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The Hidden Costs of Organizational Mergers Introduction Mergers and acquisitions can be viewed as a strategic response to environmental change and uncertainty. From a top management perspective, such transformations are often viewed as part of a firm’s long-term growth, a means to exploit new opportunities, or even as a necessary strategy for survival. Yet, while mergers may facilitate accomplishing these goals, it seems that many firms overestimate the potential benefits of merger and acquisition activity (Berton, 1986). Indeed, while mergers are often viewed as a strategy whose main objective is to minimize uncertainty subject to a given level of expected profits (Brenner & Shapira, 1983), the outcomes of such transformations typically precipitate high levels of uncertainty for organizations and their members. Moreover, despite seemingly favorable strategic, financial and operational assessments made during feasibility studies, research suggests that acquiring firms often perform more poorly than non-acquiring firms (Bradford, 1977; Howard, 1978), mergers do not reliably yield the desired financial returns (Lubatkin, 1983), and that most firms experience significant difficulties during the post-merger integration period (Louis, 1982; Prichett, 1985). Despite these assessments, much of the analysis of merger and acquisition activity still focuses on the negotiations that precede the actual combining of the firms in question (Mirvis, 1985). As a way of assuring merger and acquisition success, most analysts have stressed either: 1) the strategic fit between the merger partners (or acquirer and its target) and the importance of ensuring overall strategic synergy (e.g., Ansoff, Bradenburg, Portner & Radosevich, 1971; Salter & Weinhold, 1979), or 2) the organizational fit between the cultures, administrative systems and demographic characteristics of the firms (e.g., Buono, Bowditch & Lewis, 1985a; Blake & Mouton, 1985). In addition to these foci, especially considering the complex and challenging task of integrating two different organizations, the merger and acquisition process itself has recently been suggested to add to our understanding of why the majority of mergers fail to fulfill the expectations and projections suggested by feasibility studies (Buono, Bowditch & Lewis, 1985b; Jemison & Sitkin, 1986a, 1986b). Mergers and acquisitions can significantly and abruptly alter existing organizational arrangements unwritten expectations that develop over time between organizations and their members as well as written rules and procedures. Such changes are likely to violate long-standing psychological contracts (Bowditch, Buono, Lewis & Nurick, 1985), and to precipitate high degrees of stress (Ackerman, 1982; Nadler, 1982) and a number of dysfunctional personal consequences for organizational members (Connolly, 1977; Kahn, Wolfe, Quinn, Snoek & Rosenthal, 1964). Recent studies, for example, have begun to document many of the human resource issues involved (Cf. Buono et al., 1985b ; Robino & DeMeuse, 1985; Schweiger & Ivancevich, 1985). Anthony F. BUONO, James L. BOWDITCH et Aaron J. NURICK 314 Anthony F. BUONO, James L. BOWDITCH et Aaron J. NURICK Yet, beyond the resultant human costs associated with merger and acquisition activity, there also seem to be a number of “hidden” costs for the merged entity. Indeed, such affective changes. resulting in increased feelings of tension and insecurity and lowered organizational commitment, could very well translate into less effective performance behaviors that can have significant financial implications for organizations (see Cascio, 1982; Mirvis & Lawlwer, 1977). EMPLOYEE ATTITUDES AND POST-MERGER SUCCESS It is typically assumed that, other things being equal. there is a relationship between employee attitudes and a number of work related behaviors such as turnover, absenteeism and tardiness, strikes and grievances, and overall job performance (see Mobley, Griffith, Hand & Meglino, 1979 for an extensive review). Moreover, research has shown that non-productive work-related behaviors can have significant costs for organizations and that savings can be realized by introducing changes focused on improving employee satisfaction, commitment and motivation (Lawler, Seachore & Mirvis, 1983; Likert & Bowers, 1973). However, determining ways to: 1) actually measure the financial impact of such attitudes and behaviors, and 2) link this impact with the overall performance of the organization have been particularly vexing problems for organizational researchers. Indeed, despite some thirty years of research on the general subject of costing human resources, there is still no generally accepted procedure for employee valuation or for assessing its relationship to organizational performance (Cascio, 1982). The problems of relating attitudes to financial costs and organizational performance are formidable ones, but as Cascio (1983) has suggested, the potential use of such information for human resource and financial planning is enormous. Especially as organizations attempt to transform their operations whether through improving worker-management relations, adapting emerging forms of technology to the work process, attempting to change a firm’s culture, or through acquisition, merger or...

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