Merger and Acquisition Issue

1. In business world, the merger and acquisition has been one of the hottest topics nowadays. The term merger and acquisition or M&A is the corporate strategy, corporate finance and management dealing with merging buying and selling of different companies . Companies and business doing merger to enlarge market shares, economies of scales, cross selling, improve the competitive advantages, sharing of resources and expertise (synergy) of each others and to ensure the survivability of ever increasing competitive market. Examples of famous global mergers includes Citibank and Travelers Group (1999), Daimler and Chrysler (1998) and Exxon Mobil in 1998. In this case studies, merger between Chapters and Indigo become Indigo Books & Music which is the largest bookseller in Canada.

There are many issues to consider when doing merger between two different companies or entity. According to Robbins & Coulter (2005), organizational design involves six key elements which are work specialization, departmentalization, chain of command, span of control, centralization – decentralization and formalization. First issue to address is the work specialization where we have to look into the degree which activities in an organization are divided into separated jobs. In work specialization, work activities are divided into smaller task which a person will be focusing on one or few task rather than doing all the activities by themselves. When two different companies merge, the question of work specialization will pop out because we want to look into how the tasks are carried out by the employees. In the case of Indigo Book Store and Chapter merger, work specialization would be the same because both are from same industry and a big corporation in size. Most of the large corporation will perform some degree of work specialization to improve work productivity. For examples in an Indigo Book Store branch, there will be employees distributed among different task such as being a cashier, sales assistant or operation supervisor based on the needs of company and the capabilities and abilities of its employees. Work specialization is more prevailing in manufacturing sector where producer will take advantage of economies of scale to lower the cost of production. Specialization not only helps to improve productivity but also saves cost on training and ability to train workers to be skillful. However, the setback is boredom in repetitive job done by workers, low motivation due to perceived lack of importance in their job and higher turnover rate. So when designing or redesigning a new post merger organization structure, manager must think to what extent they want to apply work specialization in the organization.

Second question to address after there is some degree of specialization is if there is need for departmentalization? Normally when job is divided into smaller task for specialization, there are different types of departments exist where the workers will be reporting to based on their job cluster. For examples in a typical company organization there will be functional departments like Production, Sales & Marketing, Purchasing, Logistic, Human Resources and Finance. Each member of the departments is specialized in certain area of the job or key specialized skills such as material buyer in a purchasing department. According to Robbins & Coulter (2005) besides traditional functional departmentalization, there are others such as departmentalization by geography, products, process or customers. Big corporations may have more than one combination of these departmentalization based on suitability of the business they are doing.

Third issue is the chain of command where it concerns to whom the subordinates reports to and it’s a direct link between managers and subordinates. Post merger companies may see there are a lot of departments, groups, teams, and peoples that need to be integrated all together into one. For examples when two departments combined, who is going to be a manager or who is reporting to who issue will arise. Big corporations with more than thousands employees may see problems in integrating and clear have a visible chain of command division in short period. Designing a new organization structure must have a clear visibility of whom reporting to whom. With the development of technologies such as intranet and internet, employees are easily getting information which previously must go through their managers only. However, with this development importance and need of chain of command becomes blur and blur.

Fourth question is the span of control which is the degree where the managers will control the numbers of subordinates under him. How many subordinates will be efficiently or effectively manage by a manager? Narrow span of control will lead to tall organization where there are multiple reporting layers while wide span control will lead to flat organization with few layers of management and subordinates. There are conflicting views regarding how wide or how narrow the span of control should be. One thing of wide span of control is cost saving through elimination of headcounts as there are few layers of people compare to tall organization. A simulation of a companies with 1200 headcounts was done with Company A’s manager span of control covering 9 subordinates and Company B covering 5 headcounts. Company A need to use only 120 managers while B need to use until 200 managers. Imagine how much cost can be saved by lowering 80 headcounts of managers per annum? However question whether how wide the span of control must also consider the capabilities of the managers. Are they well trained to handle so many responsibilities compare to managers who have narrow scope of responsibilities?

A fifth issue to address is the term of decision making whether there is centralized or decentralized. If the decision making is the hand of top management such as senior managers, CEO and president, then it are a centralized organization. In big corporation where specialization is so viable with departmentalization, decision making is usually done functionally by department heads but the final say and direction is usually centralized to the top management. Small corporation which are more agile and those who need to adapt to changes quickly especially in high technology and creative industry are prone to decentralize the power of decision making to lower management. So the question whether to centralized or decentralized when designing a post merger organization will depends mostly on the pre-merger company’s culture, the type of industry where it play and the direction of the new top management. There is a clash of culture when Chrysler merged with Daimler Benz motoring unit where Chrysler open innovative and decentralized culture clash with Daimlers’ bureaucratic, hierarchical, formalities and a centralized conglomerate with well structured decision making. In the case of Indigo and Chapter merger, both have identical business ground but a post merger environment which is chaotic and unstable, so it needs to have a strong centralized decision making.

Formalization is part of the systems where rules and procedures are making known to all its members so that they can comply with it during their day to day operation. There are companies that full with formalities and standard working cultures such as IBM while one the other hand there are also companies that promotes loose and flexible working culture like Google. IBM before relaxation of culture by Louis Gertsner IBM has strong sales culture and earned the nicknamed Big Blue which signifies not just the corporate logo appearance but also the dark blue uniformed that the employees wear. Later in the 20th century, dark gray suit and white shirt has been IBM employee’s official dress code. When two organizations merged, this is the consideration that they must look into to see whether people from two diverse working or organizational cultures may adapt to each other. Formalization must make to known to all employees when design the new organization structure through rules and regulation, company procedures, company culture and etc in order to make them understand what company expect them to do.

In conclusion, managing a post merger company is not an easy task because we have to address the six important issues in reorganizing and redesign the new organization completely because people and organization from two diverse organization in term of culture, structure and system may not have adapt so easily. A manager or leader involves in redesign or reorganization of a merged company shall consider and analyze carefully the factors such as work specialization, departmentalization, chain of command, and span of control, degree of centralization & decentralization and formalization.