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OBJECTIVES
As a
person with knowledge of takeovers and mergers, the author has always
brought up to his superiors the viability of strategy formation regarding
the analysis of these topics and at times fails to understand the reasons
or logic behind certain strategic implementations imposed on it.
By
delving into this project paper, the author intends to have better
insights into how takeovers and mergers are thought up, formulated and
then imparted down into the subsidiaries of the company or organization.
The author hopes to have an in-depth understanding as to how the process
of takeovers and mergers enable companies and organizations to compete
effectively and profitably in this era of internationalization where
competition is extremely intense.
In order
to reinforce the learning objectives, two key focal issues were focused
upon i.e. innovation and diversity. Innovation was discussed with regard
to takeovers and mergers among companies and organizations where it was
renowned for its developmental capabilities to constantly innovate.
Diversity came under strategic thinking and formation as the author
considered the diverse culture, political climate, economic surroundings,
social environment, technological settings, government policies and legal
systems in order to better understand the issues being discussed.
INTRODUCTION
Companies today have to be efficient,
flexible and profitable. Without these factors, it would be very difficult
to compete in the global economy. Aside from participating in strategic
alliances to fully enhance the resources they need to become competitive,
many companies now evolve and expand through mergers or acquisitions.
Among the most important merger and acquisition deals in recent years are
Daimler-Chrysler, Chase-J.P. Morgan, SKB-Glaxo, NationsBank-Bank of
America, and Deutsche Telekom-Voice Stream. Although global economic and
market conditions are unpredictable, the future provides the best
conditions for the continuation of merger and acquisition processes
(Cartwright et al. 1993, 1994, Schweiger et al. 1989, Schuler et al.
2001).
Some businessmen argue that the fast pace of mergers and takeover
ultimately becomes the driving force behind the formulation of agreements
and rules for business conduct (Mirvis et al. 1992, I/S Analyzer 1989).
Merging and acquisition deals may have the potential to create enormous
economic and social consequences. They can easily drive away the major
competitors within a country. They can also determine how and where people
should work. However, earning the approval of the government for merging
and acquisition deals would never be easy.
Merging happens when
two (2) companies come into agreement to
combine their operations together, thus forming a new
company where both function as equal partners (Datta, 1991).
Takeover, on the other hand, happens when one company buys the full
interest in another company with the agreement that the buyer will have
the right to determine how the combined operations will be managed (Pablo,
1994, DiGeorgio, 2003). Merger and takeover transactions are commonly
smooth along the way. The acquired company is able to solicit bids and
thus able to submit into an acquisition voluntarily.
Some businessmen argue that the fast pace
of mergers and takeovers ultimately becomes the driving force behind the
formulation of agreements and rules for business conduct (Mirvis et al.
1992, I/S Analyzer 1989). Merging and takeover deals may have the
potential to create enormous economic and social consequences. They can
easily drive away the major competitors within a country. They can also
determine how and where people should work. However, earning the approval
of the government for merging and takeover deals would never be easy. But
usually, the first step of seeking the government approval is relatively
easier than managing the new company. Mergers and takeover deals undergo
through series of stages. At every stage, the effective management of
human resource (HR) and cultural
issues is critical. This is initiated by the
identification of the HR issues and their
significance for the company’s activities (Marks et al. 2001).
Post-merger integration of human resources
involves a step by step and interactive process in which the individuals
from two or more organizations come into agreement in terms of the
transfer of strategic capabilities. The post-merger integration occurs at
different levels (Haspeslagh et al. 1991). Here the identified levels are
procedural, physical, and managerial/ socio-cultural. On the other hand,
another research uses the terms task and human integration (Ivanevich et
al. 1987).
HISTORY OF MORRISONS TAKEOVER OF SAFEWAY
In order for us to find an answer to the
research questions, it is important for us to first trace the related
critical events that led to Morrisons’ takeover of Safeway Supermarkets.
A. Objectives of Morrison’s
Takeover of Safeway
Morrisons Supermarket
aims for sustainable growth as a broad
supermarket leader in England as well as for segment leadership. This is
the simple objective of the acquisition of Safeway Supermarkets. In both
cases, Morrisons
Supermarket and their branches including Safeway
will play a crucial part.
Morrisons Supermarket
is able to establish its broad leadership
usually by acquiring other strong supermarkets and their products, which
are then combined into a new, larger company. Offering training to its
employees, improving the company operations, and the introduction of new
technologies then reinforces the positions of the various
Morrisons Supermarkets.
This practically results in economies of scale that is able to create a
distribution network for both the local and international branches. If an
area is already in the control of other supermarkets,
Morrisons Supermarket devotes its attention towards the development of a premium segment with
its various branches.
The mission of
Morrisons Supermarket,
on the other hand, is to secure the growth of its business in a
sustainable manner, while at the same time constantly improving the
company’s profitability. The strategy to achieve this involves four
elements:
-
Striving in order to reach a leading
position in attractive markets
-
Focusing on securing a competitive share
of the supermarket segments.
-
Working in order to improve the
company’s efficiency and cut costs in operations.
-
Continuous growth through selective
acquisitions for as long as they are able to create shareholder value.
B. Benefits of Safeway Takeover
Among the competitive
advantages enjoyed by
Morrisons Supermarket
upon taking over of Safeway included the following:
·
Economies of Scale and
Scope in product research and
development arising from its numerous branches situated in the United
Kingdom.
·
Unique Quality Products
owing to heavy emphasis on research
Morrisons Supermarket’s
commitment to research & development activities has always been one of its
top strategies to remain competitive in the market.
·
Differentiated Products
Through the production and
marketing of differentiated products originating from their research and
development activities,
Morrisons Supermarket
is able to create its own firm-specific advantages. The continuous pursuit
of research and development processes enables the company to produce a
steady stream of originally differentiated products which makes it
difficult for competitors to find substitutes. Because of this
differentiated approach,
Morrisons Supermarket
is able to market their products around England, which enables them in
turn to maximize the returns on research and development expenditures.
C. Critical Takeover Success Factors
Morrisons
Supermarket was able to execute a
successful takeover of Safeway because of the following success factors:
·
Financial Stability
Financial stability is
crucial especially in the pursuit of takeover activities. In the
supermarket industry, it is important to remain updated with the latest
developments to be able to stay competitive in the market.
·
Supermarket Product
Performance and Prices
The selling of the best
products in reasonable prices comes as a result of well-funded research
and development activities. The strong performance of products in
Morrisons Supermarket
could also be linked to their cost-effectiveness. However, the company has
to be aware of the positioning in terms of process so as to maintain
satisfactory profits margin and remain competitive in the market.
·
Marketing Strategy and
Distribution
High brand awareness among
the buyers has created the need for aggressive marketing, and access to
strong distribution channels is critical for the introduction of new
models (Best, 2001).
D. Issues and Challenges
1) Change Management
Change
management can be defined as the efficient and effective implementation of
the policies and tasks necessary after takeover or merging of one or more
companies or organizations. Change management focuses on the careful
management of the processes involved in the gradual adjustment of the
“new” management and its workforce
(Finnegan et al. 1999).
More often than not, the newly
merged or acquired business entities don't really have an easy time
adjusting to the changes brought about by the acquisition or take-over. As
a result, these entities engage in activities that are somehow resisting
to changes. Therefore, the major activities of the company such as the
manufacturing of products, product development, production and
distribution become severely hampered.
However, change management deals with all
operations done within companies and organizations. Activities such as the
management of purchases, the control of human resources, logistics and
evaluations are often the focus of change management. A great deal of
emphasis lies on the efficiency and effectiveness of processes. Therefore,
change management includes the analysis and management of internal
processes.
Change management undergoes through a series of stages. At every stage,
the effective management of human resource
(HR) and cultural issues is critical. This is
initiated by the identification of the HR issues
and their significance for the company’s activities. If not handled
properly, this could lead to the further downfall of the organization
instead of going upward towards the ladder of success (Hunt et al. 1990).
Synthesis
Among the competitive
advantages enjoyed by Morrisons Supermarkets upon the reinforcement of
effective change management following the takeover of Safeway include the
following:
·
Economies of Scale and
Scope in manufacturing and
research and development.
·
Unique Quality
Technology owing to heavy emphasis on research
Morrisons Supermarkets’ commitment to
research & development activities has always been one of its top
strategies to remain competitive in the market.
·
Differentiated Products
Through the production and
marketing of differentiated products originating from the research and
development activities of Morrisons Supermarkets, the company is able to
create its own firm-specific advantages. The continuous pursuit of
research and development processes enables the company to produce a steady
stream of originally differentiated products which makes it difficult for
competitors to find substitutes. Because of this differentiated approach,
Morrisons Supermarkets is able to market their products worldwide, which
enables them in turn to maximize the returns on research and development
expenditures.
2) Faulty Integration of Human Resources
Faulty integration of human resources is
one of the various significant causes of merger failures (Habeck et al.
2000, Haspeslagh & Jemison 1991, Shrivastava 1986). According to Horwitz
and company, merger failure can be attributed to factors such as post
merger managerial exhaustion and apathy due to the difficulty of
protracted negotiations and insensitivity towards managers/employees (Horwitz
et al. 2002). Because of the results of these earlier researches, the
human side in the researches about mergers and acquisitions has started to
emerge. For example, Hunt found out in his research that the factors for
success or failure in human resource mergers had been: (a) strategic fit,
(b) cultural fit, (c) the management of a merger or acquisition process,
(d) resistance of employees, and (e) other factors, such as: factors
related to the environment, turnover management, financing methods, sizes
of the organizations and experiences in acquisitions.
The
results of the analysis carried out on the takeover of Morrisons
Supermarkets over Safeway indicated very significant effects, even amidst
the threats of unrest. Therefore, we could conclude that the operations
management of Morrisons Supermarkets could still be expected to improve
faster than average.
The
review of Morrisons Supermarkets’ operations management capabilities and
resources after takeover of Safeway revealed very little inconsistencies
regarding its strategies. This is coherent with their traditional
inside-out approach. However, the need to reconcile both the inside-out
and outside-in approaches becomes imperative now for Morrisons
Supermarkets.
The
analysis among the environment as well as the operations management and
capabilities of Morrisons Supermarkets following takeover revealed certain
gaps, most of which are biased towards the environment. However, these
gaps paved the way towards determining a number of recommended strategic
options to secure the competitiveness of Morrisons Supermarkets.
Also,
Morrisons Supermarkets have to find a balance between adherence to
internal forces within the management and to the changing forces of the
environment in order to implement such strategic options.
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