Human resources managers are encouraged to play strategic role in cases of organisational changes such as mergers. Mergers bring several problems such as changes in employee behaviours, performance issues, and leadership problems, lost productivity. Company management usually they do not involve the human resources and this leads to people issues not being addressed.
Successful mergers have shown that a specific human resource strategy was an important element in the process, communication programs were conducted and evaluation of potential association from human resource perspective.
The case study is about Midwest Education Company, which is based in United States and it is a major supplier of educational materials to the United States, it provides books, manuals, videos, software and hardware used in the field of technology. The company's main objective criteria is determined its focus is on cost reduction, quality enhancement and innovation. There are three major divisions namely "Creative Development Division", "Manufacturing Division" and "Transport, Services and Maintenance". Its headquarters are located in the Kansas City and the total number of staff employed is 416. Human Resource (HR) function is largely decentralized within the three major divisions; the headquarters houses four HR Departments namely Staffing, Compensation & Benefits Section, Labour Management Relations, Training, Career Development and Performance Appraisal.
Midwest Education is investing a large sum of capital in the acquisition of a competitor Educational Training Aids (ETA), and the Mr Dalton the company owner has called a meeting of his senior management team from both companies. According to Mr Dalton the purpose of the meeting is to "outline the merger strategy and update their five year plan for the company."
Our analysis of the case study reveals that the company (Midwest Education) has acquired ETA and will therefore be integrating the company through a redesigning and development of new cultures and behaviours for the incorporated ETA employees. The company will also undergo a process of developing new policies and procedures that will suit and support the objectives of achieving the new vision and mission. It will therefore be important to define the difference between a merger and an acquisition. A merger is a process where two companies decide to combine and form a new single company for purposes increased economies of scale, efficiency and broadening share markets. On the other side, an acquisition is a process where a company buys over the whole or a unit of another company or competitor to improve its efficiency, market share and elimination of competition.
If this was a merger, it could have been approached in the manner that serves both companies as equal partners; however in this case, Mr Dalton is still the owner of the company that has to make a decision on how to absorb ETA into Midwest Education. It will therefore be noted that the human resource approach for integrating ETA employees does take into consideration that ETA is being incorporated into Midwest instead of both companies changing. It is ETA changing into Midwest.
Figure 1: Organisational structure indicating the movement towards a unified company
THE HUMAN RESOURCES APPROACH TO THE CASE STUDY
In responding to the case study questions, it is important to analyse the case study and find a human resource approach relevant to the case. In this context, the following key concepts of human resources have been applied in reaching the conclusions related to the case:
According to Noe et al: (2010: 770) strategy formulation refers to the process of choosing the most appropriate course of action for the realization of organizational goals, identification of external opportunities and threats, internal weaknesses and strengths, and objectives and thereby achieving the organizational vision.
Figure 2: Strategic Formulation Process
The strategy formulation process involves the following components:
Setting Organizations' objectives
Organizational goals are what the company hopes to achieve in the medium to long term, they reflect how the mission will be operationalised (Noe et. al 2010: 80). As a result of the merger between Midwest Education and ETA, the senior management of the new organization will need to define a new vision and mission to craft a new path for the company.
At present, ETA is pursuing a low cost strategy while Midwest Education strategy is based on quality and innovation. It is important that the strategic formulation process clearly outlines goals that integrate the strengths of both companies.
According to Dalton the main objectives of the retreat is to craft a new strategy for the new company. In analysing Mr Dalton's statement during the retreat, the company's VISION is to "stay abreast of current trends and be the leader in our market". In order to achieve the vision, the new company has crafted its MISSION as being successful in merging ETA into Midwest Education by means of introducing new processes and technology while achieving economies of scale.
Evaluating the Organizational Environment
External analysis consists of examining the organizations operating environment to identify to the strategic opportunities and threats (Noe et al2010:8). From this merger there could be new market opportunities and or products that the company can exploit. For example, the technology environment can provide new ways to disseminate training material i.e. instead of traditional physical books the company can use e-books. The external environment can also be a source of threat to the organisation's objectives for example, the challenges related to the supply of technical skills has an influence on reaching organizational goals.
Internal Analysis attempts to identify the organization's strengths and weakness. In the case of Midwest the merger means that the market share of the new company becomes bigger, the customer base will also increase. This is a source of strength. The human resources/capital can also be a source of competitive advantage, thus strength, in that the skilled employees can assume fitting roles in the organization.
In the case where employee's knowledge, skills and abilities are not congruent to the strategy it can be said that the human resources is weak.
Setting Quantitative Targets
Demand forecasts are developed around specific job categories or skills areas relevant to the organization's current future states. The HR vice president needs to set the number, type and level of skills required to meet the organization goals. Due to the surplus of people and a limited number of roles available in the new structure downsizing needs to be considered. Downsizing may be defined as the planned elimination of large numbers of personnel, designed to enhance organizational effectiveness (Noe el al 2010:764).
It should be noted that Midwest will somehow go through the process of reducing its staff complement in the event where there are staff surpluses. This practice rarely achieves its intended level of cost savings, therefore the company has to carefully plan for this exercise. The main task of the company will be to identify the specific problems that downsizing is expected to solve, and then assess the resources that can be devoted to it right now.
The HR department, a key player in downsizing, has both strategic goals and legal compliance requirements. These goals are not necessarily incongruent. Strategic human resource management aims to align HR goals with the company's strategy. Desirable strategic organizational outcomes include profits, growth, increased market share, and the survival of the firm. Strategic HR contributes to these goals by managing the downsizing process while at the same time attempting to achieve its own goals of maintaining job satisfaction, organizational commitment, and employee morale. In addition, HR must comply with legislation on Equal Employment Opportunity (EEO) for members of protected groups according to gender, race, ethnicity, colour, religion, national origin, disability, and age. Age discrimination, in particular, is a common result of downsizing, because older workers are often laid off in greater proportions.
Strategic Human Resources Management (SHRM): According to Noe et.al (2010:75) defines strategic human resource management as the pattern of planned HR deployments and activities intended to enable an organisation achieve its goals. The term strategic human resource management implies that employees are strategic resources i.e. human capital that must be managed and leveraged in executing corporate strategy (Ijose 2009:3).
Strategy implementation: Strategy implementation is also defined as the manner in which an organization should develop, utilize, and amalgamate organizational structure, control systems, and culture to follow strategies that lead to competitive advantage and a better performance (Smit 2000:14).
QUESTION 1
Introduction
The business of any business is to do business. However, no business can make good business without developing a proper and practical business plan as a guideline to the realization of the set targets. A business plan, therefore, is a written document describing how the business is going to achieve its target (Norman 2012:95). It comprises amongst others; marketing plan, financial plan, operational plan, corporate responsibility plan, as well as, the strategic plan. Human resource planning is the systematic and continuous planning by an organization to achieve an optimum use of its human resources. Ideally, the human resources department is mandated to ensure resonance between the jobs and the workers, avoid staff shortage/surplus, as well as, check on employee satisfaction(Donald 2010: 124).
Midwest Education is a US company dealing in educational materials. Its main trade is in learning tools, science and business classrooms, systems for use in technology, as well as, provision of books, manuals, and software and hardware used in the field of technology education. Interestingly, like any other business, Midwest Education has competitors; however, its main rival is the Education Training Aids (ETA).
Staffing after Merger and Acquisition
Midwest Education, therefore, moves to buy all of ETA ownership in order to assume control of the firm and by extension enjoy a wider market. Nevertheless, with the advantage of an increased market share, there comes a challenge to the Midwest Education. Really, the company have expanded and so as to its customer base, number of departments, as well as, the number of operations to be undertaken, say, in a day. Therefore, there is the urgent need to employ more workers to take of the additional operations. The informative meeting is, therefore, used to enlighten the heads of departments the plan to merge the employees of the acquired firm with the Midwest Education employees in order to solve the looming problem of staff deficit as a result of the acquisition. However, this intension meets resistance from some departmental heads, such as, Mrs Serena Tibaldo, who said she was uncomfortable with decision (Noe et al2010:165). Actually, one cannot stop to wonder whether the ETA employees' merger with those of Midwest Education is guaranteed.
Merger of Employees
Really, the merger employees of the two companies were not justified. This is primarily because; it undermined the whole rationale of a human resource department in the company. It is the department of human resources, which is saddled with the responsibility of managing the staff deficit or surplus of the company (Norman 2012:48). Well, it is this department which is supposed to; and has the tools and mechanisms to plan for, select and recruit the staff. Actually, the fact that the human resources department was never given their way does not make the merged staff a bad staff (Donald 2011:184). However, I strongly believe that were the tools and mechanisms of human resources used, probably the best staff would have been got. It would have been cheaper too. For instance, Mrs Tibaldo says, "The truth is, I'm uncomfortable with just assuming that ETA's computer development staff will fit with my existing employees. I'd agree to conduct interviews with them to see if they can fill the additional positions in Massachusetts." In fact, she argues that it would be much cheaper for the company to just hire from the branch instead of the ETA's staff.
Ideally, the practice of merging the staff is unfounded. An attempt to solve staff deficit should involve the planning, recruitment and selection processes; all of which are done by the human resources department. Planning helps in ascertaining the need for staffing, whereas recruitment involves attracting and generating pool right applicants for the right job (Norman 2012:108). Whereas, outsourcing or merging is an alternative to the recruitment process, it is not the best because of the following reasons. Firstly, it locks out suitable applicants. In many cases, better staff is barred from applying because the merging staff is considered for the positions available, (Patrick 2010: 162). Secondly, it limits equity and fairness as fresh applicants are not considered, not because they are not qualified but because the positions are a reserve for others. Thirdly, are the high costs; Relocating staff is relatively expensive and all these cost must be incurred by the acquiring firm. For instance, Midwest Education has to incur all the cost of relocating the acquired staff to all its branches.
On the other hand, employee selection is actually putting the right staff on the right job. This is idea behind the human resources management and to achieve it organization must have got it right from planning to recruitment to the actual absorption of the successful interviewees. Now, this is where Midwest Education got it all wrong. The company ought to have advertised the new positions to the general public, receive applications, interview and then select the best staff. Even the ETA staff should not have been given a blanket consideration for employment, but also be subject to this process.
Conclusion
The decision to acquire the competitor firm is good; however, the challenge is equally great, (Patrick 2010:82). There is need for more employees to fill in the created positions. However, the management, settlement on employee merger was not quarantined because it undermined the whole rationale of a human resource department in the company. Well, it is this department which is supposed to; and has the tools and mechanisms to plan for, select and recruit the staff. Actually, the fact that the human resources department was never given their way does not make the merged staff a bad staff. Then again, it was costly for the company to relocate the employees of the acquired firm to their new job stations. Worse still, it might have locked out even better qualified employees.
Midwest Education should not be selective in who it offers the relocation benefits. They should adhere to the HR practices, because they have paid the relocation expenses for other employees to move to the California office and are still paying for the ETA staff to move from Anaheim to San Jose.
QUESTION 2
Introduction
Merging two companies can result in a number of factors that can affect the way forward in terms of the new way of operating the two merged companies. One of the key issues that we will focus on is the preparation of human resource after merging. Planning for human resource is one key element that should be taken very seriously especially with merging and acquisition because once both the two companies are under the same roof, there will be a duplicate of resource and as a result, there can be a number of conflicts due to competition, jalousies, cultures and who will take the leading roles. Downsizing is one of the toughest decisions a merged company has to face; it is one inevitable process it has to face. The following planning process is sourced from Noe et.al (2010)
Figure 3: Human Resources planning process
Human resource planning process comprises a number of activities namely: Forecasting which is divided in to two categories, forecast of labour demand and forecast of labour supply. The primary objective is to predict areas within the organisation where there will be a need or surpluses in the future and for both can use either statistical or judgmental methods. According to Noe et.al (2010), Demand forecast are developed around specific job categories or skills areas relevant to the organisation's current and future state. Once the job categories and skills are identified, the planner needs to seek information that will predict whether the need for the people with those skills or in that job category will increase or decrease in the future.
Once the company has projected labour demand, it needs to get an indicator of the firm's labour supply. Determining internal labour supply call for a detailed analysis of how peoples are currently in various job categories or who have specific skills in the company. This analysis is then modified to reflect changes in the near future caused by retirements, promotions, transfers, voluntary turnover and terminations.
Determining labour surplus or shortage
According to Noe et.al (2010) once forecasts for labour supply and demand are known, the planner can compare the figures to certain whether there will be a shortage or surplus for respective job categories.
Goal setting and strategic planning
According to Noe et.al (2010), the purpose of setting specific quantitative goals is to focus attention on the problem and provide a benchmark for determining the relative success for any program aimed at redressing a pending labour surplus or shortage. According to Noe et.al (2010) downsizing as a planned elimination of large number of personnel designed to enhance organisational effectiveness. Downsizing can result from a number of factors, example, automating processes can lead to downsizing.
The first step after a decision has been finalised that Midwest Education is merging with ETA is that the head of HR together with other executive committee members must venture in to human resource planning. According to human resource theory, the team should follow the human resource planning process that was explained above. The purpose of the process is to redefine the company's dimensions, that are what kind of structure the company wants, the geographical footprints, the products and services, the technology it desires to use, the systems and processes required, and more. Once all the dimensions are in place, the team must forecast the labour demand of the new dimensions. That includes the type of skills needed, how many resources per skill are needed, when exactly are they needed etc. Once they now have the quantitative plan in place, they can now look in to their pool and see what skills do they have now, who needs to be trained, who needs to be developed and what skills need to be outsourced. The process is called forecast of labour supply.
Once they are done with both supply and demand forecast, they are in a stage where they now know they need now from the pool, who will be needed when and who will be affected by the downsizing. In this case, the downsizing will result due to skills duplicates, skills that are no longer applicable due to automation and so forth.
The next step to follow is to analyse the pool, if there is a shortage or surplus according to the results. If there is a surplus, the team has to follow the downsizing process and see who is estranged and who is retained within the company.
Recruitment and selection process
There is an immediate need for the new company to ensure that there is an acceptable recruitment and selection process for ETA employees, who are eligible to join the new company. The recruitment and selection process will be influenced by the results of the supply and demand forecast, which should have been conducted during the integration process. According to Kleynhans et, al as cited by Nel, et al (2011: 169) recruitment is the process of attracting potential job applicants from available labour force.
The new company will have a number of options regarding the choice of employees to take into their establishment. There are issues of cost and skills base that need to be considered. In this case a costs benefit analysis must be conducted. The analysis will determine whether it is cost effective to absorb all ETA employees into Midwest or retrenching the staff and employing new employees will serve as a better option. The process of recruiting new employees has to be as thorough as possible.
Once the results of the supply and demand forecast are in place, the following process of absorbing or appointing new staff will be followed.
Internal recruitment through website and notice boards needs to be undertaken. This process is targeting the ETA existing employees. In the event that a set of skills that is required is not available internally, the company will start recruiting external candidates.
Once selection has been completed, the initial screening must be conducted. This will include the scrutinisation of CV applications by the HR officers.
Interviews will then be conducted with the prospective applicants and a specific type of interview, which is relevant to the post, will be applied.
Depending on the type of posts and skills required, an employment test will also be applied.
Because of the existing records and profile of the candidates, it is not necessary to check their references. In the event that there are external candidates, this process of reference checks will be applied.
The offers for employment will then be given to all the qualifying candidates from ETA and any external candidates.
Due to the possibility of surplus of people and a limited number of roles available in the new structure downsizing may be considered. The downsizing will result in surplus employees being offered severance packages and other employees exit options such as training, small enterprises development and contracting and owner managed businesses. These exit options are meant to assist laid off/retrenched employees to survive the decline in their economic activities and sustain them.
Conclusion
It acknowledged that there would be a number of challenges that will rise due to the merger process undertaken by the company. It is further noted that because not all employees at Midwest and ETA are guaranteed their positions, there would be some social and psychological effects that will affect the company such as lowered commitment and productivity, increased dissatisfaction and disloyalty, high turnover, leadership and power struggles, sabotage and a general rise in dysfunctional behaviours.
During the merger, there were a number of duplicated roles within the Creative division and therefore a right-sizing exercise is necessary to ensure stable and cost effective operations.
Because of the need to integrate the company for efficiency and cost effectiveness, the ETA employees' positions are not guaranteed.
The employees will however be treated as a pool of applicants in accordance with the selection processes indicated above in this document. The concept of applicant pooling is based on the assumption that all existing employees ETA and Midwest are eligible for applying for any vacancy that will arise from the integration process. This will be based on the internal recruitment and selection process that will be adopted by the company.
QUESTION 3
Introduction
(Johnston 2011: 330), states that there are three motives for mergers and acquisitions namely strategic, financial and managerial. According to Mr Dalton, Midwest Education's acquisition of Education Training Aids (ETA) is crucial to Midwest Education's growth (strategy) and Midwest will be replacing most of its existing manufacturing equipment with ETA's. This will result in Midwest increasing its manufacturing capabilities. ETA manufacturing philosophy is rooted in the principles of "just-in-time" which has resulted in the firm automating some of its manufacturing processes to reduce time and cost of manufacturing. Likewise, the consolidation of the manufacturing capacity (of Midwest and ETA) will result in scaling efficiencies, thus further reducing cost of production (especially labour) per unit produced.
It is recognised that a strategic change like that of a merger and acquisition will typically have implications for the human resources strategy of the organization. The role of the human resources function is firstly to ensure that the company has the proper number of employees with the levels and types of skills required by the strategic plan secondly to develop control systems that ensure that employees are acting in ways that promote the achievement of the goals specified in the strategic plan (Noe 2010:84). From this definition of HR's role it becomes important to note and ensure that HR activities, like selection, are congruent with the organization's strategic plan. Selection is defined by Noe et al as the process by which an organization attempts to identify applicants with the necessary knowledge skills and abilities and other characteristics that will help it achieve its goals. The vice president of HR in Midwest Education needs to identify and agree which knowledge, skills and abilities in the manufacturing division will enable the organization's strategy after the merger.
Three proposals to selection of manufacturing staff
The resultant of the merger of Midwest Education and ETA's manufacturing functions a staff compliment of 261. Some functions previously performed by Midwest Education manufacturing staff will be automated by the robotic arms in the ETA manufacturing equipment.
Proposal 1: Jenny Lusts Proposes that key skills be identified and matched to existing staff. The remaining position can be filled through re interviewing. This will allow for Midwest to cut staff with outdated skills and deadwood underperformers.
This proposal seems to be the best of the three approaches, as it considers what are the key skills, however it is not clear what dictates the identification of the skills i.e. manager preference, previous alliance (Midwest or ETA), company strategy. Due to an unclear alignment between strategy and selection, we do not recommend this approach.
Proposal 2: Lawrence Wilson proposes to keep the entire staff complement of 261, but reduce working hours from 40 hours to 30 hours.
A reduction in working hours will mean a reduction in remuneration of staff. As pointed out by Max Thorn, this strategy may result staff becoming increasingly unsettled resulting in key staff members leaving the organization. This is not a viable strategy because of the misallocation of resources.
Proposal 3: Mark Derrick is to identify key skills in the existing staff compliment, let go of the surplus. Then, relocate the manufacturing division to Mexico and staffing there.
Relocating the manufacturing division might work out cheaper on paper, however the cost of learning to operate from a new country must be considered. In particular, the political, social and economic environments need to be thoroughly examined to determine if this is viable.
While the vice president of Human Resources already has the new organizational chart and outline of the new staffing projections, we propose the following sequential steps to be taken to select and staff the new manufacturing division to ensure that the selection is aligned to the business strategic plans:
1. Define the new Manufacturing Unit Strategy
Midwest Education's manufacturing strategy has been one of quality enhancement while the strategy of ETA has been low cost manufacturing. Therefore, in the new organization it becomes imperative to define exactly what the new manufacturing division's strategy is, taking the lead from the overall business strategy.
This will guide and ensure that the HR function selection process attracts, develops and retains the skills; knowledge and abilities critical for a sustained business performance thus making human resources a source of competitive advantage.
2. Define the Manufacturing Unit Core Processes
According to Michael Porter a source of a firm's competitive advantage lies in the value adding activities. The competitive advantage of ETA was a low cost manufacturing capability. Which saw the introduction of automation in the processes of the manufacturing its product. According to Jenny Lutz in the previous year ETA secured seven contracts that were long time Midwest Education customers.
Strategies are enabled/ made to come to life through core processes. The value adding processes (aligned to the strategy) needs to be clearly defined i.e. what are the outputs of the manufacturing division? What are core processes that will support the production of the outputs at the desired cost quality and time? Lastly what are the functions/activities in manufacturing will deliver the outputs.
3. Design Manufacturing Unit Structure
From the input from the above steps, key functional areas within manufacturing can be defined. The structure details what functions are to be performed and their relationships to each other. Again the strategy will determine the organizational design; the structure is an enabler to strategy.
4. Profiling and Sizing: What roles will be performed by the Manufacturing Unit
Utilizing the high level functional structure, Midwest Education can determine how many people will be required to perform a specific function and design job description job specifications. Job description documents what are the duties if a specific job and job specification define what are the minimum human requirement needed to perform a specific job.
5. People Matching: Identify open roles, new roles and plan redundancy and retrenchment
The functions in the new manufacturing division along with the job descriptions and specifications are used to find and match people to roles from the 261 staff compliment. From the assumption made by Max Thorn, the manufacturing division may only need to 200 staff members; therefore it is prudent to plan for possible retrenchment of staff. Further to this the company may opt to offer attractive voluntary retrenchment packages to reduce the negative impact of large scale layoffs.
Owing to the fact that roles have been defined using the company strategy, it ensures that the selection of people is aligned to business goals of the organization.
6. Communicate: Consult with employees
The new look manufacturing division (its strategy followed by the structure and roles with in the structure) will then need to be communicated to staff. This communication must be done by the leadership of the organization clearly communicating the business rationale of the change as a result of the merger and the intended benefits etc.
7. Advertising: Advertise new and open roles
Roles that are new or can't be matched to a current staff member are then advertised and recruited for using the new job descriptions and specifications
8. Appointment/ Retrenchment: Appoint, redeploy retrench employees
Confirm people who matched to new roles into their roles according to the set requirements of the strategy and structure. Those employees that were not matched to roles nor successfully redeployed to other areas of the business are laid off.
CONCLUSION
The case study is about Midwest Education, which has invested in the acquisition of a competitor Educational Training Aids (ETA), and Mr Dalton the company owner has called a meeting of his senior management team from both companies. According to Mr Dalton the purpose of the meeting is to "outline the merger strategy and update their five year plan for the company."
Our analysis of the case study reveals that the company (Midwest Education) has acquired ETA and will therefore be integrating the company through a redesigning and development of new cultures and behaviours for the incorporated ETA employees. The company will also undergo a process of developing new policies and procedures that will suit and support the objectives of achieving the new vision and mission. It is further noted that the main vision of the company after the merger/incorporation of ETA is to remain abreast of the market trends and to be the leader in the education materials market.
As per the requirements of the case study questions, we were able to tackle a number of human resources concepts. The aspect of employees' benefits and related policies was discussed as part of question 1. We noted in this regard that the company has no choice in which employees should be afforded the relation costs, because this should be a uniform policy that will apply to all staff in line with the company policy. It will therefore not change because there an integration process.
The second question tackles issues related to the recruitment, selection and placement of staff from the acquired company ETA (Creative Division) into Midwest Education. In this case we noticed that the acquired company staff members are not guaranteed to have their jobs because the labour forecast process will determine the number and type of skills needed by the new company. Therefore a possibility of having surplus staff is high and this will result into ETA staff having to re-apply for the remaining posts that will be available at Midwest.
It is further noted that in the event that the ETA staff have to re-apply for the available posts, it is fair to treat them a pool of applicant to give them first preference during the recruitment and selection process.
The third question again tackles the issue of a choice in the selection and placement of staff. In this case is the integration of staff members in the ETA manufacturing division, who are supposed to be either taken on board or be retrenched based on the human needs analysis of the manufacturing division. We have therefore considered the options that we discussed in the case during the company retreat and provided steps that can be followed in implementing the choice of the manufacturing division.
A number of lessons in the planning for human resource activities during a process of change management or integration have been learnt during the analysis of the case study. This has provided a variety of human resources approaches and concepts to be used in answering the questions. This has broadened the basic understanding of group members of the human resources practices, approaches, concepts and academic literature.
