HRM CASE STUDY TAKE HOME EXAM

IBU5HRM Lecturer Richard Underwood Due day 24th May sem1 2011

Wenfei Tu 15707053

Analyze the major HR obstacles to making this merger successful and describe how these obstacles might be overcome.

Introduction Confronted with the airline industry recession, two big carriers in airline industry--- America West and US Airways suffered the dramatic loss. To survive and improve the business in this mature industry, two companies proposed a plan of merger to compete with other discount carriers. However, a merger is not only the combination of physical assets in two companies but also the combination of different cultures, different management systems and technologies. (Dugar S, 5th June 2009, HR Challenges in Mergers and Acquisitions, http://www.businessgyan.com/node/5787, accessed by 10th may 2011) In the process of achieving the success of company in merger, Human Resource management plays a crucial role in recognizing the Human Resource obstacles such as cultural synergies not being well understood and loss of key talent etc. and working out the ways to overcome the those problems. Personally, I think the most severe Human Resource problem that may lead to failure in merger is the bad synergy between two big airline companies. Therefore, whether two companies management systems would match with each other and employees in the organizations would work together more effectively and efficiently have become important topics to discuss. Before find out the HR strategies to overcome these problems, we will analyze the HR obstacles in different stages of merger which may result in the failure in synergy.

According to The golden rule Do not spend money on something unless it will enhance what you already have. (Wattles J [1996] The Golden Rule Oxford University Press), a good synergy should be considered since the merger will succeed only when there is a good synergy. ( Dugar S, 5th June 2009, HR Challenges in Mergers and Acquisitions, http://www.businessgyan.com/node/5787 , accessed by 10th may 2011) To avoid the mismatch in the merger, HR obstacles in different stages of merger like poor communication, cultural clashes, lack of attention to people issues and lack of leadership etc. should be recognized and solved. There are 3 critical stages in the merger, in first stage---preplanning period, the potential HR issues would come up are lack of transparency and poor communication. When these two airlines are combined, if the staffs are not well informed of the details of the decision, they would take it as a mistrust which makes them lose faith in the company and then they would leave work. Another problem appear in this stage is the poor communication. When the merger just happens, there are anxiety and speculations in the new work circumstance. People need communications to help each other to adapt to the new system and overcome the negative emotions like worries about losing job and speculation of the companys future. Without the good communication, people got frustrated and productivities are lower because they could not work together properly then it will be hard for the new organization to keep going ( Dugar S, HR Challenges in Mergers,http://www.kgsepg.com/project-id/7863-hrchallenges-mergers accessed by 11th May 2011) In the second the stage---transition period, apart from the communication problems, Cultural clashes will be the main HR obstacle to achieving the success. In this stage, the integration of employment begins. When the higher level managers do not assign the work to employees properly and timely, employees have nothing to do for a long time and do not get used to the job for the required time. Thus, higher stress, lower efficiency, frequent interpersonal conflicts etc. would happen when not many people realize that communication is important for employees to understand the change in their roles and responsibilities. As for cultural clashes, it occurs when merger partners try to achieve the integration of different operating systems and different values in separate companies or one merger partner try to adapt to the new culture and new norms the other company brings. Inability to adapt to the new culture makes employees feel uncomfortable and lose confidence in the work. (HR Issues in Mergers & Acquisitions http://www.naukrihub.com/hr-today/mergers-and-employees.html accessed

by 10th may 2011)Thus, the results of culture clash are slow down the process of merger of two companies. In the third stage, though the integration of culture is still going, there are less culture clashes due to the relative measures implemented and employees trying to be used to the new culture. However, people who are not able to adapt to the new work circumstance would choose to leave or have to leave work. Among these leaving people, key peoples leaving would cause a huge loss to the company. For example, when a key employee leave, the company does not only lose some unreplaceable technology but also lose the network that person built among customers. Therefore, lack of attention to people issues would be the biggest obstacle in this stage. These people issues can be the negative outcome result from job insecurity, rumour and unsatisfactory expectation. Once the merger happens, there is a host of uncertainties which lead to job insecurity. For example, as mentioned in the case, America West and US Airways have very different operating characteristics, so when the new company integrates two different management systems, differences in compensation packages, and designations would jeopardize welfare of employees who have to deal with change. People in America West or US Airways may lose rewards they had in the past. Job insecurity shifts peoples attention from work to individual welfares, they worry about the layoffs as there has been a reduction in employment in second stage, they worry that they may not get their past rewards and others may feel frustrated when their well-defined career paths are changed heavily. The new organization with those HR obstacles would suffer low productivity, bad performance and loss of key talents. (HR Issues in Mergers & Acquisitions http://www.naukrihub.com/hrtoday/mergers-and-employees .html accessed by 10th may 2011) After recognizing the HR obstacles that might occur in each stage, we will look for the relative HR strategies which align with business strategy to overcome these problems. In the preplanning stage, what HR department can do to prevent lack of transparency and poor communication is informing all employees of a clear and detailed business strategy of the merger, making it as easy as possible for the people in two companies to communicate with each other to get to know the changes. Good communication provides employees the clarity of what the company will do and how people in the organization will change their roles and responsibilities thus avoid the confusion, panic and frustration.( Dugar S, HR Challenges in Mergers, http://www.kgsepg.com/project-id/7863-hr-challenges-mergers accessed by 11th May 2011)

Another important HR approach in the first stage is implementing due diligence. Due diligence involves a series of assessments of the culture synergy and management system synergy. For example, they should get the answers to questions like do two companies have similar cultures? Are management systems in two companies dramatically different? Is the risk the company going to take in the merger too high? Will there be heavy HR financial issues due to downsizing and changes in the business plans? How well will two operating systems and two cultures fit in the short term and long term? After understand all those influences, they can settled the negotiation and help people understand the strategy of merger. Therefore, when the merger comes, people know what is going on, they get prepared in mind and to change the ways to work. ( Giffin A and Schmidt J[2006], Why HR Can Make or Break Your M&A, http://www.imaainstitute.org/docs/m%26a/towersperrin_04_why%20hr%20can%20make%20or%20break%2 0your%20M%26A.pdf accessed by 11th May 2011) In the transition stage, communication problems still exist and culture clashes become intensive because the work environment is transiting from the old system to the new system. Culture means a group of people share the same values and norms. If the culture synergy in the merged company is bad, then it will be difficult for people to work together efficiently. Not only in work but also in the interpersonal communication, people have to deal with the new corporate culture and the different ways to get along with staffs from the other company. To tackle these cultural issues, HR department should assess the cultural aspects in the work environment to find out the elements that may adversely influence the synergy. Then, prepare a plan for eliminating these elements. Furthermore, HR department is responsible for giving employees advice about how to work with the culture difference and how to work out the issues raised by cultural conflicts. (Brahma S, Organizational and human resource related issues in mergers and acquisitions: A review http://www.icwai.org/icwai/knowledgebank/fm39.pdf accessed by 12th May 2011) After the transition stage, in the third stage, the merged company begins the integration of system and provide extensive training to the staffs. As the new company begins the integration of employment in the second stage and it is still going, anxieties and speculations would arise in the third stage. To avoid these negative emotions, firstly it is necessary for HR to establish a strong communication system in which the employees can talk to higher level management teams and seek answers to the doubts. Secondly, HR staffs should figure out the structure of new organization and be clear about the employees roles and work levels so that
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they can guide the employees to understand what they should do and what the new structure of operation system is. By knowing the roles and systems in general and in specific, less confusion would exist and more confidence can be built. Thirdly, HR should play a role in helping people especially people in the acquired company to cope with changes in benefit programs. Through understanding the changes in health care, payments, rewards, at least people would know the way these policies will work and thus less anger. Lastly, the company should responsible for the employees they are getting rid of. HR system should look for the potential job opportunities in the same area for those people who will lose jobs. So what the HR department can do is to write recommendation letters for them, and search for the similar jobs in other companies for the leaving staffs. This HR strategy does not only benefit the people who are leaving the company, but also relieve worries of existing employees to certain extent.

Conclusion To cope with the HR obstacle, it is critical for the merged company to make the correct and timely HR strategy to build shared collective visions, attitudes and corporate culture among employees, keeping the key talents, treating every employee with respects, opening the communication channels and motivating the existing employees to collaborate well. In this case, combination of these two major airline carriers is expected to enable the US Airways and America West to achieve a lower operating cost and higher quality through the achievement of economies of scales. (Kalaiselvan, 15th February 2009, Types of Business Strategies, http://bizcovering.com/business/types-of-business-strategies/ accessed by 15th May 2011) However, numerous financial issues and HR issues always come up after merger, which lead to the failures in 40% merged companies to achieve objectives (KPMG M&A Outlook survey 2006, http://www.kpmginsiders.com/pdf/2006MAOutlookExecutiveSummary.pdf accessed by 15th May 2011). Problems such as lack of transparency, poor communication, culture clashes and people issues in the process of integration of two companies will always make the merged organization unstable and weak. Since people are the valuable assets that a company possesses, a company cannot keep going if these HR issues will not be solved. Therefore, the HR approaches proposed in this essay suggest the ways that the merged company can deal with the obstacles arise. Specifically, in the first stage of merger, HR management team should always inform employees of what is going on in the new company, let them involve in the necessary decisions and help the company to assess the compatibility of two cultures and management systems. In the second stage, HR teams should help people to communicate and adapt to the new cultures. In the third stage, HR strategies should be applied to overcome the employees frustrations and speculation through helping them to cope with the changes in benefits programs and taking care of the employees who have to leave company. Apart from adopting the right HR strategies, it is also crucial for the company to exercise the strategies as early as possible so that the cost and the loss could be minimized. As can be seen from the analysis above, the issues might arise after mergers are complex. Solving those problems can be time-consuming and expensive. Merger is a risky way to improve or save business though it is expected to enable two companies to achieve lower operating cost and better quality quickly. Since both America West and US Airways got
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heavy debts, it is likely that these two airline companies cannot afford the huge cost in solving HR obstacles, not to mention to pay for the potential failure due to HR obstacles. To achieve the success in a business, capital and people are determinants. As America West and US Airways are having big problems with their capitals and a vast number of uncertainties would arise due to these HR obstacles, I would suggest the rejection of the proposed merger.

In preliminary merger discussions, it was agreed that the existing top level of management at AWA would become the top level of management for the proposed merged company. What are the HR implications of this strategy?

Introduction After a merger, top managers from one merger candidate stay in the new organization while ones from the other merger candidates leave. The reasons why the combined company let those experienced and highly skilled employees leave are that the new company cannot afford the expensive payments to two top-level management teams and top-level management teams from different companies always have different styles of leadership. The dramatic difference in leadership will not make the company work. So, it is inevitable to choose one top-level management team for the new organization. However, as the other top management team is the leader of one of the old companies, there would be a great deal of negative and positive implications in the merged company. In this case, the top managers in US Airways leave the work, so people in US Airways have to deal with the issues that come up when they develop the new relationship with the leaders from America West. On the other hand, the leaders from America West have to manage the human resource in another company and try to make the best decisions in the human resource management and other aspects in the operation of merged business. We will begin with analysing the HR implications to employees and discuss the ways to deal with the negative influences. Then the HR implications to the management team which will manage the new people and relative HR strategies will be recognized. HR implications resulted from the changes in the structures of leadership would always heavily influence the way a merged company runs and the process of integration of two different companies.

When the top managers exit the company and new leaders come, numerous impacts take place in peoples work. The implications of this business strategy to the employees mainly influence the people from US Airways because they have to cope with the new leadership and accept the different culture the new managers will bring. Here are five implications to employees. Firstly, peoples career paths will be changed when the managers make new objectives and new strategies for the combined company. People who were working to achieve the old goals have to give up the work they are doing or will almost finish. That might lead the frustration and anxieties in the work, which is not good to the beginning of new work. Some employees who are unhappy with the abandonment of old missions think that they have wasted time and energy on the work and it will be time-consuming to manage the work that will be left incomplete. Others may not agree with the new company objectives because they think the cost of removing the old work is too high for the company to pay. Those people would easily get stressed and depressed when they have to implement the new missions because they are not willing and not ready to collaborate with the management team. Therefore, it is critical that the managers should respect employees previous work though it might be left unfinished and give the compensation/rewards to those who have contributed their time and energy on the old performance. To help people who are thirsty for the direction, the management team should inform them the detailed company objectives and help them get used to their new roles.( Fluck M, February 22nd, 2011, HR issues and activities within the Mergers and Acquisitions, http://business-human-resources.chailit.com/hr-issues-and-activities-within-themergers-and-acquisitions-2.html accessed by 17th May 2011) Secondly, employees have to build a good relationship with new top-level management team as a good relationship is beneficial to the higher productivity and efficiency. Many HR issues would come up when employees and new managers try to sort out the conflicts due to the combination of two work systems. Employees would feel that the new managers would not realize the importance of their individual roles because the new managers know little about those employees past performance. They would also worry about the loss of other personal identity like individual personalities. To employees, loss of personal identity to managers means more misunderstands in communication and bigger potential of getting wrong job allocations. When employees failed in building up the relationship with new boss, they lose opportunities of getting known by the new company, which is very bad for them in the

situation of layoffs. So a good relationship between employees and managers are important to keep the key talent and also motivate employees in work. Thirdly, employees have to face the intensive conflicts resulted from the different values and principles brought by the new management team. Employees would feel stressed when they try to survive with new rules set by the top level which might severely change the ways to make transactions and internal system. Though US Airways and America West are in the same country, the cultures of two companies will never be same. When we talk about culture, it is not only about principles and rules; it is also about peoples values and behaviours. Therefore, a new management team would bring different values and employees will be required to do things according to what their boss propose and what their boss think is right. Severe conflicts take place when staffs learn to follow a new style of leadership. Here, the successful integration can only be accomplished when the old culture and the old ways are respected. Another thing, the transition should be executed gradually so the conflicts will not be that intensive and people have time to figure it out. (Boxall P[2003], HR strategy and competitive advantage in the service sector Human Resource Management Journal, Vol 13 No 3, pages 5-20) Fourthly, many employees might leave the company because they think the new operation system would not enable them to achieve the personal satisfaction in the career. For the employees who were working hard to get into higher level of management with better payment, the change in the leadership might make it hard for them to realize the goals. For example, when employees in US Airways were developing a new program and one of them was doing pretty well, the manager who proposed the plan of the program might give the excellent person a promotion or ask him to join the higher level of management. However, as the manager leaves the organization, no one in the new company would give him the chance to realize his goal at least in the short term. Then, those excellent people would choose to leave. Therefore, when deal with the new employees, managers should try to understand what the employees want. The research can be done through the questionnaire and internal assessment system. Lastly, employees past rewards that were due might be missed and their career ambitions might be neglected. When top managers do not get timely and correct information about employees past performance, delay or missing out in past rewards will become a big reason for employees to leave. Other unhappy employees who still stay in the new organization
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might shift their focus from work to looking for opportunities in other companies and worrying about not getting their rewards. This problem will jeopardize the new companys wellbeing as people tend to leave the company and the productivity is lower. As for career ambitions, it is always employees motive. However, it will take some time for the managers to find out what their people want thus a great deal of dissatisfaction might take place when employees feel that the jobs do not align with their individual goals. To retain the people for the company, it is important for the company to give the employees past rewards and questionnaires can be used for understanding employees desires. (Dugar S, HR Challenges in Mergers, http://www.kgsepg.com/project-id/7863-hr-challenges-mergers 17th May 2011) The business strategy agreed between two airlines does not only have HR implications on the employees but also the management team for the merged company. In this case, when we talk about the management team, it means the top level managers from America West. Here are three HR implications to top leaders analysed as following. The first implication to the managers is that management of human resource becomes tougher and more complex. They got more jobs in learning about the human resource in US Airways. Before they begin to decide who to keep and what positions to distribute, it is important for them to collect as much as detailed information about the existing employees from another merger candidate. However, as it will take a while for them to get familiar with these new staffs and go through the human resource information, the proper and timely allocation of job positions and missions to the new employees will be a tough strategy for managers to make. The delay and mistakes in allocation of jobs always lead to brain drain which will be costly for the company to fix. Hence, a deep study about the human resource in the US Airways will be required before the any decisions in employment made. As building up a relationship is an interactive process, managers will also be confronted with numerous interpersonal issues. To motivate the employees in work, the good relationship with employees is always necessary. Without getting along with new people well, poor communications which leads to the unpleasant work atmosphere and misunderstands would take place frequently. The top managers also will have to deal with the employees preconceptions such as the preference of the old way to work and old leadership. Talking to people and encouraging people to accept the new style of leadership will be a tough but inevitable task for managers to complete. The failure in building up the relationship will not
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only make the company loose people but also loose the customers that those employees are familiar with. Another implication to the management team is that there will be a huge loss of key talents. The top level management team is highly experienced, skilled and also well know about the people in its company. Due to the merger strategy, the top managers from US Airway will leave company. However, the loss of key talents will be huger than what we expected. The top managers from US Airways might take away good employees in the company. Those good employees might take away a big group of customers they know well about. That will be a huge potential loss which is hard to measure. Retaining these important people will be a challenge and a determinant of success in merger for the new company.

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Conclusion: Organisations only change when the people in them change and people will only change when they accept in their hearts that change must occur( John Harvey-Jones , http://earthurassociates.com/page_1287404199528.html Accessed by 18th May 2011 ) What John Harvey-Jones said simply illustrates the relationship between employees and the new organization. The integration of two companies will only be successful when people change to work together. Thus, finding out and cope with the HR implications to the employees as well as top level managers are essential for the transition. When the structure of leadership changes to one merger participant, it is inevitable that employees in that organization will have to tackle numerous culture and interpersonal conflicts. Problems such as the change in the career paths, the new network, transition in culture, failure in achieving personal goal and delay in past reward can result in depression and then loss of key talent. At the same time, managers in the new organization have to deal with complex HR issues such as the cultural conflicts, operating conflicts and when they try to build relationship with employees. The failures in the relationship would lead to the wrong decisions to retain key talents and assign the jobs among employees. To avoid the loss due to those negative implications, managers in the new company should make the transition gradually and even keep the old ways that people make transactions. Therefore, employees can take enough time to get used to the new leadership and less stressed. To motivate employees to collaborate effectively, it is important for the managers to respect different cultures and different ways to operate business as the integration of two business means striking a good balance between two cultures. The business strategy of a merger can be successful only when the existing employees work together effectively and efficiently and synergic collaboration will create higher levels of performance. The new business can change only when people in it are willing to change and accept the change.

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Reference
1.Dugar S, 5th June 2009, HR Challenges in Mergers and Acquisitions, http://www.businessgyan.com/node/5787 , accessed by 10th may 2011 2.Wattles J [1996] The Golden Rule Oxford University Press 3.Dugar S, HR Challenges in Mergers, http://www.kgsepg.com/project-id/7863-hrchallenges-mergers accessed by 11th May 2011

4.HR Issues in Mergers & Acquisitions http://www.naukrihub.com/hr-today/mergers-andemployees.html accessed by 10th may 2011 5. Giffin A and Schmidt J[2006], Why HR Can Make or Break Your M&A, http://www.imaainstitute.org/docs/m%26a/towersperrin_04_why%20hr%20can%20make%20or%20break%2 0your%20M%26A.pdf accessed by 11th May 2011 6. Briscoe, D. and Schuler, R. [2004], International Human Resource Management, 2nd edition, London, Routledge. 7. Brahma S, Organizational and human resource related issues in mergers and acquisitions: A review http://www.icwai.org/icwai/knowledgebank/fm39.pdf accessed by 12th May 2011 8. John Harvey-Jones , http://earthurassociates.com/page_1287404199528.html Accessed by 18th May 2011 9. KPMG M&A Outlook survey 2006, http://www.kpmginsiders.com/pdf/2006MAOutlookExecutiveSummary.pdf accessed by 15th May 2011 10. Fluck M, February 22nd, 2011, HR issues and activities within the Mergers and Acquisitions, http://business-human-resources.chailit.com/hr-issues-and-activities-within-themergers-and-acquisitions-2.html accessed by 17th May 2011 11. Boxall P[2003], HR strategy and competitive advantage in the service sector Human Resource Management Journal, Vol 13 No 3, pages 5-20 12. Kalaiselvan, 15th February 2009, Types of Business Strategies, http://bizcovering.com/business/types-of-business-strategies/ accessed by 15th May 2011
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