Last Updated 01 Feb 2021

Analysis of the Merger of the Two Largest Consulting Groups – Case Study

Category Case Study
Essay type Case Study
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Table of contents

     Statement of the Problem

    The analysis is based on the merger and acquisition between E. T Kearney and EDS. E. T Kearney is the largest management consulting group while EDS is a technology firm. The company’s merged to form a new defining entity that could combine the synergies of both firms in the quest for improved efficiency. The merger created a cultural shock which created problems that are associated with organizational culture change . In this paper, we analyze the merger and acquisition as well as the recommendations for better performance of the newly created entity.

    Summary of the Facts

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    The acquisition of the management consulting firm A. T Kearney by an information technology firm EDS marked a significant move by such a technology firm in acquiring one of the best management firms in the corporate world. EDS bought A. T Kearney for a total of $300 million in liquid cash and contingency payments as well as a stock incentive provision of seven million shares. The total amount was more than $600 million. The merger between the two firms was good as a result of the synergetic as well as complimentary industry, geographic as well as functional strength. The acquisition of A. T Kearney by EDS was one of EDS grand vision of becoming a “Defining Entity”. III. Analysis An analysis of the case reveals that the merger and acquisition greatly impacts organizational performance and organizational culture. Our analysis covers the effects of mergers and acquisition on an organizational performance, success factors in M&A as well as organizational culture change and resistance that take place in a merger and acquisition. The strategies of a successful M& A For A. T Kearney by EDS to merge successfully, there is a need for the process to be conducted smoothly. From the A. T Kearney by EDS case, we ealized that the integration of the firms that has been acquired should be carried out as an ongoing process that must be initiated prior to the closing of the deal. During this period of acquisition negotiation as well as its subjection to regulatory review, the management of the companies that are involved in the merger must work together in drawing up a clear and proper integration strategy. Ravenscraft and Scherer (1987) indicated that even if a thorough investigation is carried out before the merger, some of the problems might never reveal themselves until at such a time that the deal has already been done.

    The integration management of the new entity must be appropriately recognized as a very distinct business function having an experienced manager who is especially appointed to oversee the integration process. Should uncomfortable changes such as restructuring and layoff be necessary, it is crucial that the management of the newly formed entity to announce as well as implement these as soon as possible. This is necessary in order to avoid resistance to organizational change. The aim of such swiftness is to avoid the various uncertainties as well as anxieties that may demoralize the company’s workforce in the newly formed entity.

    Another important lesson that we can learn from this case is that it is important to integrate both the practical as well as business of the company’s workforce as well as their cultures. An optimal strategy is the one that involves the degree to which the cultural difference can exist between the various organizations can retain their own culture as well as identity as indicated by Appelbaum et al (2000). The merger between the two companies created synergies as well as completely new services like CoSourcing.

    Cultural shock is noted in the study to be one of the main challenges that could have resulted as a result of the acquisition. A. T Kearney feared that there would be a mass exodus of most of its excellent and professional staff. The potential loss of clients was also envisioned. Organization culture is a term that is used to refer to the collection of values, policies ,beliefs and attitudes is an important as well as critical element of all organizations (Mullins,2010). Armstrong (2009) indicated that change is the only thing which is constant in any organization.

    The work of Kotter (1990) however noted that organizations are in a state of constant flux. The fact that organizational change is inevitable is a constant element of all organizations that seek to adapt to new challenges as well as approaches (Mullins,2010). The significance of organizational change is captured by Sloan (1967) when he indicated that market situations like the dynamic nature of the product and services coupled with the dynamic nature of the market itself can bring down a given business entity if the given entity is not ready for the culture change.

    The work of Kanter (1992) defined organizational change as the behavior of the organization to a certain degree or another. Organizational change has strategic and structural consequences within a given organization. This is because it involves the process of dismantling as well a restructuring of the various structures within a given organization. Several problems can arise due to organizational change (Czerniawska,2005). Organizational change is a very critical and yet very inevitable process ofan organization’s structure. It can create a lot of pressure from the workers as well as management as a result of fear of the unknown.

    Senior and Fleming (2006 ) noted that organizational change may affect the general operations of the company as well as business functions. The forces that result in organizational change The work of Mullins (2010) indicated that there are several factors that can trigger organizational change. Thy may include uncertainty in the corporate economics, competition as well as globalization. The work of Kanter (1999) identified certain factors that may trigger organizational change. They include; information technology, globalization as well as consolidation all of which are relevant in this case.

    One of the major arguments for mergers and acquisitions is the notion that "synergies" do exist, allowing the two firms to work more effectively as one than they would when separate. Such synergies enables the firms to fully exploit economies of scale, rule out the duplication of activities, share managerial expertise, and raise larger revenues (Ravenscraft and Scherer 1987). Unfortunately, research depicts that the foreseen gains often fail to materialise after a merger (Hughes 1989). 'Horizontal' mergers (between organizations operating at the same level, in the same industry) can be motivated by the quest of dominating their industry.

    In theory, bodies like Britain's Competition Commission should not allow any tie-up that may bring about monopoly capable of misusing its powers. However, the decision to prevent such acquisitions and mergers are always controversial and politicized. Different authors have claimed that mergers are unlikely to effect monopolies even in the absence of such rules and laws, as there is lack of attestment that mergers have led to increased concentration of market power (George, 1989), though there can be exceptions within certain industries (Ravenscraft and Scherer, 1987).

    In given instances, companies have derived tax advantages from mergers and acquisitions. This has however been  disputed by Auerbauch and Reishus, (1988), who argued that tax considerations do not play an active role in encouraging companies to merge. Corporations on the other hand pursue mergers and acquisitions as a means of diversification, allowing them to explore new markets and distribute their risks. A firm may also seek to acquire another in belief that its target is undervalued, and therefore a"bargain" good enough to generate high returns for the acquiring firm’s shareholders.

    These acquisitions are encouraged by desires to build empires parent firms's managers (Ravenscraft and Scherer, 1987). Most of the time , acquisitions fail to generate returns for the acquiring company due to the fact that they bought it at a price higher than its value. Having been over-enthusiastic while buying, the  buyer may later discover that the premium paid during  the acquisition for the shares (winner's curse) eliminates all advantages made from the acquisition (Henry, 2002).

    However, it must be noted that even a deal that is financially sound may turn out to be disastrous, if it is implemented in a means that does not take into account the organization’s staff and the difference in corporate civilizations. Extreme contrasts may exist in the attitudes and values of the two firms, specifically if the emerging partnership is international. A merger or acquisition becomes a stressful process for the people involved: retrenchments, reorganization, and the imposition of a new corporate culture and identity brings about uncertainty, anxiety and hatred amongst a company's staff (Appelbaum et al,  2000).

    Research has proven that a firm's productivity may drop by 25 to 50 percent  during a large-scale change; demoralization of the firm’s workers is the main reason for this (Tetenbaum, 1999). The companies’ attention are often paid to short term legal and financial goals rather than the implication of such mergers and acquisitions on corporate identity and communication, factors that may eventually prove to be important in the long run due to their effect on the workforce's morale and productivity (Balmer and Dinnie,  1999)

    Huczynski and Buchanan (2001) indicated that organizational change can greatly affect organizational performance. It might however be necessary to change the culture of agiven firm in order to enhance its performance. It is therefore necessary for the process of organizational change to be managed well as well as controlled so as to realize the results that are desired (Hayes,2007). The reality of an organizational change is noted by Calvello & Seamon (1995) to be very painful since might cause resistance and lower the morale of the employees. IV. Recommendations

    In order for the change process to be seamlessly smooth, EDS must involve itself in changing the culture of the organization in a continuous and yet overlapping fashion. The resilience of the employees must be fostered. The company must therefore concentrate its efforts in the the creation and fostering of resilience of the employees. It should therefore create acultural neutral zone. This is to say that some time must be set aside to allow the workers to effectively focus their synergies so that they may effectively cope with the organizational changes as well as uncertainties.

    The other alternative is change leadership. The newly created entity within EDS must embrace the process of change leadership and acknowledge it as a important element of organizational success. The most crucial element that an organizational leader can supplement in ana changing organization are conviction, confidence and passion as noted by Kanter (2009). The change process must be incremental. Strategies for a successful merger and acquisition Tetenbaum (1999 presented seven strategies that can be employed for a successful merger and acquisition to be realized.

    They included a close involvement of the human resource managers in the process of acquisition. The building of an oreganizational capacity through the paying of close attention to the process of employee retention as well as recruitment, ensuring that the process of integration is properly focused on the effect that is desired, careful management of the cultural integration, quick completion of the acquisition process, effective communication as well as the development of a clear and yet standardized plan of integration. V. Conclusion

    The merger between A. T Kearney and EDS is a clear example of the importance of proper management of organizational culture change. It is therefore crucial for merger and acquisitions to be carried out with a consideration of the possible culture shock that may affect the level of organizational performance.


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