Which forms of proactive environment fit behavior lead to value creation during an M and A?

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Which forms of proactive Environment Fit behavior lead to value creation during an M&A?

Master in Management Studies - Strategy Track Supervisor: Dr. Ir. Jeroen Kraaijenbrink

Student: Glen Schrijvers - 10730540

Date: June 30, 2015 Version: Final Thesis

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Statement of Originality

This document is written by Glen Schrijvers 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.

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Abstract

Purpose - To investigate which forms of proactive PE fit behavior lead to value creation

during the transition phase of a Merger and Acquisition (M&A) and how this value is appropriated.

Design/methodology/approach - First, literature have been reviewed leading to a

conceptual model. Second, interviews have been set-up and conducted based on the variables in this model. Third, the data have been coded, categorized and analyzed to recognize a causal chain of relationships.

Findings – The impact of proactive PE fit behavior to the firm and how to optimize value

creation is presented and discussed.

Research limitations – This study shows that the general limitations of a single case

analysis applies to this research. This case encompasses a Dutch M&A and is therefore less valid in an American and/or Asian context for instance.

Practical implications – Change ambassadors should be appointed to stimulate value

creation and value appropriation by proactivity. Shortening the M&A process by a month would gain approximately 90.000 hours of productivity. Management should stimulate proactivity more actively, specifically for the more process oriented roles in the firm.

Scientific implications – Self-organizing to elevate the aggregated performance seems not to be aligned to an M&A. People are not generally motivated to reduce ambiguity by engaging in a variety of proactive behaviors. The majority of employees are rather passive and unpretentious in these times.

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Originality/value - The researcher have observed all phases of the M&A and have been

part of the outcomes of the transition phase, in that sense this research is rather unique.

Keywords - Value creation, value destruction, proactive PE fit behavior, M&A, human

side

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Introduction

At January 27 2014, Liberty Global (the parent company of UPC Netherlands) announced

that they have reached a conditional agreement (the “Merger Protocol”) on a

recommended offer (the “Offer”) pursuant to which Liberty Global (LG) will acquire Ziggo in a stock and cash transaction valuing Ziggo at approximately €10.0 billion ($13.7 billion) (www. libertyglobal.com, 2015). From this initial ‘formal’ announcement to completing the Post-closing acceptance period at November 21 2014 wherewith LG owns 100% of Ziggo and the actual transition and staff outcomes, the time span covered

approximately sixteen months.

During the transition phase I personally observed a higher degree of proactive goal generation amongst employees than before the transition phase. Proactive goal generation involves envisioning and planning, under one’s own volition, the goal to bring about a new and different future by changing the self and/or the environment (Parker et al, 2010). What I have seen in practice is that employees tend to focus on positions or departments where they sense opportunities they desire in the post-merger organization. Either

because they speculate on termination of their current role or department or by analyzing the new organization chart and then initiate action, this phenomenon is called supplies-values fit and is related to a higher order category of individual level proactive behavior at work, proactive Person Environment (PE) fit behavior (adapted from Parker and Collins, 2010).

Due to this changed focus, priorities shift from business as usual to “me issues” (worrying about individual uncertainties), which results in people spending business hours to network, to personal profiling and to gather information about the upcoming

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changes. This behavior leads to a firm value destructing decrease in productivity.

Throughout M&As, aforementioned personal issues play a significant role in the behavior of staff members of both the acquiring firm and the target firm at all staff levels, creating an inward focus: depleting levels of customer orientation, a loss of productivity, and an exiting of key talent (adapted from Galpin, 2008). Whether management realizes it or not, any organization involved in an M&A is at its most vulnerable state. An M&A is one of the most difficult organizational changes employees may experience in their professional careers (adapted from Chung et al, 2013). The uncertainty that is created, if not addressed promptly and adequately, can give the competition an advantage (Appelbaum et al, 2000).

This study concurs with wider evidence that proactivity can enhance work place performance (adapted from Parker et al, 2010). Proactive PE fit behavior, changing oneself or the situation to achieve greater compatibility between one's own attributes and the organizational environment can lead for a great deal to value creation to the firm. When people are taking on more responsibilities, by delivering more projects and by acting as an ambassador for change for instance, such behavior can create value to the firm, especially in times of a transition which is ambiguous.

Several studies have indicated that financial and business strategy issues tend to receive the most attention in M&As (e.g. Jemison and Sitkin, 1986); and there have been urgent calls for more attention to be paid to the people side during the integration process (e.g. Buono and Bowditch, 1989; Cartwright and Cooper, 1992; Schuler and Jackson, 2001; Stahl et al., 2004; Björkman & Søderberg, 2006). Few studies have investigated what forms of proactive PE fit behavior lead to value creation during the transition phase of two firms

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intended synergies of an acquisition. This research fills that gap. Therefore the research question is: Which forms of proactive PE Fit behavior lead to value creation during an M&A?

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1. Literature review

This chapter starts by introducing the M&A field by describing some trends, data and overall purposes of an M&A. Then, the dependent variables will be described, i.e. value destruction and value creation. Changing employee behavior causing these dependent variables will then follow. Next, the antecedents will be described which influences changing behavior. Finally, this chapter concludes with a conceptual model.

1.1 Introduction to M&As

Some clarifying remarks regarding the usage of the terms M&As are necessary. The difference between a merger and an acquisition is mainly a legal issue (Wöhe, 2000) , cf. Worthington & Britton, 2003). In an acquisition (‘fusion by integration’) one or more companies are taken over by another company, and their assets are also transferred to the acquiring company. In a merger (‘fusion by new launch’) assets of two or more companies are all transferred to a newly launched company. In practice, however, due to the fact that there is always an acquiring and an acquired organization, there is (virtually) always a power differential between both parts of the organization that merge into one new

organization. Thus, few would deny that so-called ‘mergers of equals’ exist but on paper, whereas, at least after the deal, it is evident that one partner inevitably turns out to be more influential in shaping the new organization than the other one (Ullrich et al, 2005). Since LG has taken over Ziggo, this case refers to an acquisition.

Mergers are back. This statement was claimed in a recent article published in The Economist (www.economist.com, 2014). In the first six months of 2014, M&As around the world have been worth more than US$1.7 trillion, the highest half-yearly figure since 2007

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decades. They are increasingly seen by firms as a relatively fast and efficient way to expand into new markets, to acquire new competences, to create economies of scale, to globalize, to spread the risk or even to dominate existing markets (Papadakis, 2005). They have been viewed by finance professionals as ways to protect profits from taxation, portfolio additions (good places to put investment capital), and relative cheap ways to expand quickly (Bastien, 1987). M&A necessarily involves organizational change, integrating some or all parts of the original organizations’ functions and activities. The degree of organizational change can vary substantially across M&As because the motives and types of M&As differ widely (Myeong-Gu Seo & Hill, 2005).

Firms can have various reasons to merge or to acquire. Through M&As, firms can “...better serve the global customers, enhance profits, expand market share and increase corporate competitiveness by employing international production networks more efficiently” (Rieck, 2002). The primary purpose of merging and acquiring new firms is usually to improve overall performance (Lubatkin, 1983) by achieving synergy, or the more commonly described as the ``2 + 2 = 5'' effect (Cartwright and Cooper, 1993a; Hovers, 1971) between two business units that will increase competitive advantage (Porter, 1985; Weber, 1996; Appelbaum et al, 2000). Given the growing importance of timing in

innovation and fierce technology competition, it is not always possible for firms to build up their own competencies within a convenient time frame. Hence, M&As appear to be an important instrument for securing a competitive advantage or for catching up with

current technology standards. The opening up of European markets for instance gave firms a unique opportunity to search beyond national borders for promising M&A

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partners in order to strengthen their position in technology competition at home and abroad (Frey & Hussinger, 2010).

Yet the success is of an M&A is by no means assured, only 25 to 50 percent of deals create shareholder value, often because those managing the integration process don’t know how to make trade-offs between speed and careful planning (Orit Gadiesh Charles Ormiston Sam Rovit, 2003). Anecdotal evidence suggests that some mergers lead to major losses to acquirer shareholders (IBM/Lotus, Novell Word Perfect, HP/Compaq, ATT/NCR, Viacom Paramount), while others can generate large returns to the shareholders of

successful acquirers (Cisco, GE, Intel, Nationsbank, Lloyds TSB, Vodafone, Electrolux) (Capron & Pistre, 2002). As Schweiger (2002) has noted, the execution of a well-designed integration process that captures all forecasted synergies is critical to maximizing value creation and minimizing value destruction (Stahl & Voigt, 2008).

1.2 M&A Outcomes

From literature can be derived that an M&A can lead to two potential outcomes that changes the current state of the merging firms; i) value destruction, and, ii) value creation. These two outcomes are the dependent variables of this research.

1.2.1 Value creation

From theory, a firm can make-up their arguments to merge and/or acquire another firm from various theories, like from the transaction costs theory (TCT) and from the resource based view (RBV). The two primary conceptual insights provided by TCT are that the governance of exchange agreements between economic actors is costly and that

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the transactional environment. The choice of organizational governance form is seen as a central means through which management affects the costs of monitoring and

administration or, more specifically, the costs of negotiating and writing contracts and monitoring and enforcing contractual performance (Williamson, 1975). In-house

development will only be preferred when transaction costs outweigh the production costs (Das and Teng, 2000). Three factors determine the height of the transaction costs:

frequency of transaction, level of uncertainty and asset specificity (Leiblein, 2003). A firm will tend to expand until the costs of organizing an extra transaction within the firm

become equal to the costs of carrying out the same transaction by means of an exchange on the open market or the costs of organizing in another firm (Coase, 1937).

Where the TCT focuses on alignment between transaction costs and governance form, the RBV sees a firm as a unique bundle of resources which can be a source of

sustained competitive advantage when they are valuable, rare and inimitable and the firm is well organized to exploit these resources and capabilities (adapted from Barney, 1991). Firms bring many kinds of resources to the table: human resources (intellectual capital, for instance); intangibles (like brand names); technological resources (such as patents);

physical resources (plants, distribution networks, and so forth); and, of course, financial resources (Dyer et al, 2004). From a broader perspective, markets for companies are just one example of strategic factor markets. Whenever the implementation of a strategy

requires the acquisition of resources, a strategic factor market develops. These markets are where firms buy and sell the resources necessary to implement their strategies

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relevant resources (Lippman and Rumelt 1982; Kimberly and Miles 1981). Most resources for implementing strategies must be acquired from a firm's environment at some point in a firm's history (Pfeffer and Salancik 1978; Hannan and Freeman 1977). Once acquired, they can be combined and recombined in a variety of ways to implement different strategies (Barney, 1986).

1.2.2 Value destruction

Stress, uncertainty, and rumoring in times of M&A have been found to impact the financial performance of the parent firm (adapted from Teerikangas, 2012). Following a study performed by McKinsey, it is concluded that companies “often focus too intently on cutting costs following mergers, while revenues, and ultimately, profits, suffer.” Merging companies focus on integration with cost-cutting as a main goal that they and

subsequently neglect daily operations and allow vital relationships to weaken. One of the consequences is that clients will search other firms to fulfill their needs and the lost

revenues from these customers is one reasons that a significant amount of mergers fail to create shareholder value.

Galpin (2008) clarified the enormous loss in productivity with a simple calculation: let’s say management does a relatively small acquisition of a 1,000 person operation. And those 1,000 people spend just one-hour each day focusing on their ‘‘me issues’’ rather than the work they are supposed to be doing. So, the company is losing 1,000 hours of

productivity each day (customer service productivity, operational productivity, financial productivity). At five work days per week, they are losing 5,000 hours of productivity every week to the focus on ‘‘me issues.’’ At, four weeks in a month, they are losing 20,000

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hours of productivity each month (Galpin, 2008). The new Ziggo organization combined employs around 4,500 employees (www.libertyglobal.com, 2015), when doing the math with this indicative example, the M&A process in this case have resulted in 1.44 million hours of productivity losses, i.e. 20,000 (hours) x 4.5 (employees in thousands) x 16 (months).

1.3 Proactive PE fit behavior

It is proposed that proactive behavior is more likely to occur under situations of ambiguity, or circumstances that are uncertain, unclear, or equivocal about how one should act (c.f. Weick, 1979, 1992). Research indicates that when employees encounter situations of ambiguity, they are often more likely to display proactive behavior (e.g., Griffin et al., 2007). Researchers have linked various sources of situational ambiguity – including role ambiguity, environmental uncertainty, career transitions, and

organizational change – to a wide range of proactive behaviors (Ashford, 1988; Ashford & Black, 1996; Ashford & Cummings, 1985; Battman, 1988; Callister, Kramer, & Turban, 1999; Morrison, 1993a; Wanberg & Kammeyer-Mueller, 2000). The psychological mechanism underlying this pattern is based on employees’ motives to reduce uncertainty. When employees encounter ambiguity, they are generally motivated to reduce it (e.g., Elliot & Devine, 1994; Festinger, 1957; Kruglanski & Webster, 1996) by seeking information and support to clarify the meaning, purpose, and objectives of their actions (e.g., Ashford, 1986; Heine, Proulx, & Vohs, 2006; McGregor, 2006; Weick, 1995). To do so, employees can engage in a variety of proactive behaviors, such as seeking feedback, building social networks, and negotiating job changes. These proactive behaviors reduce uncertainty by

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providing information and support that resolves ambiguity and enables employees to predict, understand, and influence their environments in advance (e.g., Ashford & Black, 1996; Morrison, 1993a; Wanberg & Kammeyer-Mueller, 2000; Grant & Ashford, 2008)

Parker and Collins (2010) identified three higher order categories of individual-level proactive behavior at work: i) Proactive PE fit behavior, ii) Proactive work behavior and iii) Proactive strategic behavior. Proactive PE fit behavior encompasses proactive goals to achieve a better fit between one’s own attributes and those of the internal work environment. Proactive work behavior involves proactive goals to improve the internal organizational environment and proactive strategic behavior involves taking control and bringing about change to improve the organization’s strategy and its fit with the external environment. Proactive PE fit behavior is of key interest to this study. This form of pro-activity relates to employees that encompass proactive goals to achieve a better fit between one’s own attributes and those of the internal work environment. For example, to achieve demand–abilities fit (when individuals have the knowledge, skills, and other resources demanded by the environment), individuals can actively gather information about their performance or engage in proactive feedback seeking (Ashford & Black, 1996). Likewise, individuals can proactively achieve supplies–values fit (when the environment supplies the attributes desired by an individual) by actively negotiating changes in their job so that it better fits their skills, abilities, and preferences, or job-role negotiation (Ashford & Black, 1996). During M&A, both components of proactive PE fit are triggered, the internal work environment changes significantly and they sense a change of attributes supplied by the environment. Examples of illustrative behavior related to proactive PE fit are feedback

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inquiry, by seeking feedback from supervisor about work performance, feedback monitoring, by observing what performance behaviors the boss rewards and use this as feedback on one’s own performance, job change negotiation, by negotiating with others about task assignments and role expectations, and career initiative, by engaging in career path planning (Parker & Collins, 2010).

Two forms of this illustrative behavior are especially relevant to this study.

First, job change negotiation entails explicit attempts to change one’s job so that it better fits one's skills and abilities (Ashford & Black, 1996; Nicholson, 1984); a type of proactive socialization in which employees actively adjust to new job conditions (Jones, 1986), originally applied to newcomers, though equally applicable to all employees. Related behavior: negotiate with others about task assignments and role expectations. Expressing voice (Van Dyne & Lepine, 1998), selling critical issues to leaders (Dutton & Ashford, 1993), proactive service performance (Rank, Carsten, Unger, & Spector, 2007), taking charge to bring about change (Morrison & Phelps, 1999), self-initiated role expansions (Parker, Wall, & Jackson, 1997), proactively solving problems and implementing ideas (Parker, Williams, & Turner, 2006), and network building (Morrison, 2002), (Parker & Collins, 2010). Second, career initiative entails individual’s active attempts to promote his or her career rather than a passive response to the job situation as given (Seibert, Kraimer, & Crant, 2001); engaging in career planning, skill development, and consultation with more senior personnel (Tharenou & Terry, 1998).

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1.3.1 Proactive PE fit behavior leading to value creation

Proactive PE fit behavior can lead to value creation, which is the focus of this paragraph. Although they do exist, the positive effects of M&A on the employees concerned have received, relatively speaking, less attention than the negative (Buono & Bowditch, 1989; Marks and Mirvis, 1985). Findings from recent studies do, however, lend evidence to the presence of positive employee reactions (Teerikangas, 2012). Proactive PE fit behavior can lead to the creation of valuable, useful new products, services, ideas, procedures, or processes by individuals working together in a complex social system (adapted from Kim et al, 2009).

The process of proactively setting one’s own goals implies a certain level of

commitment to that goal and acceptance of one’s own underlying intentions (Crossley et al, 2013). For instance, taking charge and making the most of one’s opportunities can have an important impact on performance, at least among individual contributors (Belschak & Den Hartog, 2010; Frese & Fay, 2001; Thompson, 2005; see Fuller & Marler, 2009). Self-initiated role expansions can lead to the delivery of more work. In that sense, proactive employees can reduce human resource constraints in the organization by taking on more responsibilities than is expected by the firm. Furthermore, the interactions of individuals within units may evolve and take on self-organizing properties as synchrony develops and coordinated team actions emerge and reinforce collective individual performance, thus elevating the aggregated performance of the unit (Crossley et al, 2013). Besides the creation of new material, the M&A is a period of time in which employees are being stimulated to analyze their current role, to assess how this role reflects to their ambitions

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and to think about the role in the new organization they would really desire. In a time where jobs disappear and new jobs are being created, the outcome of this career initiative process, by engaging in career path planning can lead to a more optimal distribution of human resources within the firm.

1.3.2 Proactive PE fit behavior leading to value destruction

In the worst case scenario, proactive PE fit behavior leads to value destruction, which is the focus of this paragraph. Wrzesniewski and Dutton (2001) observed that Job crafting (changing the boundaries of jobs) is neither inherently good nor bad for organizations… if job crafting altered connections to others or task boundaries in ways that were at odds with organizational objectives, job crafting could harm rather than enhance organizational effectiveness”. For example, employees may use their newfound autonomy to

micromanage others (Lawler, Hackman, & Kaufman,1973) and shirk unpleasant tasks (Jones, 1984). As such, managers often seek to suppress forms of proactivity that are misaligned with organizational goals (Campbell, 2000; Frese & Fay, 2001). Thus, as critical theorists have observed about empowerment practices (Fineman, 2006), although

proactive behaviors appear to be initiated bottom-up by employees, they may in fact be heavily constrained and channeled by top-down managerial controls.

1.4 Antecedents

In this paragraph, the antecedents that help to explain the apparent relationship (or part of the apparent relationship) between the independent variables and the dependent variables are being described. Some conceptual evidence on antecedents to employee reactions in times of M&As exists (Myeong-Gu Seo & Hill, 2005). Studies have suggested that the extent of culture shock (Buono & Bowditch, 1989; Buono, Bowditch, & Lewis, 1985) and

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the direction of post-deal changes implemented (Cartwright & Cooper, 1992; Froese et al., 2007) influence acquired firm employee reactions (Teerikangas, 2012).

1.4.1 Perceived threat of job loss

Before integration occurs, employees experience anxiety as they try to cope with

uncertainty by predicting—often the worst case scenario—the impact of the M&A on their future jobs and careers (e.g., Marks & Mirvis, 1985; Rentsch & Schneider, 1991). In

particular, perceived threat of job loss can lead to increased worry and feelings of distress (Brockner, Grover, Reed, & Dewitt, 1992). Such anxiety can also result in self-survival instincts in which employees engage in political maneuvering to protect their status, power, and prestige (Schweiger, Ivancevich, & Power, 1987). This can create destructive competition that negatively impacts organizational performance (Myeong-Gu Seo & Hill, 2005). Managers and professionals may identify primarily with either the organization or their professions. This presents a threat to employee retention, since personal goals

(especially job security) may be more readily met by primary focus on professional rather than organizational identification under circumstances of personal uncertainty (Bastien, 1987).

1.4.2 New job conditions

M&A integration processes involve disrupting the existing cultural, structural, and job arrangements and creating new arrangements. However, the transitions are typically neither clear-cut nor short term, often meaning a long period of organizational drift

(Marks & Mirvis, 1992), which results in role conflict and ambiguity (e.g., Ivancevich et al., 1987). Several different types of role conflict can occur during M&A. For example,

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employees may experience high degrees of role conflict as a result of new job demands related to the merger. Similarly, employees may experience conflict between remaining loyal to old customers or coworkers and implementing the changes required by the M&A (Myeong-Gu Seo & Hill, 2005).

In addition, the variables related to three other theories—role conflict, job characteristics, and anxiety theory—may begin to have additional effects on the

employees. First, as interactions between members of the two organizations, which were mostly confined in top management and joint committees in the last stage, spread to the entire organization and to day-to-day operations, intergroup conflict may reach the highest level (e.g., Marks & Mirvis, 1992). The battlegrounds are often decisions over new job assignments and role negotiations in the combined work units (cf. Marks & Mirvis, 1992). These conflicts may result in employees’ lack of cooperation or development of a strong us versus them mentality in the workplace (e.g., Buono & Bowditch, 1989) (Myeong-Gu Seo & Hill, 2005).

1.4.3 Urgency to reconsider identity

M&A decisions, such as those related to the new company name or logo, elimination or consolidation of brands, and consolidation of corporate value statements, play a key role in shaping a new company identity. The new organization may decide to adopt the culture, products, and communications of one organization; maintain both; integrate aspects of both; or create something entirely new (Brooks et al., 2005; Myeong-Gu Seo & Hill, 2005).

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In merging organizations, when employees are urged to reconsider their

(professional) identity vis-a`-vis the new to-be-established ‘in-group’ (the new company or the new department within a company), group identiﬁcation can be considered to be one of the key variables of success. It is therefore important to heed and inﬂuence the

identiﬁcation process (Bartels et al, 2006). Group identification entails the positive relationship between pre-merger and (expected) post-merger, group identiﬁcation suggests that the extent to which employees are able to identify with the current

organization can be a crucial factor in merger processes. For directly involved employees, pre-merger identiﬁcation is even the strongest predictor of expected post-merger

identification. This implies, also from a merger perspective, that management should continuously focus on employees’ identification with the current organization. A strong identification with a pre-merger organization, in particular at the level of the organization as a whole, may be expected to serve as a buffer in forthcoming merger situations. Identity management in merger situations should be a major management issue long before a forthcoming merger is manifest (Bartels et al, 2006).

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1.5 Conceptual Model

The conceptual model has been derived from the literature review. This is a tentative model because the key role of this study is to examine this conceptual model empirically and to validate if this model is complete or if there are other factors driving these

outcomes. To the knowledge of the researcher, that has not exactly been done before. With open questions during the interviews, new insights are likely to be gained.

Figure 1.1 Conceptual model from theory

Perceived threat of job loss New job conditions Urgency to reconsider identity Job change negotiation Career initiative Value creation +Positive reinforcement Value destruction -Conflicting interests

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2. Research Design

This is a qualitative case study, emphasizing on context and process for examining and articulating processes, with a focus on depth and detail and exploring instead of

(hypothesis) testing (adapted from Tracy, 2010). The key purpose of this study is to examine the conceptual model in paragraph 1.5 empirically. With interviews and open questions, new insights are likely to be gained and therefore this study is exploratory.

2.1. The Case

This case presented here explores the consequences of a strategic combination of Ziggo and UPC, creating a nationwide operating Dutch telecommunications and content

provider. The com10bined entity will provide approximately 10 million video, broadband internet and telephony services to over 4 million unique customers through a fiber rich cable network. With approximately €2.5 billion in total revenue, the combined company will be a leading provider of communication services across the Netherlands (adapted from www.libertyglobal.com, 2015). Because there is a significant wave of M&As, especially in the telecom market as, for example, Vodafone and LG are also discussing strategies for cooperation (Financieel Dagblad, 2015) this case is of high relevance.

However, this M&A case is executed in The Netherlands and therefore aligns to the Dutch law and regulations, as a consequence, the firm needs to comply to and deal with the `afspiegelingsbeginsel´, works councils, mirroring processes (personnel matching) and social agreement and therefore this case is rather specific. The author of this research has been working for UPC and eventually Ziggo, during the entire M&A process and actively observed all phases. Therefore contextual factors can be related to the examples in

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identify phases during M&A. Napier et al (1989) identified four phases: (a) a pre-merger phase typified by secret negotiations and rumors; (b) an in-play phase after the official announcement is made; (c) a transition phase after the M&A becomes officially approved by appropriate boards and agencies; and (d) a stabilization phase where the organizations become integrated. The phases are defined by this pattern of critical events, although the length of time for each phase can vary (Kramer et al, 2004). These are the exact phases encountered in this specific case. To answer the research question the interviews have taken place in the transition phase.

2.2. Sample

Data for this study were collected primarily through focused interviews with 10 individuals. This method was selected because the emotional quality of individual

reactions to M&As is best captured by this method (Bastien, 1987). The units of analysis in this research are individuals from the former Ziggo and from the former UPC

organization; the interviewees have met three conditions:

1. Interviewees should be directly employed by UPC or Ziggo (external contractors and - consultants are excluded because they are not fully involved and they therefore might experience the transition less intense);

2. Neither the employee nor the firm had terminated their employment contract at the time of the interview;

3. Interviewees should have been working for either former UPC or former Ziggo during the in-play phase.

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Employees who met the above three conditions are the employees that have worked for the organization during the relevant phases of the M&A. Therefore it is expected that they have a complete understanding of the process and observations and can give practical examples in order to answer the research question. The respondents have been selected on the basis of their role and department in the organization by purposeful sampling with the above three criteria as a starting point. Per department one or two respondents have been interviewed, the involved departments and roles can be found in table 2.1.

Table 2.1 Interviewed role per department

Department name Role Organization

Finance Business Controller Former Ziggo

Human Resources Advisor Former Ziggo

IT & Operations 2nd_{Line Employee} _{Former UPC}

IT & Operations Business Analyst Former UPC

Network Services Employee Project Support Former UPC

Operational Excellence Centre Sr. Ops Specialist Former Ziggo

Procurement & Logistics Cluster Manager Former Ziggo

Services Project Manager Former UPC

Business 2 Business Sales Support Customer Care Former UPC Business 2 Business Marketing Communication Specialist Former UPC

The focus of this research has been on general staff (the CEO, vice presidents and directors have been excluded in this research), the respondents have been divided between the two former organizations to minimize bounded rationality and to understand the value

creation potential more broadly. The interviews were carried out by a researcher

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interviewees have been informed in advance by either e-mail or by phone to the goal of the research, goal of the interview, the interview conditions and the topics that will be discussed during the interview. Then, the interviews have been conducted

semi-structured and in close relation to the conceptual model. Finally, the interviews have been recorded by speech. Upon completion of the interviews, the data from the separate

interviews were aggregated to construct the cases following Yin’s principles of data collection in case studies:

i) Use of multiple sources of evidence (multiple interviews, in this situation) ii) Maintaining a data base (interview notes and tape recordings); and

iii) Maintaining a chain of evidence (the case histories presented) (Yin, 1984; Bastien, 1987)

2.3 Analysis

Although the conceptual model has been followed, the obtained interview data still

contained less relevant data for this research and has been reduced by assigning codes as a data-labeling device and by temporary ignoring the irrelevant data during the coding exercise. After the interview, the literal interview report was written, after which blocks of data have been selected as valuable to answer the research question. This coding protocol has been selected to ensure that concepts stay as close as possible to interviewees own words or use their own terms because they capture a key element of what is being described. Then, similar codes have been clustered together in a smaller number of categories to construct the interrelationships of the categories, which has been called pattern modeling. The codes, the categories and the count of the outcomes have been

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3. Results

In general, three central issues are evident describing some common patterns observed in nearly all interviews. First, the acquisition itself is being seen as rational and theoretically sound from a shareholder perspective, in that sense the insights from the perspectives of TCT and RBV are both recognized. Second, the two companies have not been able to integrate fully during the transition phase. Even though LG completed the post-closing acceptance period late November 2014, work processes, knowledge sharing and

socialization have not been reinforced on a large scale by proactivity; the two former organizations have been managed as two separate organizations ever since. Third,

structural personal and procedural uncertainties were a key outcome of more than half of the interviews, the transition phase went way to slow (this single phase in the M&A took approximately seven months). Adding these personal uncertainties on top of the more generic uncertainties like organization design and location policy, potential reinforcement suffered. This chapter continues with describing results of the interviews by following the categories of the conceptual model.

3.1 Value Creation

Driving value creation by proactivity seemed hard to obtain during the transition phase; value destruction and value conservation have been observed on a larger scale. However, a small set of people have proactively executed activities to enhance positive

reinforcement. Based on the interviews, three forms of proactive PE fit behavior have led to a higher standard of effectiveness and thus value creation.

First, self-initiated role expansions, some employees have pro-actively been taking on more responsibilities and thus work than they were supposed to be doing from their

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formal role, by embracing a new role, project(s) or task(s). In most cases, interviewees mentioned that this was probably happening because employees wanted to prove that they are essential to the firm and that they can deliver additional value to the

organization, especially in this uncertain stage. Like one interviewee mentioned: “I try to make myself indispensable, by trying to manage as much projects as possible”. In other interviews it became clear that this type of behavior can be valuable to other colleagues as well, as another interviewee mentioned: “Out of a team of approximately 15 team members, two or three of them are really taking on more activities now than before the transition, that is a positive

situation because their input is also valuable to our work”.

Second, expressing voice and network building. Value creation has been stimulated by engaging with and by connecting to colleagues across the combined organization.

Although this form of proactive PE fit behavior seemingly has a lower threshold to

execute in terms of required effort than self-initiated role expansion, however, this did not necessarily mean that it has been observed more often. This might be the case because it does not only require value creation, but it is also dependent on the distribution of value appropriation. Like one interviewee mentioned: “After a post on the intranet by a former UPC colleague, we (from the former Ziggo organization) reacted to that post. Two days later we

combined a team meeting to discuss each other’s Social Media solutions. We are a team ever since and have become the face of New Ziggo in this domain”. During the transition phase, the (combined) intranet has become a popular resource, although it is not always used positively (personal uncertainties and negative emotions are also being shared), it is a resource that enables value creation and value appropriation instantly and throughout the

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Offline, people have been presenting the work that they are doing more actively, so some parts of the organization could know who to consult when dealing with a certain topic, this behavior has the potential to stimulate knowledge sharing and issue solving within the firm. However, again, this behavior only leads to value creation when it is

appropriated by others using that information productively. Network building is also essential in this period of time, where roles and responsibilities of both sides of the formal organization are not yet clear. Not doing so has led people wondering what to do. Like one interviewee mentioned: “What I often experience is that ten people are asking me the same questions, whilst those people are all working physically very close to each other, because they just don’t know who they need to consult, with who they need to align to and where to get the

information they need”

Third, taking charge to bring about change in a more passive form like creating the environment to do so has also been observed and on a larger scale. When a manager or employee initiates a combined meeting for instance in which the workload between the two teams has been discussed and divided. Whilst afterwards it is business as usual again, there is some value in getting together to decide on priorities and by allocating team members to projects for instance, but it merely is an administrative exercise. Like one interviewee mentioned: “My manager has discussed the projects I would like to work on with me, this has been done with all team members, than, in a combined team meeting this has been presented, so everyone knows what their responsibilities are in the next quarter”. Or like another interviewee mentioned: “In the entire acquisition, we teamed-up immediately, with some phasing off course because we do need to respect certain contractual obligations we have with suppliers for

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learning opportunities but because of a lack in management support it did not really operationalized. Like one interviewee mentioned: “I have asked my manager to facilitate a combined effort to meet the new team twice. However he did not feel like it. In the end I saw some new colleagues only once because the former Ziggo organization organized a meeting”. Three final remarks to underline why potential value has not fully operationalized by proactivity:

First, some people are more than willing to integrate proactively in an early stage of the transition but are constrained by IT systems and integrated organizational processes for instance. Like one interviewee mentioned: “Creating additional value is complicated right now because there are still two active ERP systems for instance”.

Second, integrated differences in process designs like performance management and service level agreements embedded in the two former organizations are also causing a restriction to integrate more actively in an early stage.

Third, managing the workload from business as usual is for various departments challenging enough so that there is nearly no time to focus on other activities. Like one interviewee mentioned: “It is already hard enough to manage all current activities and to make sure we don’t miss anything”.

There seems to be a relationship between the level of proactivity and the flexibility of the role employees have in the organization. Some roles tend to have more freedom than others by design. In the more flexible roles, like Project Management and Operations Specialist roles for instance, proactivity is much more observed than in roles that are more fixed by nature (or managed more strictly). The relationship in the conceptual model from theory between the antecedents, job change negotiation and value creation in the form of

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3.2 Value Destruction

Value destruction (together with value conservation) is the dominant outcome of this research; however the observations leading to this outcome are not necessarily related to proactive PE fit behavior. Factors like obscurity in the mirroring process, limited

management stimulation and a lack of staff involvement in the M&A process have harmed firm effectiveness and reinforcement. These factors have led to demotivation amongst personnel which is observed by productivity losses, less focus on job execution and lower levels of flexibility and creative power.

Limited management stimulation to integrate proactively is a factor that is

recognized by a third of the interviewees, like one interviewee mentioned: “To my opinion, management should be the ones to integrate proactively, but they are not. So, it is not really

motivating for us to do so, and in addition, we have nothing to search for in Utrecht, our work is here, the daily business continues”.

Jobs have been executed with a different meaning during the transition phase than before the acquisition took place. Because of this, some employees have not been fully focussed on their activities; a third of the interviewees could sense that very well, like one interviewee mentioned: I can tell some employees as well as managers are really passive, and act like, whatever, I am doing nothing for a while. From the one hand side that is human, and from the other hand side, it is a consequence of the acquisition that things are on hold for a moment”.

Where in the post-merger organizations, willingness and pride was predominating, during the transition, the uncertainties led people to be less accommodating and more easily falling back to formal agreements and being less flexible. Like one interviewee

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tend to cooperate flexibly to fix things, nowadays; there is more resistance, because they want more job security”. When focussing on value destruction that have been caused by proactive PE fit behavior, this have also been observed within the organization, but not on a very large scale.

Engaging in career planning, a manager of a department decided to stop its

management duties, like having bilateral conversations with the team and started to work on projects its team was supposed to be working on, which was rather surprising to the team, like one interviewee mentioned: “If you look at this situation accurately, you could sue that manager internally”. The value destruction that emerged from this behavior is that the employee that was supposed to be working on those projects has remained with less work, management activities have been stopped and an agency problem occurred (when cooperating parties having different goals and division of labor, Jensen & Meckling, 1976; Ross, 1973) .

Another scenario is that value destruction has been observed by a lack of proactive behavior in the organization. The leadership team for instance has been appointed during the in-play phase of the M&A, before the operational teams have. It has been observed that decisions on senior level have been made without consulting the right people first, this has led to conflict, like one interviewee mentioned: “Like the upcoming price increases in July for 1.1 million clients, suddenly e-mails were sent concerning that the entire implementation had not been discussed, well it has been discussed, but not on the organizational levels we would expect from the former organization.

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3.3 Antecedents

The antecedents in the conceptual model from theory have all been recognized by the interviewees.

First, the perceived threat of job loss. Nearly all interviewees almost directly elaborated upon the duration of the transition phase and the uncertainties they faced (to be specific, the obscurity in the mirroring process), this resulted in a lot of uncertainties amongst employees regarding this perceived threat, like one interviewee mentioned: “Employees are uncertain, they want to know what they can expect, they want to know the timelines”.

Some interviewees mentioned that former colleagues have left the organization during the transition phase; chances are that the transition was influencing that decision. This antecedent is merely triggering an external focus though, away from the firm, than that it stimulates proactive PE fit behavior. Ultimately, because the entire M&A process covered approximately sixteen months, people that were really worried about the outcome of the mirroring process could have used that period of time to embark external opportunities. This also worked the other way around, like one interviewee mentioned: “I can tell that some people with great knowledge have been consulted from the market place, it took a while, but slowly, we are losing people”.

Second, new job conditions. This antecedent was especially triggering changing

behavior, because much of the new job conditions were yet unknown during the transition phase, so it was very hard for employees to anticipate on something unknown. Little more than the new job titles where known and therefore it became more complex to manage that situation for employees. Like one interviewee mentioned: “I like some direction, so we can make plans, than you can anticipate upon what’s coming, it was hard to anticipate for a very

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long time”. To emphasize upon the uncertainties, middle management have not been able to take away the uncertainties away because they were confronted with the same situation or because the answers to the questions were just not there. Like one interviewee

mentioned: “I do get questions from employees that I cannot answer, except by telling them that everything is awaiting the outcome of the advisory process. Than afterwards, it is likely to receive that literal question from the front office or from the confidential committee (of the works council). People really go all the way to get clarity about the impact by trying to get all the information there is”.

Third, the urgency to reconsider identity has caused the strongest emotional reactions during the interviews. Based on the interviews, there is little recognition in identity between the two firms. More than half the interviewees cannot simply recognize themselves in each other, this sometimes led to frustrations. Like one interviewee

mentioned: “There is a huge culture clash”.And like another interviewee mentioned: “Adapting to them? Well, that would be difficult; the hierarchical way of working is way stronger at their side”. Overall, there has been a contradiction between perspectives on the former cultures, on the one hand, to the majority of the interviewees, they acknowledge that the former UPC organization is more flexible and action orientated whilst on the other hand side, some argue that the former UPC organization is more hierarchical. The former Ziggo organization is typically being described as deliberate, organized and in that sense more mature in some areas. However, there is consensus that there are large differences between the two former organizations though.

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proactive behavior. Even though proactivity is typically being described as self-starting, this happens to be limited in times of M&A. The antecedents in the conceptual model have been recognized. However, the relationships between the antecedent urgency to

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4. Discussion

Even though the technological relatedness between the two former firms is very high in terms of similarity and complementarity, proactive reinforcements have not been created on a large scale. However, there is strong evidence that the relationship in the conceptual model from theory between the antecedent new job conditions, the behavior component career initiative and both outcomes exists. Relationships in the model between the antecedent, urgency to reconsider identity and behavioral components have not been recognized.

Practical implications

During the transition period, a lot of organized value creation projects have emerged. However, only a select set of people have been a part of these projects. To stimulate value creation and value appropriation more actively, a project team member should be

allocated to act as an ambassador for change and be allocated to each department in the combined firm to stimulate knowledge utilization. Utilization of knowledge acquired from an external partner requires that it be assimilated and transformed into new exploitable knowledge (Orsi et al, 2015).

Some roles in the organization tend to have more freedom than other roles by design. The roles that are more process oriented (or managed more strictly) seemed to be less proactive because they are restricted in some way. The combined intranet has proven to be a valuable resource for those cases and has the ability to enhance critical information. The use of this resource should be stimulated and guided by management, with a focus to address the negative emotions offline, and enhancing reinforcement online.

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Clearly, ambidexterity was missing in some business units. Interview reports showed that some business units are either merely aligned (able to change quickly to new markets and seize opportunities) or merely adaptive (short term focused). In a business unit that is ambidextrous, the systems and structures are more flexible, allowing

employees to use their own judgement as to how they divide their time between adaption-oriented and alignment-adaption-oriented activities (Birkinshaw & Gibson, 2004). Management should consider emphasizing on the concept of contextual ambidexterity, which calls for individual employees to make choices between alignment-oriented and adaption-oriented activities in the context of their day-to-day work (adapted Birkinshaw & Gibson, 2004). Especially in times of M&A, doing so can reduce the restrictions like a lack of idle time and a lack of management stimulation. Top-down mandate to be more self-organizing, seems to be a requirement for staff in times of ambiguity.

Managing the perceived threat of job loss antecedent more strictly seems feasible. In the end, approximately 10% of the employees will lose their jobs, so theoretically there is no need that more than 10% of the employees should worry about losing it. Here, a tradeoff between a more narrowly focused mirroring process versus a companywide mirroring process should be considered (within the boundaries of law and regulation). Communicating the specific impact more targeted in an early stage so less people would worry seems a viable scenario. Obviously, partly because of this antecedent, a lot of productive hours have been lost. Shareholders would gain back approximately 90.000 hours of productivity for each month the firm shortens the M&A process.

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From the results of this research, the conceptual model from theory is not completely accurate and can be enriched, resulting in figure 4.1.

Figure 4.1 Conceptual model from practice

Scientific implications

It seems that Crossley et al (2013) suggestion that team actions and collective reinforcement emerges from self-organizing, elevating the aggregated performance is not aligned to times of M&A. An addition to this suggestion is that some individuals need to have support of their management; idle time, supportive processes and IT systems and cannot be completely self-organizing, especially not in a transition phase in which ambiguity is dominating. The aforementioned constraints are typically the abilities an ambidextrous organization does have.

Antededents Behavior Outcomes

Value creation +Positive reinforcement Value destruction -Conflicting interests Value conservation +/- Activities maintained Perceived threat of job loss Stimulation by management New job conditions Career initiative

Less job effort Minimal job effort

Job change negotiation

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Other results contradict to the suggestion of Elliot & Devine, 1994; Festinger, 1957; Kruglanski & Webster, 1996 that people are generally motivated to reduce ambiguity by engaging in a variety of proactive behaviors. The outcomes of this research suggest that the majority of employees are rather passive and unpretentious in typical times.

A positive relationship between pre-merger and (expected) post-merger is not supported broadly. That may provide some insights as to the reason why M&As fail to keep their premises even though the two organizations are very much related from a technical point of view; that is just not enough. It seemed that the basic underlying assumptions that determine perceptions, thought processes, feelings, and behavior differ significantly between the two former organizations (adapted from Schein, 1990).

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5. Concluding remarks, study limitations and future

research recommendation

This piece of research should be read as an attempt at exploring which forms of PE Fit behavior lead to value creation during a Dutch M&A. Although the interviews were selective, in parallel, personal observations by the researcher have also being taken into consideration as a part of the research process. From those observations, the general results in chapter three are recognized, supporting triangulation.

This study has several limitations, obviously the focus is on a single case, and results may therefore limit the generalizability of the findings. In addition, this M&A case is executed in The Netherlands and aligns to the Dutch law and regulations, which differs from Asian and American contexts for instance, the reaction of staff will probably be different in those continents as well. Third, the interviews have been conducted during the transition phase of the M&A, results of this research would probably differ when the research had been conducted in a different M&A phase. To create a deeper understanding, other researchers in this domain should collect empirical material by also involving senior management as a unit of analysis. Furthermore, other forms of proactivity should be assessed, especially focusing on the value destruction outcome of proactivity, because little research has been done in that area yet. It would be interesting for future researchers to conduct a similar research in other phases of the M&A, in the stabilization phase for instance to see how that period stimulates proactive behavior. Continued research on proactivity and management stimulation in ambiguous times may help individuals, leaders and companies in realizing the positive outcomes of proactivity.

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APPENDIX 1 Interview Questions

The interviewer started the interview with a rather generic question to open-up the conversation, than some specific questions have been asked to assess the literature and conceptual model, the closing of the interview was again be more generic to maintain a rather natural conversation and to conserve the opportunity for unexpected outcomes. 1. Introduction by interviewer

2. What do you see happening in the organization?

3. What is the impact of the M&A on you and your colleagues?

4. The integration process can lead to value destruction and value creation; did you observe any of these two outcomes during the process so far?

1. If so can you give examples?

2. Did you personally play a role in any of these two outcomes and if so can you give examples?

5. Did you experience unusual behavior by your colleagues in their job during in the the integration process?

1. If so, can you give examples?

2. Has this behavior been managed by the leader of the team and if so, in what way? 6. Did you experience colleagues negotiating with others about task assignments and role expectations during the merger process?

2. If so, did you experienced this behavior more often than in the past?

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4. What was the result of this behavior to the team? 5. Why do you think this happens?

7. Did you experience colleagues actively engaging in career planning during the merger process?

2. If so, did you experienced this more often than in the past?

3. Has this behavior been managed by the leader of the team and if so, in what way? 4. What was the result of this behavior to the team?

5. Why do you think this happens?

8. Can you identify yourself to the pre-merger organization? 1. If so, how and why?

2. If not, why not?

9. Can you identify yourself to the post-merger organization? 1. If so, how and why?