In The Human Side of Mergers and Acquisitions, authors Anthony F. Buono and James Bowditch define mergers as two companies combining to become one, and acquisitions as one company purchasing and taking over another. The Federal Trade Commission outlines five different types of mergers and acquisitions:
- Horizontal: When the companies involved produce similar products or services in the same geographical market.
- Vertical: When the companies involved had a buyer-seller type relationship prior to the merger or acquisition.
- Product Extension: When the organizations involved are functionally similar regarding production or distribution, but create products that do not compete directly with one another.
- Market Extension: When firms manufacture the same products but sell them in separate geographical locations.
- Unrelated: When two completely unrelated companies combine or one unrelated company is acquired by another dissimilar company.
Organizations must also take the time to prepare their members for the coming corporate changes, otherwise the merger or acquisition will be met with resistance. The psychological effects of combination stresses can be grouped into five different manifestations:
- Uncertainty and anxiety
- Grief, loss, and termination
- Obsession with the combination
- Decreased trust levels
- Self-centered activities
Companies about to embark on a merger or acquisition should compare organizational cultures with one another beforehand. There are four different kinds of cultural combination strategies that can be employed:
- Cultural Pluralism: When both organizations allow each other to operate autonomously.
- Cultural Blending: When both firms want to blend their cultures together into one new and unified culture.
- Cultural Takeover: When the culture of the dominant firm replaces the culture of the acquired firm.
- Cultural Resistance: When there is a lack of attention paid to the differences between the organizational cultures in the combination process and cultural conflict occurs.
There are several steps organizations can take to increase the overall likelihood of a successful merger/acquisition:
- Set up formal communication channels as early as possible in the process
- Send out newsletters about the merger/acquisition
- Create hotlines that answer questions about the combination
- Provide honest answers
- Conduct surveys to gain employee feedback
- Provide counseling services about the merger/acquisition
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