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HR Planning 3430 week 9.docx

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Human Resources Management
HRM 3430
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Mergers and Acquisition Chapter 12 Mergers – the consolidation of two organizations into a single organization 1) Horizontal merger – the merging of two competitors – occurs in a value chain 2) Vertical merger – the merger of a buyer and seller or supplier – expanding in a value chain Conglomerate merger – the merger of two organizations competing in different markets – managers likes to manage larger companies to have more status and power Acquisition – the purchase of an entire company or a controlling interest in a company Consolidation – two or more organizations join and form a new organization Takeover – one company acquiring another company Companies merge for 3 reasons: 1. Strategic benefits 2. Financial benefits 3. Needs of the CEO or managing team Operating synergy – the cost reduction achieved by economies of scale produced by a merger or acquisition Vertical integration – the merger or acquisition of two organizations that have a buyer-seller relationship Horizontal integration – the merger or acquisition of rivals Financial Benefits - Organizations need to reduce the variability and risk of their cash flow - Organizations often use “cash cows” the fund “star” operations - All growth strategies have different tax implications - Developing new products and entering new markets is expensive - Financial statement analysis often reveal undervalue organizations - Goal is to increase shareholder’s wealth Needs of the CEO of Managing Team - Managers may pursue their personal interests at the expense of stockholders - Often the motives of executives can be deemed unconscious Merger Methods Hostile takeovers – dramatic and complex Poison Pills – refers to the right of key players to purchase shares in the company at a discount making the takeover extremely expensive White knights – are buyers who will be more acceptable to a targeted company Pac-Man – is a defensive manoeuvre where the targeted company makes a counteroffer for the bidding firm Success Rate of Mergers - Only about 20% of all mergers are successful - 60% are disappointments - 20% complete failure - Best success rates are with similar businesses rather than dissimilar ones - Mergers take so much time and resources often the original business is neglected - Mergers are more successful when a large firm absorbs a small firm - Mergers are less successful in service industries due to greater risk Financial Impact - Estimated financial returns are rarely realized - Many mergers fail because the buyer overextends itself financial with high debt loads Impact on HR - Reduced morale may lead to lower productivity Culture – the set of important beliefs that members of an organization share Climate – behaviours that are rewar4ded and supported by the firm Assimilation – occurs when one organization willingly gives up its culture and is absorbed by the culture of the acquirer or the dominant partner Integration – refers to the fusion of two cultures, resulting in the evolvement of a new culture representing the best of both cultures; the form rarely occurs because the marriage is rarely one of two equals, and one partner usually dominants Deculturation – sometimes the acquired organization does not value the culture of the dominant culture of the dominant partner and is left in a confused, alienated, marginalized state known as deculturation; this is a temporary state, existing until some integration or separation occurs Separation – the two cultures resist merging and either the merged company operates as two separate companies or a divorce occurs Planning moves beyond the traditional concepts of HR planning for several reasons: 1. The Contingency Plan 2. HR Due Diligence 3. Transition Team Contingency Plan - Plan should identify the contact person and the merger coordinator - Contact person should develop a plan - Plan should outline the chain of command, communication methods, procedures, and negotiation skills training Due Diligence – is a process through which a potential acquirer evaluates a target firm for acquisition including the review of: - Collective agreements - Employment contracts - Executive compensation contracts - Benefit plans and policies - Incentive, commission, and bonus plans - Pension plans and retirement policies - WSIB statements, claims, assessments, experience rating data - Employment policies - Complaints – employment equity, health and safety, wrongful dismissal, unfair labour practices, certification and grievances Transition Team Appoint a transition team to deal with: 1. Urgency 2. Information gaps 3. Stress - HR policy review might uncover complementary, duplicated or contradictory HR policies for the merger companies Merger affects the following functions: 1. Selection 2. Compensation 3. Performance Appraisal 4. Training and Development 5. Labour Relations *horizontal mergers, vertical mergers, reasons for merging, definitions, what can happen in takeover, cultural issues in mergers, financial benefits Selection 1. Retention, and 2. Reduction HR managers must terminate duplicate positions and redundant employees once the merger or acquisition is completed “How many employees does the merged company need?” Lean and mean cuts to the workforce results in greater work overload and stress Post-Merger Changes in Status 1. Demotion – under the new organizational structure, some employees are given less responsibility, less territory, or fewer lines due to amalgamation 2. Competition for the same job – some companies force employees to compete for their old jobs 3. Termination – some employees are let go strategically Compensation • An important compensation decision for post-merger company is related to: 1. Merge compensation systems? 2. Adopt a totally new compensation system? 3. Create a new compensation system? • All employee benefits will be subjected to the same scrutiny Performance Appraisal • Employee behaviour and performance is usually not typical after a merger or acquisition • Employee behaviour post-merger can be modeled into three categories: 1. Not knowing – remedied by more communication 2. Not able – the solution is training 3. Not willing – a strong case for performance management through feedback and incentives Training and Development - Managers and peers may need some additional training in the role of coach and counsellor to deal with post-merger behaviours - Employees need training for stress reduction and relaxation techniques Labour Relation - It is important to interpret the collective agreement for all relevant clauses that may affect employees and/or managers and their rights to job security, seniority, buy-outs, etc. - Collective agreements ultimately need to be renegotiated to protect the rights of employees and/or managers that belong to unions - union participation helps the merger process go more smoothly because unions make valuable contributions Chapter 13 Outsourcing Outsourcing – a contractual relationship for the provision of business services by an external provider HR functions most likely to be outsourced: - Temporary staffing - Payroll - Training - Recruiting - Benefits administration Outsourced HR Functions Compensation: - Payroll - Benefits - Compensation administration - Pension Recruitment and Selection: - Advertisements - Screening of applications - Testing - Reference checking - Preliminary interviews - Executive salary negotiations - Exit interviews Training - Program delivery program design and development - Training consulting - Training needs analysis - Program evaluation - Strategic planning - Administration - Training policies Reasons for Outsourcing: Six Major Reasons: 1. Financial savings 2. Strategic focus 3. Access to advanced technology 4. Improved service levels 5. Access to specialized expertise 6. Organizational politics Financial Savings - Cost reduction is typically 10 to 20 percent - Economies of scale from specialized outsourcers who are more efficient - Cost control - Decreased capital commitments Strategic Focus - Strategic focus - decide to focus on specific core competencies, like customer service or innovation - Core work is transformational and adds value t
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