Chapter 2: Literature Review
2.3 Post-Merger Integration
of post-merger integration unexplored, and they have empirically proven that PMI is mainly concerned with human side integration from the previously separated entities into once new organization (Brueller et al., 2018; Kroon & Noorderhaven, 2018; Vuori et al., 2018; Ismail & Baki, 2017; Sung et al., 2017; Sinha et al., 2015).
The significance of post-merger integration stage comes from the fact that it hosts the actual integration and covers a wide spectrum of activities that are of a significant importance to facilitate the integration of two previously separated entities after the announcement of merger. This integration process is critical for any merger success, because it is the key enabler for synergies on the day-to-day activities and corporate business processes which eventually drive business value by improving efficiency. Literature shows that poor integration processes might have negative consequences such as 50% drop in employees’ productivity, 14% drop in employees’
satisfaction, and 80% of employees’ will start feeling that management will care more about the financials rather than people and their wellbeing in the work place (Schuler
& Jackson, 2001).
Furthermore, in literature it was argued that PMI is meant to integrate the strengths of two organizations into one new entity that has a stronger business stance than the previous separated entities (Charoensukmongkol, 2016; Marks & Mirvis, 2011). Therefore, the significance of PMI stage comes from the fact that it hosts the actual integration and covers a wide spectrum of activities that are of a significant importance to facilitate the integration. Therefore, it can be argued that the integration process is critical for any merger success, because it is the key enabler of, operations and financial synergies of resources and skills to achieve economy of scale and spread best practices across the board (Sengupta, 2020; Tsyplakov, 2019; Kumar & Sharma,
2019; Sherman, 2018; Brueller et al., 2018; Giudice & Buti, 2017; Birkinshaw et al., 2000), alignment of shared services such as HR, finance and procurement and standardization of policies and practices (Smeets et al., 2016; Osarenkhoe & Hyder, 2015).
In this context it is noteworthy that post-merger integration typology segregates it into four different integration approaches based on the seminal work, which are preservation, symbiosis, holding and absorption. This categorization was based on two criteria which are the need for strategic independence and need for autonomy.
Considering the previously mentioned criteria elements, it was proposed what is widely accepted as “integration matrix” which outline the four categorical integration approached based on the optimum needed levels of interdependent and autonomy during integration to create value. Based on the models integration approaches which required for high autonomy are preservation and symbiosis and the ones required for low autonomy are holding and absorption. Moreover, symbiosis and absorption will be required for high interdependence during integration to create value and the remaining two approaches will be categorized with low interdependence to create integration value.
In 2012, Weber et al. (2012) used the terminology of three integration approaches, namely: preservation, symbiosis and absorption. They have further clarified that the level of integration, previously explained as interdependent in work, will depend on the required level of autonomy as well to achieve synergy and hence create value through integration. Weber and Tabra (2017) argued that this categorical classification is dependent on the employees and organizational culture. This
humanization of the topic can offer interesting insight for the study in hand. For example, absorption will be the recommended integration approach when the differences between the merging organizations are low. Therefore, this implies a high level of integration and low autonomy to achieve high levels of synergy.
On the other hand, symbiosis achieves moderate level of integration is selective fields during integration and is suitable for organizations with moderate difference.
Preservation will be the selected approach if the integration aims at low level of synergy during integration and amongst organizations with minimum similarities.
In this Section post-merger integration was defined to highlight the wide range and intensity of merger activities that are grouped under this notion. The scope of this merger phase is motived by value creation, drives merger decisions and a major determinant of overall merger success (Sinha et al., 2015).
Literature is rich with examples of mergers which pursued integrative benefits through leveraging resources, creating efficiencies, increasing market shares and improving competitiveness. However, realizing those benefits has proven to be challenging and unsuccessful for many companies regardless of their market maturity, experience and capital (Epstein, 2004).
Many researches have argued that unsuccessful mergers are often attributed to failures in the integration process, which is usually related to inadequate integration of the human capital and neglecting the human factor PMI (Brueller et al., 2018;
Homburg & Bucerius, 2005; Shrivastava, 1986).
The integration of the human factor in post-merger integration can be argued to be significantly challenging due to the many variables during such an integration and the dynamism of the process itself (Sinha et al., 2015).
Moreover, the is no “one size fit all” integration approach, as established earlier there are three different types on post-merger integration approaches that would achieve the required level of intended synergies bases on the required level of autonomy for value creation and the organizational cultural differences.