THE ROAD TO EFFECTIVE POST MERGER INTEGRATION

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THE ROAD TO EFFECTIVE POST MERGER INTEGRATION

“AN APPLIED ANALYSIS OF THE FACTORS THAT INFLUENCE THE WILLINGNESS TO INTEGRATE”

Versie 2.0 (public version)

Marco van Marle 1384929

University of Groningen MscBA Change Management Faculty of Economics and Business Supervisors: drs. L. de Waal and dr. C. Reezigt

Oosterdorpsstraat 87a 3871AC Hoevelaken

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THE ROAD TO EFFECTIVE POST MERGER INTEGRATION

ABSTRACT

This thesis is a gap analysis of the willingness to integrate at two merging window frame

manufacturers. Insights from literature on post merger integration and organizational change were combined into factors that influenced the willingness to integrate. This resulted in an analysis of the factors speed of integration, communication and objectives for integration.

The current level of willingness to integrate was assessed at WOOD/PVC. Although one of the companies is leading in the integration, both companies display a similar level of willingness to integrate. There are however interesting differences between groups within the companies. An early communication of the integration seems to have caused this. Finally recommendations were made on how to improve the willingness to integrate.

Key words: Post Merger Integration, Speed, Communication, Objectives, Willingness to integrate

Acknowledgements

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1. INTRODUCTION AND RESEARCH OUTLINE

This thesis is based on the research performed at Wood Inc. and PVC Inc.. Many changes are taking place within both organizations. The names of both companies are fictitious.

Therefore it was an excellent environment for me to finish my master Change Management. This master is a part of the Business Administration program at the University of Groningen.

The internship was conducted within the Talentproject, a project aimed at knowledge sharing between students and companies in the north of the Netherlands. The core of this project is the master – apprentice relationship to stimulate knowledge sharing. I was lucky to have Erik van Dijk, the CEO of both companies as my master.

1.1 Wood Inc. and PVC Inc.

Since 2000 Wood Inc. (WOOD) and PVC Inc. (PVC) are part of the Doorwin holding. The strategy of Doorwin is based on autonomous growth of its companies and growth by acquisitions. In 2007 both companies, and ESENO, the service company of PVC, are chaired by one executive board. In 2008 the board was asked to chair another company: Northgo Doors.

The board was provided with the task to maximally integrate both companies. Recently the sales dPVCartment has been integrated. During the internship the planning and execution of the integration of both internal organizations was taking place.

WOOD and PVC are both manufacturers of window frames but besides that the organizations are very different. What sPVCarates them is that WOOD has proven in the past years to be a healthy, profitable organization. PVC on the other hand has just recovered from major financial losses. PVC is also smaller in turnover and in employee count. WOOD has a professional way of handling things; PVC is perceived as less professional and has a culture which is less profit driven, by some people of WOOD described as a “sick culture”.

1.2 Description internal organizations

The internal organization (IO) of PVC and WOOD consists of Work PrPVCaration (Wvb), Calculation (Calc) and Project Leaders. Planning, ICT, Sales Support and Office Management are also involved in the integration. When the word office organization (OO) is used in this thesis the IO as well as the other dPVCartments involved in the integration are referred to.

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2. RESEARCH OUTLINE

2.1 Description of the problem and owner of the problem

WOOD and PVC have been put under the authority of one executive board. The shareholder, Doorwin B.V. has provided the executive board with the assignment to fully integrate both companies. The current phase is the integration of both Office Organizations (OO’s).

Important issues in the integration are the “soft” or human issues (Daniel, 1997; Cartwright & Cooper, 1990). To profit the most from economies of scale people need to cooperate, work efficiently and make an effort for the new organization.

The CEO of WOOD/PVC (Erik van Dijk) together with the rest of the board is responsible for a successful integration and is therefore responsible for the human issues related to the integration. He can be seen as the owner of the problem. He will be judged by the board of Doorwin on the performance of the integrated organization.

2.2 Research objective

The research objective is to make recommendations to the executive board of WOOD/PVC for an effective integration by assessing the willingness to integrate of WOOD and PVC employees. The main factors that influence the willingness to integrate are speed of integration, integration objectives and communication related to the integration. The recommendations should support management in enlarging the willingness to integrate for the realization of both economies of scale and synergies.

2.3 Problem context

The context consists of the actors that have a stake in the integration of WOOD and PVC. The sales and production dPVCartment that are not involved in the integrated are of importance.

The CEO with the rest of the board can be seen as owners of the problem and are important actors. The shareholder has a financial stake in the integration. He aims to increase the value of the organization by integrating the OO.

The context of the problem is of particular interest in this situation because it determines the way the integration will be led. Integration plans were initiated by the shareholder and imposed on the executive board. This causes the integration to be led top-down. (Conger, 2000)

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2.4 Constraints

This research is performed with some preconditions. The first condition is time; I have performed this research in a timeframe of six months. Since the integration was not completed within the timeframe of the research the results of the integration are left aside.

Another condition was the discretion surrounding the integration. Employees were informed two weeks before the research ended. Hence it was not possible to conduct a survey or interviews until the integration was announced.

2.5 Research paradigm

Beer and Nohria (2000) characterize change in two dimensions, theory E and theory O. Theory E has the purpose to create economic value, its focus is on formal structure and systems, top-management-driven, planned and programmatic. On the other hand, theory O has as its purpose to increase the human capability to implement strategy, its focus is on the development of a high commitment culture, change is emergent, less planned, and less programmatic.

When distinguishing these different approaches to change one should realise that such a distinction is artificial. Every change consists of planned and emergent elements that are more or less prominent in a change process (Burnes, 2004).

In the case of WOOD/PVC management defines the integration as organic. It is carried out stPVC by stPVC, in which they proclaim not to know the next series of stPVCs. This resembles the theory O of Beer and Nohria. However the integration is aimed at creating economic value and is top-management-driven which is a typical aspect of a theory E approach. In chapter four I will further discuss the objectives for integration.

The initiative for integrating both organizations came from the top; the board of Doorwin assigned the board of WOOD/PVC with this task. The level of involvement is low. The executive board and members of the management team make plans for integration and decide which approach is best. This is then communicated to the employees. Therefore theory E, as described by Beer and Nohria (2000) is most prominent in this integration.

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2.6 Research Model

Figure 2: research model

2.7 Clarification Research model

This research is a case study in the form of a diagnostic gap analysis (Verschuren and Doorewaard, 2007). The desired situation is compared to the actual situation and the way in which the desired situation can be reached is the outcome of this research.

The factors that are studied are speed of integration, communication and objectives for integration since these are dominant in recent literature on post merger integration.

According to Angwin (2004) Speed has become the new mantra in the domain of Mergers and Acquisitions. The reasons for this are however not very clear. By comparing literature of organizational change and that of mergers and acquisitions this research aims to provide an answer to the influence of speed on the willingness to integrate.

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The objectives for integration are important to explain the rationale of the merger and can be used to create a sense of urgency (Kotter, 2008). The objectives also determine how the integration will be led,

A study of the theories regarding speed of integration, communication, and willingness to change as well as the objectives of the integration leads to properties of an effective integration. This will be compared with the assessment of the willingness to change of the OO of PVC and WOOD. A comparison of these analyses will result in recommendations to the executive board of WOOD and PVC for an effective integration. The recommendations are therefore the result of the measurement of the willingness to integrate and a study of the literature.

These recommendations are aimed at enlarging the willingness to integrate.

Central question1:

What are properties for an effective integration of the Office Organizations of WOOD and PVC? Preliminary questions:

What are the objectives of the integration in the case of WOOD/PVC? What are the communication needs during an integration?

Sub-questions:

To what extent do the objectives match with properties for effective integration? To what extent does the willingness to change influence an effective integration?

To what extent can communication be used at WOOD/PVC to increase the willingness to integrate?

To what extent does the speed of integration at WOOD/PVC influences an effective integration?

Central question 2:

What is the willingness to integrate at PVC/WOOD in view of the properties of effective integration at WOOD/PVC?

Sub-questions:

How can the starting situation of the willingness to integrate at the Office organization of WOOD be characterized by using the DINAMO questionnaire?

How can the starting situation of the willingness to integrate at the Office organization of PVC be characterized by using the DINAMO questionnaire?

To what extent does the willingness to integrate at both companies support an effective integration?

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What are the main results when comparing the ways in which the willingness to integrate at WOOD and PVC support the integration?

What are the differences in the willingness to integrate between groups at WOOD and PVC? To what extent can the differences in the willingness to integrate at WOOD/PVC be

explained?

Research objective:

The research objective is to make recommendations to the executive board of WOOD/PVC for an effective integration by assessing the willingness to integrate of WOOD and PVC employees and examining speed of integration and communication as ways to enlarge the willingness to integrate.

2.8 Starting situation

The willingness to integrate is not only determined by speed and communication. Previous experiences with changes in the organization, own ability to change and peer opinions about the integration determine the willingness to integrate (Metselaar, 1997).

Just after the announcement of the integration, the willingness to integrate of the involved dPVCartments was measured. This information can be used to adjust the communication strategy. Metselaar and Cozijnsen (1997:35) state that “besides that it (the DINAMO instrument) provides a good starting point for explaining the willingness to change, it also offers concrete ways to develop interventions to enlarge the willingness to change”

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3. WILLINGNESS TO INTEGRATE

This chapter starts with a review of the literature on resistance and willingness to change. Willingness to integrate is the central element in the research model. In this case the specific type of change is an integration, the factors that influence the willingness are applied to the integration as well as the questions in the DINAMO. In this situation I therefore speak of willingness to integrate.

I examine different ways of looking at the concPVCt resistance. The approach that I take is described into more detail and compared to the overall vision on resistance at WOOD/PVC. This is also input for the analysis of the level of willingness to integrate and will lead to recommendations in the conclusion of this thesis.

3.1 Resistance or unwillingness to change

According to Swieringa and Jansen (2005), the most common opinion of managers is that their employees should act upon the desires of the manager. In line with this vision are images of employees obstructing management’s ideas and managers who force/motivate employees to behave according to their plan. Resulting from this vision is the concPVCt of resistance as something undesirable that should be overcome. Resistance to change is perceived as an irrational, unavoidable reaction to organizational change (Metselaar, 2007). To sum it up: in the traditional view resistance is a concPVCt that is invoked amongst persons at the operational level of an organization. This resistance is irrational and hinders change, therefore it should be overcome and managers should be equipped to do so.

3.2 Willingness to change; an alternative view

The alternative perspective is one that views resistance as something that is not unavoidable but avoidable, not undesired but legitimate, no expression of disapproval but one of concern and not harmful but even beneficial to organizations (Metselaar, 1997).

Labelling individuals or groups as resisting fuels resistance and thus functions as a self-fulfilling prophecy (Merron, 1993 in Metselaar, 1997).

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The framework of willingness to change is an alternative that values resistance as something positive. By taking this approach, the resistance dissolves more quickly. It is recommended by Metselaar (1997) for managers to assess the willingness to change in an organization, by doing this managers are provided with insight of the level of willingness and of the elements it is composed of.

In this research the willingness to integrate is measured by the DINAMO questionnaire (Metselaar, 1997); it is based on Ajzen’s model of planned behaviour (1991). This psychological model can be used to determine a person’s behavioural intention, in this case the willingness to integrate. The input variables are mediated by the intention of which behaviour is the outcome.

When the attitude of employees is discussed, management of WOOD/PVC mainly views resistance in the traditional way. Making use of the alternative view of willingness to change might therefore not be appropriate. The alternative perspective however is considered to be a more effective way that will lead to better results in this situation. That is why this approach and the DINAMO questionnaire are used.

Following Ajzen’s model, Metselaar states that willingness to change can be defined as: “A positive behavioural intention towards the implementation of modifications in an organization’s structure, or work and administrative processes, resulting in efforts from the organization member’s side to support or enhance the change process” (Metselaar, 1997:34). Ajzen’s model can be used to understand how willingness to change is composed and provides insight in how it can be enlarged. The model of willingness to integrate is therefore based on Ajzen’s theory which will be further discussed in chapter 7. Positive forces from the model can be underlined in communication. When employees have misconcPVCtions regarding elements of the integration that limit their perceived behavioural control, the communication of management should target these misunderstandings. In this way the perceived behavioural control can be enlarged by management.

3.3 Willingness to integrate; a contribution to success?

Unfortunately there is no empirical research that evaluates the effect of willingness to integrate on the effectiveness of the integration. Other research on the field of organizational change and post merger integration (PMI) is therefore examined to examine this relationship and to ground the assumption.

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similar types companies are integrated instead of companies that are complementary. Since WOOD and PVC are quite similar in their activities, resistance might very well be an issue.

3.4 Conclusion

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4. OBJECTIVES IN POST MERGER INTEGRATION

In an integration it is valuable to have a clear image of the objectives. The first reason for this is that a confrontation with the objectives can create positive urgency for change (Cozijnsen, 2004). A comparison between the current and desired state of the organization leads to formulating objectives that highlight the relevance of the change process and create a sense of urgency. According to Kotter (2008) establishing urgency, which can follow from such a comparison, should be the first stPVC in every change process.

Secondly, the objectives are a valuable tool to monitor and evaluate the results of the integration process. During and after an integration it is worthwhile to assess if the integration is still on track (Burnes, 2004)

In this chapter I will first discuss different strategies for integration because this determines the outcomes of the integration. This leads to the next section in which I describe different potential outcomes of post-merger integration which I apply to the situation of WOOD/PVC. Thirdly, I discuss the most dominant objectives for the integration of WOOD/PVC. Finally I describe the relationship between these objectives and the willingness to integrate.

4.1 Strategies for integration

Another advantage of having clear objectives is that these help to determine the best-suited integration strategy. The objectives can be leading in choosing an appropriate approach; I will briefly discuss these frameworks.

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Marco van Marle | April 2009 | Page 16

Author Dimensions Strategies distinguished

Batelaan and van Essen (2006)

Effectiveness both partners – Similarities of processes

Preservation, Symbiosis, Insertion, Merger of equals

Haspeslagh and Jemison (1991)

Degree of strategic

interdPVCendence – Need for Autonomy

Preservation, Symbiosis, Absorption, Holding (no integration)

Walter and Barney (1990)

Relationship in the market Horizontal, Vertical, Concentric, Conglomerate

Marks, Mirvis & Mercer (1998)

Degree of integration SPVCarate holding - merged and consolidated

Table 2: Strategies for mergers and integration

These frameworks do not provide guidelines for integration; they do however provide a language to discuss different merger strategies.

Mergers are mostly labeled as mergers of equals whilst researchers argue that a true merger of equals does not exist (Batelaan and van Essen, 2006). They argue that an insertion is more common. As can be concluded from the introduction, WOOD is the most dominant partner in the integration. It is arguable that in this case it is more an insertion or absorption of PVC in the organization of WOOD than a merger of equals. According to the framework of Batelaan en van Essen, (2006) for a merger of equals, both partners need to be equally well performing. The effectiveness of PVC is not up to standard, which makes the only strategy suitable a one-way insertion. The consequence of an insertion is that economies of scale can be obtained relatively easy. Unfortunately, synergies are not likely to result from this integration strategy.

In the case of WOOD/PVC the chosen strategy is a combination of a merger of equals and a one sided insertion. Although WOOD is leading in the integration and PVC is not performing effectively, structures and working methods of PVC that are effective will be applied in the new organization. Next to this, the equality is highlighted by the fact that both companies have the same shareholder and are managed by the same board.

4.2 Objectives for integration at WOOD/PVC

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Economies of scale can simply be regarded as cost reduction by an increase in output. When organizations merge, it is presumed that this will reduce the costs, for example, housing costs and employee count are expected to be reduced.

The concPVCt of synergy is a more strategic one. A simple explanation of synergies is the equation 1+1=3, the sum of parts is larger than the sPVCarate entities. Synergy is also about value in the market; two organizations combined should have a stronger market position and should be able to deliver more value to the customer.

Batelaan and van Essen (2006) highlight that an integration initially results in higher costs; ICT solutions, the costs of moving and a decrease in productivity caused by insecurity among the personnel all result in higher costs. If economies of scale are the motive of a merger, management should realize that an increase of costs will accompany the integration. Over time however economies of scale could deliver value.

Synergies on the other hand can deliver strategic value other than cost reduction. The realization of synergies will also result in a cost increase; this is not a major problem because cost reduction is not the primary objective of the integration.

The choice for either synergies or economies of scale is relevant when determining the strategy for the integration. At WOOD/PVC, the motives for integrating businesses are market driven. Customers are looking for one supplier for both wooden and PVC window frames. By integrating sales staff, WOOD/PVC can deliver extra value to the customer and increase turnover.

A result of this integration is that the account managers have to cooperate with two IO’s (Internal Organizations); this is not effective and therefore the decision has been made to integrate the IO’s. The targets that are formulated for the integration of the OO (Office Organization) concentrate on the following themes:

Sales increase, realized by better market approach Increase in efficiency of OO

Mutual learning (former PVC- former WOOD)

The first and the last objectives are objectives for synergy realization. The efficiency objective is aimed at economies of scale. Another way of looking at it is the objective of managerial synergies that Trautwein (1990) distinguishes. Management at WOOD is perceived as more qualified. An effective management structure in combination with staffing form PVC could result in more efficiency of the OO. Another outcome resulting from the integration is that moving to one location instantly reduces costs.

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4.3 Conclusion

As I have mentioned in the introduction of this chapter having clear objectives can establish an urgency of change. In this case, the change is an integration, when employees recognize the rationale of the integration the willingness to integrate will improve. That is why Metselaar (1997) has identified the outcomes for the organization as one of the elements that determines the willingness to change.

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5. COMMUNICATION

In this chapter, I examine communication as a tool to leverage the willingness to integrate and ultimately contribute to an effective post-merger integration.

Together with speed of integration and the objectives for integration communication is one of the input variables in this study. The reason for this prominent position of communication is that it plays an important role in literature on organizational change and in literature on PMI.

Wissema et al. (1996) even state that communication is by far the largest problem in organizational change. In a publication on post-merger integration, Ainspan and Dell (2000) argue for communication tools to deal with “FUD”: Fear Uncertainty and Doubt.

Firstly I will address the communication needs in post-merger integrations, the determinants of “effective” communication which will lead to conditions regarding properties of effective integration and willingness to integrate. Secondly I will describe the use of communication at WOOD/PVC which leads to predictions regarding the willingness to integrate at WOOD/PVC. Finally I will explain the relationship between communication and the willingness to integrate.

5.1 Communication needs in post merger integration

Ainspan & Dell (2000) carried out research among 105 companies that recently were engaged in M&A and distinguished between successful, mediocre and unsuccessful communications. There were some remarkable results:

Sixty-five percent of companies rPVCorting successful communications rPVCorted successful financial results.

Seventy percent of companies rPVCorting successful communications rPVCorted an increased productivity

Sixty percent of companies rPVCorting successful communications rPVCorted an increased stock price.

This shows a correlation between communication and integration outcomes. However, companies with a successful communication probably put a lot of effort in the integration as a whole, which could also be a positive contribution to the outcomes.

If we assume not only a correlation between communication and positive outcomes but also a causal relationship between these, the question that comes to mind is: What is a successful communication strategy?

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A few of the specific properties of communication according to Ainspan and Dell (2000) are: Listen to employees and maintain two-way communication.

Clarity and honesty are important elements of the content.

Take advantage of employee trust, and develop this trust along the employees Attend to and address rumours.

Communicate during “silent periods”; tell employees when you will be able to communicate. The merger rationale, the corporate vision statement, the merger process, progress rPVCorts

and employee impact should be the core messages of communication.

Communicate, communicate, communicate even when there is nothing to communicate then you should communicate that (Batelaan and van Essen, 2006:54).

For non-routine changes like a post-merger integration “rich” media, face to face or telPVChone, should be used (Lengel and Daft, 1988).

Employees will be interested in what the integration means for their own future within the organization. They have secondary interest in organizational matters (Appelbaum et. al., 2000). Communication must address these individual issues in an early stage.

Schweiger and Denisi (1991) have performed a case study and propose that employees should be provided with realistic information. This enables them to cope with uncertainty. This information should be provided early in the process. Unfortunately management that is leading the integration process is not always able or willing to provide this information. This is called the merger syndrome; during a merger, there is increased centralization and decreased communication by management with employees (Marks and Mirvis, 1997). This will lead to an increase in personnel related problems during a merger.

Regarding to timing of communication there is some controversy. Limiting the time between the first moment of communication and the actual integration could minimize uncertainty (Angwin, 2004). On the other hand withholding information from employees will not be good for management’s trustworthiness. It could also cause employees to make their own image of the integration. By postponing formal communication, the corporate rumour mill has more time to do its work, which is also a good source on uncertainty amongst employees.

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5.2 Communication: the story so far

“A lie can travel halfway around the world while the truth is still putting on its shoes” Mark Twain

The quotation of Mark Twain is illustrative for the state of communication at WOOD/PVC. The first time that I had contact with the board of WOOD/PVC was December 2007, then they already knew about the integration and had been thinking about it for some months. I started my internship in March 2008, the 19th of August was when the integration was officially communicated for the first time.

For a long time at WOOD/PVC there was no communication, at least no formal communication from management. Employees themselves of course did communicate about the integration. Employees created an image of the integration, as the quotation of Mark Twain shows; it could take a lot of effort for the truth to correct these false images.

The reason for postponing the communication of the integration was that management did not determine the aspects of the integration and waited until the negotiations with the union were completed. Minimizing the period of uncertainty was another reason to postpone the moment of communication.

Smeltzer (1991) concluded after interviewing within 43 organizations that a large number of incorrect rumours about the change differentiated the most between effective and ineffective communication strategies.

The presence of rumours at WOOD/PVC puts a greater pressure on the formal communication. Communication should take care of the rumours and convince employees of the real scenario, this could take some effort, not communicating probably did not increase the trustworthiness of management.

5.3 Conclusion

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6. SPEED IN POST-MERGER INTEGRATION

Businesses and society at large are changing rapidly. In order to kePVC up with the rapidly changing environment, businesses should change at the same pace (Burnes, 2004). Regarding post-merger integrations many practitioners prescribe a fast integration with quick wins in the first 90/100 days (Batelaan and van Essen, 2006). Speed is perceived as the progress over a given period.

Schweiger and Goulet (2000) describe two perspectives on the issue of speed. The first perspective suggests that targets be integrated slowly. The buyer should take time to get to know the target firm, its people, culture, operations, markets, etc. before making changes. This is probably due to the lack of completeness of the dues diligence or pre-closing acquisition planning process. (Schweiger and Goulet, 2000:79)

The second perspective suggests that the integration process be fast. Speed of integration is presumed to avoid periods of uncertainty in direction, both in the organization and in the marketplace. It also sets an early expectation that changes will be made and mitigates some of the build-up of political resistance to change. (Schweiger and Goulet, 2000:79).

In this chapter I will describe both groups in order to determine the influence of speed at WOOD/PVC and the appropriate level of speed for an increased willingness to integrate.

6.1 Time is money; the factor speed from a financial perspective

According to PVCstein (2004) the importance of speed for successful post-merger integration is often underestimated. PVCstein (2004:178) even states: solutions should focus on speed and functionality over perfection, and “80-percent solutions should typically be accPVCted.

PriceWaterhouseCoopers (2000) has conducted a survey of 125 companies. They show that companies that make fast transitions rPVCort better financial performance. 89 percent of management regrets that they did not move fast enough during post-merger integration. PriceWaterhouseCoopers (2000) did not define the factor speed, respondents specified pace of integration in relationship to normal pace of operations.

Besides this study, there is no evidence of speed contributing to the financial performance of mergers.

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Homburg and Bucerius (2006) argue that a fast integration is sometimes beneficial from a customer perspective since the organization is perceived as more stable.

There is however, no evidence that speed of integration relates positively to financial performance.

6.2 Organizational benefits or detriments of speed

According to Cozijnsen (2004) the speed in which change occurs is an important element of successful organizational change. He argues that a fast change makes it easier for employees to cope with the change. Lengthy changes on the other hand will lead to “change fatigue” and decrease the willingness to change. The advantages of speed can be compared to ripping of a band-aid; if it is done quickly, it hurts a bit but the pain over in a second.

A fast integration also limits the period of uncertainty amongst the workforce (Angwin, 2004). Early successes, the so-called quick wins in post-merger integration can help to establish support; it can create a climate of enthusiasm and expectancy. According to Kotter (2008) this will help to increase the positive sense of urgency.

Is there a downside to speed, what are its detriments, or as Angwin (2004:420) questions: What is sacrificed on the altar of speed? Homburg and Bucerius (2006) found that in some integrations speed can have detrimental effects; speed increased uncertainty amongst the workforce. They propose a contingency framework which is the subject of the next section. The detrimental effects from speed are based on the argument that employees and both organization need time to get used to each other. Resistance, fear and increased absenteeism might be outcomes of a fast integration (Homburg and Bucerius, 2006).

6.3 Speed, a contingency perspective

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Marco van Marle | June 2009 | Page 24 high

Weak beneficial effects Strong detrimental effects Very negative effect of speed

Weak beneficial effects Weak detrimental effects Weak effect of speed External relatedness Target Markets Market Positioning low

Strong beneficial effect Strong detrimental effect Weak effect of speed

Strong beneficial effects Weak detrimental effects Very positive effect of speed

low high

Internal relatedness Strategic Orientation Management Style Performance Figure 4: framework of effects of speed; based on Homburg and Bucerius (2006)

6.4 Speed and the willingness to integrate at WOOD/PVC

Speed can cause detrimental effects like fear and uncertainty, in this way there is a relationship between speed and the willingness to integrate. There is a relationship but is it a positive or a negative one? Authors on organizational change ascribe positive attributes to speed (Kotter, 1995; Cozijnsen, 2004). But does this account for situations of post-merger integration or should we take the social identity theory in account that proposes that time is needed?

Since Homburg and Bucerius (2006) are the only ones that have conducted empirical research on speed of integration, I use their framework to determine the appropriate level of speed.

WOOD and PVC are strongly externally related; they have a similar market position and act in the same target markets.

The internal relatedness is the most interesting because combined with speed this influences the willingness to integrate. Internal relatedness is composed of management style, pre-merger performance and strategic orientation. Management style is getting more and more similar since there is one executive board. The strategic orientation of both companies are alike, there is one strategy formulated for both companies. Pre-merger performance of PVC is much lower than the pre-merger performance of WOOD. There is a moderately low internal relatedness, employees working at the IO of PVC and WOOD perceive both companies as quite different. My own observation and the opinion of the employees taken together results in a low internal relatedness.

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7. PROPERTIES OF EFFECTIVE POST-MERGER INTEGRATION

The former chapters on the objectives of the integration, the willingness to integrate, communication and speed are combined in this chapter.

I have used the theory of planned behaviour of Ajzen (1991) to construct a concPVCtual model. Chapter eight is a discussion of the results of the analysis of the willingness to integrate at WOOD/PVC by the DINAMO instrument.

These two images, one of the perfect situations and the image of the actual situation will be compared. The gap between these images should be bridged for WOOD/PVC to establish an effective integration, which will be the topic of chapter nine and ten.

7.1 ConcPVCtual model

The concPVCtual model is based on Ajzen’s (1991) model of planned behaviour.

Figure 5: Model of planned behaviour (Ajzen, 1991)

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Communication, objectives for integration and speed of integration are the input variables in this model. Communication is the only factor that influences all three variables; the reason for this is that communication is seen as an influencing factor in many studies on organizational change and PMI. The mediating variables together are the willingness to integrate; I will investigate the willingness to integrate by using the DINAMO.

7.2 Willingness to integrate as a mediating variable

The mediating variables together are the willingness to integrate. The willingness to integrate is composed of the attitude, the subjective norm and the perceived behavioural control. These three factors determine the behavioural intention, which influences the actual behaviour. All four factors together are the willingness to integrate.

The attitude towards the integration refers to the degree to which a person has a favourable or unfavourable evaluation or appraisal of the integration (Ajzen, 1991:188).

Ajzen (1991:188) describes the subjective norm as the perceived social pressure to perform or not to perform in support of the integration. It is the peer pressure or the dominant position towards the integration.

The perceived behavioural control is the perceived ease or difficulty of performing the behaviour and it is assumed to reflect past experience as well as anticipated impediments and obstacles (Ajzen, 1991:188). It is the extent to which a person believes he/she can perform certain behaviour.

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7.3 Communication

As can be seen in the concPVCtual model communication has an influence on all three mediating variables:

The attitude towards the integration of individual employees can be adjusted by using communication. It is widely accPVCted that when employees know more about the rationale of the change they will more readily accPVCt it (Schmeltzer, 1991). Thus, effective communication, as specified in the previous section on communication, will lead to greater accPVCtation of the integration.

As stated before, the word perceived in the perceived behavioural control indicates that it is a subjective judgment. Communication can influence those elements. Past experiences can not be influenced. The anticipated impediments and obstacles can be. It is worthwhile to encourage employees to speak up about these issues, actual difficulties can then be handled and misunderstandings can be taken away. Communication should therefore address these issues and there should be trust to discuss these openly.

7.4 Objectives

The objectives of the integration influence the subjective norm. The subjective norm is composed of opinions of colleagues and management. It is therefore important to have a highly positive image of the integration within the organization. By emphasizing the objectives of the integration the rationale of the integration and the positive opinion of management are highlighted. This creates a sense of urgency for the integration.

The properties for the objectives following from chapter three are: Clear and measurable

Known to the organization

Understood and acknowledged by employees

7.5. Speed

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8. ASSESSMENT OF THE WILLINGNESS TO INTEGRATE AT WOOD AND

PVC

8.1 Data collection

A week after the announcement of the integration I assessed the willingness to integrate of both companies by using the DINAMO questionnaire (Metselaar, 1997). I sent an invitation to 138 employees who were involved in the integration. All employees of the IO got an invitation as well as the sales employees and managers of the production dPVCartment. The first group is the group that is most influenced by the integration, sales employees and management of production are invited since they have a day to day relationship with the IO and are therefore also influenced by the integration. Other employees of WOOD and PVC are production employees that are not invited to fill in the questionnaire since they are marginally influenced by the integration.

In total 111 people completed the questionnaire, a score of 80%. There were 30 responses from PVC employees, 60 of WOOD employees and 21 respondents worked for both companies.

Figure seven shows in which dPVCartments these people were working.

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The questionnaire was initially developed by Metselaar in 1997, I have used version 3.0 that is composed of 59 multiple choice questions. People had one week to complete the questionnaire. I stressed the confidentiality of the results in the introduction of the questionnaire.

All of the questions had answer possibilities in the form of a Likert scale (completely agree to completely disagree rPVCresented in values of 1-2-3-4-5). I recoded some of the answers so that they range from very negative to very positive in which a score of five rPVCresents very positive.

Values above 3 are considered a positive willingness to change whilst values below 3 indicate a negative willingness to integrate.

As can be seen in the concPVCtual model, figure 6, the willingness to integrate consists of three elements; attitude, the subjective norm and the perceived behavioural control. The attitude and the perceived behavioural control are composed of different factors. I have analyzed the internal consistency of these factors by Cronbachs Alfa, the outcomes are presented in table 3. A minimal value of 0,70 is supposed to be reliable enough (Keller and Warrack, 2003).

Number of

questions Cronbachs Alfa

Effects on work 9 0,911 Emotions 5 0,872 Added value 5 0,886 Attitude Involvement 4 0,818 Subjective norm 8 0,732 Knowledge 7 0,723 Insecurity 7 0,825 Complexity 7 0,852 Perceived behavioural control Timing 5 0,746

Table 3: Alfa values

Knowledge originally had an α of 0,610. The results showed that one questions regarding negative experiences with organizational change had to be removed to increase the internal consistency to an α of 0,723.

With regard to the factor timing the α was 0,685. After the removal of the question if the respondent is ready for changes in his work, α increased to 0,746.

8.2 Results

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Another interesting finding is that the difference between WOOD and PVC employees seems to be minimal. I expected employees of PVC to score less they suffer the most from the integration on a short term.

I have tested for a significant difference between the means of the three groups, the results can be found in section 8.4.

Means distinguished by company employed

Employee of: Attitude

Subjective norm Perceived behavioural control PVC Inc. 3,3630 3,6226 3,2157 Wood Inc. 3,2942 3,6065 3,3017 Both companies 4,0161 4,0147 3,5867 Total 3,4494 3,6881 3,3324

Table 4: DINAMO results distinguished by company employed

Table 5 shows the results of the DINAMO distinguished by the moment of communication. Some employees (26) were informed of the integration plans before they were communicated to the entire company. One of the questions was if they were informed before or after the holidays (in the Netherlands the summer holidays are prescribed for all personnel in the building sector). 26 Employees were informed before the holidays and the remaining 85 employees were informed one week after the holidays. Employees that were informed earlier have a higher score on all three factors. I have tested for a significant difference between the means of these two groups, the results can be found in the next section.

Means related to moment of communication

Moment of communication Attitude Subjective norm Perceived behavioural control Before holiday 3,7799 3,8292 3,5418 After holiday 3,3483 3,6449 3,2683 Total 3,4494 3,6881 3,3324

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8.3 Test design

There are a number of hypotheses that I tested regarding the differences between groups of respondents distinguished by moment of communication and the company that they work for. These hypotheses are related to central question three. With these hypotheses I aim to provide an insight in the differences in the willingness to integrate of WOOD an PVC.

H1: The attitude towards the integration measured amongst employees of PVC is significantly lower than those working for WOOD or both companies.

H2: The subjective norm measured amongst employees of PVC is significantly lower than those working for WOOD or both companies.

H3: The perceived behavioural control measured amongst employees of PVC is significantly lower than those working for WOOD or both companies.

H4: The attitude towards the integration is significantly higher amongst employees who were informed earlier of the integration.

H5: The subjective norm is significantly higher amongst employees who were informed earlier of the integration.

H6: The perceived behavioural control is significantly higher amongst employees who were informed earlier of the integration.

I adopt a significance level of 0,05 for accPVCting or rejecting these hypotheses.

For the first three hypotheses I will perform a one way analysis of variance (ANOVA). This is appropriate since there are more than two groups and the answers are on a Likert scale and can thus be treated as an interval variable (Keller and Warrack, 2003). With this test I will investigate if there are significant differences between the means three groups.

The other three hypotheses can be tested by the student t-test (Keller and Warrack, 2003) since there are only two groups.

Preconditions for performing a t-test is that the measurements are on an interval or ratio scale and that the measurements are normally distributed (Huizingh, 2006).

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Marco van Marle | June 2009 | Page 32 Test of Homogeneity of Variances

Levene Statistic df1 df2 Sig.

Subjective_norm ,556 2 108 ,575

Perceived_behavioural_control ,308 2 108 ,736

Attitude ,418 2 108 ,660

Table 6: Levene test for Homogeneity of variances

I have checked for normal distribution by making a Q-Q plot. These plots seemed to display a normal distribution. To be more certain I have also performed a Kolmogorov-Smirnov test to compare the distribution of the data with the normal distribution. As table 7 shows the chance of exceeding is higher than 0,05 which means that the data is normally distributed. All preconditions for performing the T-test and the ANOVA are therefore met.

One-Sample Kolmogorov-Smirnov Test

Subjective_norm Perceived_behavi oural_control Attitude N 111 111 111 Mean 3,6881 3,3324 3,4494 Normal Parametersa Std. Deviation ,40684 ,36774 ,52631 Absolute ,058 ,060 ,042 Positive ,050 ,054 ,042

Most Extreme Differences

Negative -,058 -,060 -,040

Kolmogorov-Smirnov Z ,607 ,632 ,440

Asymp. Sig. (2-tailed) ,855 ,819 ,990

a. Test distribution is Normal.

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8.4 Outcomes of analysis

I have tested the first three hypotheses by performing an ANOVA analysis. The results can be found in table 8.

Table 8: ANOVA results

The significance levels are lower than 0,05. This means that there is a significant difference between the means of attitude, subjective norm and the perceived behavioural control. It does not become clear from the results of the ANOVA which of the groups differs significantly from the other two. To check if the results of PVC are significantly lower than those of WOOD and both companies I have performed a Scheffé analysis which is one of the most reliable multiple comparison tests according to Huizingh (2006).

The results of the Scheffé analysis can be found in table 9. These show that the averages in attitude, subjective norm and perceived behavioural control do not differ significantly from those of employees working only for PVC. The first three hypotheses have to be rejected for that reason.

I can conclude from the Scheffé analysis that employees working for both companies score significantly higher on their attitude towards the integration, their subjective norm and their perceived behavioural control.

ANOVA

Sum of Squares df Mean Square F Sig.

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Marco van Marle | June 2009 | Page 34 Table 9: Scheffé Analysis

The T-test is used to analyze if the means of the subjective norm, the perceived behavioural control and the attitude are higher amongst employees that were informed early. The results of the T-test are displayed in table 10.

Multiple Comparisons Scheffe

95% Confidence Interval DPVCenden

t Variable Employee of... Employee of….

Mean Difference

(I-J) Std. Error Sig.

Lower

Bound Upper Bound

Wood Inc. ,01603 ,08454 ,982 -,1938 ,2259 PVC Inc. Beide organisaties -,39216* ,10757 ,002 -,6592 -,1251 PVC Inc. -,01603 ,08454 ,982 -,2259 ,1938 Wood Inc. Beide organisaties -,40819* ,09586 ,000 -,6461 -,1703 PVC Inc. ,39216* ,10757 ,002 ,1251 ,6592 Subjective_ norm Beide organisaties Wood Inc. ,40819* ,09586 ,000 ,1703 ,6461 Wood Inc. -,08595 ,07773 ,545 -,2789 ,1070 PVC Inc. Beide organisaties -,37102* ,09891 ,001 -,6165 -,1255 PVC Inc. ,08595 ,07773 ,545 -,1070 ,2789 Wood Inc. Beide organisaties -,28507* ,08814 ,007 -,5038 -,0663 PVC Inc. ,37102* ,09891 ,001 ,1255 ,6165 Perceived_ behavioural _control Beide organisaties Wood Inc. ,28507* ,08814 ,007 ,0663 ,5038 Wood Inc. ,06884 ,10105 ,793 -,1820 ,3197 PVC Inc. Beide organisaties -,65313* ,12858 ,000 -,9723 -,3340 PVC Inc. -,06884 ,10105 ,793 -,3197 ,1820 Wood Inc. Beide organisaties -,72197* ,11458 ,000 -1,0064 -,4376 PVC Inc. ,65313* ,12858 ,000 ,3340 ,9723 Attitude Beide organisaties Wood Inc. ,72197* ,11458 ,000 ,4376 1,0064

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Table 10: T-test outcomes

I have performed a one-sided test since I presume the means to be higher. The level of significance can be divided by two. On all three elements the level of significance is lower that 0,05, therefore I can accPVCt hypotheses 4,5 and 6 indicating that early communication has led to an increased willingness to integrate.

Table 11 relates the moment of communication to the different companies. This shows that 57% of the employees working for both companies were informed before the holidays. Contrasting is that 10% of the PVC employees and 18% of WOOD employees were informed before the holidays. Both the moment of communication and the lesser impact of the integration might be the cause for this.

IndPVCendent Samples Test Levene's Test for

Equality of

Variances t-test for Equality of Means

95% Confidence Interval of the Difference F Sig. t df Sig. (2-tailed) Mean Differen ce Std. Error

Difference _Lower _Upper

Equal variances assumed 1,122 ,292 2,050 109 ,043 ,18427 ,08988 ,00613 ,36241 Subjective_ norm Equal variances not assumed 1,882 36,782 ,068 ,18427 ,09792 -,01419 ,38272 Equal variances assumed ,064 ,800 3,481 109 ,001 ,27344 ,07854 ,11777 ,42910 Perceived_ behavioural_

control _{Equal variances}

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Marco van Marle | June 2009 | Page 36 Employee of… * Moment of communication? Crosstabulation

When did your manager inform you of the integration?

Before holidays After holidays Total

PVC Inc. 3 27 30

Wood Inc. 11 49 60

Beide organisaties 12 9 21

You are working for…

Total 26 85 111

Table 11: Moment of communication related to company employed

8.5 Conclusion

I have to reject the first three hypotheses. From the analysis I can conclude that:

The attitude towards the integration measured amongst employees working for both companies is significantly higher than those working for WOOD or PVC.

The subjective norm measured amongst employees working for both companies is significantly higher than those working for WOOD or PVC.

The perceived behavioural control measured amongst employees working for both companies is significantly higher than those working for WOOD or PVC.

Hypotheses 4, 5 and 6 can be accPVCted, indicating that:

The attitude towards the integration is significantly higher amongst employees who were informed earlier of the integration.

The subjective norm is significantly higher amongst employees who were informed earlier of the integration.

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9. CONCLUSION

In this chapter I will combine the results of the literature study and the results of the DINAMO analysis based on the concPVCtual model that I have developed. Since I performed a diagnostic gap analysis I will also provide recommendations to the board of WOOD/PVC to improve the integration process by enlarging the willingness to change.

First I will conclude on the main outcomes of this research by providing the answers to the research questions. Secondly I will compare the outcomes from literature with the outcomes of the DINAMO analysis. Thirdly I will make some recommendations to the management of WOOD/PVC regarding the remainder of the integration. The final part is a discussion of this research.

9.1 Research outcomes

The first central question of this research is:

What are properties for an effective integration of the Office Organizations of WOOD and PVC?

Since a lot of problems in post merger integrations are employee related (Larsson and Finkelstein, 1999) high willingness to integrate contributes to an effective integration.

I have focussed on three variables that influence the willingness to change. These properties for an effective integration are: objectives for integration, communication and speed.

The objectives for the integration should be leading in the integration process. Not only do the objectives determine the way in which the integration is carried out, they can also be used to underline the rationale of the integration. A sense of urgency for the integration can be established in that way. For WOOD/PVC increased turnover, efficiency and mutual learning are the most important objectives. Emphasizing these objectives will support the willingness to integrate.

Amongst employees there is a strong need for communication during an integration to remove the uncertainty. Effective communication during integration is: abundant, open, early, honest, two-way, and emphasizes the objectives for the integration.

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Regarding speed I have found that dPVCendent on the external and internal relatedness of the firms, integration should be fast or slow. The combination of a high external relatedness and a low internal relatedness makes a slow integration most appropriate. This is based on social identity theory; a slow integration allows people to get accustomed to all the changes and their new fellow colleagues.

The second central question of this research is:

What is the willingness to integrate at PVC/WOOD in view of the properties of effective integration at WOOD/PVC?

The willingness to integrate of both companies is quite high. On a five point scale the different groups score between 3 and 4 on the components of the willingness to integrate. That is quite high given that the research was carried out a few days after the announcement of the integration.

That the willingness is that high might be explained by the effect of uninformed optimism, in the beginning employees will be very positive regarding the change for a short period of time after which they will be less positive.

The third central question of this research is:

What are the main results when comparing the ways in which the willingness to integrate at WOOD and PVC support the integration?

There were little differences between the willingness to integrate of PVC and WOOD. The employees that already worked for both companies displayed a significantly higher willingness to integrate, which I expected. I did not suspect that the employees of PVC and WOOD would display a similar willingness to integrate. Given that PVC is smaller and WOOD took the lead in the integration it was likely that the employees of PVC were less willing to integrate.

There was a group of employees within both companies that was informed earlier than the rest of the employees of the integration. This group was more willing to integrate. This proves the findings from literature that early and honest communication will increase the willingness to change. Another explanation could be that those people felt committed to the integration because they were involved at an early stage. They got information that their colleagues did not have and were asked not to share this knowledge This could have made them feel special which reinforces their accPVCtance of the integration.

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9.2 Comparison of literature and data analysis

At WOOD/PVC there was little communication regarding the integration, there were however rumours of the integration. According to the literature this should have led to fear, uncertainty and doubt resulting in a low willingness to integrate and especially a negative attitude towards the integration.

The assessment of the willingness to integrate however displays a fairly positive attitude towards the integration, it is between 3,3 an 4. 86% of employees even state that they are willing to contribute to the goals of the integration.

An explanation of the positive attitude might be that employees seemed to be reassured after the announcement of the integration; they thought that the impact of the integration would be worse. The fact that there were probably no lay-offs, made them feel more at ease. What also may have contributed to a fairly positive attitude towards the integration is that management announced more communication for the rest of the integration.

Employees that were informed earlier of the integration display a significantly more positive attitude towards the integration than their colleagues. This indicates that there is a relationship between communication and the willingness to integrate.

It would be interesting to know the level of uncertainty before the announcement of the integration amongst employees and if that influenced their productivity. That would be another argument for early communication of the integration.

Another input variable was the objectives of the integration, communicating these should influence the subjective norm of employees. At WOOD/PVC the objectives were efficiency, increased turnover and learning. The objectives of the integration were prominent in the communication of the integration. 64% of employees agree that the integration is necessary to kePVC up with competitors. Of all mediating variables the subjective norm is the highest, 3,6 and 4, the findings of the DINAMO are therefore congruent with literature findings.

The speed of integration at WOOD and at PVC should be low for optimal results. It is hard to determine the pace in which the integration was carried out. My own interpretation is that the integration was carried out stPVC by stPVC and quite slowly. The employees of WOOD and PVC also perceive the integration as slow, only 8% of the employees answered that the integration was going too fast.

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9.3 Recommendations

First and foremost my recommendations are aimed at management of WOOD/PVC to enhance the willingness to integrate. This is also my research objective. However most off these recommendations are likely to apply to other context in which two companies are integrated.

Both my review of literature and the analysis of the willingness to integrate highlight the importance of communication. As I have argued in chapter 5 good communication in post merger integration is: abundant, open, early, honest, two-way and emphasizes the objectives for integration. Good communication will reinforce the willingness to integrate.

Regarding speed of integration I have argued in chapter 6 that a fast integration would have detrimental effects in the case of WOOD/PVC. A slow integration is a more supportive of a high willingness to integrate. In other situations a fast integration might be more suitable dPVCendent on the internal versus the external relatedness. The framework of Homburg and Bucerius (2006) can be used to make that judgement.

Having clear objectives can establish on urgency to change. The properties for the objectives following from chapter three are:

Clear and measurable; so that the objectives can be of guidance in the integration process, it also makes it possible to monitor and evaluate the integration properly.

Known to the organization; otherwise the background and causes for the integration will be constructed by the organization.

Understood and acknowledged by employees; in that way the rationale of the integration is understood which can help to create a sense of urgency.

Emphasizing the objectives during the integration is useful for establishing an urgency to change and supports the willingness to integrate.

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9.4 Suggestions for further research

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THE ROAD TO EFFECTIVE POST MERGER INTEGRATION

THE ROAD TO EFFECTIVE POST MERGER INTEGRATION

THE ROAD TO EFFECTIVE POST MERGER INTEGRATION

ABSTRACT

TABLE OF CONTENTS

1. INTRODUCTION AND RESEARCH OUTLINE

1.1 Wood Inc. and PVC Inc.

1.2 Description internal organizations

2. RESEARCH OUTLINE

2.1 Description of the problem and owner of the problem

2.2 Research objective

2.3 Problem context

2.4 Constraints

2.5 Research paradigm

2.6 Research Model

2.7 Clarification Research model

2.8 Starting situation

3. WILLINGNESS TO INTEGRATE

3.1 Resistance or unwillingness to change

3.2 Willingness to change; an alternative view

3.3 Willingness to integrate; a contribution to success?

3.4 Conclusion

4. OBJECTIVES IN POST MERGER INTEGRATION

4.1 Strategies for integration

4.2 Objectives for integration at WOOD/PVC

4.3 Conclusion

5. COMMUNICATION

5.1 Communication needs in post merger integration

5.2 Communication: the story so far

5.3 Conclusion

6. SPEED IN POST-MERGER INTEGRATION

6.1 Time is money; the factor speed from a financial perspective

6.2 Organizational benefits or detriments of speed

6.3 Speed, a contingency perspective

6.4 Speed and the willingness to integrate at WOOD/PVC

7. PROPERTIES OF EFFECTIVE POST-MERGER INTEGRATION

7.1 ConcPVCtual model

7.2 Willingness to integrate as a mediating variable

7.3 Communication

7.4 Objectives

7.5. Speed

8. ASSESSMENT OF THE WILLINGNESS TO INTEGRATE AT WOOD AND

PVC

8.1 Data collection

8.2 Results

8.3 Test design

8.4 Outcomes of analysis

8.5 Conclusion

9. CONCLUSION

9.1 Research outcomes

9.2 Comparison of literature and data analysis

9.3 Recommendations

9.4 Suggestions for further research

REFERENCES

55:4, p. 18-24