnaire primarily measured the power bases of direct

supervisors, the interviews allowed to also determine the power bases used by other layers of management.

Post-Merger Integration

Both in the interviews and in the questionnaires, respondents were asked to indicate which (if any) of the following integration mechanisms were used: personnel trainings programs, personnel rotation, mixed project teams, cultural awareness seminar, and joint staff meetings (Birkinshaw et al., 2000). These mechanisms have the potential to contribute to both task and human integration (Birkinshaw et al., 2000). Furthermore, in the interviews, the extent of unanticipated integration problems during the progress were taken as an indicator of task and human integration (Birkinshaw et al., 2000).

Task Integration was further measured by questions in the questionnaire on the (current and intended) level of operating autonomy, as well as the ongoing level of inter-unit communication (Birkinshaw et al., 2000). Human Integration was assessed in the interviews by questions about the quality of leadership and communication during the process, voluntary personnel loss (Birkinshaw et al., 2000). Quality of communication was also measured in the questionnaire, as well as the respect for others (Birkinshaw et al., 2000). All questions on integration asked in the interviews, as well as in the questionnaire can be found in appendix A and B, respectively. It needs to be noted that these measures of post-merger integration are not exhaustive and that additional issued were expected to arise due to the open-ended questions in the interviews.

3.3 Data Collection

In the beginning of the research, data collection was of explorative nature. This means semi-structured interviews were conducted to get a clearer overview of how power plays a role in post-merger integration. The interview guide was developed based on a preliminary theoretical framework constructed from a literature review that breaks down power into its various dimensions. This included questions on who has power, who is affected by power, and how power is acquired and exercised (Galinsky et al., 2011). Also, attention was paid to issues concerning how having or lacking power fundamentally alters basic thought, emotion, and behavior in the post-merger integration process (Galinsky et al., 2011). The goal was to gain a thorough understanding of the deployment of power bases and how this relates to the integration process. Particular attention was paid to the relationship between the ones responsible for the integration process (the different management layers) and the ones most affected by it.

Interviews

In total twelve semi-structured interviews with employees and managers of a company going through post-merger integration were conducted. The interviews lasted between 30 and 60 minutes, were recorded (with prior permission) and afterwards transcribed verbatim to enable an analysis of the literal content. The idea was to employ a “storytelling approach” combined with the use of a semi-structured interview guide. Characteristic of this method is letting the respondent tell his or her “story” of the acquisition integration without much interference from the interviewer (Vaara, 2003). This interview strategy is an active rather than passive one, as it involves conscious understanding of the different epistemological layers embedded in the interview (Vaara, 2003). Questions asked in the interviews were broad to ensure the collection of different viewpoints. For example: “How would you rate the quality of leadership after the merger?” Respondents were asked about their relationships with the different levels of management, ranging from their direct supervisor to the executive board and about their perspective of how the post-merger integration process went. The interview guide included questions about each power base, as well as about perceptions of the integration process. The complete interview guide can be found in appendix A. The interviews produced 48.467 words or 91 pages of single-spaced written text.

Questionnaire

Questionnaires were filled in by the interviewees to acquire information about the power base of the supervisors over their respondents. More precisely, the interpersonal power inventory items by Raven et al. (1998) were used to assess the bases of power attributed to supervisor in influencing subordinates. This relationship was investigated based on the assumption that middle managers take up an important role as change intermediaries in influencing integration (Huy, 2003; Balogun, 2003). Furthermore, the levels of human and task integration were assessed based on items suggested by Birkinshaw et al. (2000). The different items can be found in appendix B. The questionnaire does not provide representative data by any means, but is solely designed to assist the analysis of the individual interviews.

Selection Criteria of the Respondents

Respondents were chosen using purposive (Stone, 1978) and referral (Welch, 1975) sampling methods. Since individuals fulfilling certain criteria were sought, purposive sampling enabled the researcher to “hand pick” employees for participation (Stone, 1978). Indeed, employees with various functions and differing expertise were interviewed across the organization to ensure a holistic view of what kind of power bases exist in the organization. Overall, the respondents had

to fulfill the following main criteria: being affected by the acquisition or merger and confronted with the changes, or being responsible to manage the integration process. Beyond that, a balance between respondents stemming from each of the predecessor organizations was sought by the researcher. Also, a balance between respondents from different levels in the hierarchy (regular employee, middle, and higher management) is crucial to gain an understanding of the power dynamics that is as comprehensive as possible. Next to purposive sampling, additional respondents were identified by referral or snowballing technique (Welch, 1975) – this meant asking respondents to recommend additional individuals who meet the criteria and would be willing to participate in the research. Using two sampling procedures, the researcher could provide a diverse pool of participants.

There may have been some bias in the selection of the respondents because not all people contacted were eventually interviewed. Those people who have responded and agreed to be interviewed may have had their own agendas, which may have caused a bias. But overall, the responses received were quite diverse ranging from very optimist to more critical views, so that the overall bias of the sample may be relatively small.

Of all respondents, 40 percent were female and 60 percent were male. 25 percent were supervisors (low middle management), 10 percent of the respondents were part of the high middle management, and 65 percent were from the operational level (i.e. consultants and project managers from different disciplines). Finally, 50 percent of the respondents had backgrounds in company A, while the other 50 percent had backgrounds in company B. The individual characteristics of the resulting sample can be seen in table 2.

Respondent Gender Function Background

A1 Male Senior consultant Company B since 2007

A2 Male Senior project manager Company A since 2007

A3 Male Consultant and project manager Company A since 2001

A4 Female Consultant Company A since 2000

A5 Male Consultant Company B since 2009

A6 Male Consultant Company A since 2011

A7 Male Technical expert Company B since 2009

A8 Female HR Company B since 2007

B1 Male Supervisor Company A since 2001

B2 Female Project manager / ex-supervisor Company B since 2006

B3 Female (Higher) manager Company A since 2001

B4 Female Business development/ex-manager Company B since 1997

3.4 Data Analysis

Data collection and analysis in this study are interrelated processes (Strauss and Corbin, 1990). Analysis is necessary from the start because it is utilized to guide the next interview. Nevertheless, data collection was standardized to some extent by having a fixed survey and the interview guide that was designed beforehand. Conducting data collection and analysis systematically and sequentially helps the researcher to capture all potentially relevant aspects for answering the research question (Strauss and Corbin, 1990). After the interviews were transcribed, they were imported as text documents into a new hermeneutic unit of the software tool ATLAS.ti. Analyzing the data involved segmenting and disassembling the research material into manageable and meaningful chunks of text, as well as reassembling, integrating, and synthesizing those chunks in the search for types, patterns, or sequences (Boeije, 2010). In this study, the data was analyzed using both open and closed coding. ATALS.ti as a software tool was used to enter all codes and to facilitate coding links. Open coding in the beginning of the analysis consisted of breaking down, comparing, and conceptualizing date to identify emerging patterns of common themes (Strauss and Corbin, 1990). Open coding contributes to a thematic approach because it forces the researcher to break up the text into pieces, compare them, and to assign them to groups addressing the same theme (Boeije, 2010). In a next step, the researcher used closed coding (with pre-determined codes based on the literature review) to help understand how the data relates to the theoretical framework. The six different power bases identified by Raven et al. (1998), as well as human and task integration identified by Birkinshaw et al. (2000) served as such closed codes being selected on theoretical grounds. The combination of open and closed coding allowed for new topics to emerge and at the same time, helped focus the analysis on answering the research question. The coding tree can be found in appendix C. Finally, the data was integrated into a coherent, analytical format in form of the following report that presents the findings of this qualitative research.

Different statistical tools like frequency counts, percentages, mean, and standard deviation were employed to indicate (non-representative) trends of agreements and disagreements of the respondents, as well as differences or similarities on the perceptions of the respondents. More specifically, with respect to human and task integration, the individual scores of the questionnaires were matched with the respective interview to clarify and provide further insights of the perceptions. Concerning power, scores of each power base for each individual respondent were calculated and presented in a table (appendix D).

3.5 Strengths and Limitations of the Research Design

This research has strived to keep construct validity as high as possible by relying on the well-recognized measures of power and post-merger integration by French and Raven (1959) and Birkinshaw et al. (2000), respectively. External validity may be relatively low due to the nature of a single-case study design (Yin, 2003). Nevertheless, great effort has been made to provide a detailed portrait of the setting of the case and to identify the contingency factors contributing to the use of a certain type of power base. This was intended to enable readers to judge the transferability of the findings of this study to other setting. Furthermore, to ensure reliability of the study, a case study protocol, as well as a questionnaire for the interviews was used (Yin, 2003). One obvious limitation of this research design due to limitations of time is that the role of power can only be examined at a particular point in time in the integration process. To account for at least some degree of process orientation, respondents were asked about what kind of changes they have observed concerning power and decision-making in the course of the integration process.

4. Results

The analysis of the interview and questionnaire data results in the following main findings. Firstly, what becomes clear from the data is that power cannot stand on its own – it needs to see in context of at least two important contingency factors, such as the leadership style and the economic situation. Secondly, it appears that for large parts of the organization, in the course of the integration, a gap between the desired or effective power bases (information, expertise, reference) and the actual power base (position, low reference, focus on numbers) of higher management has emerged.

4.1 Higher Management (Business Line Managers and Executive Board)

Looking back at the beginning of the post-merger integration phase, some respondents report evidence of referent power of the executive board. Referent power refers to leading by example. In this case, it means that the CEOs of the two merging companies have demonstrated a close friendship. This led people to model their behaviors after the two CEOs’ relationship when getting to know their new colleagues from the other company. In other words, the behavior of the CEOs became a point of reference for the behaviors of the employees.

“What was positive about the merger was that the CEOs were very much enthusiastic and very much in love with each other. And that gave us energy and the appetite to try and find our peers in the other company.” (B4)

“As I said the integration phase started with the positive chemistry between the two CEOs. [...] I think it was very inspiring to see how they gave the good example. So, why would I look at a former competitor in a strange way if they give a great example.” (A3)

This especially came true when teams were mixed and direct, hence permanent contact between the former competitors was established. So, overall the human integration between people on the operational level was seen as a success by most of the respondents.

“Actually I haven’t heard anybody being negative about the integration as such. The fact that two companies join forces. I applauded it in the beginning. No really. Others as well. Nice colleagues, nice to work with. Content-driven. [...] I think the process was okay. They swapped team leaders and they integrated team members which is fine: In the end, you find out people on the operational level are everywhere the same.” (A1)

The positive contributions of referent power on human integration are illustrated in figure 2 below.

Figure 2. Referent power contributing to human integration

Most of the respondents also believe that to a large degree the task integration went “smoothly” and was “well done.” Some appreciated that the decisions made for operational and system changes were made in a very pragmatic way.

“They did things fast. On most topics. This is because they said we are not doing any academic discussions on who has the best ICT system, we just chose one, hopefully the best. We chose some of the one company and some of this other company and we just use that. The good thing was then at least part of the organization already knew how the system worked.” (A3)

“We did also in a bit of pragmatic way and not too much thinking about what would the name be or where would our headquarters be. It was really pragmatic and with an eye on the business. The business was the priority, because if we are to stay focused too much internal, then it has an effect on the business. Looking back, I think we did it fast and pragmatic.” (B3)

Since many of the respondents considered themselves also as very pragmatic and practical, this may be further evidence of – at least in parts – successful deployment of referent power. People could identify with how decisions were made.

“The new style of management, I had a bit of difficulties with. But then again, I’m also someone who is really practical and pragmatic and just gets on with the job. It sort of suited me as well.” (A8)

Another reason for supportive behavior of the employees may be the legitimate dependence power of managers which refers to the “social responsibility” norm and the feeling of being obliged to assist others who are in need of help (Raven et al, 1998).

“Everybody always tries to make the best of things. There was very little obstructive behavior in the company. If a decision is made, people will try to make it work [...] It's very much, a ‘we like to help each other’ culture. If a decision is made, if there's a difficult job to be done and if somebody asks you for help, it's rare that somebody says, you're on your own. You figure it out. That's also a reason to work here.” (AK, A6)

Hence, both referent and legitimate dependence power may have contributed to task integration (figure 3). The other two types of legitimate power, namely legitimate position, legitimate reciprocity and legitimate equity power, did not emerge as relevant power bases from the interviews.

Figure 3. Referent power and legitimate dependence power contributing to task integration

With respect to the necessity of the merger, part of the respondents really understood that the merger was necessary, which meant that the higher management – at least to some extent – successfully utilized informational power, namely through careful explanations changing the cognitive beliefs of followers.

Referent power

Task integration Legitimate

“I believed if we had not done the merger, we were all destined for a meltdown. So it was legitimate to ask that from us. I think there was just one way forward and that was like this.” (A8)

However, some other perceived the informational power of higher management as less strong and even though they accepted the merger, they never really understood the rationale for it.

“The management explained it and we understood and we felt that we had a connection with each other. That’s okay. If it hadn’t happened, it would have also been okay. We didn’t really feel like it was really necessary. But it was also okay.” (B2)

“In the first years, there was no common goal, no good strategy on what to do. The reason for the merger I don’t think was clearly communicated, like why should we merge.” (A2)

Hence, higher management may not have been completely successful in communicating an effective vision which would have facilitated change acceptance (Venus, Stam and van Knippenberg, 2016). Furthermore, the interviews revealed the importance of expert power and “having good reasons.” Expert power needs to be present next to referent power, as referent power on its own may not be enough. Expert power may be perceived to be particularly important since people on the operational level themselves are highly educated and expect expertise from their superiors, otherwise they do not feel taken seriously.

“But there were individuals who were really messing the process up by not being honest and not telling the real story. Don’t treat people who are not in management, but who have the same education, as less intelligent… actually in my group now 50 % have a PhD, so even higher education than management… So don’t mess with us and even workers without a university degree, they have logic, so you can’t lie.” (A1)

Some respondents criticize that higher management did not seem to have special knowledge or skills to manage the integration.

“To zero extent [higher management had superior knowledge in the integration]. It was gut feeling. They like each other and will make it work, that's the kind of attitude, I think prevailed at the time. [...][Ideal management] would actually know what happens in the business, and they would provide strategic guidance on where we should go as a company, with reasons.” (A6)

“The top layer that makes the decision and the strategy are people, in my view, that lack the knowledge of the [...] business, so that was not helpful for the integration at all, in my opinion.” (A5)

Other respondents find that the expertise of the higher management was sufficient for successfully leading the integration. Some argued that “because they did not sit next to them,” they do not know exactly whether they had superior knowledge, which may be another indicator of people’s pragmatism in the company.

“I think they had the knowledge, I think it was okay. Some of the things could have always been done better. That’s always the case. I think they did quite a good job and they had the knowledge.” (B2) “I also had faith that [high management] knew what they were doing. There were times when you were a bit like “oh, ok…”. Especially the lack of making major investments in systems that make us all harmonized. That sort of took the faith away.” (A8)

respondents. Moreover, reward power has played an insignificant role. Financial impersonal rewards played only a role in the integration to the extent that the regular remuneration system was in place, but no further incentives existed.

“We have our normal remuneration system, and we didn't have any specific [rewards] related to change or to the merger, no.” (B3)

Similarly, non-monetary personal rewards played a very limited role, since generally personal recognition, such as a compliment, as a motivator is not commonly used according to the respondents. However, such a form of recognition would have been highly appreciated by the respondents.

“Paying each other compliments is something that we hardly do. It is always used for image building, getting our name known in the market. If a project or design has won an award, it is always used for promotional strategy. But it is hardly ever used to compliment the people who actually did the work. We did have a director before who was very personal, so when you won a reward or something happened that was really worthwhile, then he would call you and just tell you “great job, thanks”. That was really something that got me going. And I think that is valid for a lot of people. Since he left there is no one who took this over.” (A8)

“The recognition of your work when you are only doing small projects, that could have been done better. So, acknowledge that we are also doing important work for the company. I think that could have been done better.” (B2)

Beyond that, it is important to mention that in the course of the integration, an important situational factor became dominant – the economic situation – which had consequences for the power bases effectively utilized. The economic and financial crisis starting in 2008 had an effect on the merged company and meant that not only people in redundant positions, especially at corporate level, such as human resources, finances, or IT, but also people had to be laid off because of the market situation.

“In the process between 2012 and 2015, we had the financial crisis of course. People had to leave, we reduced the groups because there was no market for that kind of work. We had to reduce people.” (A1) “What was difficult of course is that it happened during the crisis. So we lost a lot of people in that period. But I don’t know how many people we would have lost if we had stayed separate. Because I think also already before the merger, people were being fired because we didn’t have enough work.” (A3) Consequently, for a period time, coercive power (i.e. threat of layoffs) by the management of the company became influential.

“In several parts of the organization, we were also forced to let people go, and that was of course a bit contradictory with the promises of the merger. The merger was announced, we joined forces: We will become bigger we can really rule the world and grow again, but in practice, because of the bad market circumstances, we shrank and we had to let go people and it was difficult finding work. The one plus one was not two, but maybe 1.7 or something.” (B3)

This need to reduce people was not communicated “honestly” and clearly enough according to some respondents, which had serious consequences for their trust in the management in the

company.

“With the crisis we went to a difficult period, and then the management of course tries to keep a positive picture and people realize that that is not true, be honest, and I think there is a lot of disappointment that a lot of people are leaving the company, either by their own will, either forced, so that also brings a negative feeling to those that stay behind.” (A7)

“However, the way it was communicated to these people [that we had to reduce people] was not very honest. But it is logical that if you have two companies merge with an overlapping client portfolio, you don’t double the business. [They should have said that] we’re going to merge, but that the market is not large enough for us two, so we expect that we need X amount of people less. No backdoor layoffs. It’s a verdict. It is not very pleasant. But in the end, it is honest.” (A1)

Other respondents, nevertheless raise doubts that being more “honest” would have helped to alleviate negative feelings in general.

“If I would have the merger now and I would know that I would have to lose like 15% of our staff, would that be something that you do straight away, or would you just have a more inclusive approach where everybody is part of the team. And if things come along later, we deal with this as it comes along. That’s what we did in the merger process. Would it have been better to shrink the team at the start? That would have its own implication on the merger process.” (B4)

Besides that, not only did the economic and financial crisis have an impact on the size of the company and the level of trust in the management, the crisis also had – combined with the insecurities that any merger produces – a major effect on the leadership style that emerged.

“But suddenly, the manager was very directive and treated us like factory workers. The only thing that counted were the billable hours, so our performance. They would deny the work behind the scene.” (A1) “The results were not good. The basic behavior is then to increase control. That also has to do with, of course, the fact that a large part of the business is the new floor managers. When you don’t know things, you tend to ask more, to check more, etc., because you don’t know yet.” (B3)

The new leadership style has been described as “top-down”, “directive” and “excel management” and has led to a gradual decrease in referent power. In other words, a lot of the employee started to identify less with higher management and a lot of people even left the company (voluntary turnover).

“In the first years, it was really about the figures and finances. That made the sphere and culture different. I think that is not good. People leave because of that. We’ve lost a lot of people on that. People like to work on projects that matter and that’s what drives them. We are all aware that we need to earn some money on that, but that is not the most important thing for people. We like to work on making things better in the world. That is the most important driver. Not finance.” (B2)

Interestingly, the respondents made a clear distinction between the merger as such (which they evaluated largely positive or at least neutral) and the leadership style that emerged in the aftermath of the merger (which they were mostly critical about).

“Actually, I haven’t heard anybody being negative about the integration as such. The fact that two companies join forces. I applauded it in the beginning. No really. Others as well. Nice colleagues, nice to work with. Content-driven. The cynicism came mainly from the culture and the approach of the management.” (A1)