THINK MOSAIC:

THINK MOSAIC:

Why valuing Diversity matters in times of Mergers&

Acquisitions?

Master Thesis, MSc Human Resource Management

OLGA PASCENCO

Student number: 1832573

E-mail: opascenco@gmail.com

Phone: +31 (0) 6 14342219

Under the supervision of

Dr. Floor Rink

Co- assessor

Dr. Laetitia Mulder

University of Groningen

Faculty of Economics& Business

January 2010

Acknowledgment: I would like to thank my supervisor, Floor Rink, for encouraging my research

1

ABSTRACT

It is widely accepted that Mergers& Acquisitions are a source of threat, stress and alienation among employees, accompanied by high resistance to accept new organizational culture and colleagues. The aim of the present study is to investigate on possible ways to improve employees’ adjustment to Mergers& Acquisitions. I conducted an experimental scenario study, involving respondents (N=254) from various cultural, educational and functional backgrounds. The results show that one of the keys to efficient human due diligence and successful post-merger integration represents employees’ Diversity Beliefs. Interestingly though, this relationship is mediated by employees’ perception of the merger, their ability to cope with change-related requirements and willingness to elaborate and share knowledge. Based on the findings of the study, practical implications and directions for future research are discussed.

Keywords: Mergers& Acquisitions, Diversity, Diversity Beliefs, Group identification, Group

2

TABLE OF CONTENTS

INTRODUCTION

...3

THEORETICAL REVIEW AND MODEL

...4

MERGERS& ACQUISITIONS ...4

Background ...4

M&A through Social Identity Perspective ...5

DIVERSITY IN GROUPS ...6

Diversity Beliefs...7

MODEL AND HYPOTHESIS DEVELOPMENT ...9

Diversity Beliefs and M&A as threat versus opportunity ...9

Diversity Beliefs and self-efficacy in the context of M&A ... 12

Diversity Beliefs and information elaboration in the context of M&A... 14

METHODOLOGY

... 16 PROCEDURE ... 16 PARTICIPANTS ... 16 MEASURES ... 17 ANALYSIS ... 18

RESULTS

... 19 CONTROL VARIABLES ... 19 CORRELATION ANALYSIS... 19 HYPOTHESIS TESTING ... 21

DISCUSSION

... 23 PRACTICAL IMPLICATIONS ... 25

LIMITATIONS AND FUTURE RESEARCH ... 27

CONCLUSION ... 28

REFERENCES

... 29

3

INTRODUCTION

Mergers and Acquisitions remain a highly popular form of organizational development and corporate diversification. Only in 2004, 30 000 mergers were completed globally, which translates into one transaction every 18 minutes (Cartwright& Schoenberg, 2006). In spite of thirty years of relevant research in the field of M&A, we know surprisingly little about how to deal with M&A. However, we do know one truth about mergers, which could be summed up to the following statement: M&A rarely work. Projected synergies are not achieved in 70-80% of all M&A (Coffey, Garrow& Holbeche, 2002) and according to a Deloitte& Touche study (2001) only one third of employees in 540 companies surveyed about M&A viewed their merger as successful. What we also came to realize is that most of the M&A failures can be attributed to the human factor. Recall the Daimler-Chrysler merger: differences in management styles and organizational cultures lead to continuous tensions among employees from both companies. Or think of Cap Gemini acquiring the MAC Group. This merger ended up in an exodus of talents at MAC. Finally, when AT&T acquired the computer manufacturer NCR the financial and operational forecast predicted a fruitful merger. However, in the end this merger never worked, because of a poor integration of people and their relations. Often, failure to consider the role of people and their beliefs, capabilities and attitudes in the merger process result in significant loss of key employees, and a feeling of confusion over the existing differences between the merging companies and insecurity among those who remain. Harding& Rouse (2007) therefore refer to the importance of conducting human due diligence as a determinant of a successful merger.

4

THEORETICAL REVIEW AND MODEL

MERGERS& ACQUISITIONS

BACKGROUND

Globalization and recent developments in corporate world have forced companies to undergo a complex process of mergers and acquisitions, in order to achieve corporate diversity and growth (Nahavandhi& Malekzadeh, 1988). M&A rose in the ’80 and, as a trend occurring in waves, shifted from purely financial to more strategic and operational in its nature (Coffey, Garrow, Holbeche, 2002).

Some clarifying remarks are needed on the concept of Mergers & Acquisitions. An acquisition implies that one or more companies are taken over by the acquiring company, while in a merger the assets of all the merging companies are transferred into a newly created company (Ullrich, Wieseke, van Dick, 2005). Although mergers and acquisitions have different legal meanings, in the corporate world, these two words are used to describe slightly the same phenomenon. Indeed, in practice, most mergers are to a certain degree takeovers, making a clear distinction between the acquiring and the acquired company (Cartwright& Cooper, 1990). One partner is generally more influential and viable than the other ((i.e. more on organizational dominance, see van Knippenberg, van Knippenberg, Monden& de Lima, 2002), with a clear competitive advantage over the company which is acquired.

The success of M&A is often defined by the equation “two plus two equals five” (Cartwright& Cooper, 1993a). But can we really talk in strictly mathematical terms when M&A represent a phenomenon which affects people rather than organizations in an abstract sense? (Cartwright& Cooper, 1996). As described above, many studies have shown by now that in more than half of the cases “organizational marriages” do not meet initial expectations (Cartwright& Cooper, 1990, 1993a, 1993b, 1996). These failures are for a large part due to the crucial role that people play in organizational mergers. As argued by Grotenhuis (2001):

5

financial wizards go home, that’s when the trouble starts. You’ve got the numbers. Now, what are you going to do about the people?”

There is no doubt that the human factor is an important aspect to be considered during organizational mergers (Cartwright& Cooper, 1993b, 1996). Mergers entail more than simply reallocating office locations or changing a brand name. The true challenge lies in merging cultures, people and their beliefs and management styles (Daniel, 1999). “Employee problems” still account for one third to one half of all M&A failures (Davy et al., in Dackert, Jackson, Brenner& Johansson, 2003). Most organizational mergers can traumatize and alienate people, inducing high levels of uncertainty, threat, turnover, low morale, job dissatisfaction and declining performance at all organizational levels (Buono& Bowditch, 1989, Amiot, Terry, Jimmieson& Callan, 2006, Cartwright& Cooper, 1993a). Due to the cultural shock, that mergers often induce, employees tend to focus more on personal security rather on organizational goals (Grotenhuis, 2001). Thus, the main challenge that top management should realize and focus on during a merger process is to integrate people and their different cultures (Larsson& Lubatkin, 2001, Pepper& Larson, 2006).

M&A THROUGH SOCIAL IDENTITY PERSPECTIVE

I argue that the social identity approach will give a better understanding of the processes underlying individual and group adjustment to a merger (Mottola, Gaertner, Bachman& Dovidio

,

1997, Terry, Carey& Callan, 2001). Social identity theory (Tajfel, 1978) is a psychological theory of groups and inter-group relations, which explains that individuals perceive the world in terms of social categories. The central focus of the theory is one’s self concept that results from individuals’ membership in groups (social identity). Because people are motivated to achieve and maintain a positive self concept or self view, they prefer to belong to groups that can be favorably distinguished from other groups. Furthermore, they tend to differentiate between in-group and out-group members and give preference to in-out-group self alike members (Terry& O’Brien, 2001). In principle, one can view a merger of two or more separate organizations as the recategorization of two group identities into a new one (Gaertner,

Mann

,

Murrell

& Dovidio, 1989, Gaertner& Dovidio,

6 organizations need to maintain committed personnel, which shows pro-organizational behavior (Boen, Vanbeselaere, Brebels, Huybens& Millet, 2007).

The common in-group identity model (Dovidio, Gaertner& Validzic, 1998) predicts that the more employees indeed see the merged organization as one new entity, the less inter-group bias and stereotypes they generate. As widely accepted, stereotypes represent one’s category-based cognitive response to another person or group. Besides prejudice and discrimination, stereotypes often also refer to people’s beliefs about a person, based on his/her group membership (Fiske, 1993). The model discussed above will create a context facilitating a smooth transition from thinking in terms of “us versus them” to thinking in terms of “we”, resulting in high identification with the newly composed teams and organization. According to the common in-group identity model, this is most likely to occur when employees have the opportunity to engage in informal interactions with the merger partners and start perceiving them as individuals rather than out-group members (Haunschild et al. in Seo& Hill, 2005). The explanation is straightforward: only by fostering teamwork, common goals and intense cooperation between employees of the merged organization, people will be able to get to know each other better and start perceiving each other as team colleagues rather than individuals on the opposing side. Thus, in time, stereotypes about each other will be replaced by more realistic opinions, based on team work interaction for example, rather than pure belonging to a certain group.

DIVERSITY IN GROUPS

The term workgroup diversity gains more and more attention from practitioners and researchers. Nowadays, companies rely heavily on teams, to coordinate work and tasks within the organization (Milliken& Martins, 1996). Yet globalization and internationalization at the same time increase the instances that these team members have to work with others who differ from them in terms of functional backgrounds and opinions or values.

7 Over the years, the results regarding the impact of diversity on group functioning are ambiguous and contradicting. From a Social Identity Perspective, diversity in groups lead to relational conflict (Jehn et al., 1999, Mannix& Neale, 2005), lower group cohesion and turnover (Milliken& Martins, 1996, Homan, 2006), deviant behavior and dissatisfaction on the individual level (Jackson, Joshi&

Erhardt

, 2003). Again, this can be explained by the fact that people prefer to maintain and protect

their self concept, or self esteem by associating only with those who are self-alike, and tend to evaluate others who are different than the self relatively negatively (Tajfel, 1978). Indeed, as stated by the Similarity-Attraction theory, similarities on different attributes like values, opinions, visible traits will ease interpersonal attraction and liking, while differences will give rise to disliking and avoidance (Rosenbaum in Mannix& Neale, 2005).

However, taking the information processing approach, diverse groups should also have access to a wider pool of information, knowledge and expertise. Through debates and unique information exchange, these groups should in principle be more creative, more efficient in problem-solving and higher in performance than homogeneous groups (Harrison& Klein, 2007, Mannix& Neale, 2005, Jehn et al., 1999, Jackson et al., 2003, van der Vegt& Bunderson, 2005).

DIVERSITY BELIEFS

8 regardless of whether the subgroups were salient or not. In two different studies, van Knippenberg et al. (2007) showed that there can be a strong positive relationship between diversity and group identification, when group members believe in the value of diversity. The research in the field of diversity beliefs is crucial for understanding the phenomenon of workgroup diversity and reconciles the two main approaches on diversity so far. Contrary to the social categorization perspective on diversity, the previous studies promote the idea that diversity in groups does not necessarily have to lead to a lack of psychological attachment with the group and relational conflict, as long as people believe in the value of their group diversity. For these reasons I decided to focus on the role of diversity beliefs in the extent to which people are willing to accept a merger, and identify with their newly formed post-merger work team. Importantly, I will deliberately not make a distinction between beliefs about visible or underlying diversity, because these two types of diversity often go hand in hand within workgroups (Homan, 2006). Imagine for example a consultancy team, working on a change project within a multinational. It is most probably that this team will be highly international (ethnic diversity), including professionals in various fields (functional diversity), since major strategic change projects require knowledge and expertise in soft as well as hard organizational issues.

9 Although diversity beliefs represent an important factor on the organizational level, it still remains an abstract measure on the company-wide level. Diversity beliefs concern individuals in the first place and mainly what they think and how they perceive the differences. Since a merger’s success fully depends on individuals who are directly involved in the merger process and their ability and willingness to cope with the merger, it is crucial to examine what processes might facilitate or obstruct the post-merger integration mainly on the individual or group level. The present research being conducted via a scenario study, offers insights on how individuals cope with the merger, depending on their diversity beliefs in a broader sense. Therefore, my first hypothesis will be:

Hypothesis 1: People who believe in the value of diversity and think that diversity is

beneficial for their group functioning (pro-diversity beliefs) will identify stronger and will

perform better within the newly created organization after the merger. Therefore, Diversity

Beliefs will be positively related to post-merger group identification and post-merger group

performance.

Importantly though, my interest is to take this research a step forward and to discover the exact processes that diversity beliefs generate in case of a merger, and how these processes can positively influence the merger success. Considering the rapid development and especially the fact that nowadays organizational changes are much more frequent, less controllable and on a much larger scale than ever before (Burnes, 2004), researchers need to conduct in-depth studies, inquiring more on the mediating processes, offering multiple tailored solutions, instead of solely focusing on some general outcomes.

MODEL AND HYPOTHESIS DEVELOPMENT

Figure 1: Theoretical Model

+ + +

Diversity

Beliefs

Mediators:

Merger perception

Self-efficacy

Information Elaboration

Outcomes:

10

DIVERSITY BELIEFS AND MERGER AS THREAT VERSUS OPPORTUNITY

The first important process to look at is the perceptions of threat vs. opportunity that people develop when confronted with a merger. The way that employees perceive a merger generally has a strong effect on the post-merger functioning of a team and the merger integration process. There have been several studies in the field of organizational mergers, showing the impact of the “merger as threat” perception at the group level (see Amiot et al., 2007, Boen et al., 2007, Boen,

Vanbeselaere

& Cool, 2006, Terry& Callan, 1998, Terry& O’Brien, 2001, Terry et al., 2001, Terry,

2003, van Leeuwen, 2001, Giessner, Viki, Otten, Terry& Tauber, 2006, van Leeuwen, van Knippenberg, 2003, Ellemers, 2003, van Knippenberg et al., 2002). This means that the extent to which employees perceive the merger as a threat or opportunity has consequences for how they eventually identify with their new team, and the eventual success of this team. Indeed, threat and opportunity are two basic categories through which people tend to label and evaluate different events. Threat implies a negative situation, in which the individual has little control over it and the personal loss is very likely. At the other end of continuum there is opportunity, a category involving a positive situation, offering personal gain and a fair amount of control over the situation (Dutton & Jackson, 1987). An extension of this reasoning is the Threat-Rigidity Theory (Staw, Sandelands& Dutton, 1981), stating that threat situations often lead to mal-adaptive reactions to changes, both on organizational, group and individual level, by narrowing the extent to which people are able to process information or ability to “see the bigger picture”. According to the authors, the change attempt as threat leads to a certain degree of rigidity in people’s thinking and action, which is not appropriate, since changes always ask for diverse and innovative responses.

The threat-opportunity concept has mainly been applied to investigate behavior on the individual level. For instance, in a computer training study, Martocchio (1992) showed that labeling the context as an opportunity rather than threat resulted in lower anxiety, higher computer efficacy and learning. A study by Larsson& Kempe (1988) showed that appraisal of the situation in terms of challenge and opportunity led to higher self-performance among police officers. Perceptions of a merger as an opportunity induced higher levels of perceived creativity and innovative decision-making than perceptions of Mergers as a threat (Zhou,

Shin

&

Cannella

, 2008).

11 to inter-group bias, or the well known “us versus them” paradigm, lower post-merger identification and adjustment to the merger (Terry& O’Brien, 2001, Terry& Callan, 1998, Boen et al., 2006). Yet, members of the acquiring group can perceive the merger as an opportunity, leading to positive outcomes, personal gains and a feeling of control of the situation. Another factor determining group members’ predispositions to categorize the merger as threat represents the perceived permeability of boundaries - that is the extent to which members of both groups can freely move from one group to another, and have access to all the information, knowledge and competitive advantage of both groups (Terry, Carey& Callan, 2001, Terry, 2003). From the employee viewpoint a merger which lacks a sense of equity and fairness also induces higher degrees of threat (Giessner et al., 2006, Amiot et al., 2007, Terry& O’Brien, 2001, Gleibs, Mummendey& Noack, 2008). Factors like organizational unity and support, as well as inter-group contact conditions can also guide the employees to perceive the merger in terms of opportunity or threat (Mottola, Gaertner& Dovidio, 1997). On the organizational level, communication and social control mechanisms deployed by the top management transmits threatening or positive signals to employees (Larsson& Lubatkin, 2001). Mergers can induce higher levels of threat, particularly for the dominated groups, but not solely, if they disrupt the sense of continuity in employees’ identity (van Knippenberg et al., 2002, van Leeuwen et al., 2003, van Leeuwen, 2001, Ullrich, Wieseke& van Dick, 2005).

All the above mentioned factors influence the degree to which employees’ are inclined to perceive the merger as a threat or opportunity, which has a direct effect on post-merger identification and group functioning (Mottola et al., 1997, Boen et al., 2007). A recent study by Kovoor-Misra (2009) on organizational identification through the threat/opportunity framework proved that, during organizational changes, high levels of threat induce “who we are” thinking instead of “who we could be”. In other words, threat forces people to resist the shift in their identity, while opportunity motivates them to look beyond the existing boundaries, be open to change, learn from it and internalize it in their attitudes and values.

12 by those that are different (Mannix& Neale, 2005). However, whether people categorize based on diversity criteria or are threatened by the different ones depends on their beliefs about diversity (Homan, 2006). Therefore, applying the same logic, it can be assumed that people who hold strong pro-diversity beliefs are more inclined to see the merger as an opportunity rather than risk or threat. The merger should not represent a danger for those individuals who value the differences and believe that working with people with different educational, functional, cultural, cognitive backgrounds is beneficial and interesting.

Hypothesis 2: I argue that merger perception of threat vs. opportunity will mediate the

relationship between Diversity Beliefs and post-merger group identification and Diversity

Beliefs and post-merger group performance.

DIVERSITY BELIEFS AND SELF-EFFICACY IN THE CONTEXT OF ORGANIZATIONAL MERGERS

13 members based their group efficacy on similarity-attraction, which could inflate the perceptions of their efficacy.

Importantly though, I could not locate any research study, linking either diversity or diversity beliefs with change-related self-efficacy. And this is despite the fact that organizational changes have been a leading topic among practitioners and researchers in the last years. The nature of change has evolved and now it is highly rapid, complex and requiring maximum adaptation and flexibility on the organizational level and subsequently, self-efficacy on the individual level. Wanberg& Banas (2000) define self-efficacy as “an employee’s perceived ability to function well on

the job, despite the demands of a changing work environment”. Change has never been as

uncontrollable as it is nowadays (Burnes, 2004), the fact which requires increased adaptation skills (Chan, 2000), as well as constant change awareness. I argue that people holding strong pro-diversity beliefs will possess higher change-related self-efficacy, due to a more flexible and reconfigurable mindset and understanding of the context. Moreover, when individuals consider that diversity is beneficial and represents a competitive advantage for their group functioning, they will perceive the newly merged diverse group as able to better cope with change. Accordingly, being a member of a “strong due to diversity group”, individuals’ own appraisal about his/her capabilities on how to deal with the changing environment increases as well. I mentioned “newly

merged diverse group” on purpose, as mergers always bring about a certain degree of changes to

groups and organizations, due to in-flow of personnel, knowledge and expertise. It is widely accepted that one of the core motives behind M&A is creating unique value (Salter& Weinhold, in Krishnan, Miller& Judge, 1997), which can be created by differences in resources rather than similarities (Barney, 1986).

14 identification with the newly created group (also see Terry& Jimmieson, 2003). Similar results were found in Jimmieson, Terry& Callan study (2004), stating that people with high self-efficacy will perceive the merger as an opportunity, rather than threat or uncertainty.

Based on the above mentioned, I believe that diversity beliefs represent an important and innovative source for enhancing self-efficacy in workgroup and merger context. Therefore, I argue that:

Hypothesis 3: Self-efficacy will also mediate the relationship between Diversity Beliefs and

post-merger group identification and Diversity Beliefs and post-merger group performance.

DIVERSITY BELIEFS AND INFORMATION ELABORATION IN THE CONTEXT OF ORGANIZATIONAL MERGERS

Finally, the third factor that can explain the positive relationship between diversity beliefs and post-merger identification and performance is the so called process of information elaboration. Analyzing the mediating process of information elaboration is two-fold: on one hand, as discussed later, it offers groups the possibility to avoid the negative impact of diversity in terms of sub-groups existence and categorization and, on the other hand, it is a process of crucial importance for a successful integration of a merger between companies.

15 The first empirical evidence for the information elaboration process was found in the study by Homan, van Knippenberg, van Kleef& De Dreu (2007). Not only did the authors find that informationally diverse groups elaborated more information in the process of group decision-making, but also that pro-diversity beliefs engendered more information elaboration. Additionally, Homan et al. (2007) showed the mediation role of information elaboration between diversity and group performance (for more information see also Homan, 2006).

Besides, information elaboration can stimulate group performance through team reflexivity (Schippers et al. in van Knippenberg& Schippers, 2007) and team learning (van der Vegt& Bunderson, 2005).

In a broader sense, information plays a key role in the success of Mergers& Acquisitions, reducing uncertainty and threat among employees, induced by organizational changes (Stahl et al., 2004, Larsson& Lubatkin, 2001, Wanberg& Banas, 2000, Schweiger& Weber, 1989, McEntire& Bentley, 1996). In times of organizational mergers, when employees undergo a process of sense-making they need information in order to understand the merger and overcome the resistance to change (Sutton& Kahn in Jimmieson, Terry& Callan, 2004). Often it is not the quantity of information which is important, but rather the quality of the dialogue during the information exchange between employees’ of the acquiring and acquired organizations. Researchers proposed several recommendations on the topic of communication and information in the time of mergers, especially being destined for the acquiring organizations. They refer to the use of social controls and coordination efforts such as informal communication, cooperation between group members and teamwork. The outcome of these efforts would be enhanced post merger identification, better adjustment to the merger in terms of psychological well-being, job satisfaction and performance (Larsson& Lubatkin, 2001, Jimmieson et al., 2004). Therefore, I argue that:

Hypothesis 4: Information Elaboration will mediate the relationship between Diversity

16

METHODOLOGY:

PROCEDURE

As it has already been shown in previous research, scenario studies represent an efficient experimental design in the field of organizational mergers, and can provide valuable insights on people’s perceptions and behavioral changes related to it (Mottola et al., 1997). For this reasons I have developed a scenario study, based on Rentsch and Schneider (in Mottola et al., 1997) and the methodological approach of Giessner and colleagues (2006). The scenario included a standard introduction, with a brief description of the imaginary company where the respondent “was working”, the announcement and the description of the upcoming merger and a conclusion. Responses were collected from 254 participants, from various geographical, cultural, functional and educational backgrounds. I have used Qualtrics – the online survey solutions software - to design a standard layout for all the questionnaires, which would be easy to fill in electronically. Subsequently, I used several communication channels to distribute the link to the survey and mainly:

1. Online social tools (e.g. Facebook, Yahoo Answers) 2. Personal networks

3. Researchers, PhD and fellow students from Dutch Universities. Full anonymity was guaranteed.

PARTICIPANTS

The average age of respondents was 27 (SD=6.93). Out of 254 participants, 137 were male (64%) and 117 female (46%). The split by the field of activity was the following: 139 respondents were students (55%) and 115 were working (45%) in private and public sectors.

17

MEASURES

Diversity Beliefs (independent variable)

Diversity Beliefs were measured by a 2 item scale developed by van Knippenberg, Haslam, Platow in 2007 and adapted in 2008 by van Dick et colleagues to measure the beliefs about ethnic diversity. The respondents had to score two statements on a 5 point-Likert scale (1 – totally not

applicable and 5 – completely applicable). Since the present study focused on beliefs about both

visible and underlying diversity, the propositions were adapted to “Groups benefit from the

involvement of people from different ethnic, cultural, educational and functional backgrounds” and “A good mix of group members’ ethnic, cultural, educational and functional backgrounds helps doing the task well”. The Cronbach’s alpha for this scale was .65.

Measures for mediating variables

Perception of the merger – participants had to score 6 items on a 7 point-Likert scale (1 – Strongly

disagree and 7 – Strongly agree), measuring whether they see the upcoming merger as threat versus

opportunity or in positive versus negative terms. The perception of the merger measurement included an initial question “To what extent do you see the upcoming merger as…” and 6 possible options “risky/good step for our team/uncertain/negative experience/safe/positive experience”. Cronbach’s alpha = .74. The items were adapted from Ryan (2009).

Self-efficacy – in order to assess the perceived level of efficacy, 4 items on change-related

self-efficacy were used and adapted to the merger situation (items developed by Asford in Wanberg& Banas, 2000). The items were scored on a 5 point-Likert scale, ranging from 1 – Strongly disagree to

5 – Strongly agree. Participants had to score statements like “Wherever the merger of the two teams takes me, I'm sure I can handle it”, “I have reason to believe I may not perform well in the new team following the merger” (reversed). Cronbach’s alpha = .63

Information elaboration – 4 items measuring the level of information and knowledge elaboration

and exchange between members of the merging groups were used (in van Dick, van Knippenberg, Hagele, Guillaume& Brodbeck, 2008, see Appendix I). Items like “I would exchange task information

with the new members” and “I would think deeply about what the new members of my group say about task issues” were scored on a 5 point-Likert scale (1 – Strongly disagree to 5 – Strongly agree).

18

Measures for the outcomes

Post-merger group performance (first dependent variable)

Respondents had to score two statements about their opinion on the performance of the newly created group after the merger, adapted from Jehn and colleagues (1999). The 5 point-Likert scale varied from 1 – “Strongly disagree” to 5 – “Strongly agree” on the items “The newly merged group

will perform well” and “The newly merged group will be effective”. The scale showed a very high

reliability (Cronbach’s alpha = .85).

Post-merger group identification (second dependent variable)

Group identification measurement was based on 3 items from Terry& O’Brien (2001) and adapted to the organizational merger situation. Respondents had to answer to three statements on a 7 point-Likert scale, ranging from 1 – Not very much to 7 – Very much. The statements were “How

much would you identify with the newly created team?”, “How much would you see yourself as belonging to the newly merged team?” and “How much would you feel strong ties with the members in the new team?”The reliability of the scale was high (Cronbach’s alpha = .83)

Control variables

Considering the existing research in the area of diversity, and mainly that focusing on the positive impact of diversity on workgroup functioning (Jehn et al., 1999, Jackson et al., 2003) I considered important to control for the group composition. The respondents were told in the scenario study that they were members either of a diverse or homogeneous team. Besides, the group status proved to be an important determinant in M&A (Boen et al., 2007, Terry et al., 2001, Terry& O’Brien, 2001, Giessner et al., 2006), therefore I controlled for the group status as well. The respondents received the scenario, mentioning that they were members either of the acquiring or acquired organization.

ANALYSIS

19 Before explaining the set-up of the regression analysis it is important to mention that, for the purpose of the present study, a mediation model was tested and, thus, a multiple mediation analysis was completed (Baron& Kenny, 1986, Shrout& Bolger, 2002). A variable is considered a Mediator to the extent that it impacts the relationship between a certain predictor and outcome(s). In contrast to moderators which explain when certain effects occur, mediators provide insights on how and

why certain effects happen (Baron& Kenny, 1986).

RESULTS

CONTROL VARIABLES

I performed ANOVA to test if there are any differences in both outcomes (post-merger group identification and performance) and mediators in diverse versus homogeneous groups. However, there was a non-significant main effect of the composition of the group (diverse versus homogeneous) on the post merger identification (F (1,252) = .220, ns) and post-merger group performance (F (1,252)= 3.34, ns) and on all three mediators. Additionally, there was no significant effect of group composition on diversity beliefs F (1,252) = 1.617, ns. A similar procedure was conducted to test the effect of the Group Status on the outcomes and mediators. ANOVA tests did not reveal any significant effect of the Group Status on post-merger identification (F(1,252)= 1.087, ns) and post-merger group performance (F(1,252)= .089, ns), as well as no significant effect on the perception of the merger (F (1,252)= .296, ns), information elaboration (F(1,252)= 3.507, ns) and diversity beliefs (F (1,252) = .784, ns). However, there was a significant main effect of the group status on self-efficacy, members of the high status group scoring significantly higher on self-efficacy (M=4.00, SD=.49) in comparison to members of low status group (M=3.83, SD=.49). However, the effect size is relatively small (partial eta squared = .03).

CORRELATION ANALYSIS

20

Table 1: Means, Standard Deviations and Correlations of Variables

Mean SD 1 2 3 4 5 6 Diversity Beliefs (1) 4.06 .7 1 Merger perception (2) 4.13 .85 .251** 1 Self-efficacy (3) 3.92 1.07 .119* .237** 1 Information Elaboration (4) 4.19 .49 .299** .193** .340** 1 Identification (5) 4.54 .56 .249** .418** .289** .298** 1 Performance (6) 3.60 .63 .193** .403** .283** .309** .332** 1 **. Correlation is significant at the 0.01 level (2-tailed).

*. Correlation is significant at the 0.05 level (2-tailed).

The Pearson’s Correlation coefficient can be used to test the relationship between the variables and serves as a pre-test measure for the hypothesis. The analysis shows that all of the variables are significantly correlated. As assumed in Hypothesis 1a and 1b, Diversity Beliefs are correlated with both outcomes and mainly post-merger group identification (r=.249, p<.01) and post-merger group performance (r=.193, p<.01).

21

HYPOTHESIS TESTING

For testing the hypotheses I proceeded with a multiple mediation analysis instead of three simple mediation analyses, as suggested by Preacher& Hayes (2008), to determine the extent to which one mediator affects Diversity Beliefs – merger group identification and Diversity Beliefs – Post-merger group performance relationships in the presence of other Mediators. Another advantage of performing a multiple mediation analysis is to decrease the parameter bias, caused by the omitted variables.

First, the condition of prediction of the Mediators by the Independent variable was confirmed in a simple regression analysis. Thus, Diversity Beliefs proved to be a significant predictor of:

 Merger perception, β = .249, p<.001. Diversity Beliefs accounted for R² = 6.2% in the variance of Merger perception.

 Information elaboration, β = .299, p<.001. Diversity Beliefs accounted for R² = 9% in the variance of Information elaboration.

 efficacy, β = .119, p = .05. Diversity Beliefs accounted for R² = 1.4% in the variance of Self-efficacy.

Next, I have combined Step 2 and Step 3 in Hierarchical Regression, by entering Diversity Beliefs in Step 1 and Merger perception, Information Elaboration and Self-efficacy, but controlling for Diversity Beliefs in Step 2. Such analysis was performed separately for Post-merger identification and Post-merger group performance. The results of the analysis are shown in Table 2.

As predicted in Hypothesis 1 Diversity Beliefs are good predictors of post-merger group identification (β=.249, p<.005), accounting for 6.2% of its variability and of post-merger group performance (

β=.193, p<.005

), accounting for 3.7% of its variability.

22

Table 2: Standardized Coefficients from Hierarchical Regression with Diversity Beliefs as predictor of Post-merger Group Identification and Performance, mediated by Merger Perception, Information

Elaboration and Self-efficacy

Post-merger group identification

Post-merger group performance

β

β

Step 1

Diversity Beliefs

.249*

.193*

R²

.062

.037*

R² adjusted

.058

.033*

Step 2

Diversity Beliefs

.103*** (ns)

.038*** (ns)

Merger Perception

.328*

.325*

Information

elaboration

.153**

.189*

Self-efficacy

.147**

.138**

R²

.251*

.236*

R² adjusted

.239

.224

∆ R²

.189*

.199*

* p<.005, **p<.05, *** p>.05 (ns)

First, the direct effect of Diversity Beliefs on Post-merger Group identification (when entered alone in Step 1) was significant, β=.249, p<.005, R²=.062, as well as the direct effect of Diversity Beliefs on post-merger group performance (

β=.193,

R²=.037). Then, after entering in the model the three mediators, the direct effect of Diversity Beliefs on group identification (β=.103, ns) and group performance (β=.038, ns) was no longer significant, whereas all three mediators remained significant strong predictors of the post-merger group identification. Thus, in support for Hypothesis 2 perception of the merger in terms of opportunity vs. threat was a significant predictor of post-merger group identification (β=.328, p<.005) and post-merger group performance (β=.325, p<.005). Hypothesis 3 was confirmed, showing that self-efficacy was a significant predictor of group identification (β=

.147, p<.05)

and group performance (β= .138, p<.05). And finally, in support for Hypothesis 4, information elaboration significantly influenced post-merger group identification (β=.153, p<.05) and post-merger group performance (β=.189, p<.005).

23 Additionally, the Sobel test indicated a significant full mediation effect of merger perception on both post-merger group identification (z=3.33, p<.005) and post-merger group performance (z=3.3, p<.005), and a significant full mediation effect of information elaboration on post-merger group identification (z=2.25, p<.05) and post-merger group performance (z=2.6, p<.005). However, the Sobel test indicated a non-significant mediation effect of self-efficacy on post-merger group identification (z=1.5, ns) and on post-merger group performance (z=1.4, ns).

DISCUSSION

24 confirmed by the results of the study, as workgroup diversity did not affect the level of diversity beliefs.

In the present research I showed that pro-diversity beliefs can facilitate post-merger integration in terms of employee identification and performance. These processes are mediated by merger perception, self-efficacy and information elaboration. Therefore, those people who value diversity are more inclined to perceive the merger as an opportunity rather than threat or negative experience, as traditionally assumed. Individuals with pro-diversity beliefs are also more able to deal with the organizational changes and possess higher degrees of self-efficacy. And finally, they are more open for cooperation with individuals from the other merging company, in terms of information elaboration and knowledge sharing. Interestingly though, the Group Status did not have any direct impact on post-merger integration and performance, and this may be explained by the fact that in previous studies its effect was mediated by the level of perceived threat (Terry et al., 2001, Terry& Callan, 1998), pre-merger identification (Boen et al., 2007), merger pattern (Giessner et al., 2006) or perceived legitimacy (Terry& O’Brien, 2001). The implications of the study are important, because they show that diversity beliefs, and not the workgroup diversity per se, affect employees’ cognitive, judgmental and behavioral processes, which eventually account for the successful implementation of the merger. Each of these dimensions is discussed below.

In spite of being one of the most popular corporate trends, M&A are often negatively perceived by the employees. This perception has a crucial impact on further implementation of the merger. Terms such as “merger stress” or “merger syndrome” indicate that employees view M&A as a negative process, inducing high levels of threat (Amiot et al, 2006), job dissatisfaction and low morale (Buono& Bowditch, 1989). From the moment employees hear about the merger, they start feeling insecure and worrying about personal safety. In these conditions, most of the management integration efforts and change initiatives are doomed. Importantly though, I showed that merger perception as threat versus opportunity mediate the relationship between Diversity Beliefs and post-merger group identification and performance. In other words, one’s high pro-diversity beliefs affect his perception about organizational changes so that he will tend to see the merger as an opportunity and positive step for his organization, thus increasing the chances of a successful post-merger integration.

25 (Wanberg& Banas, 2000); Moreover, self-efficacy is essential for organizations, considering that more and more companies prefer flat organizational structures (Nordström& Ridderstråle, 2002) and the role of management is shifting from that of a leader or pioneer to more of a coach (Hemp, 2008). In these conditions, employees are not given instructions and have to rely heavily on personal capabilities and competencies. As a result, self-efficacy may be seen as one of the crucial driving forces of successful change efforts in organizations. The link between diversity beliefs and self-efficacy is a subtle one, and might not be self-evident. However, the current study demonstrates that people valuing diversity feel more confident in embracing uncertain and highly demanding situations such as M&A. Besides, I have shown that Group Status have an impact on the level of self-efficacy, so that members of the high status group feel more able to cope with the merger in comparison to individuals from low status group. This may be explained by the fact that employees from the acquiring organization often feel less threatened during a merger (Giessner et al., 2006, Terry&O’Brien, 2001) and that they are less exposed to identity discontinuity (van Knippenberg et al., 2002).

Information elaboration also mediates the relationship between Diversity Beliefs and post-merger group identification and performance. Taken from a Social Identity perspective, employees from the merging organizations will try to protect their team and discriminate the out-group members, by resisting information and practice sharing in the first place, which has detrimental effects on post-merger group functioning. Moreover, practice and research show that in 82% of M&A the knowledge is residing either within a particular group of individuals or within the strong social and cultural ties of the merging organizations (Rumyantseva, Gurgul& Enkel, 2002). The transfer of such socially embedded knowledge constitutes one of the main challenges in cross border M&A (Rantf& Lord, 2002, Ipe, 2003, Casal& Fontela, 2007). Individuals develop a certain pattern of interaction and relationships among them through organizational routines and processes, and tend to protect this knowledge and information during M&A. The present study showed however that employees holding pro-diversity beliefs will elaborate more information in the newly merged team/organization and will be more open to information sharing.

PRACTICAL IMPLICATIONS

26 of multi-functional teams, it is rather difficult to imagine a diverse team only in terms of race, gender or ethnicity. People also differ on many other dimensions such as education, functional background, tenure, values and beliefs. The advantage of this paper is that it considers diversity in a broader sense, which is more in accordance with corporate realities. As shown before, diversity beliefs have a positive impact on employee post-merger identification and performance. Considering the strategic implications of diversity beliefs in the merger context and the ubiquitous nature of the organizational culture, it is obvious that the former should be strongly embedded in the culture of an organization. Schein’s (1997) considerations on corporate culture propose that it sets implicit values and standards within workgroups and generates shared mental models and common understandings among employees. Only by developing a pro-diversity culture, companies can create non-rigid environment which would promote tolerance for ambiguity and appreciation of differences. In the long-run it would make the employees more open to corporate changes such as M&A, due to their abilities to better cope with the change, understand and positively perceive the mergers and increased willingness to share knowledge.

So how do we build an organizational culture promoting pro-diversity beliefs? In my opinion, this is

27 carefully choose the fields which are to be integrated, but in the same time allowing both companies to maintain their identity. As a result, these M&A are less threatening and create an appropriate environment for human integration and knowledge sharing. The practice shows that only those companies that have an inclusive culture, high tolerance for ambiguity and value for new ideas and perspectives can conduct partnering M&A. Therefore, building on pro-diversity beliefs is clearly a first step towards conducting a new type of corporate mergers.

LIMITATIONS AND FUTURE RESEARCH

28 beliefs shared by individuals. Besides, one could argue that the theory of social dominance might serve as another potential source of intrinsic nature for pro-diversity beliefs. The Social Dominance Theory was developed by Sidanius and Pratto (Sidanius, Pratto, van Laar& Levin, 2004) and focuses on understanding human relations and particularly the existence of social hierarchies between individuals. It is known that people with high social dominance orientation often cause prejudice, stereotypes and discriminatory behavior (Amiot& Bourhis, 2005) in contrast to individuals with lower social dominance orientation supporting more egalitarian values. With regard to diversity, a study by Umphress, Smith-Crowe, Brief, Dietz& Watkins (2007) showed that individuals high in social dominance orientation preferred traditional organizations, populated with men and somewhat homogeneous. To my knowledge there have been no studies linking social dominance orientation to diversity beliefs in times of organizational changes. I would expect individuals high in social dominance tendency to rate low on their diversity beliefs and consequently adapt with more difficulty to a merger process.

CONCLUSION

29

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World Wide Web

36

APPENDIX A

Example of the first three pages of the scenario study:

QUESTIONNAIRE ABOUT A PLANNED MERGER

Dear Participant,

Thank you very much for taking part in this survey. Please answer all the questions. There are no “wrong” answers to any of the questions in this survey; we are only interested in your personal opinion. The results will be treated confidentially (used only for research purposes) and your identity will remain

anonymous.

For all of the questions in the survey we kindly ask you to give your answer on a numerical scale. This will usually start from either 1 (Strongly disagree) to 7 (Strongly agree) or from 1(Strongly disagree) to 5 (Strongly agree). Please tick just one of the boxes, which represents the best your opinion.

For example: Strongly disagree Strongly agree 1 2 3 4 5 6 7 I like old movies

So, if you like old movies very much then you should tick 6 or 7 (corresponding to “strongly agree”). Alternatively, if you don’t like old movies you should select 1 or 2 (corresponding to “strongly disagree”). In fact you can select any of the seven numbers to show exactly what your choice is.